S&P REPORT ANALYZES IMPACT OF 9/11 RULING ON INSURERS:
A recent court ruling deemed the World Trade Center attacks to be a single event for insurance purposes, which is good news for insurers on the heels of some bad news: an earlier ruling allowing lawsuits to proceed against the Port Authority of New York and New Jersey and the airlines. Despite the twists and turns of the legal process, insurance companies' reserves have held fast, Standard & Poor's said in a recent report. In addition, according to the report, the projected insured losses arising from the catastrophe—$35 billion—are the worst the industry has ever sustained. However, they are far less than the $50 billion that S&P had said—shortly after the attack—that the (re)insurance industry would have to incur to threaten insolvencies. "The sector has actually seen profitability improve, as pricing and underwriting practices have firmed up in the two years since Sept. 11, 2001," Steve Dreyer, S&P credit analyst, said. "Since Sept. 11, 2001, we've seen more profits driven by firmer pricing, and accident underwriting results are finally moving towards respectable levels of profitability." Eleven of the 18 insurance companies put on CreditWatch negative by S&P in the immediate wake of the disaster and 14 of the world's 20 largest reinsurers are rated lower than they had been on Sept. 11, 2001. However, the difficulties adversely affecting the credit quality of these companies were only partially related to the disaster. "The industry still has yet to fully recover from issues before Sept. 11," Dreyer added. The commentary article, titled "Insurer Sept. 11 Reserves Unaffected by Recent Ruling," can be found at www.ratingsdirect.com.
CLAIMS FROM ISABEL EXPECTED TO APPROACH $1 BILLION:
U.S. insurers are likely to pay out close to $1 billion to help people whose homes, businesses and personal possessions were damaged by Hurricane Isabel, according to the Insurance Information Institute (I.I.I.). The storm, which swept across North Carolina and Virginia and created significant flooding from the District of Columbia through Pennsylvania and western New York last month, is not expected to be among the most costly in history. "Thankfully, Hurricane Isabel as a Category 2 storm did not approach the level of damage of Hurricane Floyd, which hit the same general area in 1999," Bob Hartwig, chief economist of the I.I.I., said. "While formidable, Isabel will fall generally within the range of catastrophic risk that insurers anticipated and built into insurance premiums for homeowners and businesses along the East Coast. I would not expect the storm by itself to have a significant effect on insurance rates." Early industry estimates, based on computer modeling and preliminary visual assessments in the affected areas, suggest that Hurricane Isabel will not rival Hurricane Floyd's insured losses of $2 billion. However, Hurricane Isabel, together with the major tornadoes that hit the Midwest earlier in the year, makes 2003 a relatively bad year for catastrophe-related losses. According to the Insurance Services Office, insured catastrophe losses through Aug. 2003 totaled $7.6 billion compared to $5.9 billion for all of last year. Hurricane Andrew in Aug. 1992 remains the largest hurricane loss in U.S. history, costing insurers almost $20 billion (adjusted to 2002 dollars). "While the industry has the capacity to pay these claims, Hurricane Isabel substantiates what the industry has been seeing for several years," Hartwig said. "Homeowners insurance rates in many parts of the country have been rising in large part because of the significant costs associated with these kinds of major storms. In fact, virtually every part of the country is now at risk for billion dollar disasters. But Isabel also once again proves the importance and value of homeowners insurance coverage, helping people recover from real disasters," Hartwig added. Beyond the wind damage to homes, commercial properties and automobiles, the widespread mandatory evacuations in North Carolina and Virginia will trigger some business interruption coverage as well. At the same time, the I.I.I. cautions that while standard business and homeowners policies will cover the wind damage from Hurricane Isabel, perhaps the largest amount of property damage will result from flooding that will continue to threaten the region for a number of days. Standard policies do not cover flood damage, which is covered under policies written by the National Flood Insurance Program (NFIP), an insurance program managed by the Federal Emergency Management Agency (FEMA). According to the I.I.I., homeowners' insurers since 1990 have paid out $1.17 in losses and expenses for every $1 they earned in premiums. In 2002 alone, homeowners' insurers paid out $3.5 billion more in losses and expenses than they received in premiums. The I.I.I. estimates that insurance rates will rise approximately seven percent in 2003 and up to eight percent in 2004.
STATE FARM AGREES TO SETTLEMENT OF $250,000 FOR ALLEGED VIOLATIONS:
The California Depart-ment of Insurance (CDI) reached a settlement agreement requiring State Farm Mutual Automobile Insurance Company (State Farm) to pay $250,000 for reportedly selling long-term care (LTC) insurance policies that violated the California Insurance Code. CDI served a Cease and Desist Order Sept. 2002 alleging that State Farm continued to actively market and sell its product after Oct. 1, 2001, when the Insurance Code imposed additional standards on LTC policies, which standards the State Farm's policies did not meet. The standards require LTC policies to provide enhanced benefits, and mandated that insurers stop selling policies that do not meet the new standards. State Farm sold 1,981 such policies between Oct. 1, 2001 and June 12, 2002. Without admitting or denying the allegations, State Farm agreed to the monetary settlement and other provisions, including reimbursing premiums or providing premium credits for various categories of consumers who were issued LTC policies that did not meet the new standards.
TERRORISM STILL A CONCERN, ALLIANCE SAYS:
Insurers must begin planning now for the expiration of a federal terrorism insurance backstop program, even though there's no guarantee that reinsurance will be available if the federal backstop is allowed to expire as planned at the end of 2005. That warning was sounded by experts at the Annual Underwriting Conference, held recently in Orlando by the Alliance of American Insurers and the American Association of Insurance Services (AAIS). Even though the government is providing a partial backstop through the Terrorism Risk Insurance Act of 2002 (TRIA), the threat of another attack presents a real concern for insurers, said retired CIA intelligence expert Richard Coffman, president of Coffman Global Group. "While we're doing well overseas, the home-front is a serious concern," Coffman told the audience of underwriters. "Despite costly security enhancements, U.S. seaports, utilities, transportation chokepoints, and nuclear and chemical facilities are dangerously vulnerable as we speak. And despite our foreign successes against Al Qaeda, it remains a dangerous and determined terrorist foe with thousands of well funded, well-trained terrorists at large, hidden in cells, increasingly underground and decentralized. I'm particularly concerned at our maritime systems, over which some 90 percent of global trade is conducted, and which may be the most vulnerable sector, in my view, among likely terrorist targets in this country. Each container, each ship and each port facility is a potential delivery medium for a terrorist attack. An attack against our maritime transportation system is almost impossible to defend, but the results would be catastrophic." Deborah Colantuoni, senior vice president GeneralCologne Re, told the audience that reinsurers will continue to limit or cap their exposure to terrorism until they have a better ability to understand the risk and price it accordingly. While TRIA temporarily took the pressure off reinsurers, there is no certainty that reinsurers will step back into the market if TRIA is not renewed. Rita Nowak, assistant vice president, P/C for the Alliance of American Insurers, said insurers are concerned that if TRIA sunsets at the end of 2005, the limited availability of reinsurance currently on the market will totally disappear. She warned that the timing of TRIA's expiration and the renewal of policies could cause operational problems.
CWCI SEMINARS TO COVER RECENT WORKERS' COMP REFORMS:
The California Workers' Compensation Institute will hold a one-day seminar in November at three locations to help workers' compensation professionals prepare for changes brought about by passage of SB 228 and AB 227, this year's workers' compensation reform package signed by Governor Davis. Many of the mandates and changes under these bills take effect Jan. 1, 2004, which gives the workers' comp community little time to become familiar with all of the provisions and prepare for the changes. Therefore, the seminar will cover a broad range of issues, including: New Fee Schedules Effective Jan. 1, 2004; Utilization Review; Vocational Rehabilitation; Administrative and Structural Changes; Medical Billing Changes; and Loss Control. Because of the short timetable for implementing many of the changes, the program is designed to provide practical information to those who are responsible for administering the system and delivering benefits. Continuing education units will be available for claims administrators, attorneys, hearing reps, rehabilitation professionals and registered nurses. The Institute will present the seminar from 9 a.m. to 4 p.m., on Tuesday, Nov. 4 at the Palace Hotel in San Francisco; Friday, Nov. 7 at the Irvine Marriott; and Monday, Nov. 10 at the Warner Center Marriott in Woodland Hills. The cost, including all course materials and a luncheon, is $295 for CWCI nonmembers, $195 for CWCI members, and $175 for CWCI member company employees who register three or more attendees together with a single payment postmarked or transmitted by Oct. 24. More details and registration information are available on the Institute's Web site, www.cwci.org.
