BEST AFFIRMS RATING OF CALIFORNIA EARTHQUAKE AUTHORITY:
A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of California Earthquake Authority (CEA). The rating outlook is stable. The rating of CEA reflects its distinctive structure, which has been designed to guarantee the availability and actuarial soundness of residential earthquake insurance in California. The rating recognizes CEA's excellent risk-adjusted capitalization, financial flexibility, extensive risk-modeling capabilities, sophisticated management practices and conservative investment policy. Despite partially offsetting risks tied to exposure concentration and the volatility inherent in the catastrophe insurance business, CEA appears positioned to cover policyholder obligations in a manner consistent with its A- (Excellent) rating. CEA has excellent financial flexibility and risk protection derived from its unique financial structure, as well as its extensive reinsurance program. One aspect of that financial flexibility is CEA's ability to assess its participating insurers up to an additional $3.6 billion, if needed, to pay claims for a catastrophic earthquake. In aggregate, CEA's carefully planned structure provides for coverage of $6.7 billion to its policyholders, enough to cover a one in 850-year earthquake and still maintain capitalization supportive of its rating. A.M. Best also views positively CEA's exhaustive catastrophe modeling, sophisticated risk and financial management practices, as well as the stabilizing influence of its conservative investment strategy. These factors are critically important to the rating assignment, particularly given the specific risks inherent in CEA's catastrophe insurance business activities.
KITZMILLER RESIGNS FROM AMERICAN AGENTS ALLIANCE:
At a meeting of the American Agents Alliance Board of Governors held Oct. 7, it was announced that Alliance Executive Director Lorelle Kitzmiller would be leaving the association, effective immediately. Kitzmiller is the daughter of Alliance founder Don Stewart. During Kitzmiller's tenure, the independent producers association experienced sustained growth, increasing its membership and raising its profile, both in the insurance community and in Sacramento. The Alliance's annual Conference & Expo has grown to be one of the most well-attended events of the industry. The Alliance's Board of Governors has appointed a special search committee, which will began the process of hiring a new executive director immediately.
HIGHER MALPRACTICE RATES LOOMING FOR COLORADO DOCTORS:
COPIC Insurance, the largest medical malpractice insurance company in Colorado, will increase rates by an average of 15.9 percent, according to the Associated Press. It is the biggest rate increase in 16 years. COPIC's 6,000 Colorado policyholders will see an average premium of $15,500 per physician for 2005. Dermatologists and neurosurgeons will be the hardest specialists hit by the increase. Dermatologists will see a 47.5 percent rate increase and will pay about $13,000 a year. Neurosurgeons will pay an average of $88,600, which is 18 percent more than 2004. COPIC said that legislation that raised the cap on non-economic damage awards in medical malpractice cases was partially to blame for the rate increases, as well as settlements and litigation costs. The cap on pain and suffering awards was raised to $300,000 from $250,000 in 2003. The Doctors Co., another Colorado med-mal insurer, filed a rate increase of 18.4 percent earlier this year. COPIC insures 80 percent of the doctors in Colorado.
GARAMENDI EASES ACCESS TO FAIR PLAN:
In response to rising difficulty consumers now face in securing homeowners insurance following last year's firestorms, California Insurance Commissioner John Garamendi announced that he has eased eligibility requirements for the state's FAIR Plan, the so-called homeowners insurer of last resort. The Commissioner's action allows property owners to bypass certain cumbersome application requirements, and effectively expands the areas covered by the program. Numerous consumers have complained that they have had difficulty securing homeowners insurance, particularly in high brush areas of the state. In those cases, the Fair Access to Insurance Requirements Plan offers an alternative—a "bare bones" fire policy that will give minimal coverage in case of disaster. The policy is not inexpensive, and does not offer the complete level of protection a standard policy would provide, but it is an important tool for those who would otherwise go without. "I want to send a message to consumers that they should never go without homeowners insurance," Commissioner Garamendi said. "And I want to emphasize to agents and brokers that this plan is now more widely available to property owners that they can't otherwise insure. The order, which is effective immediately, allows homeowners to "self-certify" that they have conducted a diligent search in the private market for insurance, but were unable to secure it. Previously, applicants had to provide three written denials from insurance companies to become eligible. The order also allows those who live in areas not specifically designated as FAIR Plan regions to more easily become eligible for coverage.
OREGON'S LIBERTY NORTHWEST NEGOTIATED TAX BREAK:
Nine years ago, private workers' comp insurer Liberty Northwest struck a deal with legislators that it would pay no taxes on profits in Portland or Multnomah County, according to The Oregonian. Liberty Northwest is reportedly spending millions on a November ballot initiative to eliminate its rival, the State Accident Insurance Fund (SAIF), claiming that the state insurer has an unfair competitive advantage because it is exempt from federal taxes. Company lobbyists negotiated Liberty's tax break nine years ago after they threatened to go forward with a lawsuit against the state of Oregon for millions of dollars. Liberty's Massachusetts-based parent company and other out-of-state insurance companies sued the state for taxing them unfairly. The industry and Legislature came up with a solution: Oregon would cut taxes for out-of-state insurers if the companies dropped their lawsuit. Legislation was drafted that changed how Liberty Northwest was taxed. It would be treated as an Oregon entity, exempt from state taxes but liable for local taxes. Towards the end of the legislative session, Liberty reportedly demanded that it also be exempt from local taxes or it would continue its case against the state. The Legislature agreed to Liberty's demands and hurriedly passed the reform legislation. The tax loophole applies only to Liberty Northwest. The Oregonian calculated that the insurer is saving roughly $400,000 in local taxes. Liberty paid $12.5 million in federal taxes last year while SAIF was exempt from them. Liberty Northwest made a profit of $5.7 million while SAIF lost $28.5 million in 2003.
SAFECO ESTIMATES 3Q CATASTROPHE LOSSES:
Seattle-based Safeco announced that its aggregate pretax catastrophe losses for the third quarter are estimated at $195 million. The estimated effect on third-quarter net income is $127 million after tax, or $0.96 per diluted share. Safeco expects its total catastrophe losses to increase the company's third-quarter combined ratio by 13.9 percentage points and that, as a result, its third-quarter combined ratio will be 101.6 percent. The estimated pretax catastrophe losses include $86 million in personal lines, primarily homeowners claims and $109 million in commercial claims. Of the $195 million in estimated pretax catastrophe losses, $183 million represents estimated losses from claims from the four hurricanes—Charley, Frances, Ivan and Jeanne—that hit Florida and surrounding states in August and September. The total reflects claims received through Oct. 11, 2004 and future estimates of claims from policyholders with damage from the storms. This estimate also includes an adjustment to Safeco's estimated pretax losses for Hurricanes Charley and Frances. Previously, the company reported it expected $73 million in pretax losses from the two storms; it now estimates those storms will total $117 million. The $44 million increase is primarily due to more large and severe losses than previously estimated. With this update, Safeco also has factored in greater increases in building materials and repair costs due to higher-than-usual demand caused by the multiple storms. In addition, many policyholders hit by Hurricanes Charley and Frances sustained additional damage from subsequent storms.
GARAMENDI PROPOSES CREATION OF NATIONAL DISASTER INSURANCE PROGRAM:
Warning that the cost of rebuilding after natural disasters is making insurance more costly and less available for many Californians, Insurance Commissioner John Garamendi outlined his ideas to back the creation of a national "natural disaster insurance program." Speaking to a gathering of Bay Area government officials convened to commemorate the anniversary of the Loma Prieta earthquake, the commissioner said that recent wildfires in California and a flurry of hurricanes in Florida have made it clear that the entire country must be involved in a solution. The commissioner advocates the creation of an insurance policy to cover all natural disasters in the United States. The risk would be spread across a much larger pool of potential claimants, making it more affordable and cost effective. The cost of premiums would vary depending on area and structure risks. In California, a small number of homes are covered by earthquake insurance. Just 13.34 percent of homes with residential insurance carry earthquake coverage insurance. "That means that premiums for these policyholders will be extraordinarily high because the pool of risk is so small," Garamendi said. "A national policy would help spread the cost of rebuilding our lives."
PIA WESTERN ALLIANCE FORMS:
A new alliance covering nine Western states announced its formation. The PIA Western Alliance creates the nation's broadest alignment of state and regional affiliates of the National Association of Professional Insurance Agents and covers California, Arizona, Nevada, New Mexico, Oregon, Washington, Idaho, Montana and Alaska. The PIA Western Alliance provides agents with access to diverse types of coverage from major carriers—including The Hartford, Safeco, AIG, Utica National and CNA—without requiring a minimum premium volume. Coverage includes property and casualty, homeowners and workers' compensation, as well as personal and commercial umbrella policies. This alliance's formation also marks an organizational revitalizing of the PIA in the Southwest states. The PIA Western Alliance links four regional affiliates comprised of nine Western state affiliates of the National Association of Professional Insurance Agents (PIA). The alliance aggregates purchasing power, to provide a range of services and products found in larger agencies, enabling independent agents to thrive in an increasingly competitive marketplace. Members sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses.
ALLIANCE APPLAUDS PASSAGE OF SB 1500:
The American Agents Alliance congratulated State Senator Jackie Speier (D-Hillsborough) on the passage of SB 1500. Her legislation, which puts an end to debate over electronic auto insurance policy data sharing, as well as requiring the DMV to cancel vehicle registrations when legally mandated liability coverage is dropped, was signed by Governor Arnold Schwarzenegger on Sept. 30, 2004. The Alliance is a longtime partner with Senator Speier on the issue of mandatory enforcement, beginning in 1995 with her landmark bill, AB 650. "We have been working with Senator on the mandatory enforcement issue for nearly a decade, sending letters and e-mails, making phone calls, and promoting this important issue every chance we get. The approval of SB 1500 is another positive step toward ensuring everyone driving on California's roads maintain legally required auto coverage," Alliance Executive Director Lorelle Kitzmiller said. "Thanks to Senator Speier's efforts, as well as the active support of Alliance members, more loopholes used by auto insurance scofflaws will now be closed." For years, insurance producers have complained about drivers purchasing minimum liability limits, only to cancel their policies, or simply stop paying their premiums, when vehicle tags are obtained. "Now, the DMV will be electronically notified when one of their policyholders' auto policies are discontinued," added Kitzmiller. "If they do not reinstate their policy, or purchase alternative coverage, their registrations will be cancelled."
