S&P COMMENTS ON CALIF. WILDFIRE AFTERMATH:
The biggest wildfire in U.S. insurance history will neither undermine insurance ratings nor prompt a pricing surge in homeowners' coverage in the state, according to the most recent research by Standard & Poor's Rating Services. "We're not looking at any ratings consequence," Standard & Poor's credit analyst Polina Chernyak said. Seven insurance groups face virtually all of the exposure. The six rated by Standard & Poor's— Allstate, Farmers, Nationwide, SAFECO, State Farm, and USAA—are all national players and therefore are insulated against a concentration of risk from a single state. Total loss estimates for the fires that swept southern California in late Oct. 2003 come to about $2.5 billion, which, for the group of largest insurers, equates to three or four percentage points of premium income for third-quarter 2003. Measured in these terms, the impact is "pretty much a repeat of the Oakland fire of 1991," Standard & Poor's credit analyst Alan Koerber commented. About 3,600 homes were destroyed in the flames, compared with slightly less than 3,000 homes in 1991. Accordingly, insurer payouts for the event exceed the $1.7 billion price tag of 1991 (equivalent to $2.2 billion in 2003 prices). Unlike the Oakland fire, however, this one is unlikely to cause prices to flare up. "Since 1991, insurers have built wildfire risk into pricing, so there should not be a discernible pricing effect this time," Chernyak said.
COMMISSIONER'S REVISION TO WC ADVISORY RATE EXCESSIVE, SAYS ACIC:
Calif. Insurance Commissioner John Garamendi's recommendation for a 14.9 percent decrease in pure premium rates for workers' compensation insurance is both excessive and premature, according to the Association of California Insurance Companies (ACIC). Recently, the Workers' Compensation Insurance Rating Bureau, charged with recommending workers' compensation rates to state regulators, proposed a reduction of pure premium rates insurers charge of between 2.9 percent to 5.3 percent. "The ACIC is disappointed in the commissioner's decision to recommend a decrease in the workers' compensation rate that is far beyond the rating bureau's recommendation," ACIC President Sam Sorich said. "We are concerned that the commissioner's decision to go beyond the rating bureau's projections will create further confusion in the market and could discourage insurers from entering the California market." In addition, Sorich said, the rating bureau took an almost unprecedented step in trying to quantify savings from reform provisions signed into law this year that are somewhat unclear, and when it is not yet known how the provisions will be interpreted and implemented. "This was a major leap of faith on the part of the rating bureau to try to quantify what are essentially unknowns," Sorich said. "It will take considerable time for the bills' cost savings to be achieved. Changes to the system must be administered properly to realize the potential cost savings." The commissioner's ruling puts forward an advisory rate. Insurers are not obligated to follow the advisory.
