News Briefs

XL Hit with $183M Reserve Increase: Bermuda’s XL Capital Ltd. announced that its second quarter results will be adversely impacted by an increase in net reserves in its North American reinsurance operations of $191 million pre-tax-$183 million after tax, or $1.31 per ordinary share.

CEO and President Brian M. O’Hara commented: “This reserve strengthening is extremely disappointing. With respect to the reserve increase in workers’ compensation, I do not believe this represents a broader issue for this line of business for XL given the unique nature of the program with the single cedent. Putting this reserve strengthening in the context of XL’s overall financial strength, the reserve addition for non-workers’ compensation lines represents only 1 percent, and the workers’ compensation addition represents 0.5 percent, of XL’s net loss reserves, respectively, as at March 31, 2005. In addition, in my judgment, the recent claims reporting activity reflects cedents having to recognize losses on their books with greater transparency and timeliness. Finally, I believe that we are benefiting from the changes we implemented in the North American reinsurance book since 2003, with respect to cedent communication and an increased number of on site claims audits.”

Swiss Re’s Key to Profitability: Speaking at Swiss Re’s Mid-year Economic and Insurance Industry Teleconference in New York on June 30, Thomas Holzheu, the reinsurer’s senior economist for the P/C business sector, noted: “We’ve seen a significant improvement in underwriting, and believe that profitable underwriting conditions will continue through 2005 in most areas. We foresee moderate growth for the industry on the whole.”

The panel of economists also forecast a “modest rise in inflation accompanied by firm economic growth,” and indicated that it would most likely cause the Federal Reserve to continue to raise interest rates, pushing the federal funds rate to 4.5 percent by the middle of next year. As a consequence they agreed that “rising interest rates will dampen investment returns, necessitating continued underwriting discipline for insurers to remain profitable.”

SCOR Raising $240 Million: France’s SCOR Group plans to issue 130 million new shares, raising around 201.5 million euros ($240 million) in new capital, primarily to fund the purchase of the outstanding shares of Irish Reinsurance Partners (IRP) that it does not already own. After some lengthy discussions, SCOR will purchase the 46.6 percent stake currently held by Boston-based Highfields Capital Management. IRP is an Irish company formed in 2001 for the purpose of reinsuring part of SCOR’s worldwide non-life insurance business. SCOR will pay 183.1 million euros ($218 million) for the minority interest. Any remaining funds will be used for general corporate purposes.

Fairmont Subpoenaed: Canada’s Fairfax Financial Holdings Limited announced that its subsidiary, Fairmont Specialty Group, has received a subpoena from the Securities and Exchange Commission requesting documents regarding “any non-traditional insurance product transactions entered into by Fairmont with General Re Corporation or affiliates thereof.” The brief announcement said: “Fairmont is cooperating with that request.”

FERMA Helps EC on Risk Management: The Federation of European Risk Management Associations (FERMA) has been taking an increasingly active role in supporting the efforts of the European Commission to expand the use of risk management techniques in the European Union and other countries. Europe is far behind the U.S. in using risk management techniques, but FERMA aims to change that. Recent conferences, including one held in Turkey at the end of June, have focused on helping new and potential EU members understand current insurance directives and the standards of risk management increasingly in demand by trading partners in the Community. FERMA is actively supporting risk managers in Turkey in the development of a national association that could be launched as early as October 2005.

London Market Reforms Don’t Demand IT: It’s a mistake to confuse information technology (IT) -the operational methods-with the commercial and regulatory requirements that have made changing the way the London market does business a high priority item.

That was the surprising message voiced by Alex Letts, the CEO of London’s RI3K, a leading provider of technology infrastructure for the reinsurance industry at a recent reform group conference in London. The real problem, which must be solved, is to satisfy the transparency requirements of the U.K.’s Financial Services Authority, New York Attorney General Eliot Spitzer and the Sarbanes-Oxley mandates. “This means sorting out how people should work in a consistent way to manage the reinsurance contract creation, endorsement and administration,” Letts said. “It’s about work methods. To my knowledge none of the external regulatory or compliance entities have commented even in passing about a requirement to sort out what the IT crowd does to process the information.”

Letts also observed: “We have all become obsessed with what we [IT people] provide and less concerned about what the market needs. What this market is asking for is a straightforward service. A service that provides a community of users, who can all use the same templates and structures within an LMP [London Market Principles] framework to manage their reinsurance. It needs a service that supports their interpersonal way of working but transported into a slightly more modern environment.”

Loch Ness Athletes Get Monster Coverage: Some 100 or so triathletes, who are due to compete in a triathlon around and in Scotland’s legendary Loch Ness on July 23, are worried about the monster, affectionately known as “Nessie,” who’s said to inhabit the dark waters of the Loch. They’ve found a solution to their concerns, however, in the form of a policy underwritten by The National Insurance and Guarantee Corporation Ltd., the insurance arm of the Royal Bank of Scotland Group. The coverage provides up to 1 million pounds ($1.75 million) for any athlete who’s actually bitten by the monster.

This could open a whole new field of “monster coverage.” Hikers and cross country skiers in the U.S. and Canada could be insured against attacks by roving Sasquatch, while Himalayan mountain climbers will need similar coverage when they invade the domain of the Yeti.

Lloyd’s Beazley, Hiscox See Good 2005: Leading U.K. insurer Hiscox plc, which does extensive business at Lloyd’s and as an independent company, is bullish on its 2005 prospects.

Chairman Robert Hiscox commented: “Earnings from the peak of the market are flowing through strongly and will continue to do so for some time. Overall, rates in the Global Markets areas are still strongly profitable despite some much publicized weakening in certain classes. Our specialist retail businesses are making a growing contribution to the profitability of the group. Our strategy was designed to flatten the cycle, and it is working.”