STATE FUND DOWNGRADED
A.M. Best lowered the financial strength rating of the State Compensation Insurance Fund of California (SCIF), San Francisco, Calif., from "B++" to "B+" on March 30. The rating outlook is negative. Cited as key factor in the rating action were A.M. Best's concern with SCIF's substantial growth in the volatile California market and the resulting impact on the company's overall financial strength; and Best's belief that significant loss reserve deficiencies may have built up in recent years and could increase in the future. While current capitalization is viewed as secure, the negative rating outlook stems from what A.M. Best views as a potential for further strain on SCIF's capital strength. Since year-end 1997, SCIF's policyholder surplus has declined more than 17 percent, and investment and other income only partially offset underwriting losses, which have increased every year since open rating began. In 2000, premium production increased nearly 45 percent, which A.M. Best said adds an element of uncertainty to both SCIF's loss reserve position and its future profitability. Such negative factors were partially offset by SCIF's dominant market presence. A.M. Best said it would continue to monitor SCIF and reevaluate its financial strength based on year-end 2001.
QUAKE MARKET BACK TO NORMAL
Washington Insurance Commissioner Mike Kreidler said he expected all insurers offering earthquake insurance in the state to resume writing such coverage no more than 30 days after the Feb. 28 quake that rattled Western Washington and parts of Oregon. Kreidler, speaking at the annual meeting of the Surplus Line Association of Washington, also said his office is having discussions with a carrier that wants to come into the state and write quake business. Kreidler didn't name the insurer, but he said he hopes the company will be able to sell policies in Washington as soon as possible. "We might set a speed record in this state for getting a company admitted," he said.
WEIGHING TOLL OF FOOT-AND-MOUTH
Most analysts have concluded that no serious insured losses will be caused by the current foot-and-mouth epidemic in Britain and Europe, despite the enormous economic losses. In the U.K., where the disease first appeared, over 600 farms have been affected, and losses are estimated to exceed $13 billion. So far, no containment is in sight. Insurers, however, apparently have little exposure to economic farming losses. A bulletin from Standard & Poor's (S&P) stated: "With the Government liable to pay compensation to farmers whose livestock has been destroyed, the ratings agency believes the only negative for the insurance industry will be claims for interrupted business." Sporting events, many of which have been canceled; and Britain's tourism industry, which has seen a drop in business; have been the most seriously affected areas. S&P estimates that the total impact on insurers would be around $72.5 million, but it warned that as the crisis deepens, more serious economic losses could trigger a rise in claims, and that ultimately the entire economy could be adversely affected.
RATING BY ZIP CODE STILL OKAY
Thanks to a decision made March 28 by the California State Supreme Court, insurers can continue adjusting rates based partially on the ZIP code of the driver. The decision to let the First District Court of Appeals ruling stand is good news for insurers and for good drivers, according to industry trade associations. Consumer activist groups, including Harvey Rosenfield's Foundation for Taxpayer and Consumer Rights, had protested that the practice of using ZIP codes in rating drivers violates Prop 103. Personal Insurance Federation of California President Dan Dunmoyer called the protest "a misguided request [that] could have drastically raised insurance rates for good drivers in 51 of the state's 58 counties."
BEAZLEY COMPLETES BUYOUT
Beazley, one of Lloyd's leading syndicates, has completed a management buyout. "Under the new structure, the directors and staff will own 100 percent of the Managing Agency and Syndicate 623's capacity will continue to be supplied by a mixture of capital sources-traditional names, corporate names and Beazley dedicated," according to the announcement. Founded in 1986 and headed by Andrew Beazley, the group "focuses on specialist risk business in selected marine and non-marine markets, including commercial property, retail and personal lines, reinsurance and specialty products."
DANGER ON THE ROAD
The number of people killed in traffic accidents increased last year, due in part to a rise in fatal motorcycle accidents. Federal estimates are expected to show that after many years of decline, motorcycle accident deaths increased between 1997 to 2000, growing 27 percent during the three-year period. Last year there were 2,680 motorcycle deaths-208 more than in 1999, according to estimates by the National Highway Traffic Safety Administration. The rate of death per miles traveled on the nation's highways also increased last year for the first time since 1977. There were 41,800 fatalities, or 1.6 deaths per million miles traveled, compared with 1.5 in 1999 and 3.3 in 1977. Deaths among teen drivers and alcohol-related fatalities also increased from 1999. While alcohol-related fatalities rose from 15,786 to 16,068, on a percentage basis it was at an all-time low at just 38 percent of total traffic deaths. There were drops in the deaths of children under five, pedestrians, crashes with large trucks and occupants of vehicles that roll over. However, for occupants of less-stable sport utility vehicles, rollover deaths increased 2.8 percent.
SAFECO STILL UNDER SCRUTINY
On March 28, S&P removed the ratings of SAFECO Corp. and related entities from CreditWatch and lowered SAFECO's counterparty credit rating and senior unsecured debt rating from "A-" to "BBB+." The ratings had been on CreditWatch with negative implications since Jan. 12, 2001, when SAFECO announced fourth-quarter earnings well below expectations for the fifth consecutive quarter. In February, A.M. Best Co. downgraded the financial strength ratings of SAFECO Corp.'s property/casualty and life/health insurance companies to "A" from "A+" and its senior debt ratings to "bbb+" from "a." A.M. Best also placed the financial strength and debt ratings of SAFECO Corp. under review with negative implications pending further discussions with management and a detailed review of the p/c loss reserve position. S&P stated that its latest ratings actions reflect the belief that SAFECO's profitability in the near and medium terms will continue to fall short of expectations compared with the ratings and its relevant peer group. However, S&P expressed optimism that the intended sale of SAFECO Credit Co. could be "favorable...as that business accounts for almost half of the corporation's $3.1-billion debt and
debt-like obligations." SAFECO President and CEO Mike McGavick described the latest ratings actions as "disappointing but not unexpected."
ZURICH, INSUREZONE TEAM UP
InsureZone has aligned with top-rated insurance carrier Zurich North America Small Business, a unit of Zurich North America. InsureZone will serve as a provider of small business' commercial and residential builders' risk insurance-as well as all 400 other BOP classes. Coverage is available through InsureZone now. InsureZone has national binding authority for Zurich North America Small Business' commercial and residential builders' risk policies. InsureZone also has national binding authority for business liability, property, workers' comp, auto and umbrella coverages for trade contractors, retail businesses, professional offices, service organizations, and some wholesale businesses.
NEW WARNING FROM CLAIMS DIRECT
Claims Direct, the U.K. company that handles accident victims compensation claims online, issued a new profit warning on March 28, estimating that it would have pretax losses of $28.65 million. The company is still suffering from bad publicity last fall, when a BBC program featured interviews with a number of people who had used its services, who claimed that their awards had been substantially reduced by its fees and charges. New cases promptly dropped from around 4,000 a month to 2,500. Since then Claims Direct has modified its fee structure, and undertook an advertising campaign to restore consumer confidence, but so far it's had a negligible affect on new business. It also paid out $21.5 million to secure long term insurance coverage, and paid out more than $7.16 million to compensate its disgruntled customers. The company still hopes for profitability next year, and is currently in talks with the Association of British Insurers and the Law Society of England and Wales to reach an agreement on the recovery of legal costs.
