CONNING RESEARCH SAYS P/C OUTLOOK NOT AS BRIGHT AS RISING PREMIUM RATES SUGGEST:
Despite substantial rate increases over the past three years, property/casualty insurers will not see any dramatic improvement in their financial results by 2004, according to Conning Research & Consulting Inc. "Property-Casualty Forecast and Analysis by Line of Insurance, First Quarter 2003" also finds that P/C insurance rates will continue to increase in 2003 and 2004 but at a more moderate pace. "Much of the benefit of the rate increases was offset by the industry's declining investment yields," Michael Weinstein, director of Research at Conning, said. "With lower investment returns, insurers have no choice but to focus their efforts on reducing losses and other costs if they want to achieve sustainable returns on equity." Conning anticipates that the insurance industry's statutory returns on surplus will increase but only into the low single digits as the industry adds to its loss reserves and attempts to shore up its capital base. Since the beginning of the year 2000, P/C companies in the U.S. and Bermuda have raised approximately $21 billion by issuing common stock and other issues that are convertible into common stock. "It is becoming clear that the P/C industry is much more leveraged than most people had thought, and companies are raising substantial amounts of capital to take advantage of the more favorable pricing environment," Weinstein commented. "Many insurers now face the Hobson's choice of strengthening reserves and demonstrating that they have enough capital to continue growing at their current pace." "Property-Casualty Forecast and Analysis by Line of Insurance, First Quarter 2003," analyzes past premium, loss, expense, and return patterns by line of insurance and forecasts what the industry's experience will be over the next three years. For more information, visit the company's Web site at www.conningresearch.com.
NAMIC TELLS WASHINGTON LEGAL FOUNDATION THAT REGULATION BEST LEFT TO STATES:
Reformed state regulation of insurance is the most desirable course for the future according to a National Association of Mutual Insurance Companies (NAMIC) speaker at a media briefing on "An Optional Federal Charter: The Future of Insurance Regulation" hosted by the Washington Legal Foundation (WLF) recently. "Under the state system, state regulators are close to the people, the markets remain competitive, and states can affect regulatory reform within their own state. Reformed state regulation of insurance is the most desirable course for the future," Wayne White, president and chairman of Home Mutual Fire Insurance Company in Conway, Ark., commented "There is no question that reform of insurance regulation is necessary," White said. "Globalization, and the market convergence begun with passage of the Gramm-Leach-Bliley Act (GLBA) have forever changed the face of insurance markets. While the current state-based system of insurance regulation does not entirely meet the needs of those it regulates, and must become more uniform, it is far from broken." The full text of White's remarks can be read on NAMIC's Web site, NAMIC Online at http://www.namic.org/pdf/04-04-03white.pdf. Last spring, White testified before a House Financial Services subcommittee. He cited NAMIC's public policy paper, "Regulation of Property/Casualty Insurance: The Road to Reform," which outlines the major action items in need of regulatory reform. The paper also reportedly points out the flaws in a federal solution to insurance regulation. The full text of this paper can be accessed at NAMIC Online at http://www.namic.org/pdf/roadtoreform.pdf.
STATE FARM HOMEOWNER RATES INCREASE IN NEV:
Nevada Insurance Commissioner Alice Molasky-Arman has approved State Farm Fire and Casualty Company's request for an overall statewide average increase of 5.2 percent, or $2.5 million. This is part of a total increase of 24.9 percent requested by State Farm earlier this year. The initial rate increase, which saw an overall statewide average of 17.9 percent, became effective March 15, 2003. Molasky-Arman had initially denied State Farm's earlier request for a 24.9 percent increase in Sept. 2002, because at that time, the data appeared inconsistent and the catastrophe load appeared high for non-tenant homeowners. State Farm subsequently filed additional information that supported an increase. In the 17.9 percent rate approval, rates increased approximately 19 percent for non-tenant homeowners, 18.3 percent for condominium owners, 0.1 percent for renters, and 25 percent for business property. The minimum premium for non-tenant homeowners increased from $125 to $150 and from $75 to $100 for condominium unit owners. In addition, modifications were made to deductible credits. For example, a policy with a $1,000 deductible currently has a 14 percent credit, with a maximum dollar credit of $300. This will change to a 9 percent credit, with a $200 maximum credit. The 5.2 percent increase became effective on June 10, 2003 for both new and renewal business. The apportionment to the three classes of homeowners business amounts to an increase of 5.0 percent for non-tenants homeowners, 18.6 percent for condominium unit owners, and 0.0 percent, or no change for renters. Generally, State Farm non-tenant insureds in Carson, Douglas and Clark Counties will experience the largest increase of about 25 percent, while insureds in a portion of Washoe County will receive the smallest increase of about 7 percent. State Farm insures over 83,000 non-tenants, 13,000 renters, and about 8,000 condominium owners in Nevada.
SAFECO ESTIMATES STORM LOSSES:
Seattle-based Safeco announced that claims stemming from the recent string of Midwest and Southern tornadoes, added to losses from violent hailstorms in Texas earlier in the quarter, are estimated at nearly $90 million in pretax catastrophe losses. This figure represents losses through May 16, with six weeks remaining in the quarter. The effect on second-quarter net income is currently estimated to be $0.42 per diluted share on an after-tax basis. "Insurance is about delivering on promises," said Mike McGavick, Safeco chairman and CEO. "These horrible storms show why our product is so important. By providing fast, personalized claims service, we can help the people affected. That's exactly what we are doing." Safeco's National Catastrophe Team began assessing the situation immediately after the first tornadoes touched down on May 4. Surveyors and adjusters were in the field within hours, issuing payments to Safeco customers for emergency repairs and living expenses. As the storms continued, additional claims staff from around the country supplemented the national team to assist with the volume of claims. In Safeco's first-quarter earnings announcement on April 28, the company stated that losses from Texas hailstorms in early April totaled approximately $30 million, ending the recent trend of relatively low weather-related catastrophe losses. The tornadoes and other severe weather events in six states are expected to add more than $55 million in losses. Safeco will announce its second-quarter financial results on July 28.
