N.Y. to slash workers' comp rates 20.5%

Rates for workers' compensation in New York will decline by more than 20.5 percent -- the biggest cut in more than 20 years -- saving employers about $1 billion, according to state officials.

Gov. Eliot Spitzer, joined by Assembly and Senate leaders, credited passage of reforms earlier this year for the drop.

State Insurance Superintendent Eric Dinallo ordered the rate cut beginning July 15. "We believe that the rate reduction is fair, that the private carriers will remain profitable, and that the market will continue to be competitive," he said.

Dinallo said his department is implementing the reforms, including an accelerated system for resolving disputed cases, and will continue to make improvements.

In March, when Spitzer and legislative leaders announced the reforms that mandated efficiencies in claims handling, new medical fee schedules, and tougher anti-fraud provisions while raising some benefits, they projected a rate decline of 10 to 15 percent.

"We promised that we would reduce the cost of workers' compensation as part of our effort to make New York more business friendly," said Spitzer.

Legislative and business leaders applauded the news.

"These rates make real the reforms that the Governor and the Legislature negotiated together," Assembly Speaker Sheldon Silver said.

"This process was well begun earlier this year with the reform deal, and this news and continuing efforts to achieve administrative reforms show that we are on a good track," added President and CEO of the Business Council Kenneth Adams.

Smaller Mass. agencies could be hurt by surprise move to competitive rating for auto

Massachusetts insurance agents aren't happy about the decision to introduce competitive rating into the state's price-regulated private passenger auto insurance system. They enjoy the best market share in the country under the current system and don't want to see that jeopardized. Their commissions are also protected under the current fix-and-establish system.

"This is going to have a big impact on agents," Frank Mancini, of the Massachusetts Association of Insurance Agents, said.

Mancini is worried that some smaller agencies, perhaps as many as 20 percent of agencies in the Commonwealth, might have to consider merging or even going out of business as a result of the move to a competitive system.

The Democratic administration of Gov. Deval Patrick, led by Insurance Commissioner Nonnie Burnes, has shaken up the establishment with a surprise decision to end the fix-and-establish pricing system and reinstall a file-and-use system giving insurers more control over what they charge. Burnes is introducing what she is calling "managed competition" beginning in April 2008.

The state's last experiment with competitive rating in 1977 was also under a Democratic governor but lasted only seven months before being abandoned due to political pressures when rates rose, particularly for urban and young drivers. Since then,

various Republican governors have argued for competitive rating but never taken action to implement it.

"We can no longer be held hostage to the failed 1977 experience," Burnes declared in her landmark ruling. "[N]o time is better than now to utilize the file-and-use system so that consumers, and the industry, can reap the multitude of benefits of a less regulated system."

Insurers will be able to file rates and rating criteria and use them unless the department disapproves them. Burnes wants to let insurers use factors such as driving record, number and severity of at-fault accidents, and traffic violations.

Burnes vowed she will retain a "strong yet supple regulatory oversight" to ensure that good drivers enjoy the benefits of managed competition, regardless of where they garage their cars.

She also made it clear she will impose some limits. "I will view with extreme skepticism any rate proposal that is based on socio-economic considerations such as education, occupation, home ownership or credit report or score," she advised.

The rookie insurance chief acknowledged that three domestic insurers representing 47 percent market share opposed competitive rating -- Commerce, Arbella and Plymouth Rock. But they were outnumbered by others that expressed interest in growing if allowed more control over their pricing. These included Amica, USAA, OneBeacon, Liberty Mutual, Hanover and Encompass.

Burnes provided few details of how the system will be moved from price controls to "managed competition" but promised a public hearing.

Most observers expect there will be a political firestorm. "There will be difficulties and debate, absolutely," said Frank O'Brien, of the Property Casualty Insurers Association of America, who noted that he and most were "stunned" by the decision.

James Harrington, executive director of the Massachusetts Insurance Federation, another group supportive of the ruling, said he thinks those who try to derail it will fail.

"[W]hile it may be challenged both in the legislature and the courts, it is extremely doubtful either effort will prevail, as it is so very substantively aimed at balancing both market and consumer interests," he commented.

Paul Tetrault, National Association of Mutual Insurance Companies, said a lot will rest on the process. "This process will determine the degree to which this initial decision produces competitive benefits for insurers and consumers alike," Tetrault noted.

MAIA's Mancini knows agents will be watching closely, particularly as the process deals with their commissions, which are now included in the fix-and-establish rating process. There is one statutory quirk that could comfort agencies. The state has a little-known law that guarantees that agent commissions will continue under state control, based on the previous year's figures, for four years after any switch to competitive rating, according to Mancini.

Drinking buddies not liable as social hosts, Mass. court rules

The Massachusetts Appeals Court has ruled that friends who meet regularly after work for drinks cannot be held liable for injuries caused when one of the members of their group drives home intoxicated.

The court ruled that the friends were not liable as social hosts because they did not control the liquor supply. It rejected as "too broadly" sweeping the plaintiff's argument that one who merely purchases alcohol ordered by another at a commercial establishment automatically acquires a social host's duty of care when he notices that the drinker is intoxicated.

The ruling in the case of Richard Paul Dube vs. Ron Lanphear affirmed a decision by the Superior Court.

The plaintiff, Dube, sustained serious physical injuries when the motor vehicle that he was operating was struck by a vehicle driven by Ravindra Bhoge, who had earlier that evening had a number of alcoholic drinks at a Lynnfield bar in the company of three friends.

Dube sued Bhoge's three drinking buddies, alleging that they were social hosts and that, knowing that Bhoge was intoxicated and intended to drive home, they negligently permitted him to continue to drink.

Bhoge and the three defendants met regularly on Fridays after work at nearby taverns. Over a period of time, the group developed a system of each person taking turns paying the bill for that night. On the evening of Feb. 9, 2001, the bill included four or five rum and coke drinks consumed by Bhoge.

About 45 minutes after Bhoge left the bar, the defendants departed. Two of them observed Bhoge seated in the driver's seat of his vehicle, but allegedly did not notice anything unusual in his demeanor. A third defendant then came out carrying Bhoge's coat, opened the passenger door of Bhoge's vehicle to give the coat to him, asked if he was okay, and received an affirmative response.

Bhoge drove from the parking lot and, after about four miles, collided head-on with the plaintiff's vehicle.

Given Bhoge's height and weight, the amount of alcohol he consumed, and Bhoge's own statements, the court agreed that his intoxication would have been apparent.

The plaintiff argued that the defendants should be held responsible under the concept of social host liability, a doctrine that recognizes "liability to a person injured by an intoxicated guest's negligent operation of a motor vehicle where a social host who knew or should have known that his guest was drunk, nevertheless gave him or permitted him to take an alcoholic drink and thereafter, because of his intoxication, the guest negligently operated a motor vehicle causing the third person's injury."

However, the court noted that state Supreme Judicial Court has itself limited application of the social host doctrine to circumstances in which the host possesses "the authority to deny further service of alcohol when intoxication became apparent."

The plaintiff argued that each defendant was a social host because he paid for the drinks, and alternatively that the foursome was essentially a "drinking club" in which each hosted the others.

But the appeals court agreed with the lower court judge who concluded that the defendants could not be deemed social hosts because they did not regulate the liquor supply. "While they could refuse to continue to pay for Bhoge's drinks, they could not require that he be 'shut off' by the bar; relinquish his drinks; or be ejected from the premises." Those powers were vested exclusively in the liquor licensee.

The court said that sharing a check is not the equivalent of being a host. "A true host in a practical sense owns or provides the liquor served to guests, and consequently is in a position to cut off that supply in the event that he observes that a guest is becoming intoxicated," the decision stated.

In Vermont, insurer seeks reimbursement for hostage benefits

An insurance company that paid workers' compensation to a Thetford, Vermont, bank employee traumatized in a hostage-taking incident is seeking to recover the money from the family of the teenager charged in the incident.

Dan Eaton, 16, is serving a three-to-10-year sentence at the Southern State Correctional Facility in Springfield after pleading guilty in February two charges of unlawful restraint and one charge of using a weapon in a felony.

Now Guard Insurance Group of Wilkes-Barre, Pa., is dunning Eaton's parents for the $6,700 it paid to bank employee Sherry Crossley.

"Based on our investigation, negligence on your part appears to have potentially either caused or contributed to the injury suffered by the claimant," the company said in a letter to the Eaton family.

Dan Eaton took Crossley and co-worker Clyde Berry hostage for three hours last August in an incident he later said was a plea for help with his mental health problems.

Julia Eaton, Dan Eaton's mother, said she and her husband had done all they could for their son, including getting counseling at a mental health center.

"We don't feel like we were negligent," Julia Eaton said. "We had our son going to what we thought was a competent mental health service."

No suit has been filed as yet.

Virginians question bad driving penalties

The Virginia General Assembly may have to address the issue of punitive and recurring bad-driving fees, Gov. Timothy M. Kaine acknowledged after callers on a radio show recently pressed him about why out-of-state drivers are exempt.

"That was kind-of the format of the bill when it reached me and I didn't change that feature," Kaine said in response to a question about the out-of-state exemption. "I think that's something the legislature may address in the future."

The "abusive driver" measures went into effect July 1. They impose "civil remedial fees" paid in three annual installments that could top $1,000 for such offenses as driving under the influence of alcohol or reckless driving. The fees are in addition to steep existing fines and, in some cases, jail time and drivers license suspensions.

Passed by the General Assembly, they are intended to make the worst drivers pay a greater share of the costs of new highways needed statewide.

They were enacted as fees, not fines, so that the revenue could be applied exclusively to road construction. They will be collected by the Department of Motor Vehicles as a condition for renewing Virginia automobile registrations or licenses. That's why the fee can only be collected from Virginia residents.

The fees also are imposed on people who, through too many speeding tickets or lesser traffic violations, accumulate eight or more demerit points on their driving records beginning July 1. Those fees are $100 a year for as long as there are eight or more demerit points, plus $75 for each demerit beyond eight.

Kaine said he saw the exclusion but signed the bill anyway. "[T]here were options on the table for financing a system that would have applied to out-of-staters like a gas tax and things like that. The public overwhelmingly didn't want that, the legislature didn't want it, so this was one of a number of items we put on the table to raise funds," he said.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Workers' comp may not cover employee horseplay

A Delaware oil refinery worker injured in a practical joke by his co-workers may be allowed to sue them, the state Supreme Court has ruled.

Stephen Grabowski was injured in October 2000 when three co-workers grabbed him in a bathroom at the Delaware City refinery, forced him to the ground and wrapped him from ankles to shoulders in duct tape.

Grabowski suffered injuries that required surgery on his lower back and right knee, as well as post-traumatic stress that required counseling.

While a worker injured while horsing around on the job generally is precluded from receiving workers compensation, a Superior Court judge ruled that Grabowski was entitled to benefits because he was a "nonparticipating victim" of horseplay by his co-workers.

While Grabowski has received more than $300,000 in workers compensation for his injuries, the judge said he could not pursue a negligence claim against William Mangler, David Smith and Joseph Ziemba because he was injured during the course of his employment.

Under state law, workers' compensation usually is the exclusive remedy for a job injury. Grabowski argued that he was injured outside the scope of his normal job duties, and that the workers' compensation law does not preclude a tort claim under those circumstances.

In remanding the case this week, the state Supreme Court said the trial judge had failed to analyze sufficiently whether their actions constituted horseplay that was outside the course and scope of employment.

Chief Justice Myron Steele wrote for a three-judge panel that there are some instances "where co-employees' horseplay may be so unreasonable and so unexpected that it is not within the co-employees' course and scope of employment. Under these circumstances, a claimant may bring a private tort action against his co-employee(s)."

Pa. bad faith claim costs $20 million

An insurer has agreed to pay $20 million in what is believed to be the state's richest settlement of a bad faith claim.

According to the plaintiff's attorney, Robert Mongeluzzi of Saltz Mongeluzzi Barrett & Bendesk, Princeton Insurance Co. has agreed to the $20 million in mediation of a bad faith claim filed in Philadelphia Court of Common Pleas.

Princeton did not admit liability in the settlement, Mongeluzzi said.

The case involved a road worker who was paralyzed after being struck by a drunk driver who left a tavern that Princeton insured.

The $20 million is in addition to the $1 million Princeton was previously required to pay under the limits on the tavern's $1 million policy after it lost its appeal on the dram shop case.

A jury awarded the accident victim $75 million, an award that a judge later cut in half. But that large award was never paid because the tavern had only $1 million in insurance. The tavern assigned its rights to the victim, who sued Princeton for bad faith, charging that the insurer failed to negotiate a settlement within the policy's $1 million limits after the verdict.

Passengers have duty to aid crash victims in N.J.

Two passengers who witnessed their intoxicated friend crash his car into the back of a motorcycle and then be hit by another car had an obligation to help the injured man, a New Jersey appellate court has ruled.

The driver and his passengers made 44 cell phone calls within two and one-half hours, but none for emergency assistance, court records show. Instead, they agreed to keep quiet and fled, and the rider was struck by another driver and died.

"It is the degree of defendants' involvement, coupled with the serious peril threatening imminent death to another that might have been avoided with little effort and inconvenience, suggested by the evidence, that in our view creates a sufficient relation to impose a duty of action," the court found.

Pa. therapist not liable for patient's car crash

A psychiatrist cannot be sued for a car crash caused by a patient, a Pennsylvania appeals court ruled.

The Superior Court ruling upholds a decision written by a Blair County judge dismissing the lawsuit filed by Matthew Stever of Altoona, who was injured in a head-on crash caused by Crystal Ickes on Aug. 5, 2004.

Ickes was killed in the accident, so Stever sued her psychiatrist, Dr. Joseph Antonowicz of the Altoona Regional Health System. Stever argued that the doctor had a responsibility to preclude Ickes from driving, knowing there was danger in mixing antidepressant drugs and methadone. In his ruling, Judge Tim Sullivan cited four Superior and state Supreme Court cases in which doctors were deemed not responsible for accidents caused by patients.

Va. police turn on the cameras

Virginia State Police are using digital cameras that can scan highways and parking lots for hot cars and stolen license plates. Using the digital images, police can compare the plates against any database of license plates: those associated with fugitives, stolen cars, plates that have been stolen, and so on.

State police began using the $16,000 readers several months ago. Their models take 25 photos per second, said Carl Fisher, a special agent with the Help Eliminate Auto Theft, or HEAT, a program of the State Police. Officers only have to turn the system on, and if it gets a hit, an alarm sounds. A computer checks the plates against the latest FBI "hot sheet" of stolen autos. The equipment can scan plates day or night.

Hampton police have the readers; other departments are testing them. Richmond police scanned 88,000 vehicles and recovered 30 stolen vehicles and 28 sets of stolen plates during a several weeks long operation, Fisher said.

Virginia's auto theft rate has dropped 38 percent since 1991, according to a 2005 report by HEAT.

R.I. drivers denied day to prove insurance

Siding with State Police who said it would create an "unnecessary and burdensome increase in paperwork," Rhode Island Gov. Don Carcieri for the second year has vetoed a bill to give motorists who are ticketed for not carrying proof of insurance a day to present such proof. Carcieri cited police concerns that the added day would complicate the current system under which hard copies of citations are sent to court once a week. Carcieri also said the proposal would also impede current plans by the police to modernize its ticket procedures through electronic filing.

Industry supports terror bill but not all agree with NBCR mandate

At a congressional hearing in Washington, D.C. last month, insurance industry group representatives generally spoke in favor of a bill that would extend the federal backstop for terrorism insurance coverage for another 10 years. The Bush administration opposed this extension of the federal program, arguing no program would be better than a bad one, while insurers themselves split over a new provision mandating nuclear-biological-chemical-radioactive (NBCR) coverage.

Two Massachusetts Democrats -- U.S. Rep. Mike Capuano and the Chairman of the House Financial Services Committee Barney Frank -- introduced HR 2761, the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA). Supporters of the bill, which extends the Terrorism Risk Insurance Act (TRIA) for 10 years, contend it will spur the development of a private market for terrorism risk insurance.

TRIREA would extend TRIA for 10 years with current co-payments and deductibles for conventional terrorism acts as well as expand TRIA's "make available" requirement to include NBCR coverage.

It would also change the law's definition of terrorism to include acts of domestic terrorism; set the program trigger at $50 million; add group life insurance to the lines of insurance for which terrorism coverage must be made available; decrease deductibles and triggers for areas previously impacted by a significant terrorist attack; and continue to require studies of the development of a private market for terrorism risk insurance.

Not all industry representatives agreed on all aspects of the bill, however, notably the requirement that insurers make NBCR coverage available on the same terms and conditions as "conventional terrorism" coverage.

Agents back the plan
Still, two leading insurance agent trade groups, the National Association of Professional Insurance Agents and the Independent Insurance Agents and Brokers of America, both support a long-term extension of the terrorism insurance act and both see the need to address NBCR coverage in the bill.

Sharon Emek, a managing director and partner at the CBS Coverage Group, a regional agency with locations in New York City, Plainview, Saratoga and West Hampton Beach, N.Y., spoke to the subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises on behalf of the IIABA.

"The current public-private partnership created by TRIA, and extended in TRIEA, has worked well and generally as intended, allowing businesses across America to continue operating and growing, and preserving jobs in the process," Emek stated in her testimony.

Emek said IIABA believes that the 10 year extension of the federal backstop is a "reasonable length given current market capacity."

Emek also pointed out that even though NBCR losses would stem from "the most catastrophic types of terrorist attacks," currently there is little coverage available in the marketplace for such events, other than in statutorily mandated lines such as workers' compensation. There is essentially no reinsurance capacity for NBCR losses, she added.

No PIA representative spoke to the subcommittee, but on its Web site, PIA expresses its support for "a long-term mechanism for terrorism coverage to ensure the viability of the existing domestic insurance market."

The Bush administration, through Treasury Assistant Secretary for Financial Institutions David G. Nason, opposed HR 2761. Nasson told the subcommittee that TRIA should be phased out in order to stimulate private sector participation in providing terrorism risk coverage.

Nason said the Treasury would support an extension only if it assured that the program remain temporary and short-term; private sector retentions are increased; and there is no expansion of the program.

Without those "critical elements," the Treasury department would be unwilling to support an extension of the Act. "In Treasury's view, from both a market and economic perspective, it would be better to have no TRIA than a bad TRIA," Nason stated.

I.I.I. weighs in
But insurers, even though some don't like all the provisions, argued that the extension is needed for the economy and government to function properly.

"Implementation of a long-term terrorism risk insurance program is an essential component of the nation's effort to protect the financial homeland," said Robert Hartwig, president and chief economist of the Insurance Information Institute in a statement.

Hartwig said the program's benefits will be felt immediately across all economic segments but stopped short of praising all elements of the bill.

Hartwig said the provision that compels insurers to cover NBCR risks poses a concern. He pointed out that private markets "have little to no experience insuring against these risks."

Hartwig was not alone in questioning the NBCR mandate.

Warren Heck, chairman and CEO of Greater New York Mutual Insurance Co., testifying on behalf of the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America, favored the long-term extension of TRIA but said the bill should not mandate that insurers provide NBCR coverage.

"Attacks utilizing weapons of mass destruction (NBCR) are the ultimate in uninsurable events and they can have qualitatively different consequences than non-NBCR attacks," Heck told the subcommittee.

The American Insurance Association (AIA), on the other hand, praised the NBCR provisions. AIA President Marc Racicot, said, "Creating a long-term program which addresses the NBCR and conventional terrorism risks brings much needed stability and certainty to the market, without which long-term investment, economic development, and growth are clearly and substantially threatened."

FBI data mining targets include insurance fraud suspects

The FBI is gathering and sorting information about Americans to help search for potential terrorists, insurance cheats and crooked pharmacists, according to a government report.

Records about identity thefts, real estate transactions, motor vehicle accidents and complaints about Internet drug companies are being searched for common threads to aid law enforcement officials, the Justice Department said in a report to Congress on the agency's data-mining practices.

In addition, the report disclosed government plans to build a new database to assess the risk posed by people identified as potential or suspected terrorists.

The chairman of the Senate committee that oversees the Justice Department said the database was "ripe for abuse." The American Civil Liberties Union immediately derided the quality of the information that could be used to score someone as a terror threat.

The report, sent to Congress this month, marked the department's first public detailing of six of its data-mining tools, which look for patterns to catch criminals. The disclosure was required by lawmakers when they renewed the USA Patriot Act in 2005. It comes as the Justice Department faces sharp criticism from Congress and civil liberties advocates for violating peoples' privacy rights in terror and spy investigations.

Justice spokesman Dean Boyd said the databases are strictly regulated to protect privacy rights and civil liberties.

"Each of these initiatives is extremely valuable for investigators, allowing them to analyze and process lawfully acquired information more effectively in order to detect potential criminal activity and focus resources appropriately," Boyd said in a statement.

All but one of the databases -- the one to track terrorists -- have been up and running for several years, the report showed. The lone exception is the System to Assess Risk, or STAR, program to rate the threat posed by people already identified as suspected terrorists or named on terror watch lists.

The five other databases detailed in the report include:

• An identity theft intelligence program, used since 2003, to examine and analyze consumer complaints to identify major identity theft rings in a given geographic area.


• A health care fraud system that looks at billing records in government and private insurance claims databases to identify fraud or over-billing by health care providers. It also has been running since 2003.


• A database created in 2005 that looks at consumer complaints to the Food and Drug Administration to identify larger trends about fraud by Internet pharmacies.


• A housing fraud program that analyzes public data on real estate transactions to identify fraudulent housing purchases, including property flipping. The database was built in 1999.


• A system that compares National Insurance Crime Bureau information against other data to crack down on fake car accident insurance claims and
  identify major offenders.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

GAO: Identity theft cases limited compared to number of security breaches

While the Government Accountability Office fell short of offering recommendations, it released a report stating that many entities in the private, public, and government sectors have reported the loss or theft of sensitive personal information in recent years.

A rapidly developing crisis, GAO says data breaches are frequent but the full extent of the problem is unknown, though evidence of resulting identity theft is "limited."

The law of averages dictates that as the number of data breaches increases, so will the incidences of follow-on identity theft. The GAO report released last month said more than 570 data breaches were reported in the news media from January 2005 through December 2006, according to lists maintained by private groups that track reports of breaches.

Account fraud (such as misuse of credit card numbers) or unauthorized establishments of new accounts (such as opening a credit card in someone else's name) are common examples of identity theft resulting from data breaches.

While many states have enacted laws requiring entities that experience breaches to notify affected individuals, Congress is considering legislation that would establish a national breach notification requirement as well.

GAO analyzed 24 large data breaches, and gathered information from federal and state government agencies, researchers and consumer advocates. The Office examined the incidence and circumstances of breaches, the occurrence of identity theft resulting from breaches and issues related to breach notification requirements.

These incidents varied significantly in size and occurred across a wide range of entities, including federal, state, and local government agencies; retailers; financial institutions; colleges and universities; and medical facilities.

The extent to which data breaches have resulted in identity theft is not well known, largely because of the difficulty of determining the source of the data used to commit identity theft. However, available data and interviews with researchers, law enforcement officials, and industry representatives indicated that most breaches have not resulted in detected incidents of identity theft, particularly the unauthorized creation of new accounts.

In reviewing the 24 breaches reported in the media from January 2000 through June 2005, GAO found that three included evidence of resulting fraud on existing accounts and one included evidence of unauthorized creation of new accounts. For 18 of the breaches, no clear evidence had been uncovered linking them to identity theft; and for the remaining two, there was not sufficient information to make a determination.

P/C industry net income, overall profitability slips

The U.S. property/casualty insurance industry's net income after taxes dipped to $15.8 billion in first-quarter 2007 from $16.7 billion in first-quarter 2006 and $17.7 billion in first-quarter 2005, according to industry analysts at the ISO and the Property Casualty Insurers Association of America (PCI). Reflecting the declines in net income, the property/casualty industry's annualized rate of return on average policyholders' surplus (statutory net worth) dropped to 12.9 percent in first-quarter 2007 from 15.5 percent in first-quarter 2006 and 17.9 percent in first-quarter 2005.

"Insurers' 12.9 percent rate of return for first-quarter 2007 was 1.8 percentage points above insurers' 11.1 percent average first-quarter rate of return since the start of ISO's quarterly data in 1986, but it fell short of the rates of return typically earned by firms in other industries," said Michael R. Murray, ISO's assistant vice president for financial analysis."

Premium growth slows
Contributing to the $0.9 billion, or 5.5 percent, decline in net income in first-quarter 2007, the industry's net gain on underwriting receded to $8.3 billion in the first three months of this year from $8.4 billion in the first three months of 2006, as net written premium growth versus year-ago levels slowed to 0.8 percent in first-quarter 2007 from 1.8 percent in first-quarter 2006.

Also contributing to the decline in net income, the industry's federal income taxes rose to $5.4 billion in first-quarter 2007 from $5.3 billion in first-quarter 2006. But much of the decline in first-quarter net income reflects a special transaction in which one U.S. insurer assumed $9.3 billion in liabilities from a foreign entity in exchange for considerations valued at $7.1 billion.

"Seasonal patterns in the data also suggest that insurers' rate of return will decline later this year," said Genio Staranczak, PCI's chief economist.

"Insurers' profitability in the first quarter usually exceeds their profitability later in the year, in part because of the timing of weather-related catastrophe losses. The Atlantic hurricane season runs from June 1 to Nov. 30."

The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. P/C insurers.

Net written premiums grew $0.9 billion to $111.4 billion in first-quarter 2007 from $110.5 billion in first-quarter 2006, but written premium growth slowed to 0.8 percent in the first quarter of this year from 1.8 percent in the first quarter of last year, the analysts reported.

"Similarly, net earned premiums rose $2 billion to $108.6 billion in first-quarter 2007 from $106.6 billion in first-quarter 2006, as earned premium growth slowed to 1.9 percent during the first three months of 2007 from 2.7 percent during the first three months of 2006," analysts said.

"At 0.8 percent in first-quarter 2007, net written premium growth was the weakest for any first quarter since 1992," said Murray. "Market surveys and U.S. government data indicate that escalating competition and declines in the price of insurance are cutting into premium growth."

"In first-quarter 2007, net written premiums were up 0.8 percent from a year ago, while the nation's gross domestic product (GDP), which takes into account both inflation and real growth, increased 4.6 percent during the same time frame," Staranczak said. "That premiums grew only about one-sixth as much as GDP is an indication that intensifying competition is leading to lower prices for most coverages in most locations, though property insurance remains scarce and expensive in some coastal areas."

Loss expenses increase
Overall loss and loss adjustment expenses increased $1.1 billion, or 1.6 percent, to $70.4 billion in first-quarter 2007 from $69.3 billion in first-quarter 2006, the analysts reported. Non-catastrophe loss and loss adjustment expenses rose $1.3 billion, or 1.9 percent, to $69.1 billion in first-quarter 2007 from $67.8 billion in first-quarter 2006. But according to ISO's Property Claim Services (PCS) unit, direct insured losses from catastrophes dropped to $1.3 billion in the first three months of 2007 from $1.5 billion in the corresponding portion of 2006.

Other underwriting expenses -- primarily acquisition expenses, other expenses associated with underwriting, pricing and servicing insurance policies, and premium taxes -- rose $1.1 billion, or 3.8 percent, to $29.6 billion in first-quarter 2007 from $28.6 billion in first-quarter 2006.

Combined ratio
The combined ratio rose to 91.7 percent in first-quarter 2007 from 91.1 percent in first-quarter 2006, with the change in the combined ratio reflecting imbalances between the growth in premiums and the costs of providing insurance.

Bermuda shorted as more U.S. captives form onshore, Aon reports

Bermuda's reign as the undisputed global leader among captive domiciles is being challenged by U.S. companies that are increasingly leaning toward onshore domiciles for their captive insurance companies.

That is among the findings of Aon's new Global 1500 (G1500) research report on captives and their owners.

The latest Aon report indicates that the gap between onshore and offshore captive growth in the Americas has narrowed. While Bermuda remains the domicile of choice for the G1500 (with over a quarter of all G1500 captives), Bermuda's biggest growth as a captive domicile was between 1995 and 2000. Between 2000 and 2005 Bermuda grew by just 21 percent, whereas Vermont grew by 60 percent.

Large U.S. companies clearly more often favor establishing an onshore U.S. captive -- about two-thirds of U.S. parented captives established in the last five years have been based in U.S. onshore domiciles.

Among the domiciles within the U.S., Vermont has been and continues to be the location of choice. The Green Mountain State has more than four times the number of G1500 captives as all the other U.S. onshore domiciles combined. Hawaii is the next most popular with 20 captives, followed by New York, Arizona and South Carolina.

Findings show that U.S. companies account for more than a third of the G1500 and account for nearly half of all captives owned. Of the ten G1500 companies with five or more captives, seven have their parent companies in the United States.

The research also highlights that contrary to popular belief, the captive market remains underdeveloped with more than half (53 percent) of the current global 1500 companies not currently owning a captive. The outcome is that insurance buyers within the world's largest companies are failing to achieve a better quality of cover as well as cost savings of typically 10 percent to 15 percent, through economies of scale, efficient use of capital, leverage and more efficient use of senior management time.

Sectors missing an opportunity include manufacturing and communications, where 55 percent and 62 percent respectively do not have captives. Even sectors that have greater take-up still show room for growth. For example, 44 percent of the largest financial and insurance companies and 39 percent of mining companies still do not use captives.

"G1500 companies currently have 1,061 captives, as the benefits of captives become clear, I believe that this figure will rise to at least 1,200 by the year 2010," said Andrew Tunnicliffe, group managing director, Business Development, Aon Global Risk Consulting.

Supreme Court raises bar for investors bringing securities fraud suits

The U.S. Supreme Court last month imposed a strict standard that investors must meet to keep alive their lawsuits alleging securities fraud.

In an 8-1 decision, the justices said that courts must weigh possible innocent explanations for defendants' conduct at the very start of a securities fraud case. Doing so can lead to early dismissal of investors' lawsuits.

The ruling came in a shareholders suit against high-tech company Tellabs Inc.

The firm misled investors by engaging in a scheme to inflate Tellabs' stock price from December 2000 to June 2001, according to the lawsuit. It said the company's CEO provided false assurances of robust demand for the company's products.

A lawsuit will survive only if the facts alleged in it are "cogent and compelling" in pointing to an intent to deceive, wrote Ruth Bader Ginsburg. Those factual allegations must be at least as compelling as "any opposing inference" suggesting innocence, she added.

The Supreme Court decision comes as the corporate world pushes regulators to roll back some safeguards put in place after the accounting scandals that brought down Enron Corp. and WorldCom Inc.

The business community says the Tellabs case is the kind of meritless claim that Congress intended to prohibit when it reformed securities law 12 years ago.

Under the 1995 reforms, a securities fraud complaint must allege facts giving rise to a "strong inference" that defendants acted with an intent to deceive investors.

The 7th U.S. Circuit Court of Appeals had ruled against Tellabs, saying the complaint should survive if a reasonable person could infer from the allegations that defendants' conduct was intentionally deceptive.

"That one-sided approach, we hold, was erroneous," Ginsburg said in court.

The justices sent the case back so that the lower courts can assess whether the lawsuit should survive.

The court dealt another setback to investors when it sided with Wall Street investment banks that allegedly colluded to drive up the price of 900 technology stocks in the late 1990s. Shareholders subsequently lost billions when the dot-com bubble burst.

Next fall, the court will consider a case that could make it impossible for Enron shareholders to recover money from Wall Street institutions that allegedly assisted the energy company in disguising its financial problems.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Treasury chief Paulson vows review of U.S. financial services regulation

The Bush administration plans to review the U.S. government's regulatory system for financial institutions with the goal of making changes to better reflect modern markets.

Treasury Secretary Henry Paulson said the review, which will be conducted by officials at his department, will examine the system for all companies that provide financial services. The blueprint for recommended changes will be released early next year, he said.

"To maintain our capital markets' leadership, we need a modern regulatory structure complemented by market leaders embracing best practices," Paulson said in a statement announcing the review. "The steps we are announcing today will help to strengthen our global competitiveness."

Paulson did not spell out any proposed changes but other officials said that Treasury would look into consolidating overlapping regulatory functions. Previously, the Clinton administration considered merging the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Paulson, the head of investment giant Goldman Sachs before taking the Treasury post a year ago, said in a speech last November that he planned an extensive review of the regulations governing America's financial markets to make sure they were not harming the country's ability to compete in the global economy.

He held a conference on capital markets in March where billionaire investor Warren Buffett, former Federal Reserve Chairman Alan Greenspan and other titans of U.S. finance got together to discuss whether an overregulated financial system is putting the country at a disadvantage in attracting foreign investment.

Paulson said that the regulatory review now being conducted was part of a second stage of his capital markets competitiveness plan. The goal will be to recommend changes that will improve oversight, increase efficiency, reduce overlap and support the ability of regulators to adapt to constantly changing investment strategies.

He said he would also encourage the development of best practices for asset managers and investors in hedge funds and work to modernize the Treasury Department's management of the government's finances and borrowing procedures.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.