MOODY'S EXPECTING MODEST LOSSES FOR P/C INSURERS' INVESTMENT PORTFOLIOS

Moody's reports that further decline is likely for many U.S. P/C insurers' investment portfolios because of credit losses resulting from exposure to troubled companies. However, in the newly released report, Moody's predicts the relative magnitude of these losses to be mild compared to the losses suffered by financial institutions, like life insurers, whose business models are more dependent on investment returns. At the same time, the rating agency believes that U.S. P/C insurers face potentially significant risks from underwriting exposures related to credit default swaps, directors' and officers' (D&O) liability policies and surety bonds written on projects and financial obligations of troubled companies. According to Moody's associate analyst James Eck, the losses that result from these collateral exposures alone should not cause rating downgrades, noting that they—along with direct investment losses—will decrease the financial benefit of a strong cyclical upturn in industry pricing. Eck adds that of the 70 largest U.S. P/C insurance and reinsurance company groups, Moody's determined that the largest exposure as a percent of policyholder surplus was 13.1 percent, with an average of 3.9 percent. He noted that the size of potential investment losses does not appear to be significant for most companies relative to their capitalization. U.S. P/C companies had 87 percent of their fixed income portfolios invested in NAIC Class 1 securities (generally rated Aaa, Aa and A by Moody's) at year-end 2001, according to Eck. The remaining 13 percent were divided between Class 2 securities (generally rated Baa) and Class 3 and below securities (speculative grade). U.S. life companies, by contrast, had 38 percent of their fixed income portfolios invested in low investment grade and speculative grade securities at year-end 2001. These are precisely the types of securities that have performed poorly in the current high-default rate environment.

COMMERCIAL MARKET INDEX RELEASED

Top commercial insurance brokers, noting insurers have been buffeted by terrorist attacks, stock market woes and increasing environmental hazard claims, have cast their eyes ahead to the coming year and voiced concern that if economic conditions do not improve, the industry's financial viability could be in jeopardy. In data released in the third quarter 2002 Commercial Insurance Market Index survey of the Council of Insurance Agents & Brokers' members—all among the top one percent of the nation's largest brokers—86 percent of respondents have concerns about carrier solvency. In addition, the Council's quarterly Market Index showed premium prices across all lines of commercial business continued to march upward for the period ending Sept. 30, 2002. Respondent brokers—all among the sector writing 80 percent of commercial property/casualty coverage—showed more than 60 percent of medium-sized and large accounts continued to experience price increases from 20 to 50 percent. Respondents said half their small accounts saw premiums rise 10 to 20 percent, and 20 percent more went up between 20 and 30 percent. The increases are consistent with previous "hard market" findings. In terms of premium increases in the third quarter, not a single line of commercial insurance was spared higher rates, with the bulk of the price increases in the 10 to 30 percent range. Bro-kers reported that 20 percent of construction risks, 18 percent of the dir-ector's and officer's accounts, and 27 percent of umbrella policies had in-creased 30 to 50 percent. In addition, medical malpractice coverage was significantly higher, with 18 percent of account premiums up from 30 to 50 percent; 12 percent of accounts up 50 to 100 percent; and 19 percent of the accounts up 100 percent. The survey also showed that brokers and agents are turning more frequently to alternative markets to place risky or difficult accounts, with surplus lines and captives the most common choices. And customers are dealing with higher premiums by dramatically altering their insurance choices. Higher deductibles are employed almost across-the-board, brokers reported, while 59 percent said their customers were self-insuring a portion of their risks. Of the respondents, 51 percent said some clients had foregone insurance totally and were "going bare" for risks previously managed with commercial insurance coverages.

RMS ESTIMATES WINDSTORM JEAN-ETT CAUSED MAJOR FINANCIAL IMPACT

California-based Risk Management Solutions Inc. (RMS), announced that the windstorm, designated Jeanett, which has hit the U.K., France, and the rest of northern Europe in late October, could cause up to 1 billion Euros ($983 million) in damages. The storm, packing hurricane force winds in excess of 100 mph first struck on Sunday night (See IJ Web site Oct. 28), causing the deaths of seven people in England and Wales and four in Northern France. It then moved on to the Netherlands, Belgium and Germany, where 11 people were reported to have lost their lives in storm related accidents. RMS preliminary estimates of insured losses was that they "will be unlikely to exceed Euro 0.3 billion ($295 million)." In addition to direct damages caused by the storm, Jeanett severely affected power lines and transport networks, leaving many regions still without electric power. RMS also noted that "in Germany, wind damage to buildings, particularly older properties, and flooding from the accompanying heavy rain resulted in more than 80,000 insurance claims being registered within 48 hours of the storm."

Editor's note: In a Nov. 4 release, RMS now estimates that total damages from the storm, which impacted northern Europe on Oct. 27 and 28, may exceed Euro 1.5 billion ($1.49 billion). Insured losses are likely to be in the range of Euro 0.8 to 1.2 billion ($797.6 million to $1.19 billion), principally in the United Kingdom, the Netherlands, and Germany.

IDENTITY FRAUD EXPENSE COVERAGE SEMINAR ACCESSIBLE VIA ONLINE RECORDING

Property/casualty professionals can learn about coverage for identity fraud expenses by accessing an online recording of a Web seminar on the topic, held recently by the American Association of Insurance Services (AAIS). AAIS recently developed and filed an "Identity Fraud Expense Coverage" endorsement for its Homeowners, Farmowners, and Mobile-Homeowners Programs, and has made an equivalent endorsement available to companies that do not use those programs. The Web seminar features exhibits and commentary by Susan Luecke, AAIS director of personal lines, and Kim Ward, AAIS chief actuary. In her presentation, Luecke describes the growth of identity fraud and the provisions of the AAIS endorsement for covering expenses people incur when rectifying their financial profiles after being victimized. Luecke explains in detail how the AAIS endorsement provides the coverage on a discovery basis with optional sublimits, then turns to Ward, who describes the development of the loss cost rating information provided for the endorsement. In her comments, Ward describes how she used data from the Federal Trade Commission as the basis for estimating the frequency and severity of identity fraud expense claims, how she arrived at a pure premium, and how she adjusted the loss costs to reflect the discovery basis of the coverage. To access the online recording of the Web seminar and learn more about the Identity Fraud Expense Coverage endorsement, contact Joseph Harrington, AAIS communications manager, at joeh@AAISonline.com.

NINTH ANNUAL GOLF TOURNEY RAISES $70,000 FOR INSURING THE CHILDREN

When insurance professionals and their guests from Los Angeles and Orange County convened at Dove Canyon Country Club on Oct. 14, they not only had a great day of playing golf, but they raised another $70,000 for their non-profit organization—Insuring the Children. The event is one of the two major fund-raising dates held each year in Southern California by the insurance industry. Nearly 100 golfers and guests were recruited and played at a sponsored golf event to network and raise monies to fund child abuse and neglect organizations in Southern California. More than 95 percent of the proceeds collected from this event go directly into the fund of this organization. Howard Mead, chairperson of the event, remarked, "This is a very popular, annual event for the insurance industry. Not only do we network with insurance carriers and agents but we're actually contributing to an organization that is very near and dear to all of us. What better use of our monies and time than investing in our children and keeping them safe?" Insuring the Children is a non-profit organization created by industry leaders with the goal of supporting child abuse prevention programs and raising awareness of child abuse and neglect. Since its inception in 1994, ITC has raised more than $800,000 to assist child abuse prevention centers. There are chapters throughout California in Orange County, Los Angeles, San Diego, and in the Midwest.