A.M. BEST REPORTS: P/C PREMIUM GROWTH SOLID
The property/casualty industry continued to report strong growth in net written premiums for both the fourth quarter and full-year 2002 amid robust price increases across all sectors, according to the A.M. Best Co. Earnings for property/casualty insurers improved, despite another round of heavy loss reserve charges compounded by a resurgence of natural catastrophe losses and soft financial markets that caused surplus to continue its downward slide. A.M. Best data shows that net written premiums rose approximately 11.6 percent in the fourth quarter and 15.7 percent for the full year, while the combined ratio improved to 107.2, from 115.7, for the year and to 113.0, for the quarter, from 120.2. The industry's improvement primarily reflects the dramatic decrease in catastrophe losses in 2002, as 2001 included approximately $9.1 billion of Sept. 11, 2001, losses that impacted the combined ratio by 2.9 points. The remaining improvement in the 2002 calendar-year combined ratio reflects improved rate adequacy, offset by rising loss costs that yielded a nearly eight-point improvement in the 2002 accident-year combined ratio. The net underwriting loss in 2002 narrowed by 28 percent from the 2001 loss, excluding the Sept. 11, loss, and pre-tax operating income benefited from higher net investment income. Net income improved by a smaller margin in 2002 compared to 2001, excluding the effects of Sept. 11, as depressed equity markets offered less realized capital gains and the industry resumed paying taxes. The stock market was once again to blame for the 1.5 percent year-over-year decline in surplus, as unrealized capital losses were more than double net income, and exceeded the favorable spread between contributed capital and shareholder dividends. Growing losses from asbestos loss reserve increases, driven by an increase in class-action lawsuits and manufacturer bankruptcies, added a notable 2.4 points to the annual combined ratio, compared to 1.4 points in the year prior. Adjustments to core prior-year loss reserve estimates, particularly in the workers' compensation and professional liability sectors, such as medical malpractice and directors and officers liability, accelerated in 2002 with the industry recording roughly $22 billion in adverse loss-reserve development on accident-years 2001 and prior—including almost $8.5 billion for asbestos and environmental losses—in calendar-year 2002. As is typically the case, the fourth quarter was impacted by a disproportionate amount of reserve charges, with AIG and Travelers leading the pack with nearly $2.8 billion and $2.5 billion of strengthening on a pre-tax net basis, respectively. Despite these actions, A.M. Best believes the industry's reserves continue to be significantly short, with the bulk of the deficiency housed in the commercial lines sector. While rates continued to firm, A.M. Best believes pricing in a number of large market segments, particularly homeowners, commercial multiple peril, medical malpractice and workers' compensation is still below adequate levels.
PRUDENTIAL TURNS FOCUS TO CAPTIVE AGENTS
Prudential Financial's property/casualty subsidiary has terminated the contracts it had with 200 independent agencies across the country recently in a move to focus its retail distribution on captive agents. While independent agents will be prohibited from selling any new Prudential business within 30 days of being notified of their termination, they will be able to renew any existing policyholders. Prudential Property and Casualty Inc. (PRUPAC) lost $134.5 million in 2003, and its parent is considering selling the business outright, according to a company spokesperson.
MEDICAL LIABILITY CRISIS NOT A HIT WITH AMERICA'S PASTIME
The escalating health care crisis that has reportedly been jeopardizing patient access to quality medical care across the country is beginning to claim victims in other areas of American life as well, starting with baseball. In a recent game between the Boston Red Sox and the Toronto Blue Jays, a Major League Baseball franchise that plays a majority of its games in the United States, the BlueJays did not have a team doctor on duty, according to an article in the Boston Globe. Three team doctors reportedly resigned recently because the Canadian Medical Protection Association, an umbrella group that set up a fund to protect against medical liability suits, dropped coverage for any doctors dealing with NBA, NHL, or MLB players. "The threat of medical liability suits in the United States has gotten so out of control that our athletes—and the very foundation of our national pastime—are being threatened by this crisis," said John Thomas, chairman of the Coalition for Affordable and Reliable Health Care (CARH), a national organization working to reform medical liability laws. Years of reported frivolous legal action by personal injury lawyers have driven up medical liability costs to the point where doctors, hospitals, nursing homes and other health care professionals are being forced to limit the services they provide or close altogether. The U.S. House of Representatives approved the HEALTH Act (H.R. 5) earlier this year, but the Senate is reportedly stalling on companion legislation. Supporters of reform say the HEALTH Act is a common-sense approach to reform based on a state law in California.
S&P's REPORT EVALUATES CALIF.'S WC MARKET
Strict underwriting controls imposed on the California State Compensation Insurance Fund (SCIF) are one bright spot in a gloomy scene for workers' compensation writers in the state, according to a new report by Standard & Poor's Ratings Services. For employers, the restrictions on SCIF will make coverage even harder to come by. Although average workers' comp premium rates in California were 50 percent higher in the third quarter of 2002 than the 2001 average, insurers in the state have in total a $14 billion reserve shortfall to make up because of severe under pricing in the second half of the late 1990s. That is almost as much as the entire premium collected in the state in 2002. California was host to several workers' comp insolvencies in 2002, by which time insurers that as recently as 1994 accounted for one-third of the market were either "being liquidated or in some form of regulatory supervision," according to the Workers' Compensation Insurance Rating Bureau of California (WCIRB). But buyers of coverage are also having an increasingly difficult time of it. The S&P's report describes workers' compensation business as "an economic anomaly—at once too cheap to be profitable and too expensive to be affordable." And capacity shortage could reach critical proportions in California, now that the state's insurance commissioner, John Garamendi, has put the brakes on SCIF's breakneck expansion of market share (to about 45 percent of California premiums in 2002 from less than 20 percent in 2000). "A major availability crisis is now at hand," said Jason Jones, an analyst in S&P's insurance ratings. The report, entitled "Can U.S. Workers' Compensation Business Emerge From California's Shadow?", also takes an extensive look at the national workers' compensation picture, where the reserving shortfalls are described as "a close second to asbestos."
NAII UNHAPPY WITH OREGON CREDIT BILL'S ADVANCEMENT TO SENATE
The Oregon Senate Judiciary Committee unanimously voted to pass Senate Bill 260, which would prohibit insurance carriers from using credit information for underwriting and rating policies, the National Association of Independent Insurers (NAII) said. SB 260 now heads to the Senate floor for a vote. Committee members also considered amendments to SB 280, which would allow insurers to use credit information subject to a number of restrictions. The measure, however, was put aside for lack of consensus among insurers on the amendments, according to Sen. Minnis, chairman of the committee. The NAII is disappointed with the outcome since SB 260 bans insurers from using the credit-based insurance score of a consumer who is applying for or renewing a homeowners or personal automobile insurance policy. NAII believes that regulations addressing credit issues, set to take effect June 1, should be given adequate time to determine whether it does a good enough job providing reasonable consumer protections. The regulation mandates insurers disclose its use of insurance scores and prohibits insurers from using insurance scoring as the sole reason to cancel or non-renew policies. According to the NAII, the regulation balances the need for consumer disclosure and preserves the industry's ability to use this accurate, unbiased, and predictive underwriting measure.
INSURING THE CHILDREN PRESENTS FORUM MAY 22
Insuring The Children will present its ninth annual forum, "The Future of This Industry," Thursday, May 22, at The California Club, 538 S. Flower St., Los Angeles. Registration begins at 8 a.m., with the Forum running 8:30 - 11:30 a.m. Speakers include: Jeff Post, president, Fireman's Fund; Renee' Koran, VP, member of the executive committee, State Compensation Fund; Gerald Sullivan, The Sullivan Group; Myra Guffin, VP, AIG, moderator. Sponsorship opportunities are available, including: Forum Sponsor ($25,000); Program Sponsor ($10,000); Corporate Sponsor ($5,000); Friends of Children ($2,500); and Event Sponsor ($1,000). For registration and sponsorship information, call Ann Oliver at (800) 772-8998.
