Ind. leads country with highest catastrophe losses in 2006

In a year where coastal states endured no major tropical storms, Indiana saw more property damage due to large weather events than any other state (in 2006), according to statistical firm the Insurance Services Office (ISO). Indiana residents filed nearly 335,000 insurance claims and suffered about $1.5 billion in property damage due to major events -- known as catastrophe, or "cat" events.

While there were eight major events in Indiana in 2006, the April 14 hail storm was by far the largest. That storm caused $1.3 billion dollars in damage and led to 282,500 claims being filed. The next largest storm to hit Indiana last year was on April 2 and 3. This "Final Four Storm" famously caused massive amounts of damage to the Regents Bank Building in downtown Indianapolis. By comparison, that catastrophe caused only $60 million in property damage.

Insurance Institute of Indiana President Steve Williams says it remains to be seen how this bad weather year will affect future premiums.

"Insurance premiums have been falling in Indiana for years, and we are in good position relative to the rest of the country," Williams said. "Companies take a lot of variables into consideration when setting rates. It's difficult to say what 2006 will do to prices."

Williams em-phasized that Indiana currently ranks 11th in average auto premiums and 22nd in homeowners premiums.

Hoosiers should not expect to see massive rate hikes like some are experiencing in the coastal states. The catastrophe events of 2005 -- including Hurricanes Katrina and Rita -- caused record losses in those states.

Indiana's catastrophe losses paled in comparison to the top losses of 2005. Below is a chart of the states with the most losses in the last two years.

Largest Ill. medical malpractice insurer lifts moratorium on new business

The largest medical malpractice insurer in Illinois plans to lift a four-year-old moratorium on new business, citing an improved economic and legal climate.

ISMIE Mutual Insurance Co., which provides malpractice coverage for 13,000 doctors, announced that it plans to add up to 400 new physician policy holders beginning April 1.

The company imposed the moratorium in 2003, saying large jury awards were draining its financial reserves. But reforms passed by the General Assembly have helped lower the number of claims filed, ISMIE said. The number of claims for the 2005-06 policy year, which ended June 30, fell 25 percent, the insurer said.

"We see very positive signs that things are improving here, that litigation reforms are really beginning to work," said Dr. Harold Jensen, chairman of Chicago-based ISMIE.

The reforms came in response to rising insurance premiums that prompted some doctors to leave the state or retire. Doctors and insurers blamed the rate increases on out-of-control lawsuit awards, while trial lawyers and victim advocates condemned insurance mismanagement. During the moratorium, ISMIE only sold malpractice insurance to doctors at clinics that were already insured by ISMIE and doctors fulfilling their residencies who were graduating.

Gov. Rod Blagojevich signed a medical malpractice reform law in 2005 that sets a cap on awards for pain and suffering at $500,000 for individual physicians and $1 million for hospitals. The legislation was backed by doctors, hospitals and insurers.

In Washington, Senator John Ensign, R-Nev., recently introduced the Medical Care Access Protection (MCAP) Act of 2007, which would set a cap on non-economic damages in medical malpractice lawsuits.

Source: AP

Ill. developer plans to build 11 homes on Segal estate

A developer's preliminary plans for jailed insurance executive Michael Segal's estate include building 11 new residences and turning the coach house into two homes.

Lincolnshire, Ill.-based Orren Pickell Designers & Builders closed on the $17.6 million suburban estate last month. A federal judge approved the sale in November after the buyers reached an agreement with preservationists on how to develop the historic 17-acre property.

The plans are still subject to public hearings and city approval.

CEO Orren Pickell said he would like to install gated entry to the sprawling development, but he intends to keep most of the land as open space.

"It's an amazing piece of property," Pickell said. "It will be our legacy, and it's going to be hard to top."

He said a buyer, whose identity he would not reveal, has purchased the main home for an undisclosed amount.

Highland Park preservationists have been worried that the lakeshore estate, which is listed on the National Register of Historic Places, could be subdivided and its character lost.

Segal forfeited the property as part of his conviction in 2004 for fraud, racketeering and embezzlement. He was sentenced to 10 years in prison and ordered to forfeit $30 million for looting a trust account at his Near North Insurance Brokerage.

The estate includes a garden designed by landscape architect Jens Jensen, a greenhouse, a pool and 500 feet of private beach. The Prairie-style Tudor Revival main home, designed by architect Howard Van Doren Shaw, has seven bedrooms.

Source: AP

Minn. boy sues parents over injuries in accident

Amy and Ted Harrison Sr. are being sued over a car crash that left their son permanently disabled, and they hope they lose the case now before the Minnesota Supreme Court.

The plaintiff is their son, Teddy Harrison, who was three years old when he was thrown from his mother's SUV during an accident in 2001. His car seat wasn't buckled properly. He suffered brain damage and is now confined to a wheelchair.

If Teddy wins his case, the family's auto insurance company would be forced to pay $100,000.

The case made its way to Minnesota's highest court for oral arguments. A decision is probably a few months away.

Teddy's lawsuit was filed by his grandmother on his behalf. The state court of appeals ruled in his favor.

The case could affect all Minnesotans who tote children in car seats. Parents of injured children might find it easier to collect from insurance companies in certain instances, but caregivers and insurers could find themselves facing financial responsibility if a child gets hurt while riding in an improperly installed car seat.

And, motorists involved in wrecks with child-carrying drivers could try to skirt financial responsibility by pointing to a parent's negligent car-seat use.

"It's not just a case about the Harrisons and Teddy. This is a case that could affect all other drivers going forward," said attorney William Davidson, hired by Progressive Insurance to represent the parents.

Source: AP

Commercial insurers' stocks reflect 4th quarter profits, calm storm season

Stock Prices:

Commercial insurers breathed a sigh of relief in the fourth quarter as the 2006 hurricane season officially ended with only minor losses, a dramatic contrast from a year ago. Insurers' stock prices reflected the calm hurricane season, benefiting from profits particularly on business in catastrophic areas that had experienced large rate increases after the devastation caused by hurricanes in 2005. St. Paul Travelers (NYSE:STA) led the way in stock price performance during the fourth quarter, up 15 percent, and for the full year of 2006, up 23 percent. Through the third quarter of 2006, St. Paul Travelers reported net income of approximately $3 billion, compared to $1.4 billion for the same period a year ago. ACE Ltd. (NYSE:ACE) also had strong stock price results, up 11 percent, CNA Financial Corp. (NYSE:CNA), up 12 percent, and Ohio Casualty Corp. (Nasdaq:OCAS), up 16 percent during the fourth quarter of 2006. In contrast, Cincinnati Financial Corp. (NYSE:CINF) experienced the smallest gain in stock price for the fourth quarter and year among commercial insurers. Their stock traded down 5 percent in the fourth quarter and was up a slight 4 percent for the year. Although Cincinnati Financial does not have as much coastal exposure as other commercial insurers, the company was affected by storms in the Midwest, including a hail storm in April. Another storm in October caused heavy hail damage in central Ohio, resulting in approximately $35 million of losses for policyholders. The company is expected to report a record year for catastrophe losses in 2006.

M&A Activity:

Only a handful of deals that involved commercial insurers were announced during the fourth quarter. The largest occurred on Dec. 13 when QBE Insurance Group Ltd. agreed to acquire Praetorian Financial Group from Hannover Re for $800 million. Praetorian will add almost $1.4 billion in gross premium income on an annualized basis. The portfolios acquired are complementary to QBE's existing business in the United States. The acquisition will be funded from internal excess capital and short-term debt. Praetorian is based in New York and writes specialist property and casualty insurance programs through various managing agents (78 percent) and specialty retail agency business through brokers (22 percent). Praetorian was created by Hannover Reinsurance Group in 2005 to selectively renew specialty program business from its U.S. subsidiary, Clarendon Insurance Group. The combined operating ratio for the business written into Praetorian for 2005 was 81.7 percent and the projected combined operating ratio for 2006 is 78.1 percent. Praetorian currently reinsures 50 percent of its business through quota share agreements to Hannover Re and its affiliates. QBE intends to cancel these reinsurance arrangements at closing and inject approximately $200 million of additional capital into Praetorian.

Capital Raising:

Approximately $1.6 billion of new capital was raised by commercial insurers during the fourth quarter of 2006. First Mercury Financial Corp. (NYSE:FMR) announced the completion of its initial public offering of 11,161,764 shares of common stock at a price of $17 per share, which includes the exercise in full of the underwriters' option to purchase 1,455,822 shares of common stock. The net offering proceeds to the company were approximately $174 million. First Mercury offers products in the specialty commercial insurance market in the United States.

LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include highly-qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. Contact: 704-943-2600, by e-mail at Info@LMCCapital.com or visit www.LMCCapital.com.

Pricing discipline key to P/C insurers' repeat performance in 2007

>Insurers delivered strong results for 2006; now the question becomes can they remain disciplined?

Property casualty insurance industry earnings may have peaked in 2006 but that doesn't mean 2007 will see a reversion to reckless price cutting and relaxed underwriting, according to experts observing the industry.

Instead, insurers should be able to build on the momentum of 2006 to deliver another profitable year in 2007, maintained panelists at the annual Property/Casualty Joint Industry Forum in New York City recently.

In a session entitled View from the Outside Looking In, they all agreed that 2007 and even 2008 are looking good for property casualty insurers as long as they continue to price risks properly.

Dr. Robert Hartwig, president and chief economist of the Insurance Information Institute, noted that 2006 was a record year for the P/C industry, with net income after-taxes at nearly $60 billion, according to latest estimates. The industry also delivered its best return on equity in about 20 years--in the range of 14 percent.

"What is driving that is the industry's very strong underwriting performance," said Hartwig. "We are looking at potentially the best combined ratio in 60 years, maybe in the low 90s."

This was due partly to the huge drop in insured catastrophe losses, which went from $62 billion in 2005 to just $8 billion in 2006.

Looking ahead, Jay Gelb, senior vice president and senior non-life insurance equity analyst, Lehman Brothers, said he expected industry earnings to remain at robust levels in 2007 and 2008, though perhaps lower than 2006 levels. He estimated returns of 10 percent to 13 percent through 2007.

"Overall the industry's returns probably peak in 2006 and part of that is because we had very low catastrophe losses last year," noted Gelb. However, he added that the strength of the industry's balance sheet would allow it to sustain these results going forward.

At the same time, Gelb noted, given the good combined ratios being achieved in both personal and commercial lines, competition is likely to heat up.

Personal lines favored

Except for catastrophe losses, the homeowners insurance line has been performing well for years, noted personal lines expert Brian Sullivan, editor, Risk Information, Inc., who added that auto insurance is also looking good.

He maintained that the good results could be attributed to insurers' impressive commitment to adequate pricing. "We have seen more pricing discipline, particularly in personal lines, in the last five years than I have seen in my career. I think it is because no one knows what to do," said Sullivan.

The lack of price-cutting makes for a rather unusual market for those who have been through previous cycles. "Everyone wants to grow profitably but the question is how. I don't think anybody has been in a situation where we are not cutting prices to grow market share," Sullivan added. "This would change only if someone was to do something stupid, or there is an unexpected claims shock."

Matthew Mosher, group vice president of Global P/C Ratings, A.M. Best Co, observed that there has been some market softening, particularly in auto, but he also believed the industry was maintaining its pricing discipline.

"In 2006 the industry saw a level of profitability it had not seen in quite a long time, but we are still not seeing the level of rate cutting that would suggest undisciplined pricing," said Mosher.

"There is also a much greater focus on risk in the industry than ever before, which will help minimize the impact of any rate softening," he noted.

Mosher described the market as experiencing some "price settling but not discount pricing" as might have been the case in years past.

Mosher agreed with Sullivan that to the extent personal lines prices are going down they are doing so based on real risk factors influenced by demographics and safety advances. "There is more focus on risk than ever before," he maintained.

Hartwig noted that the P/C industry is expecting net written premium growth of just 2 percent in 2007.

In that environment of slow organic growth, it is possible that insurer merger and acquisition activity could pick up, according to Gelb.

Hartwig suggested another possible trend might be East Coast regional insurers moving into the Midwest. But Sullivan questioned whether this is really happening. "You don't see the price cutting which would indicate more competition there," he commented. "There's a lot of talk about it but I'm not sure it's happening."

Commercial trends

As for commercial lines, Gelb said risk managers can expect a continuing stable market, with pricing relatively flat and terms and conditions restrictive. The exception would be for any wind-exposed property.

In the liability arena, Hartwig described the tort system as "remarkably better" thanks largely to the efforts of some states. Gelb said he thinks the liability picture will continue to improve while Mosher said he is concerned that Democrats' control of Congress might slow progress in this area.

Mississippi view

George Dale, Mississippi insurance commissioner, cautioned that despite the industry's collective record results in 2006, each line of business has to stand on its own by state. "We in Mississippi don't want to be paying for forest fires that happen in southern California and neither do they want to be paying for hurricanes that hit Bay St Louis, Mississippi."

Panelists discussed the ongoing wind/water litigation issues relating to Hurricane Katrina, agreeing that a resolution on these issues would be beneficial to the industry in the long-term.

Dale noted that while negotiations are underway with some parties relating to a large number of impending lawsuits, as yet no agreement had been reached. "My concern is to be sure that the rights and settlements of the insureds are protected and that they don't just get a coupon and the lawyers run off with all the money."

Billions at stake as Supreme Court weighs credit notice standards

Two large insurers defended their decision not to tell customers about their less-than-perfect credit, as the Supreme Court debated the legal standard for finding the companies liable under federal law.

During an hour of argument, several justices seemed taken aback at the magnitude of a federal appeals court ruling. Under that ruling, Geico Corp. and Safeco Insurance Co. would have to notify nearly all their customers that they aren't getting the best rates because their credit scores aren't the highest.

The consumers sued Geico and Safeco because the companies used a less-stringent policy and thus notified far fewer customers.

The case casts a spotlight on the business world's vast credit reporting system, which has compiled files on 200 million Americans.

Congress passed the Fair Credit Reporting Act in 1970 to protect consumers from flaws in the system and improve the reliability of reports.

Chief Justice John Roberts pointed out that federal law entitles consumers to a free copy of their report. Scott Shorr, a lawyer representing the customers who sued, said alerting the consumer at a critical time when money is at issue is important so that the customer can send for a copy and check it for accuracy.

If the appeals court ruling stands, Safeco would be required to send notices of "adverse actions" to 80 percent of the company's new customers, said Maureen Mahoney, an attorney defending the two companies. At Geico, 10 percent of new customers qualify for the top tier of credit.

Justice Stephen Breyer said implementing an expansive notification requirement would be like the "boy who cried wolf" and that notices likely would "go right in the wastebasket."

The major issue in the case is the legal standard for finding that the insurance companies willfully violated the 37-year-old credit reporting law. The 9th U.S. Circuit Court of Appeals said the standard is reckless disregard for the statute's notification requirement. The companies say the standard is higher -- actual knowledge on the part of the companies that they are breaking the law.

Pending lawsuits against various insurance companies on behalf of consumers over the notification issue potentially involve billions of dollars, Mahoney told the justices.

Shorr, the lawyer representing consumers, said internal Geico documents show the company initially interpreted the law "the same way we do."

Roberts asked how Shorr could argue the insurance companies had acted willfully to violate the law. Shorr pointed to a letter by the Federal Trade Commission staff saying the requirement is to be interpreted broadly.

The letter isn't even binding on the commission, Roberts replied.

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

Homeowners win key water v. wind Katrina claims case against State Farm

Insurer then settles next case without going to trial; U.S. Rep. Taylor calls for Congressional probe of industry claims practices

In a Hurricane Katrina claims decision watched closely by the insurance industry, a federal judge in Mississippi ruled that State Farm failed to properly settle a claim involving both wind and water damage from Hurricane Katrina.

In a directed verdict, U.S. District Court Judge L.T. Senter in Broussard v. State Farm ruled that the homeowners needed to only prove a direct physical loss, while the burden was on State Farm to prove what damage was caused by water versus wind or a combination of the two, a burden he ruled the insurer failed to meet.

Senter ordered State Farm to pay $223,000 in actual damages for the home and belongings of Biloxi couple Norman and Genevieve Broussard, before turning the case back to the jury to decide on the punitive damages. The jury came back with $2.5 million in damages against the insurer for its handling of the Broussard's claim.

After State Farm refused to pay for any damage to their demolished home, the Broussards sued to obtain full insured value of their home plus $5 million in punitive damages. They maintained that winds from Katrina destroyed their house.

State Farm, however, denied any payment, arguing that all the damage was caused by storm surge waters and therefore excluded from coverage.

"We did not expect this decision," said Kim Brunner, general counsel for State Farm. "Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind."

However, Senter pointed to testimony of one of State Farm's witnesses who "testified that it was more probable than not that the Broussards' dwelling sustained at least some wind damage to its roof."

State Farm also expressed disappointment with the jury's finding the company is liable for punitive damages in the amount of $2.5 million. The company will likely appeal.

However, eight days later, State Farm settled a similar case with another Mississippi policyholder whose lawsuit was scheduled to be tried next week in federal court. State Farm settled with Richard Tejedor of Long Beach for undisclosed terms.

State Farm attorneys had asked for the Tejedor trial to be postponed, but Senter refused.

State Farm attorneys argued in court papers that a "barrage of publicity" about the Broussard's multimillion dollar verdict may have tainted the jury for Tejedor's case.

State Farm also is the defendant in the next four Katrina cases set for trial in Gulfport. The first is scheduled to start March 12.

State Farm has said it has closed 98 percent of the claims it received arising from the storm and has paid out over $1.1 billion in claims in Mississippi.

The Broussard ruling has stirred a call for a Congressional probe. "This ruling is just the latest example of insurance companies engaging in a systematic effort to avoid paying Katrina victims for destruction caused by wind damage," claimed Rep. Bennie Thompson, D-Miss., chairman of the House Homeland Security Committee.

"Working with other committees of jurisdiction, I will be investigating the assertions that insurance companies are wrongfully passing the costs of Katrina onto an already-burdened federal flood insurance program," he said.

The Associated Press contributed to this report.

Demotech named official Insurance Journal Research Partner

Financial analysis and actuarial services firm Demotech, Inc. has been designated an official Research Partner of Insurance Journal. The Columbus, Ohio-based company will provide research, actuarial and statistical support for the Insurance Journal editorial team and participate in joint reports on industry performance and financial results.

"This partnership gives us access to a team of professionals who truly understand the insurance industry and its data and can provide statistical analysis and guidance when we need it for articles and special reports," said Mark Wells, president, Wells Publishing Co., publisher of Insurance Journal.

"Our team can offer insight and analysis that will complement the reporting and publishing capabilities of the Insurance Journal team," said Joseph Petrelli, president, Demotech. "We are pleased to be able to work closely with a publication that is respected and well-read throughout the industry."

One of their first joint research projects will be the unveiling in the Feb. 12, 2007, issue of Insurance Journal of the "Super Regional" report. Demotech will also collaborate with the Insurance Journal on a quarterly marketplace pricing index and other pertinent market indicators.

Since 1985, Demotech Inc. (www.demotech.com) has been providing independent Financial Stability Ratings® of property and casualty insurers and title insurance underwriters. Its services also include statements of actuarial opinion and pricing assistance.

Study: 20% of customers consider switching insurers after collision

Nearly one out of every five customers considers switching insurance companies after a collision claim, according to a new the J.D. Power study.

"Filing an insurance claim is a critical moment of truth that shapes a customer's overall perception of their insurer," said Jeremy Bowler, senior director of the insurance practice. "Often, this is the first time they truly become familiar with their insurance policy. Misconceptions about what is covered by the auto policy, or what to expect during the claim and repair processes can lead to significantly lower customer satisfaction, which in turn increases the likelihood that the customer may consider switching carriers in the future."

The 2006 Collision Repair Satisfaction Study finds that 7 percent of customers chose not to file a claim with their insurer after their most recent collision. Common reasons include: the insurance deductible was more than the cost of the repairs; concern that the carrier would increase the premium after the claim; or at the advice of their insurance agent.

The factors that drive customer satisfaction include: claims/estimation (62%); body shop (36%); and rental car (2%). Claimants whose vehicles are totaled are significantly more satisfied if their insurer gives them a clear explanation of why the vehicle is totaled and how they calculated the amount.

"The difference in satisfaction is primarily driven by how well the insurer manages the claims process, which is significantly longer for claimants experiencing a total loss," said Bowler.