Currents

Calif. high court rules discovery does not apply to reinsurance documents

The California Supreme Court has ruled that a statute authorizing limited discovery of a defendant's insurance coverage does not include authorization to look into reinsurance agreements as part of facilitating a pretrial settlement.

In Catholic Mutual Relief Society et al. v. The Superior Court of Los Angeles County, 140 people alleged they had suffered childhood abuse by certain priests in the Roman Catholic Archdiocese of San Diego. In September 2003, as part of an order regarding settlement and mediation proceedings, the trial court issued an initial case management order that, among other things, directed the church to turn over copies of all of its insurance policies that might provide coverage for the plaintiffs' claims. The church turned over copies of its liability insurance policies, but the plaintiffs contended that the information was insufficient. They said they also needed to know whether the church was financially sound enough to cover their policy obligations.

The plaintiffs served a series of "interrogatories" aimed at obtaining the desired information, according to court documents. But the petitioners objected, noting that "information concerning their financial condition, reserves and reinsurance agreements were not relevant for discovery purposes" and that the material was "privileged."

The court allowed the plaintiffs to serve deposition subpoenas on the petitioners to secure the information. And the church moved to quash the subpoenas on the grounds that the documents requested "were not reasonably calculated to lead to discovery of admissible evidence and were therefore beyond the permissible scope of discovery."

The state high court agreed with the Court of Appeals and the church that the law authorizing discovery does not apply to reinsurance agreements, it is intended only to reach a defendant's direct insurance agreements.

"As a general matter, information is discoverable if it is relevant to the subject matter of an action and, additionally, is either admissible in evidence or reasonably calculated to lead to the discovery of admissible evidence. In contrast to liability insurance, [a] contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. Reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage. Because a contract of reinsurance is defined by statute as a contract of indemnity made for the benefit of the liability insurer, as a general matter it has no relevance in an underlying tort action brought against an insured under the policy of liability insurance," the court wrote.

The Supreme Court remanded the case for proceedings that are consistent with its views.

To view the entire decision, visit www.courtinfo.ca.gov/ opinions/documents/S134545.PDF

Oregon passes motor vehicle, P/C insurance-related bills

The 2007 Oregon Legislature has passed a number of bills relating to property/casualty insurance, including several dealing with motor vehicle liability insurance.

SB 225 provides that when an injured person sues to recover damages arising from an auto accident, the injured person's auto insurer will pay its share of legal costs for recovery of personal injury protection benefits from the insurer of the person at fault.

SB 256 provides for arbitration proceedings for resolving disputes about uninsured motorist coverage and personal injury protection benefits between the insurer and a person making a claim under the policy, when the parties agree to arbitration. For uninsured motorist disputes, the parties must submit the dispute to a panel of three arbitrators unless the parties agree otherwise. PIP disputes must also be conducted under local court rules.

SB 523 was designed to improve the notice required to be given to consumers regarding their rights under motor vehicle liability insurance policies when a consumer takes a car to an auto body shop for repair of accident damage. The bill also requires equal treatment of claims, regardless of whether the consumer takes the car to a recommended auto body shop. Current law has prohibited an insurer from requiring the use of a particular shop, but prior to this legislation did not require the insurer or its adjuster to notify the insured of the prohibition and did not require comparable payments.

HB 2385 requires self-insurers (e.g., rental car companies and car dealerships) to provide motor vehicle liability insurance coverage for their customers or other permitted users to meet the minimum financial responsibility requirements under the Motor Vehicle Code ($25,000 for bodily injury per person, $50,000 for bodily injury per accident, $10,000 for property damage per accident, and uninsured motorist coverage). Prior to this change, self-insurers had to meet minimum financial responsibility requirements under the Motor Vehicle Code, but they were not required to provide the same coverage for their customers or other permitted users.

Other bills affecting P/C insurance include:

SB 183 (ch 574) Premium relief to rural doctors for professional medical liability insurance;

SB 255 (ch 392) Motor vehicle liability insurance; personal injury protection benefits;

SB 256 (ch 328) Motor vehicle liability insurance; personal injury protection benefits; arbitration;

SB 523 (ch 506) Motor vehicle liability insurance; notice of consumer rights;

SB 559 (ch 241) Workers' compensation insurance; elimination of guaranty contracts;

SB 595 (ch 719) Limited insurance producer license, vehicle rental companies;

HB 2384 (ch 131) Uninsured motorist coverage;

HB 2385 (ch 287) Self-insurers; motor vehicle liability insurance coverage for permitted users;

HB 2654 (ch 648) Increased protection in residential construction;

HB 2751 (ch 210) Contractor liability insurance, grouping authority;

HB 2908 (ch 457) Motor vehicle insurance, uninsured motorist coverage;

HB 3086 (ch 782) Motor vehicle insurance, family exclusion; and

HB 3490 (ch 692) PIP benefits; payment.

For details on all the bills, visit www.cbs.state.or.us/external/ins/legislature/2007_legislature/2007 -ins_legislation-main.html

Former N.M. insurance regulator pleads not guilty

Former New Mexico insurance regulator Joe Ruiz pleaded not guilty to federal corruption charges that arose from allegations he misused his office by soliciting payments from insurance companies in exchange for reducing regulatory fines.

Ruiz declined comment after the federal court hearing except to say he felt "lousy" because he'd had a heart attack and had been released from the hospital to attend his arraignment before U.S. Magistrate Robert Scott.

A federal grand jury indicted Ruiz, a former deputy superintendent of insurance, on 31 counts of extortion, mail fraud, wire fraud and corrupt solicitation. A conviction on most of the felony charges carries up 20 years in prison.

Ruiz said he had not seen the indictment until about two minutes before the arraignment.

Attorney Tim Padilla told the judge that Ruiz understood the charges and that he and his client had discussed the potential penalties. Ruiz was released on his own recognizance. Scott restricted his travel to within the state.

The state Public Regulation Commission fired Ruiz last year after allegations that he had solicited charitable donations from insurance companies. He was deputy insurance superintendent from June 25, 2001 through July 31, 2006.

According to the indictment, Ruiz asked companies for donations to organizations or individuals "in exchange for recommending a reduced fine, or no fine, to the superintendent of insurance." Padilla said he did not believe Ruiz received any benefit from his alleged actions.

Ruiz was recruited for the deputy insurance superintendent's job by then-superintendent Eric Serna.

Serna retired last year in an agreement with the PRC after the agency suspended him over conflict-of-interest issues, including some involving donations to a nonprofit health foundation, Con Alma, for which Ruiz solicited payments from insurance companies.

Most of the time, Ruiz directed that insurance companies make payments to Con Alma, founded by Serna, or to the Southwestern Arts Institute, which bought bilingual books for children, mostly written by Ruiz with the stories in Spanish and English. The indictment said the institute consisted of one individual, who was not identified.

The indictment also said Ruiz intervened in an insurance claim involving a state senator in July 2002, allegedly pressuring for a settlement by telling the company he would not take regulatory actions, including fines, if it agreed to a $10,000 payment on the claim. The claim stemmed from an automobile accident involving the lawmaker, who was not identified in the indictment. The company paid a $10,000 settlement and it was not fined.

The indictment also said Ruiz would tell insurance companies they faced large fines for not being properly licensed or registered in New Mexico or for having employees or adjusters handling claims in New Mexico who weren't licensed in the state.

CEA funding structure to be revamped under legislation sent to governor

By a wide margin, California lawmakers have approved a compromise between the California Earthquake Authority's governing board and its participating homeowner insurers to replace a significant portion of the CEA's statutory funding set to expire next year. The legislation was approved less than 48 hours before the Legislature adjourned its regular session for 2007.

If Gov. Arnold Schwarzenegger signs SB 430 into law, it would avert potential solvency and rating problems for the CEA. The governor has not taken a position on the measure, according to a spokeswoman, Sabrina Lockhart.

Under the CEA's authorizing legislation enacted in 1996, the CEA is authorized to assess participating insurers up to $3.6 billion to pay claims after a major earthquake. The legislation calls for that portion of the so-called "layer cake" of the CEA's funding to expire Dec. 1, 2008, 12 years after the CEA began operations as a state-administered, insurer funded residential seismic risk pool.

The new funding scheme would give the CEA the capacity to pay claims arising from a one-in-500-year event.

Under the terms of SB 430, authored by Senate Banking, Finance and Insurance Committee Chairman Mike Machado, D-Stockton, that funding layer would be replaced by a smaller industry assessment that would roll off over a 10-year period at the rate of 5 percent per year.

SB 430 sets the new maximum post-event assessment layer at $1.78 billion. That works out to $1.3 billion based on the CEA's current level of participating insurers representing 73 percent of California's homeowners market, according the committee's analysis of SB 430. That amount is slightly higher than the $1.2 billion post-event assessment layer agreed to by the CEA governing board and insurers in August.

The period of the assessment could be extended by up to two years if the CEA pays out $500 million or more to pay claims arising from a single earthquake.

As approved by the Legislature, SB 430 rejects calls by State Treasurer Bill Lockyer, a CEA governing board member, and the Foundation for Taxpayer and Consumer Rights to extend the post-event insurer assessment layer put in place under the 1996 authorizing legislation beyond next year's sunset.

Such a provision would have likely sparked litigation by insurers challenging the extension and potentially prompting homeowner insurers to cut back their writings in California. That provision also could have led to an availability crisis like that which occurred in the mid-1990s following the January 1994 Northridge earthquake that led to the CEA's formation.

"Carriers would have been forced to consider such a move," said Rex Frazier, president of the Personal Insurance Federation of California. "In the end, a fair deal was needed in order to ensure that the participating insurers wouldn't fight the bill in the Legislature and, equally important, to ensure that the participating insurers would sign their contract modifications to agree to the additional $1.3 billion liability," Frazier said.

Erin Ryan, a consultant to the committee, described the negotiations leading to SB 430 as challenging and on the verge of collapse in the final month preceding SB 430's approval by the Legislature.

"It was a very hard negotiation," Ryan told Insurance Journal. "There were multiple players, the CEA governing board and staff, and insurers with different ideas of what should be essential" to financially restructure the CEA in light of the pending expiration of the post-event assessment layer.

Ryan said there was also pressure to resolve the issue during the current legislative session because waiting to do so until 2008 could have adversely affected the CEA's ratings and reinsurance costs and reduced the time required by the Internal Revenue Service to review the new funding structure to ensure it doesn't affect the CEA's tax-exempt status. SB 430 takes effect July 1, 2008, to provide the IRS sufficient time to review the changes put in place by the bill, Ryan noted.

A sticking point in the negotiations over SB 430, Ryan said, was a proposal by insurers to essentially privatize the expiring post-event assessment layer by selling the CEA reinsurance to replace it.

Driving that proposal, Ryan explained, are Department of Insurance regulations barring insurers from taking into account the cost of funding the post-event assessment layer when setting rates. "That complicated matters immensely and was the biggest challenge at the end," Ryan said.

Lockyer opposed that aspect of the deal, protesting it would require CEA policyholders to pay an average of $55 more for basic policies. Lockyer, who played an instrumental role in the passage of legislation setting up the CEA in 1996, also complained the CEA has accumulated far too little premium and investment income in its nearly 11 years of operation.

According to the state treasurer, insurers projected those revenue sources would generate total capitalization of $6 billion during that period, but instead, less than half that amount is in the CEA's coffers.

"The amendments to SB 430 made small improvements to the original version that worked to consumers' benefit," Lockyer spokesman Tom Dresslar said. But Dresslar termed SB 430 a "temporary fix" that does not address the long-term financial issues facing CEA such as strengthening the CEA's ability to accumulate capital and reducing its reliance on reinsurance.

Calif. governor signs law to ban teen cell phone use while driving

California Gov. Arnold Schwarzenegger has signed SB 33 by Joe Simitian, D-Palo Alto, banning teenage drivers from using all electronic devices -- such as cell phones, pagers and laptops -- while behind the wheel.

"The simple fact is that teenage drivers are more easily distracted. They are young, inexperienced and have a slower reaction time. We want to eliminate any extra distractions so they can focus on paying attention to the road and being good drivers," Schwarzenegger said.

According to the California Highway Patrol, cell phone use is a leading cause of distracted-driver accidents in California. A study conducted by Ford Motor Co. revealed that teenage drivers are four times more distracted than adult drivers by cell phone use. Motor vehicle crashes are the leading cause of death among 16- to 20-year-olds. Motor vehicle crashes account for 44 percent of teen deaths in the United States, with approximately 6,000 teenage drivers or passengers dying each year.

Despite the fact that young drivers represent only 6.3 percent of the nation's licensed drivers, they are involved in 13.6 percent of fatal crashes, the Governor's office said in a statement. According to a 2004 study from the Advocates for Highway and Auto Safety, drivers ages 16 to 19 have a fatality rate that is four times the rate of drivers ages 25 to 69.

Currently, 15 states and the District of Columbia have laws restricting the use of wireless communication devices by new and inexperienced drivers. The National Transportation Safety Board has urged all states to enact legislation to prohibit inexperienced drivers from using cell phones and other mobile service devices while driving.

SB 33 takes effect on July 1, 2008 -- the same date as a law Governor Schwarzenegger signed last year that requires all drivers to use hands-free devices while talking on cell phones. Violating either law will result in a $20 fine for the first offense and $50 for each additional offense. Both laws also provide exemptions for emergency calls.

Calif. urges governor to sign workers' comp bill

The Association of California Insurance Companies is urging Gov. Arnold Schwarzenegger to sign into law legislation that it said could encourage expansion of the workers' compensation insurance market in California.

ACIC President Sam Sorich said the bill, SB 316 by Sen. Leland Yee, D-San Francisco, "would foster greater competition among insurers by eliminating an unnecessary and duplicative reserve requirement. The requirement, created nearly 40 years ago, has been superseded by modern laws that more effectively regulate insurer solvency. Eliminating the requirement will release capital so insurers can write more business in California."

Existing law requires insurers to maintain certain minimum reserves for outstanding losses and loss expenses for various coverages included in the lines of business described in the annual statement. SB 316 would delete workers' compensation insurance from that requirement.

Additionally, the bill would require the Commission on Health and Safety and Workers' Compensation to examine the causes of the number of insolvencies among workers' compensation insurers within the past 10 years. It would require that by June 1, 2009, the report be published on its Internet Web site, and the Legislature and governor be informed of its availability. Half of the costs for the report would be paid for by the Workers' Compensation Administration Revolving Fund.

Sorich stressed that the bill would not jeopardize benefits for injured workers. The insurance commissioner will continue to have the authority to make certain that insurance company reserves are adequate to pay claims.

"This bill ... allows insurers to shed an unnecessary reserve requirement and, therefore, have greater flexibility for competing in the marketplace. Injured workers, meanwhile, will continue to receive their workers compensation benefits. And because SB 316 fosters greater competition, businesses are likely to have more choices in obtaining workers compensation insurance to protect their workers," Sorich said.

If approved by the governor, the bill will take effect Jan. 1.

Countrywide announces more job cuts to come

Calabasa, Calif.-based Countrywide Financial Corp. has announced plans to address changing market conditions, in part due to the subprime mortgage meltdown. As part of the plan, the company said it would be reducing its workforce by a total of 10,000 to 12,000 employees in the next three months.

Countrywide said the reductions represent about 20 percent of its workforce, and "will occur in areas most impacted by lower mortgage market origination volumes." Actual reductions could be lower if the interest rate environment and related market volume outlook improve, the company said. "Based on current interest rate levels, Countrywide presently expects that total market origination volumes will decline approximately 25 percent in 2008 compared to 2007 levels," it said in a statement.

Other steps as part of Countrywide's plan to address changing market conditions include:

Migrating the residential lending business into its federally chartered thrift entity;

Revising product guidelines to ensure that all loans that the company produces can be sold into the secondary market or are high-quality prime loans to be held in Countrywide Bank's investment portfolio;

Continuing growth in areas of opportunity, such as retail and wholesale lending divisions and Countrywide Bank.

Countrywide owns Balboa Insurance Group.

Farmers Insurance fined $2 million; company refunds $1.4 million

Farmers Insurance has refunded $1.4 million to thousands of California homeowners and agreed to pay $2 million in penalties to settle complaints that the company overcharged policyholders, officials said.

The settlement came after a California Department of Insurance (DOI) investigation found the insurer was classifying some homes as having a high fire risk when those homes should have been classified as having a lower fire risk, said department spokeswoman Jennifer Kerns.

The probe, which was triggered by consumer complaints, also found that Farmers lacked the proper guidelines to determine whether to renew a policyholder based on the numbers of times that person filed a claim, Kerns said.

Such a guideline is needed to prevent "use it and lose it," a practice that regulators said had led many Californians to lose homeowners insurance after filing legitimate damage claims on their houses, DOI indicated.

Farmers denied wrongdoing, saying a computer error caused the company to overcharge 6,000 customers.

"We caught it when they caught it," Farmers spokesman Jerry Davies said.

"We fixed the computer system four years ago, all the customers were paid and have received apologies," he said.

As part of the settlement, Farmers agreed to work with the department to develop better guidelines to assess a home's fire risk and determine whether or not to cancel policies.

Montana's wildfire suppression funding process convoluted, analysts say

Montana legislative analysts agreed that more money is needed to fight fires in Montana but called the state's current system for funding wildfire suppression "convoluted" and raised concerns about some of Gov. Brian Schweitzer's special session requests.

The governor called a special session, scheduled to begin last week, in which lawmakers were to consider three proposals involving wildfire funding.

In preparation for the special session, the House Appropriations and Senate Finance and Claims committees held a joint hearing during which they were presented an analysis on wildfire suppression funding by the Legislative Fiscal Division.

The report said the state's average wildfire suppression costs have grown "dramatically" in the past decade -- to more than $19 million a year -- and are increasing with more severe fire seasons.

The legislature has never provided upfront funding through an appropriation for fire suppression costs, the report said. The state funds wildfire efforts through a "convoluted" process that includes drawing from the governor's emergency fund, shifting appropriations between programs and fiscal years, using general fund loans, and getting "bailouts" from the federal government.

"With increasing cost and severity, the nonbudgeted policy for wildfire costs cannot be sustained in the future," the report said.

Schweitzer is requesting $55 million to pay for wildfires both this year and next. He also is asking lawmakers to increase his emergency account from $16 million to $25 million and allow him to call a single fire emergency that could last up to four months.

House Speaker Scott Sales, R-Bozeman, has said he agrees with the governor's request for $55 million. But he said he is against Schweitzer's other two goals, saying he doesn't want to give Schweitzer or any other governor more authority.

Sales also has argued that a special session is not the time or place to discuss a larger policy change such as expanding the governor's disaster and emergency authority.

Legislative analysts said increasing the emergency fund is a "long-term decision that has a greater policy effect than just the 2009 biennium, and is not critical to funding the current shortage." They noted that Schweitzer proposed increasing the emergency fund to $25 million during the regular legislative session, but that bill was tabled in committee.

"Examining the same issue in a time-limited session may not be in the best interest of the state," the report said.

Rep. Tim Callahan, D-Great Falls, is carrying the bill that includes suspending the disaster and emergency time frame for fires and upping the governor's emergency account to $25 million. It also includes giving the Department of Natural Resources and Conservation, which oversees state firefighting, an additional $39 million immediately and another $10 million next year for fires. The bill also includes $3 million to the state's Department of Military Affairs.

Republicans also have two bills, both carried by Rep. Rick Ripley, R-Wolf Creek. Ripley's bill is the same as the governor's on the issue of how much money to set aside for firefighting. However, Ripley does not propose expanding disaster and emergency declarations or increasing the governor's emergency account to $25 million.

Instead, Ripley has a bill to create a special $25 million firefighting account within the natural resources department.

Legislative analysts said updated cost estimates likely will be provided during the special session, but noted that the governor's proposed appropriation doesn't include adjustments for new fire starts that go beyond initial attacks; doesn't consider growth in several existing fires; and doesn't consider possible changes in federal reimbursement habits. Also, the $3 million allotted to cover National Guard costs may not be sufficient, their report said.

Chubb lowering homeowners rates in Calif. 18.4 percent

The California Department of Insurance has announced that Chubb Group of Insurance Companies is implementing a 18.4 percent homeowners insurance rate reduction that is expected to save Californians approximately $14.5 million annually. Chubb has more than 18,000 policyholders throughout California; 5,000 policies are in the Bay Area, which Chubb defines as San Francisco, San Mateo, and Santa Clara Counties, as well as Lake, Marin, Mendocino, Monterey, Napa, San Benito, San Joaquin, Santa Cruz, Solano, Sonoma, and Yolo Counties.

"This rate reduction speaks well of California's vibrant property insurance marketplace, and Chubb is an excellent example that insurers can both serve its customers and operate profitably," said Commissioner Steve Poizner.

On average, Chubb customers should save more than $800 annually per policy, CDI said. This reduction continues an industry trend over the last several months of rate filings with the CDI for homeowner insurance premium decreases.

Allstate opening service center in Las Cruces

Allstate Insurance Co. announced it is opening a customer service center in Las Cruces, N.M., that is expected bring in more than 200 jobs to the area.

The city's bilingual employee base and a good business environment were important in making the decision, said a company spokeswoman, Shelley Beeler.

Allstate said it plans to open the center by January and expects to begin hiring in December.

The office is part of Allstate's expansion of "express" claims handling, "which is focused on improving customer service and eliminating redundancies in the company's claims organization," according to a news release from the company.

Steve Vierck, president and CEO of the Mesilla Valley Economic Development Alliance, said the office is expected to have about 259 employees.

Company representatives visited Las Cruces twice and met with staff at the Dona Ana Community College and the state labor department about developing the area's work force.

Allstate said Las Cruces was one of thousands of cities evaluated, and that it was chosen based on such factors as "cost of living, availability of talent and the ability to maintain operations when severe weather occurs in other parts of the country."

Wash. wants comp rate increase

Washington's Department of Labor and Industries has proposed raising workers' compensation rates 3.2 percent in 2008, with the average premium increasing by just more than 2 cents per hour worked. L&I indicated the rate increase would help to keep pace with inflation, bringing in about $58 million.

"Wage-replacement costs for injured workers are up 5.4 percent and we expect workers' health-care costs to grow by 5.5 percent," said L&I Director Judy Schurke. "Our proposed increase for 2008 would not cover all these higher costs. However, past strong investment earnings will allow us to make up the difference and help keep rates stable."

The 2008 rate proposal follows a 2 percent decrease in average premiums this year and a current partial rate holiday in the second half of 2007 that is saving employers and workers $315 million. Individual employers could see their rates go up or down, depending on their recent claims history and any changes in the frequency and cost of claims in their industry. L&I will soon send to employers the proposed 2008 rate tables by industry.

Under L&I's proposal, the Accident Fund rate would decrease 4.5 percent. Employers pay premiums into this fund. The Medical Aid Fund rate would go up by 10.5 percent, and the Supplemental Pension Fund rate would increase 17.1 percent. Employers and workers contribute equal premiums for the latter two funds.

Final 2008 rates will be adopted in late November following five public hearings. Written comments on the proposal are being accepted through Nov. 6, may be e-mailed to Ronald Moore, Employer Services Program Manager, at MOOA235@LNI. wa.gov. For the schedule of public hearings, visit www.lni.wa.gov

Santa Rosa diocese to pay $5 million in priest sex abuse settlement

The Catholic Diocese of Santa Rosa has agreed to pay more than $5 million to settle a sex abuse lawsuit involving fugitive priest Xavier Ochoa and 10 alleged victims.

The diocese will pay the plaintiffs $5 million from insurance funds and proceeds from the sale of property adjacent to a Santa Rosa church. Bishop Daniel Walsh will pay another $20,000 from his own pocket, said Dan Galvin, lawyer for the diocese.

Diocese spokeswoman Deirdre Frontzak said she didn't know where Walsh got the money, but, as a diocesan priest, he hadn't taken a vow of poverty. Priests often have access to family money, she said.

The agreement was reached Aug. 27 after a daylong mediation session. It must be approved by a judge, who also will decide how to distribute the money among the victims, who primarily belong to two families.

"Under the circumstances, we're very satisfied," said Michael Meadows, one of the lawyers for the alleged victims. "We had to accept the fact Santa Rosa is not a rich diocese."

Ochoa was suspended in April 2006, after admitting an incident of sexual abuse with a 12-year-old boy. Walsh did not notify law enforcement until three days later, giving Ochoa time to flee to Mexico, according to church and law enforcement officials. Walsh later admitted wrongdoing, apologized and underwent four months of counseling to avoid misdemeanor criminal charges. He completed that diversion program earlier this year, Frontzak said.

Meadows commended the bishop and his lawyers for being respectful of his clients. "They didn't try to minimize the damage they suffered," he said.

Ochoa was ordained as a Jesuit in 1969 in Mexico and became a diocesan priest when he arrived in Sonoma County in 1988. Meadows said Ochoa may have abused boys in Mexico, but there's no evidence Santa Rosa was aware of those alleged incidents.

He also abused at least one boy as recently as last year, Meadows alleged.

"It was absolutely clear Ochoa was not properly supervised," he said. "Incidents in his past were bright red flags and he was just allowed to continue on."

Meadows said he remains optimistic Ochoa will someday face criminal charges.

"That's what I'm hoping will be the next step in this process," he said. "For what he did to these kids -- it is literally criminal and he should answer to it."

Ochoa is the 17th priest from the diocese to be accused of molesting a total of 62 children, but about half those allegations can't be verified, Frontzak said. In all, the diocese has paid or promised to pay dozens of people nearly $20 million since 1990.

Colo. hail damage estimated at $60 million

Losses from golf-ball-sized hail in Pueblo and Colorado Springs, Colo., in August has been tallied at $60 million, making it the state's costliest hail storm in three years.

The Rocky Mountain Insurance Information Association said insurance companies expect claims from nearly 5,200 homeowners and 11,000 car owners.

It would be the most expensive storm since June 2004, when hail caused $146.5 million in damage. In 2007 dollars, that would be $156.3 million. The most expensive storm was in July 1990, incurring $625 million in damage, or $964 million when adjusted for inflation.

Judge throws out all federal antitrust charges against insurers, brokers

No evidence found to support charges of a global conspiracy among commercial brokers and insurers

Finding the charges lack any factual support, a federal judge has dismissed a big antitrust conspiracy case that was lodged against large commercial insurance brokers and insurers back in 2004 when bid rigging and account steering probes were in full sway.

In dismissing the antitrust complaint for the second time, Chief Judge Garrett E. Brown Jr. of the U.S. District Court for New Jersey said the plaintiffs had no proof that there was any sort of conspiracy among insurers and brokers to secretly allocate accounts, refrain from competing, or pay incentive bonuses on certain commercial accounts.

The plaintiffs alleged that the defendants had engaged in both a global conspiracy and so-called "hub and spoke" conspiracies in which brokers acted as hubs to coordinate illegal distribution of commercial insurance accounts among insurers (the spokes).

Defendants in the suit that have now been cleared of federal antitrust charges are some of the largest insurance companies and brokerages including American International Group, The Hartford, Fireman's, Liberty Mutual, American Re, Travelers, Chubb, Marsh, Willis, Aon and Hilb Rogal & Hobb.

Consolidation of suits
The case was a consolidation of suits from around the country brought under federal antitrust statutes. It developed in the wake of investigations by state attorneys general including New York's Eliot Spitzer over alleged bid rigging, account steering and improper contingent commission payments.

These consolidated lawsuits took those charges to another level claiming that they were part of a conspiracy among certain large insurers and insurance brokers and accusing the players of antitrust violations and racketeering.

Earlier this month, Brown put the antitrust conspiracy charges to rest in granting the defendants' motions to dismiss. He had also agreed with defendants in April but gave plaintiffs one last chance to amend their complaint.

But Brown found the amended complaint was even less convincing than the earlier one. In completely dismissing the conspiracy allegations, Brown wrote:

"While this Court previously held that the conspiracy allegations were faulty because they failed to show some sort of recognizable allocation of the market (a way for the insurers

to understand what they were actually agreeing to divide), it appears that the allegations as presently drafted suffer from a more serious defect. This hub and spoke conspiracy is devoid of a factual basis for this Court to infer that an agreement existed among the competitors -- in this case, the Insurer Defendants. Plaintiffs want this Court to view the specific facts regarding the 'incumbency protection racket' through their lens -- which colors each demand from a broker to an insurer as being part of an agreement to restrain competition that already exists. However, when stepping back and viewing these facts in the aggregate, there is nothing in this record to suggest that there was any sort of express agreement among the insurers. While it is not necessary for the agreement to be explicit, the facts are simply too tenuous to intimate an implied agreement -- a rim to this hub and spoke conspiracy. The brokers demanded certain behavior of the insurers, but that does not constitute a horizontal agreement among insurers to collude."

No global conspiracy found
Brown found no evidence to support the charges of a global conspiracy among brokers to keep secret

their contingent commissions and not tell clients about them. Plaintiffs had argued that the defendants' membership in the same trade group, the Council of Insurance Agents and Brokers, was proof. But for Brown, "membership in various trade groups and the sharing of information are insufficient to support an inference of actual concert of action."

He wrote that since plaintiffs failed to prove that the insurer defendants colluded among themselves in the broker-centered conspiracies, "it is improbable that they colluded to further this global agreement as well."

While this dismissal affects the antitrust complaint brought against the defendants, charges of violating federal racketeering laws are being judged separately and remain before the court.

Some insurers and brokers have settled similar antitrust complaints with officials in New York, Connecticut and other states, although they have not admitted doing anything illegal. Among those that have settled are insurance broker Arthur J. Gallagher & Co. and Zurich American Insurance Co.

Industry skeptical, while Treasury opposes natural disaster pool

Federal legislation that encourages states to pool their catastrophe pool risks and then transfer them to the private market has been greeted with a lukewarm insurance industry reaction at best and outright opposition from the Bush Administration.

The bill, H.R. 3355, the Homeowners' Defense Act of 2007, introduced by Representatives Ron Klein, D-Fla., and Tim Mahoney, D-Fla., on Aug. 3, aims to address the availability and affordability of homeowners insurance by providing an opportunity for states to plan for disasters ahead of time, while also offering emergency relief for those states that may be in lower-risk regions.

Insurance industry representatives testified on the proposal this month before a joint hearing of the House Committee on Financial Services Subcommittee on Housing and Community Opportunity, and the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.

Agents suggested that the legislation, while it has some commendable provisions, is not the answer.

The Independent Insurance Agents & Brokers of America, the nation's largest insurance association, said that the bill deserves serious consideration when addressing the growing problem of natural disaster risks, but did not offer its full support of the legislation as is.

Steve Spiro, an independent agent and president of Spiro Risk Management Inc., in Valley Stream, N.Y., testified on behalf of IIABA, saying proposals such as this bill could potentially be a part of a comprehensive solution to the problem of natural catastrophe insurance. But he also pointed out that the key to the success of any solution is how the private market will react and whether it will result in increased coverage.

"We strongly believe our industry must come together with policymakers to find a common solution that will encourage participation in at-risk markets," Spiro said.

Robert Joyce, chairman and CEO of Ohio-based Westfield Group, who testified on behalf of the Property Casualty Insurers Association of America (PCI), said one of the most promising aspects of the bill is a provision to create a federal liquidity facility to provide financial support for qualified state catastrophe funds.

"The liquidity facility proposed in the bill has considerable merit and could play an instrumental role in a long-term solution to America's natural disaster problem," Joyce said. "The liquidity proposal would offer solvency protection to state catastrophe funds in order to stabilize markets." However, Joyce also said that any federal program must be carefully structured so that it does not mask the true cost of insuring against catastrophes, encourage reckless development in high-risk areas, or hinder the flow of new private capital to the market.

Including the liquidity proposal, the bill has three parts.

According to the sponsors, the bill sets up a consortium for state-sponsored insurance funds to voluntarily pool their catastrophe risk with one another, and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts. Sponsors maintain that following the risk transfer, state-sponsored insurance funds would be better protected and increasingly able to provide services for those who are not able to find insurance on their own.

The second part, the "liquidity loan" program, contains a provision that would make credit financing available to qualified state catastrophe funds.

The third part would make loans to state or regional catastrophe funds that are not qualified reinsurance plans or to state residual market entities.

Joyce noted that the bill's provisions do not specify how catastrophe loans would be repaid.

Opposition
The U.S. Treasury Assistant Secretary for Economic Policy Phillip Swagel testified that the Treasury strongly opposes H.R. 3355 because its provisions are at odds with its goal to ensure that there is a stable and well-developed private market for natural hazard insurance and reinsurance.

Allowing private insurance and capital markets to fulfill their roles is the best way to maintain the economic sustainability of communities at greatest risk of natural catastrophes, Swagel testified. "Federal government interference in a functioning natural hazard insurance market would crowd out an active and effective private market, increase the incentive for people to locate in high-risk areas, result in potentially large federal liabilities, and be unfair to taxpayers."

The Reinsurance Association of America (RAA) also testified that the reinsurance industry does not support the Homeowners Defense Act of 2007 citing concerns with provisions of the legislation that would unnecessarily disrupt private reinsurance market dynamics.

"We cannot support this legislation as introduced because of the emphasis on encouraging the creation of state catastrophe reinsurance funds," said Franklin W. Nutter, president of RAA. "Notwithstanding the extraordinary losses from natural catastrophes in 2004 and 2005, the capital markets and the insurance and reinsurance industry have shown their ability to meet natural catastrophe risk transfer needs of insurers and consumers when market dynamics are allowed to work."

Nutter added that the legislation appears to provide incentive for states to replace or compete with the private sector by under-pricing catastrophe risk. "These programs," he said, "serve to concentrate catastrophe risk in a state, rather than spread it to the global private reinsurance markets, turning sound risk management on its head."

Nutter said that while RAA could not support the legislation as introduced, he expressed the desire to work with the committee to improve HR 3355 as it moves through the legislative process.

Health premiums rise 6.1%; average family coverage costs $12,000

Premiums for employer-sponsored health insurance rose an average of 6.1 percent in 2007, less than the 7.7 percent increase reported last year but still higher than the increase in workers' wages (3.7 percent) or the overall inflation rate (2.6 percent), according to the 2007 Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust.

The 6.1 percent average increase this year was the slowest rate of premium growth since 1999, when premiums rose 5.3 percent. Since 2001, premiums for family coverage have increased 78 percent, while wages have gone up 19 percent and inflation has gone up 17 percent.

The average premium for family coverage in 2007 is $12,106, and workers on average now pay $3,281 out of their paychecks to cover their share of the cost of a family policy.

"We're seeing some moderation in health-cost increases, but premiums for family coverage now top $12,000 annually," Kaiser President and CEO Drew E. Altman, Ph.D. said. "Every year health insurance becomes less affordable for families and businesses. Over the past six years, the amount families pay out of pocket for their share of premiums has increased by about $1,500."

"The number of options for low wage earners is limited and the greatest burden of all health care costs falls to this segment of the population," said Health Research and Educational Trust President Mary A. Pittman, Dr. P.H. "Although the economy seems to be strong, between 2005 and 2006 the total number of uninsured still rose by 5 percent, including a 9 percent increase in the number of uninsured children."

The annual Kaiser/HRET survey provides a detailed picture of how employer coverage is changing over time in terms of availability, costs and coverage for the 158 million people nationally who rely on employer-sponsored health insurance. It was conducted between January and May of 2007 and included 3,078 randomly selected, non-federal public and private firms with three or more employees (1,997 of which responded to the full survey and 1,081 of which responded to a single question about offering coverage).

While premiums continue to rise faster than workers' wages, this year's gap of 2.4 percentage points is much smaller than the 10.9 percentage point gap recorded four years ago, when premiums rose 13.9 percent and wages grew just 3 percent.

However, "despite the comparatively low rate of increase in premiums and a strong labor market, the percentage of the workforce obtaining coverage from employer-sponsored plans remained unchanged since 2006," reports the Health Affairs article by Kaiser's Gary Claxton and coauthors. The 60 percent of firms offering health benefits to at least some of their workers is statistically unchanged from last year's offer rate (61 percent). The offer rate remains significantly lower than it was in 2000, when 69 percent of firms offered health benefits. Nearly all (99 percent) large businesses with at least 200 workers offer health benefits to their workers this year, but fewer than half (45 percent) of the smallest firms with three to nine workers do so.

Contributions, cost-sharing
Covered workers on average pay 16 percent of the overall premiums for single coverage and 28 percent for family coverage -- shares that have remained relatively stable over the past years. However, workers in small firms (three to 199 workers) pay significantly more on average toward the cost of family coverage ($4,236 annually) compared to larger firms ($2,831 annually). For single coverage, the opposite is true, with workers at small firms annually contributing less on average than workers at large firms ($561 vs. $759).

Among firms that offer health benefits, 10 percent vary how much workers contribute based on the workers' earnings, about the same share as in 2005. About 6 percent of firms vary premium contributions based on employees' participation in wellness programs, up from 3 percent in 2005. In addition, 10 percent of firms offer financial incentives for workers to enroll in a spouse's health plan, which can reduce the firm's health care costs.

In spite of the extensive attention paid to consumer-driven health plans, the survey finds that these relatively new types of arrangements have made only a small inroad into the employer market. Such plans cover about 5 percent of all covered workers, which is not statistically different from the 4 percent share recorded in 2006.

Overall, an estimated 3.8 million workers are enrolled in consumer-driven plans, about equally divided between high-deductible plans that qualify for a Health Saving Account (HSA) and plans with a Health Reimbursement Arrangement (HRA). These plans feature a high-deductible plan and a tax-preferred savings option, from which employees can pay for their out-of-pocket medical expenses. Such plans are often described as consumer-driven because people pay directly for a greater share of their health care and may have an incentive to minimize its cost. They also may offer tools to help consumers choose providers based on cost and quality.

This year, 10 percent of firms offered a consumer-driven plan to their workers, up from (but not statistically different than) the 7 percent of firms reporting this for 2006. Firms with at least 1,000 workers are more likely to offer such plans, with nearly one in five (18 percent) offering one. Looking toward 2008, few firms that don't already offer such plans report that they are very likely to add a HRA plan (3 percent) or a HSA-qualified plan (2 percent).

Premiums for these high-deductible plans are generally lower than for other types of plans, though in addition to the premiums, employers may also contribute money to the savings accounts. The survey finds that firms on average pay a total of $7,815 toward the cost of family coverage for a HSA-qualified plan (including $714 for the account) and $10,179 toward the cost of family coverage for a high-deductible plan with a HRA (including $1,800 for the account). Compared to the $8,879 average firm contributions for other types of plans, employer contributions are lower for HSA-qualified plans and higher for plans with HRAs.

Businesses made no contribution at all to the savings account for roughly half of all workers enrolled in an HSA for family coverage, leaving workers to pay the generally higher out-of-pocket costs associated with their high-deductible plan.

"Consumer-driven plans have established a foothold in the employer market, but they haven't grown as much as one might think, given all the attention that they receive," said Kaiser Vice President Gary Claxton, co-author of the study and director of the Foundation's marketplace research.

"Despite the economic expansion that added 2 million new jobs from April 2006 to April 2007, the employer-based system can do no better than tread-water," said co-author Jon Gabel, senior fellow at the National Opinion Research Center at the University of Chicago.

Other findings
Cost-sharing. In 2007, for firms with deductibles, the average general annual deductible for single coverage is $461 for PPOs, $401 for HMOs, $621 for POS plans and $1,729 for consumer-driven plans. For plans with three- or four-tiered drug cost-sharing, the average co-payments were $11 for generic drugs, $25 for preferred drugs, and $43 for non-preferred drugs. Co-payments for fourth-tier drugs, which may include costly biological agents and lifestyle drugs, averaged $71.

Domestic partner benefits. Nearly half (47 percent) of all firms that offer health benefits make them available to unmarried opposite-sex domestic partners, and nearly 37 percent offer such benefits to same-sex partners. Large firms (with at least 200 workers) were less likely than small firms to offer domestic partner benefits to unmarried opposite-sex partners at 28 percent.

Market share of health plans. Preferred Provider Organizations continue to dominate the employer market, enrolling 57 percent of covered workers. Health Maintenance Organizations cover another 21 percent of workers, with 13 percent in Point-of-Service plans, 5 percent in consumer-driven plans, and 3 percent in conventional indemnity plans.

Other pre-tax benefits. Overall, 61 percent of firms that offer health benefits allow workers to use pre-tax dollars to pay for their share of their health premium costs. Fewer firms (22 percent) offer a Flexible Spending Account, in which workers can set aside pre-tax money to cover out-of-pocket health care spending. In both cases, large firms are far more likely to offer these benefits than smaller firms.

Future outlook. Many employers indicate that they expect to make significant changes to their health plans and benefits in 2008. Overall, 21 percent of firms say they are "very likely" to raise workers' premium contribution next year. Some firms also say they are "very likely" to increase office visit cost-sharing (13 percent), increase deductibles (12 percent) and increase prescription drug cost-sharing (11 percent). Very few firms say they are "very likely" to restrict eligibility for coverage or drop coverage altogether.

Progressive combines personal lines management

The Progressive Corp. in Mayfield, Ohio, is consolidating management of its two distribution channels for personal lines. Since 2000, Progressive's personal lines segment has been organized into two businesses -- the agency business and the direct business. The company said it will continue to price products based on how they are distributed to reflect the channel cost structure, but it is combining the operations of the two businesses into a single personal lines organization, consolidating the product research and development and management functions.

The new personal lines organization will be led by John Sauerland, currently president of the direct business group.

John Barbagallo, currently the agency group president, will become commercial lines group president, assuming responsibility for the commercial auto business and professional liability business. He will continue to manage the company's agent relationships and field sales.

Earlier this year, Brian Silva, currently the commercial auto group president, will retire in mid-2008. After helping with the transition, Silva will shift his focus to several of the company's key projects until his retirement date.

U.S. reinsurers report premiums dropped in 2Q

The Reinsurance Association of America (RAA), a group of 22 U. S. property and casualty reinsurers, reported writing $12.2 billion of net premiums during the six-months ended June 30, 2007, a decrease of $7.5 million from the same period in 2006.

The combined ratio for the group was 90.0 percent, an improvement from the 96.5 percent combined ratio reported for the same period in 2006. The combined ratio is attributable to a 62.8 percent loss ratio and an expense ratio of 27.2 percent, according to RAA.

Policyholders' surplus was $77.3 billion.

According to RAA, its underwriting members and their affiliates write more than two-thirds of the gross reinsurance coverage provided by U.S. professional reinsurance companies.

Insurers have manageable exposure to subprime turmoil, report says

The vast majority of U.S. insurers have little or no exposure to the volatility in the subprime mortgage market because a substantial percentage of their investments are in the highest-rated bonds or stocks with no direct ties to lenders, according to an Insurance Information Institute (I.I.I.) white paper, "Subprime" Home Mortgage Loans and the Insurance Industry.

"This conclusion is based on the recognition that both by law and by the nature of their business, insurers generally limit themselves to the low-risk end of the investing universe. Even for the very small share of their investments directly exposed to subprime and near-prime loans, insurers mainly invest in 'slices' of those investments that, according to the bond-rating agencies, are as safe as the safest corporate bonds," writes Dr. Steven Weisbart, the I.I.I.'s vice president and chief economist. "Thanks to conservative portfolio management strategies and restrictive state regulations, insurance companies have a very small portion of their total investments in risk loans of any type."

The I.I.I. report notes that about 53 percent of life/health insurers' invested assets were in the highest-rated class of bonds and 19 percent were in the next highest-rated class as of year-end 2006. The comparable percentages for the invested assets of property/casualty insurers in the bond market were 67 percent and 4 percent, respectively, the white paper says.

"Common and preferred stocks are a small part of the investments of life/health insurance companies, at 4.6 percent of net admitted assets, as of year-end 2006," Dr. Weisbart adds. "They are a moderate part of the investments of property/casualty companies, at 16 percent, as of year-end 2006." While a comparatively small percentage of insurers' investments, insurers do have sizable equity stakes in U.S. markets. U.S. life/health insurers, for instance, cumulatively owned preferred and common stocks valued at $138 billion as of Dec. 31, 2006, according to the National Association of Insurance Commissioners' (NAIC) annual statement database. This figure stood at $237 billion for U.S. property/casualty insurers, as of year-end 2006, the NAIC reported.

"Insurers' portfolios are still vulnerable to broad market sell-offs caused by fears originating in the subprime sector, such as occurred during July and August 2007," Dr. Weisbart states. "Nevertheless, direct losses will be very limited and insurers' tendency to hold securities on a long-term basis implies that the effects of short-term market volatility will likely be minimal."

The I.I.I.'s analysis of the subprime mortgage market's recent turmoil did hold out the possibility that claims may be filed by directors and officers liability insurance policyholders as well as those with errors and omissions coverage.

"It is likely that some actions will be brought that will trigger the defense benefits in these policies, and possibly also some payouts under the liability benefit provisions. Typically, these claims take a long time to develop. As such, it is much too early to estimate the dimensions of the claims experience that may emerge from the recent credit market developments," Dr. Weisbart writes.

"Major providers of D&O coverage tend to be among the largest and most financially sound insurers."

U.S. fire report: More fires; fewer deaths and injuries; rise in property losses

Fire departments in the United States responded to an estimated 1.6 million fires during 2006. These fires caused 3,245 civilian deaths and 16,400 injuries, according to the National Fire Protection Association (NFPA).

The number of fires increased slightly by about 3 percent from 2005 to 2006 while fire deaths fell 12 percent and fire injuries were down by 8 percent.

The total number of people who died from fires in 2006 (excluding firefighters) was the lowest since NFPA began collecting this data in 1977, and 4 percent lower than the previous low of 3,380 in 2002. The number of fire death varies from year to year, with most of the variation in fire deaths occurring in communities with populations under 10,000.

NFPA's study, Fire Loss in the United States During 2006, offers a detailed account of fire loss for the previous year and an analysis over time based on new information.

In 2006, the annual snapshot of fire loss in the United States showed that every 19 seconds a fire department responded to a fire somewhere in the U.S. Someone died every two hours and 42 minutes from a fire and someone was injured every 32 minutes. A fire occurred in a structure every minute, in a residence every minute and 16 seconds, and in a vehicle nearly every 2 minutes.

Direct property loss from fires in 2006 was roughly $11 billion, an increase of 6 percent from 2005. Nearly $7 billion of these losses resulted from fires in residential dwellings.

As in previous years, most fire deaths occurred in homes; home fires accounted for about 80 percent of all fire deaths. Eighty percent of all structure fires also occurred in the homes. One and two-family dwellings accounted for 58 percent of the structure fires and apartments accounted for 17 percent. In 2006, 2,580 people died from home fires, a decease of 15 percent from the prior year.

Although vehicle fires declined 4 percent from the previous year, they remained second to structures as the second leading cause of fire deaths in the United States in 2006. There were 278,000 vehicle fires that resulted in 490 deaths, 1,200 injuries, and $1.3 billion in property damage.

Guy Carpenter finds Lloyd's market at its 'healthiest in 300 years'

Findings boast stellar results for London market with Lloyd's leading the way

Guy Carpenter & Co., Marsh's reinsurance broker and risk management division, has released "The Lloyd's Market in 2007," its fifth annual review of Lloyd's financial and operational performance.

The finding are exceptionally good -- overall Lloyd's is probably in the healthiest position it has been in for the last 300 years. It reported record results for 2006, with net pre tax profits of £3.662 billion ($7.417 billion*), gross premiums written of £16.414 billion ($33.25 billion*), and a combined ratio of 83.1 percent. Underwriting capacity for 2007 is at an all-time high of £16.1 billion ($32.61 billion).

The report indicated that the strong performance was chiefly "driven by rising rates on U.S. catastrophe-exposed business, favorable claims experience and improved returns on investment. It also stressed that Lloyd's is "in an increasingly strong competitive position, as recognized in recent rating upgrades to 'A+' from both Standard & Poor's and Fitch."

Guy Carpenter's CEO Nick Frankland pointed out: "In 2006, leading players demonstrated once again that it is possible to achieve outstanding returns on equity at Lloyd's, which is crucial to the continuing strength of the market. In addition, the significant strengthening of the balance sheet over the last five years provides a good platform for the future."

The author of the report, Senior Vice President Mike Van Slooten, added: "Substantial mitigation of legacy issues has resulted in a reappraisal of the market's competitive advantages, with the result that new investors are being attracted to the platform. Lloyd's focused efforts to reduce the cost of mutuality, widen access to the market and improve service standards can only be to the benefit of policyholders."

Legacy issues
The "legacy issue" Lloyd's managed to get rid of were the liabilities it has carried since 1996 when it set up Equitas as a run-off vehicle for its pre-1992 claims, principally asbestos and environmental. In March Lloyd's completed the first phase of the transfer of its Equitas liabilities to National Indemnity Company (NIC), a member of the Berkshire Hathaway group of insurance companies.

The arrangement with NIC initially reinsures all of Equitas' liabilities, and provides a further $5.7 billion of reinsurance cover to Equitas. In addition NIC acquired Equitas Management Services Limited and will continue to conduct the run-off of its liabilities. The transaction received the approval of the UK's Financial Services Authority (FSA) and the Equitas Trustees.

The record underwriting capacity (up 8.9 percent compared to 2006) was bolstered by six new start-ups, who contributed a further £217 million ($440 million). Guy Carpenter's study indicated that, given the excellent result, "investor interest remains strong, driven by Lloyd's wide access to business and strong ratings."

The report also noted:

1) "Reinsurance recoverables have reduced by a third, with no collection issues reported on the 2005 hurricanes. Net resources (defined as total assets less policyholder and other liabilities) have increased by 21 percent to £13.3 billion [$27 billion]," bolstering Lloyd's balance sheet strength.

2) The issuance of £500 million [$1.014 billion] of debt in June 2007 "has allowed syndicate loans to be repaid and discontinued and will facilitate an expected halving of the Central Fund contribution rate for 2008." As a result, Lloyd's has reduced the amounts the Syndicates are required to contribute to the Central Fund. The ending of these assessments makes doing business at Lloyd's less expensive and more competitive.

3) "Business process reform has significantly improved controls over placement and is continuing to improve the control environment for claims and accounting and settlement."

Changes at Lloyd's
In recent years, Lloyd's brokers and underwriters have experienced vast changes in how they conduct business. Chairman Lord Peter Levene, who just announced that he will seek a third term in the post, former CEO Nick Prettejohn and his successor, Richard Ward, are dedicated to seeing that the mountains of paper Lloyd's produces, eventually joins the sailing ships Lloyd's used to insure in the pages of history.

After a few false starts -- notably the Kinnect fiasco -- they're now on the way to achieving that goal. Xchanging and RI3K, who just introduced a new e-message system, have rolled out complementary platforms and software that are broker/underwriter friendly, use ACORD standards, and enable more and more of Lloyd's back office work to be processed electronically. The days of the slipcase appear to be numbered.

Two factors have made the changeover a first priority at Lloyd's. The FSA has said in no uncertain terms that the policies based on "deal now, details later" are no longer acceptable. London got the message. In January the FSA acknowledged that "90 percent of contracts in the subscription market [Lloyd's] and 88 percent in the non-subscription market are now achieving contract certainty."

The second factor is cost. Lloyd's is more expensive than places like Bermuda, and, unless it brings those costs down, it stands to lose business. Companies like Hiscox, Catlin and Kiln moved their respective domiciles to Bermuda because it's quicker, easier and cheaper to do business. Instituting electronic processing will cut the costs of doing business in London, and make the entire market, especially Lloyd's, more competitive.

Market access, cats and the cycle
Guy Carpenter's report also listed:

Market Access: Lloyd's continues to focus on enhancing local distribution platforms in emerging markets and streamlining the broker accreditation and cover-holder approval process.

Catastrophe Exposure: Lloyd's reports that, based on its Realistic Disaster Scenario output, U.S. windstorm exposure has been reduced by one third since 2005, and

Cycle Management: The Franchise Performance Directorate is expected to be successful in limiting the downside of underwriting in softening market conditions.

Concerning that last point, Frankland observed: "The primary threat to Lloyd's remains the possibility of a marked downturn in the insurance cycle. In the absence of a major loss, we expect underwriting conditions to become difficult in most classes as we move into 2008, presenting a significant challenge to the Lloyd's franchise model.

We are already seeing leading players returning capital to shareholders and proposing sizable capacity cuts for next year, but it remains to be seen whether the same degree of discipline will extend across the broader market. There is no room for complacency if Lloyd's is to emerge in a position to fully capitalize on the next upswing."

At this point complacency doesn't appear to be a significant concern. Lloyd's leaders have their priorities firmly in mind and the reins of control, in the form of the Franchise Board, firmly in their hands.

A full copy of the report is available for download at: www.guycarp.com. Printed copies can be obtained by contacting Guy Carpenter at: marketing@guycarp.com.

Editor's Note: * The recent strength of the pound, currently worth more than $2.00, has somewhat inflated the dollar equivalent figures since they were first calculated.