International Newsbriefs

European Insurers Estimate Katrina Losses:

A disaster the scope of Hurricane Katrina hits everybody, not just U.S. carriers. The following are some of the preliminary estimates of anticipated losses from a number of European insurers: Amlin Plc, a leading Lloyd's insurer, around $110 million; Germany's Hannover Re net losses before tax around $250 million euros ($314 million); France's SCOR Group between 25 and 35 million euros ($31.3 to $44 million); Converium gross losses in the range of $10 to $20 million; Swiss Re expects claims in the range of CHF 625 million ($500 million) before tax; Munich Re expects claims of approximately 400 million euros ($490 million) pretax, but not including reinsurance recoveries; Wellington PLC, a Lloyd's insurer, which also has several U.S. subsidiaries, estimates claims at around $75 million; Royal & SunAlliance, which has less U.S. exposures than it used to, said claims would be around 25 million pounds ($46 million); Goshawk Insurance Holdings, another Lloyd's and general insurer, put net losses in the $25 to $30 million range. Lloyd's has not yet released any estimates, but London's insurance community is widely reported to expect that its losses will be between 1 and 2 billion pounds ($1.84 billion and $3.7 billion). Other companies have not given preliminary estimates, but have indicated that they are working on them. The sheer size and scope of the disaster, coupled with the breakdown in communications and the difficulty of getting adjusters to the scene has hampered everyone's efforts to compile loss estimates. With overall economic loss as high as $100 billion, and estimates of insured losses have gone as high as $60 billion, claims figures will probably rise.

Swiss Re Announces Earnings, Retirement:

Swiss Re posted group net income of CHF 1.353 billion ($1.074 billion) for the first half of 2005, a 6 percent decline, compared to the CHF 1.441 billion ($1.144 billion) it earned in the same period of 2004. It also announced that CEO John Coomber is retiring, effective Dec. 31, but will take a seat on the Group's Board of Directors. Swiss Re's policy of not accepting or renewing marginal risks largely explains the decline. The world's second largest reinsurer's combined ratio for its P/C operations improved to 95.5 percent from 96.1 percent in the same period last year. Return on equity was 13 percent in line with the company's target. Swiss Re's Board of Directors has selected Jacques Aigrain, currently Deputy CEO, to succeed Coomber. His career includes an increasingly leading role with the Corporate Finance Team of investment bank JP Morgan in Paris, London and New York, where he helped build up a mergers and acquisitions department, before finally becoming Co-Head of Corporate Finance at the firm.

Indonesian Plane Crash Adds to Toll:

Another plane crash, this time on the Indonesian island of Sumatra, has added to the grim death toll from a spate of recent airplane disasters. On Sept. 5 a Boeing 737-200, operated by low-cost airline Mandala, went down in the city of Medan, killing 100 people on board and another 47 on the ground. Remarkably 14 people survived. The cause of the crash, which occurred shortly after the plane took off on a flight to Jakarta, is still unknown. A survivor said the plane began to shake violently shortly after takeoff, then veered suddenly to the left, as a ball of fire erupted from the cockpit. The plane lost altitude and crashed into a crowded quarter of the city. The plane's flight data recorder has been found, but has not yet been examined. Authorities say that so far they have found no evidence of terrorism as a cause of the disaster. The crash is the latest in a series of disasters that have claimed 448 lives since the beginning of August. All the fatalities involved secondary and charter airlines, prompting calls for greater scrutiny of the often aging and inadequately maintained aircraft run by such carriers. France joined Switzerland, the U.K; and the U.S. in publishing a list of companies that are prohibited from landing at French airports, and called for a Europe wide list to be adopted.

Three Fires in Paris Take 40 Lives:

Two fatal fires in Paris and one the southern suburbs took the lives of 40 people in the space of 10 days. In the early hours of the morning on Aug. 26 a fire in a dilapidated building in Paris' 13th Arrondissement left 17 people dead, including 6 children, and another 30 injured. Four days later another fatal building fire erupted in the French capital's Marais District of the 3rd Arrondissement, claiming seven lives and injuring 14, three seriously. Both fires occurred in ill-maintained buildings housing immigrant families from Africa. Many such structures in and around Paris have been converted to temporary housing for those unable to find any other space. Local authorities and charitable organizations have been trying to improve safety standards in them, but bureaucratic red tape--many of the families involved lack official residence papers--has delayed doing so. The third fire, on Sept. 5, occurred in an 18-story apartment building in the Paris suburb of L'Hay-les-Roses. It left 16 people dead, including 3 children, and seven others in serious condition. The building, an HLM, or public housing, was in good condition, but the fire's toxic fumes spread quickly. Most of the dead died from smoke inhalation. Three teenage girls are in police custody, accused of causing the blaze by setting fire to several mailboxes in the entrance to the building.

Utah Supreme Court Rules WCF Assets Not Owned by State

The Utah Supreme Court has declared that Workers Com-pensation Fund's assets are owned by policyholders, not the state. The ruling in favor of WCF settles long-standing challenges by the State of Utah and upholds previous Supreme Court and district court decisions. In its ruling, the court said, "We affirm the district court's decision that the 'State of Utah has no ownership interest in the Workers' Compensation Fund or its assets other than as a policyholder.' As a quasi-public corporation, the WCF exists to serve an essential public purpose, to provide workers' compensation insurance, all the while being private in ownership. Furthermore, apart from the Legislature's ability to modify its governing statues, the State has no managerial, financial or operational control over the WFC. The same is true for the WCF's assets, the Injury Fund; and we reaffirm our prior decisions, which have that those assets belong to the WCF policyholder and not to the state." A. Summerhays, WCF president and CEO, said WCF welcomed the Supreme Court decision. "We are pleased to have the ownership issue finally resolved, and look forward to continue with our primary focusproviding workers compensation insurance services, safety resources and injured worker support that our owners the policyholders deserve."

CDI to Introduce Third Revision of Broker Fiduciary Regs

The California Department of Insurance has plans to introduce the third iteration of its broker fiduciary responsibility regulations, much to the chagrin of the American Agents Alliance. In October 2004, the DOI introduced its first proposed Broker Fiduciary Regulations. The Alliance formed a coalition to combat the proposed regulations. The coalition won the first round by identifying that the DOI failed to pass the litmus test for any regulation in showing any level of necessity, consistency, clarity and non-duplication. The DOI subsequently released a second version of the proposed regulations in spring 2005. Once again, the coalition thwarted the regulations. The DOI then sought a legislative solution and sponsored Senate Bill 938. The measure would have provided the commissioner with the authority needed to implement the regulations. However, SB938 died in the Senate Banking, Finance and Insurance Committee. "We at the Alliance and among the coalition are confused as to why the insurance commissioner continues to go to the well on this matter," said Ken Nigohosian, the Alliance executive director. "He clearly has not shown any additional need for regulations governing broker fiduciary duties. This continued battle is simply an unnecessary drain of taxpayer resources that the Alliance and our coalition believe is unacceptable."

Calif. Senate Approves Post-Disaster Insurance Bills

The California Senate has approved two bills designed to ease the process of rebuilding for victims of natural disasters in the state. Senate Bills 2 and 518 share a provision requiring insurance companies to pay the living expenses of victims of future disasters for up to 24 months while they rebuild their homes. Additionally, SB 518 requires insurers to provide homeowners with a copy of their policy within 30 days of a request, and tightens regulations governing the activities of insurance adjusters. SB 2 initially had a section that sought to remove a requirement to compile a list of personal items destroyed to make personal property claims less cumbersome. However, insurance industry representatives opposed the section, saying it encouraged fraud and might overpay policyholders who had recently moved into a home. That provision was removed from the bill, which now heads to the governor for approval. The bills were written in response to complaints from victims of the 2003 Cedar and Paradise fires, but reached a higher profile in the wake of Hurricane Katrina.

Calif. Workers' Comp Bill Tabled

A bill aimed at closing a loophole in California's workers' compensation laws that allows doctors to profit from big markups on prescription drugs they sell to their patients appears has died in the current legislative session. Assembly Speaker Fabian Nuñez, D-Los Angeles, said he had derailed SB 292, although it was passed by the state Senate on a 40-0 vote and received only one negative vote in the Assembly Insurance Com-mittee. Nuñez said he wanted to hold the bill by Sen. Jackie Speier, D-Hillsborough--and all other workers' comp bills--until next year because he wanted to pressure Gov. Arnold Schwarzenegger and California employers to revisit a compromise that led to a complete overhaul of the state's troubled workers' comp system during Schwarzenegger's first few months in office in early 2004. In particular, the speaker said he wanted the Schwarzenegger administration to redo its formula for calculating benefits for workers who suffer permanent disabilities while on the job. Schwarzenegger Spokesman Vince Sollitto said the administration found it "disappointing and a little disturbing" that Nuñez would use the Speier bill to gain political leverage on unrelated workers' comp issues. The administration is considering fixing the problem by issuing regulations that put ceilings on fees charged by doctors for the prescription drugs they dispense, he said. The Speier bill is backed by a coalition of labor unions, the California Chamber of Commerce and major retailers. But creating a similar compromise on permanent disability benefits is unlikely, chamber lobbyist Charles Bacchi said. Unions and large employers have been working to convince lawmakers that the estimated $260 million spent annually on reimbursing doctors for high-priced medicines--some sold at markups exceeding $500 for a single bottle of pills--could be better used to lower workers' comp insurance premiums or boost workers' benefits. Opponents of the Speier bill said they were pleased that the measure had been put on hold. "We're happy to have more time to work on the issue" said Tom Calderon, a consultant and legislative strategist for the Pharmacists & Physicians Alliance. Although legislation signed by former Gov. Gray Davis in 2003 put price caps on reimbursements for prescription drugs sold to injured workers by pharmacies, the limits did not apply to the same drugs sold directly by doctors. Speier's bill would apply the price caps to doctor-sold drugs.

Workers' Comp Gives Nev. Business Incentives

A study by the state of Oregon finds that Nevada's workers' compensation system is a selling point for attracting businesses to locate in Nevada. Premium-related rates have increased in Nevada only once in the past five years, and the state has gone from the 11th most expensive in 2002 to No. 26 in 2004 in that category, according to the study and National Council of Compensation Insurance. On average, rates Nevada employers were paying for workers' compensation premiums went down more than 12 percent between 2002 and 2004, the study found. "That is one of the bigger declines," said Derek Reinke, research analyst of the Oregon Department of Consumer and Business Services. "It has been good for the state, good for its workers, good for business and been very good for us for economic diversification for companies to come here that are good companies," said Gov. Kenny Guinn. "That's one of primary reasons we are doing so well in economic development and diversification right now." Nevada's workers' comp system is privatized, which allowed the state to move off its ledger sheet an unfunded liability of $1.6 to $2 billion with the private sector taking over responsibility for it, Guinn said. Also, the state was able to reduce its payroll by about 800 workers through retirements, employees joining the privatized company or taking other state jobs, he said. Andrew Barbano, editor of NevadaLabor.com and a union member, said, "Workers' comp is almost as difficult as applying for welfare. The system is designed to jump you through lots of hoops (so) that it will frustrate you to the point where it will reduce claims." Guinn said that "to make sure that we are protective of our workers," Nevada retained responsibility for arbitrating cases when it privatized the system. "We handle that, so that's protection for individuals and the companies. We have a staff of people who actually hear those cases," Guinn said. The governor also noted that privatization of workers' comp in Nevada also ensured that permanently disabled workers received a greater percentage of their normal salary. The Oregon study shows that California's workers' comp premium rates are the nation's highest at $6.08 per $100 of payroll compared with Nevada's $2.58.

Wash.'s L&I Proposes 3.8% Boost in Workers' Comp Rates

Washington's Department of Labor and Industries has proposed increasing hourly workers' comp rates by an average of 3.8 percent in 2006. If adopted, the higher premiums would cover anticipated increases in the cost of medical and wage-replacement benefits paid to workers injured on the job next year. The agency will hold five hearings around the state beginning Oct. 11 for public comment on the proposed increase. L&I Director Gary Weeks will make the final decision on rates in mid-November. If approved, the new rates will take effect Jan. 1 and will show up on employers' first-quarter 2006 billing in April. Weeks said the rate increase is a result of a continued good economy, increased reporting of hours worked in 2005, and lower expectations of future medical and wage inflation. The higher rates would bring in an additional $56 million next year. Washington's workers' compensation system is divided into three funds: The Accident Fund pays partial wage-replacement and disability-award benefits when a worker is injured on the job and can't work. On average, this rate will go up 12.1 percent. The Medical Aid Fund pays for medical treatment and for vocational rehabilitation and counseling. On average, this rate will stay the same in 2006. The Supplemental Pension Fund, which funds additional cost-of-living increases for workers receiving long-term wage-replacement payments, will decrease by 16 percent. Washington is the only state where workers contribute a substantial portion of the premiums paid into the workers' compensation system. Under this proposal, their share is just over a quarter of total premiumson average, about 13 cents an hour. How the rate proposal will impact specific industries is available at http://www.LNI.wa.gov/ClaimsIns/ Insurance/RatesRisk/Check/RatesHistory/default.asp. L&I manages Washington's workers' compensation system and the Washington State Fund. The State Fund provides coverage for about 165,000 employers and two million workers.