FITCH SEES P/C INSURERS' UNDERWRITING RESULTS IMPROVING IN '03:

Fitch Ratings' current estimate is that the domestic P/C industry will experience an improvement in the combined ratio to 103.9 percent in 2003 from 107.2 percent in 2002, with an increase in premium volume of approximately 10 percent in 2003, according to a new report. Although this represents a significant improvement in underwriting performance from 2000 and 2001, these results are still insufficient for producing an adequate return on capital. "The U.S. P/C insurance industry made a significant recovery in 2002, following its worst year ever in 2001," said James Auden, senior director, Fitch Ratings. "We believe that 2002 was a transition year for the P/C markets, as companies restored underwriting disciplines in response to the more apparent poor pricing of recent years and barring any unusual large catastrophe losses, operating results should improve further in 2003." Fitch believes due to recent investment results and the current economic and investment climate, it is unlikely that investment performance will improve significantly for the industry over the near term. With new money rates remaining low, the P/C industry needs to boost profitability and earned surplus by generating underwriting profits. Based on Fitch's estimate of 2002 accident-year results, and a continued hardening pricing environment, companies that are unfettered by prior period underwriting and reserving problems should be able to produce favorable results in 2003. Fitch maintains its Negative Rating Outlook in the P/C commercial lines and reinsurance sectors, expecting a reduction in ratings actions in 2003 but still a greater number of downgrades than upgrades. Fitch's Rating Outlook for the personal lines sector remains at Stable, as this sector is less affected by the factors that create uncertainty.

IIABA SURVEY REPORTS NEARLY 2.5 MILLION HOUSEHOLDS LOST HOMEOWNERS COVERAGE PAST TWO YEARS:

A new independent consumer survey conducted for the Independent Insurance Agents & Brokers of America (IIABA) confirms that non-renewals and premium increases are becoming more common in the current homeowners insurance market. The national survey determined that nearly 2.5 million households have lost their homeowners coverage in the last 24 months. More than half of the households that lost coverage (approximately 1.3 million) are located in the South. Approximately 73 percent of non-renewed households were able to find other coverage. "When you consider that the number of households losing coverage during a two-year period is more than the combined resident populations of four statesÑAlaska, North Dakota, Vermont and WyomingÑyou realize how many lives are being affected by the shrinking homeowners market," IIABA CEO Robert Rusbuldt said. IIABA's survey also determined that approximately 51 million households (about 42 percent of all American households) experienced a homeowners' insurance rate increase in the last 24 months.

Of those households, the rate increases were as follows:
• Up to 10 percent rate increase 56.7 percent;
• 11-25 percent rate increase 23.2 percent;
• More than 25 percent rate increase 13.8
percent (6.3 percent were undetermined).
"Agents are seeing non-renewals and double-digit price increases in virtually every state in the country," Rusbuldt said. The national consumer telephone survey was conducted by International Communications Research (ICR).

REPORT SAYS U.S. INSURANCE INDUSTRY LOSES $13.7B ANNUALLY DUE TO AUTO PREMIUM RATING ERROR:

Quality Planning Corporation (QPC), the Rating Integrity Solutions Company, released its annual Premium Rating Error report, detailing just how much often-overlooked premium rating errors diminish the overall profits of auto insurance companies. QPC estimates that $13.7 billion of premium revenues were foregone in 2002. With underwriting profit averaging less than 5 percent, and investment revenues trending downwards, a revenue increase of nearly $14 billion in premium revenues would clearly make a significant difference to the financial fortunes of leading auto insurers. QPC's Premium Rating Error report, which presents the results of premium audit reviews of over 13 million private passenger auto policies from 10 carriers, reveals the extent to which different categories of rating errors contribute to the overall premium rating error. The biggest culprits reportedly are unrated drivers (1.7 percent) and commute/annual mileage (1.6 percent). To put the $13.7 billion premium rating error into perspective, it represents about 10 percent of personal auto insurance premium revenues industry-wide. Dr. Daniel Finnegan, founder and CEO of QPC, noted, "Our research shows that if an auto insurance company can cut its rating error by fifty percent, it is likely that the company can more than double its profits." Finnegan sees the problem of rating error extending beyond industry profits, adding, "Rating error introduces significant inequalities into auto insurance; honest people subsidize the dishonest, low-risk drivers subsidize high-risk drivers, those that use their vehicles little subsidize high mileage users." The report can be found online at: www.qualityplanning.com/ research.html.

N.M. COURT OF APPEALS REJECTS AUTO LIABILITY:

The New Mexico Court of Appeals recently rejected the theory of liability stacking with regard to automobile insurance, the American Insurance Association (AIA) reported. In the case of Linda Ann Slack, et al. v. James Robinson, et al., the court rejected the plaintiff's liability stacking argument and affirmed the summary judgments in favor of Hartford Insurance Company and Colonial Penn Franklin Insurance Company (the defendants). In states where stacking, a practice that increases the money available to pay auto liability claims is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle. "This decision should help restore balance in New Mexico and help lead to a more favorable insurance market in the state," David Snyder, AIA assistant general counsel and vice president said. "The court's ruling will help restrain costs and enable more policyholders to comply with laws relating to motor vehicle insurance." AIA filed an amicus brief in support of the defendants and showed that if the court's decision had gone the other way, insurance costs would have reportedly increased up to one-third for single vehicle policies and would have more than doubled for multiple vehicle policies. The court's decision is reportedly consistent with
the law in most states, which provides that a person is entitled to one coverage limit when he/she is driving someone else's car, not the coverage limits multiplied by the number of cars the person owns. The court rejected a theory that would have multiplied coverage and costs and provided more coverage to a policyholder when driving someone else's vehicle other than his/her own. "This is an important decision for New Mexico insurance consumers because it disallowed a novel theory that would have provided windfall lawsuit recoveries for a few at the expense of all auto insurance policyholders," Snyder added. "Allowing more stacking of
coverage limits would have mandated coverages and costs that people neither expected nor wanted."