International Newsbriefs

Roundup of Katrina Loss Estimates:
As the scope of the devastation wrought by Hurricane Katrina became increasingly evident, European and Bermuda-based insurers and reinsurers continued to calculate their potential exposures. Most, if not all, of the estimates are based on a percentage of the projected total insurance industry loss amount, which varies between $35 and $50 billion. The majority of the estimates used $40 billion as a basis. The carriers duly noted that they are thus subject to modification as more hard data emerges. The following is a rundown of the latest reports.

Following a review by all of its 44 managing agents, who operate its 62 active syndicates, Lloyd's calculates potential overall losses at approximately 1.4 billion pounds ($2.54 billion). Swiss Re revised its earlier loss estimates upward by $700 million from $500 million to $1.2 billion. ACE Limited said the entire ACE Group of Companies expected losses of approximately $450 to $550 million after-tax. XL Capital indicated its losses would be approximately 1.75 percent of industry losses, which works out to approximately $700 million. Property specialist RenaissanceRe said its losses would be approximately 1 percent of the aggregate industry losses, putting them in the $400 million range. White Mountains Insurance Group expects total net losses on its insurance and reinsurance operations to be in a range of $150 to $300 million pretax, or $100 to $200 million after tax. PXRE Group updated its estimates to between $235 to $300 million net after tax, reinsurance recoveries, etc. AXA RE, the reinsurance division of France's AXA Group, expects net losses of approximately $200 million before tax.

Platinum Underwriters based its estimate on 0.5 to 0.6 percent of the total industry losses, which indicates losses of between $200 and $270 million. Arch Capital Group said its third quarter operating earnings would be negatively impacted in the range of $110 to $160 million, after tax. Odyssey Re Holdings Corp., the reinsurance unit of Canada's Fairfax, indicated that its net pre-tax losses would be $80 to $100 million with an after-tax net loss of $52 to $65 million. Aspen Insurance Holdings said its initial loss assessment is approximately $150 million. Max Re Capital estimated a $60 to $90 million impact on the company's third quarter 2005 earnings. Kiln plc, a leading Lloyd's insurer, put its losses at 80 to 100 million pounds ($147 to $184 million). It said, however that the equivalent loss to its shareholders would be considerably less--between 30 and 35 million pounds ($55 and $64 million). Endurance Specialty said net losses, after calculating reinsurance payments, reinstatement premiums, and tax benefits would be between $375 and $450 million. Everest Re calculated its exposure at approximately 1 percent of the total industry losses, putting the figure in the $400 million range. Transatlantic Holdings, in which AIG holds a 59.3 percent stake, said its preliminary estimate of the pre-tax cost, net of reinsurance would be around $270 million, or $176 million on an after-tax basis. Montpelier Re estimated that its hurricane and flood losses would be in the $450 to $675 million range. Canada's Kingsway Financial Services said it expected around U.S. $2 million related to Katrina. Finally, Bermuda's AXIS Capital gave no figures for its estimated net losses but indicated they are expected to be within its current expectations for 2005--"assuming no other large loss events during the year." A sentiment all of the others would surely agree with.

Allianz Buying Out RAS Shareholders:
Germany's Allianz AG announced an offer to shareholders of Riunione Adriatica di Sicurta (RAS) S.p.A for the approximately 45 percent of the shares it doesn't already own. At 19 euros ($23.35) per share that makes the offer worth around 5.7 billion euros ($7 billion). Allianz said it plans to merge RAS into Allianz and restructure both entities as a "European Company," or "SE--Societas Europaea." The move is part of its plan to reposition itself and further strengthen its position "as a leading financial services provider in its European home market." The decision caused a stir in France, where Allianz holds a majority stake in Assurances Generales de France (AGF). Allianz has said it has no immediate plans to make a similar offer to AGF shareholders. However, most analysts feel that it's only a question of time (and money) before the insurer's French holdings are also included in the new ES. Eventually it could also include the company's Austrian, Swiss and Spanish operations, and perhaps even Allianz Cornhill in the U.K. Fireman's Fund, however, would assumedly remain an American company.

Clinton Launches Global Initiative:
Former President Bill Clinton closed a very successful initial conference in New York for his Global Initiative with commitments of $1.25 billion. The three-day event, organized by the ex-President to coincide with the current United Nations Anniversary summit meetings, focused on finding ways to reduce poverty, on using religion as a force for reconciliation and conflict resolution; implementing new business strategies and technologies to combat climate change, and strengthening governance. Swiss Re CEO John Coomber was among the featured speakers on the final day. He could well prove invaluable for one of the Initiative's more adventuresome projects--setting up a terrorism insurance program in the Gaza Strip.

Davies and Saville Resign from Kinnect:
Lloyd's confirmed that Toby Davies, the CEO of its Kinnect IT platform, and Iain Saville, the project's Executive Chairman, both stepped down, effective Sept. 14. Saville has played an important role in driving forward Lloyd's business process reform agenda--most importantly the adoption of standardized LMP [London Market Principles] slips and in developing the Kinnect platform. Lloyd's said Saville, 57, had decided "to scale down his commitments."
Lloyd's also indicated that Davies, who has played a key role in developing Kinnect, had decided it was time to move on, as the project enters a new phase. Many London commentators saw the resignations as yet another setback for Lloyd's troubled initiative to bring online processing to its brokers and underwriters. Michael Dawson, currently underwriter at Chaucer's nuclear syndicate 1176, has been named interim chairman of Kinnect, replacing Saville. Lloyd's CEO Nick Prettejohn will also join the Board as a non-executive director, while Steven Haasz, currently head of change management at Lloyd's, will be giving additional support to the Kinnect team.

Guy Carpenter Releases Report:
Guy Carpenter & Co., the global risk and reinsurance specialist of the Marsh & McLennan Cos., has released its annual, comprehensive study of the property catastrophe reinsurance market, "The World Catastrophe Reinsurance Market: 2005." The report went to print before Hurricane Katrina and covers more than 90 percent of the worldwide market for catastrophe reinsurance.

National Newsbriefs

N.Y. AG Indicts Former Marsh Execs:
New York Attorney General Eliot Spitzer and Insurance Superintendent Howard Mills announced the indictment of eight former executives of insurance brokerage giant Marsh Inc. for their roles in a bid-rigging scheme that officials maintain defrauded clients of millions of dollars.

The former executives are accused of colluding with executives at leading insurance companies to arrange noncompetitive bids and conveying these bids to Marsh clients under false pretenses.

The indictments come after 17 individuals at five companies, including eight former Marsh employees, previously pleaded guilty to criminal charges in the ongoing insurance industry investigation that began a year ago.

The indictment charges that from November 1998 to September 2004, the defendants colluded with executives at American International Group, Zurich American Insurance Company, ACE USA, Liberty International Insurance Company and other companies to rig the market for excess casualty insurance.

The indictment charges the following individuals: Greg J. Doherty, Marsh's ACE Local Broking coordinator team leader and senior vice president; Kathleen M. Drake, Local Broking coordinator team leader and managing director; William Gilman, executive marketing director and managing director; Thomas T. Green Jr., senior vice president; Edward J. Keane Jr., assistant vice president; William L. McBurnie, Coverage and Carrier specialist and senior vice president; Edward J. McNenney, Global Placement director and managing director; and Joseph Peiser, head of Global Broking Excess Casualty and managing director.

If convicted of the top count of first degree grand larceny, defendants Gilman, Peiser, McNenny, Doherty and Green face a minimum of one to three years and up to 25 years in state prison. The top count for the remaining defendants, second degree grand larceny, carries a maximum term of 15 years.

State Regulators Settle with MarshMac:
More than 30 state insurance regulators working collaboratively through the National Association of Insurance Commissioners announced a multi-state regulatory settlement with the nation's largest insurance broker, Marsh & McLennan Cos. Inc.

The settlement agreement is designed to see that the extensive compensation and disclosure reforms are implemented by Marsh. The agreement adopts Marsh's agreement made in January 2005 to pay its clients $850 million in restitution to resolve allegations of fraud and anti-competitive practices leveled by New York Attorney General Eliot Spitzer and New York State Insurance Superintendent Howard Mills.

The business reforms Marsh adopted include limiting its brokerage compensation to a single fee or commission at the time of placement, banning contingent commissions, and requiring disclosure of all forms of compensation to the clients. The participating regulators will receive ongoing compliance reports from Marsh, have the authority to enforce reforms, and retain the ability to continue ongoing investigations with Marsh's cooperation.

"The regulatory controls that are embodied in this global agreement are prudent and comprehensive," said Diane Koken NAIC president and Pennsylvania Insurance Commissioner.

Marsh clients had until Sept. 20 to join the settlement pool and release Marsh from further claims.

What's Next After Katrina?:
In the near term, insurers are expected to raise rates and tighten terms, while public insurance programs will expand because of Hurricane Katrina, according to a new report published by Celent, "After Katrina: What Now for the Insurance Industry?"
The report says that in the long term, there may be fundamental changes to the insurance industry's business model including: transforming capital requirements, new pricing methods, and a different approach to underwriting and claims.

The report also describes the role that technology can play to support these changes and outlines the implications for insurers and technology vendors.

"The human and economic consequences of Hurricane Katrina are still unfolding, but what is already clear is that Katrina is not just another big storm," said Donald Light, Celent analyst and author of the report.

"Even in these early days, the unprecedented scale of Katrina and its aftermath demands a look at the longer-term implications for the insurance industry."

Bill May Shield Volunteers Contractors:
The U.S. House of Representatives is weighing legislation to protect contractors who respond to declared federal, state and local emergencies or disasters from lawsuits arising out of their volunteer efforts.

"The Good Samaritan legislation is designed to provide contractors, such as those responding to Hurricane Katrina, with qualified immunity from liability when providing services in volunteer situations that arise from a disaster or emergency," said Associated General Contractors of America CEO Stephen E. Sandherr. "When construction expertise is needed, there should not be anything to make the construction industry hesitant in responding to help and possibly save lives and property."

The measure was introduced by Reps. Dave Reichert (R-Wash.), Gary Miller (R-Calif.), Dan Lungren (R-Calif.) and Jim Matheson (D-Utah).

Many states with Good Samaritan statutes do not include contractors within the protections of those statutes. The new House legislation would provide a uniform federal basis for protections for contractors throughout U.S.

The bill would provide construction entities with immunity from liability for negligence when providing services or equipment on a volunteer basis in response to a declared emergency or disaster. It would not cover gross negligence or willful misconduct.

Feds Argue RRGs Need Uniform Standards:
State insurance regulators should adopt consistent standards for risk retention groups and Congress should consider continuing the RRG exemption from state insurance laws only in states that adopt the new standards, according to a report from the Government Accountability Office. The report also urges Cogress to establish minimum corporate governance standards for RRGs.

The Liabiltiy Risk Retention Act, which authorized the formation of RRGs, exempts them from certain state regulations, a fact that the report says has led to "a regulatory environment characterized by widely varying state standards," with some states chartering RRGs as captives. Most captives are not subject to uniform solvency standards and state requirements in financial reporting also vary.

"The combination of single-state regulation, growth in new domiciles, and wide variance in regulatory practices has increased the potential that RRGs would face greater solvency risks," said the report, concluding RRGs would benefit from uniform regulatory standards.

ACIC OPPOSES PROPOSED CDI REGULATIONS:

The Association of California Insurance Companies recently testified on proposed Department of Insurance regulations. According to Jeff Fuller, executive vice president and general counsel of ACIC, if passed, the regulations would increase the cost of insurance for Californians while preventing insurers from accurately pricing the repair and replacement of damaged property. "Not only are these regulations detrimental to consumers and insurers, the department lacks the authority to impose some of the key provisions," Fuller said. In one section, the proposed regulations would impose restrictions on insurers' use of databases that contain extensive information that help to establish the value of insurance claims. The regulations would allow insurers to use the databases only if the owners of those databases provide the Department of Insurance full access to this information, according to Fuller. He noted that some of the information may be proprietary, and insurers are not able to assure that this information will be made available to the department. Therefore, the regulations would jeopardize insurers' use of databases that help achieve fair settlement of claims, he said. In another section, Fuller explained that the regulations would prevent insurers from depreciating labor for actual cash value claims. The Department of Insurance is proposing that insurers, in determining the cost of a loss, separate the materials from labors costs. The materials could be depreciated, but the labor would not. Actual cash value means just that, the value of an item--such as a damaged wall--today, Fuller said. "This would raise the cost of premiums for policyholders. In addition, the department lacks the authority to impose this provision. Only the Legislature can mandate policy coverages, not the commissioner," he said. "Insurers are opposed to these regulations because we want to do everything possible to keep costs down and to accurately and efficiently evaluate the cost of claims. These regulations would prevent us from achieving both of these goals."

ORE. SAYS EMPLOYERS WILL PAY $33.4M LESS IN WORKERS' COMP FEES:

Employers will pay $33.4 million less in state workers' compensation fees in Oregon next year. Employers also can expect average workers' compensation insurance rates to remain at the same level in 2006, according to the Oregon Department of Consumer and Business Services. The fees include worker safety programs and inspections. This marks the fourth straight year without an increase in the so-called average "pure" premium rate employers pay for Oregon workers' compensation insurance. The state had posted 12 consecutive years of rate reductions before leveling off, setting a national record that has resulted in cumulative cost-savings worth billions of dollars to Oregon employers, officials said. Cory Streisinger, director of the state consumer and business services agency, also noted that benefits for permanently disabled workers in Oregon have increased dramatically since workers' compensation reforms began in the 1990s. Oregon's workers' compensation rates are released each fall for the following year. In neighboring Washington state, officials recently proposed an average premium increase of 3.8 percent for next year. California rates are also significantly higher than Oregon, officials said. Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

COLORADO AUTO INSURANCE RATES BEING REVIEWED:

Despite claims by the Colorado's insurance commissioner, several House Democrats don't think that auto insurance rates have declined since the state moved from no-fault to a tort system. Insurance Commissioner David Rivera told an interim legislative committee looking at auto insurance rates that since the state went to a tort system last summer, premiums dropped anywhere from 24 to 51 percent, depending upon the chosen amount of coverage. Rivera said motorists who purchased protection against their own vehicles saved about $265 a year. Those who opted for the minimum liability coverage saved even more, approximately $300, he said. However, Rep. Morgan Carroll, D-Aurora, criticized those numbers. Carroll said the figures are based on the largest 24 companies operating in the state, which represent approximately half of the state's drivers. The Legislature allowed the state's no-fault system to expire in 2003 because of concerns over ever-increasing rates. Lawmakers were told that rates would stabilize or decrease, if the state stopped requiring all Colorado drivers to have personal injury protection on their policies. Under the new system, drivers who are at fault are left with the tab of paying for the treatment of anyone injured in an accident. Carroll said she studied auto insurance rates based on raw data from Rivera's office, and determined that of the 200 companies operating in Colorado, 80 increased rates and 48 others made no rate changes despite the reduction in coverage prompted by the tort system. Carroll said that 61 of the companies filed rate reductions after July 1, 2003, when the tort system went into effect, but 30 of those did so only after increasing their rates just before that date. American National General Insurance Co. increased its rates before July 2003, by 31 percent, and then lowered it 14.9 percent after that date. Federal Insurance Co. increased its rates 43.4 percent before no-fault ended, and then lowered its rates 4.5 percent after the tort system started. Carroll called on Rivera to look more closely at the rates to see if the companies were taking advantage of the change in state law to increase their profits. He agreed it is difficult to compare rates under the no-fault and tort systems because they don't match. A typical driver with full coverage under the old system, with $50,000 in PIP coverage, would pay about $1,130 a year. Under the new system, full coverage policies with $50,000 in medical pay coverage, premiums would be about $100 higher.