Looking Back at Insurance News of 2012: The Year’s Biggest Stories

December 31, 2012

With less than a day left until the end of the year, here’s a look back at some of the biggest property/casualty insurance news stories in 2012 that impacted the Northeast region, in chronological order:

Top Investor Demands ‘Something Drastic’ at The Hartford

In February, The Hartford Financial Services Group was confronted by John Paulson, a billionaire hedge fund manager and a major stakeholder in The Hartford. Speaking at the company’s earnings conference call, Paulson told CEO Liam McGee that the insurer needed to do “something drastic” to boost its stock price. Paulson recommended that the company take actions to focus more on its P/C businesses. In the ensuing months, The Hartford, headquartered in Hartford, Conn., began to implement a number of strategic initiatives, including the completion of sales agreements for Individual Life, Retirement Plans and Woodbury Financial Services.

MIT Researchers: 100-Year Storms May Happen Every 3 to 20 Years

Also in February, researchers from MIT and Princeton University have found that with climate change, devastating “100-year event” storms could make landfall far more frequently than previously expected, causing powerful, devastating storm surges every three to 20 years. The group simulated tens of thousands of storms under different climate conditions, finding that today’s “500-year floods” could, with climate change, occur once every 25 to 240 years.

Alleghany, Transatlantic Complete Merger

In March, N.Y.-based global specialty insurer Alleghany Corporation and reinsurer Transatlantic Holdings announced the completion of their previously announced merger. With the closing of the transaction, Transatlantic has become an independent stand-alone subsidiary of Alleghany.

N.Y. Broker Compensation Disclosure Ruling

Also in March, the courtroom battle ended for the New York State’s broker compensation disclosure regulation. Earlier in the month, the New York appeals court agreed with the lower court and said insurance regulators were within their rights to issue a rule that requires brokers to disclose in detail the sources of their compensation. Regulation 194, first implemented in 2010, requires brokers to tell clients how companies pay them even when the clients haven’t asked. If clients request more information, brokers then must also provide further details regarding transactions, such as earnings for the policy sold and the pay the broker would have received had the client chosen a different policy.

BB&T Wraps Up $570M Acquisition of Crump Units

In April, BB&T Corp., a major regional bank and insurance broker based in Winston-Salem, N.C., said it completed the previously announced acquisition of insurance businesses from Roseland, N.J.- based insurance wholesaler Crump Group. BB&T said the deal creates the largest independent wholesale distributor of life insurance and one of the largest providers of wholesale commercial insurance brokerage and specialty programs in the country.

Nationwide Completes $834M Acquisition of Harleysville

In May, Nationwide Mutual Insurance Co. in Columbus, Ohio, announced the completion of its previously announced $834 million acquisition of Harleysville Mutual Insurance Co. The deal was first announced in September 2011. Following the deal’s completion, Harleysville has become a part of Nationwide’s P/C independent agency business unit under the Harleysville brand. Additionally, Harleysville’s headquarters in Harleysville, Penn., is now serving as an integral part of the combined company’s national, independent agency-based platform.

New York Regulators Scrutinize ‘Force-Placed’ Insurance

Also in May, New York State Department of Financial Services held three-day public hearings on insurance rates for so-called “force-placed” insurance. Premiums for force-placed insurance have more than tripled since 2004, producing enormous profits for insurers and the banks that take out policies when a homeowner fails to maintain coverage required by the mortgage, according to New York regulators. However, executives from Assurant and QBE, which provide more than 90 percent of the force-placed insurance market in New York, said their rates reflect the risk they must assume for properties, some unoccupied, without underwriting or inspections, in order to ensure coverage never lapses.

States Collecting on $146 Million AIG Workers’ Comp Settlement

In June, state regulators across the country began announcing that they are collecting their share of a multimillion dollar settlement reached with N.Y.-headquartered American International Group (AIG) in 2010 based on the company’s misreporting of workers’ compensation premiums for the years 1985 to 1996. In December 2010, AIG agreed to pay state regulators a total of $100 million in fines and another $46.4 million in premium taxes and assessments after a multistate probe begun in 2008 found the insurer hid at least $2.12 billion in workers’ comp premium by attributing it to other lines of insurance and thereby lowering its assessments and taxes.

The Aftermath of the Sandusky Scandal

In July, State Farm filed a lawsuit in Pennsylvania against former Penn State assistant football coach Jerry Sandusky. In its complaint, State Farm asked a judge to declare that the insurer’s homeowners’ policy for Sandusky does not cover legal costs for his criminal defense or civil lawsuits brought by his victims. Meanwhile, Penn State said in September it was bringing in Ken Feinberg, the man who ran the Sept. 11 victim fund and other major compensation programs, to help it settle claims by Jerry Sandusky’s child molestation victims. Penn State said it is adequately covered to handle lawsuits stemming from the sexual abuse scandal.

Insurers Report Derecho-Related Claims

A destructive “derecho” storm system wreaked havoc in the mid-Atlantic states in early July, resulting in tens of thousands of insurance claims. In Maryland, some 22,000 derecho-related claims have been filed by Maryland policyholders in July, according to preliminary estimates from property/casualty insurers.

Mass. Adopts ‘Disclosure, Apology, Offer’ Approach for Med Mal Cases

A newly enacted law in Massachusetts has adopted the “Disclosure, Apology, and Offer” approach to help resolve malpractice cases. The healthcare cost control bill — passed by the Massachusetts legislature and signed by Gov. Deval Patrick on August 6 — contains specific language that facilitates an approach of “Disclosure, Apology, and Offer” (DA&O) to address medical malpractice claims. Under the DA&O model, healthcare professionals and institutions and their insurers disclose to patients and families when unanticipated adverse outcomes occur; investigate and explain what happened; establish systems to improve patient safety and prevent the recurrence of such incidents; and, where appropriate, apologize and offer fair financial compensation without the patient having to resort to legal action.

Alterra Balks at Defending NFL in Concussion Suits

Alterra American Insurance Co. is arguing that it is not obligated to defend or indemnify its insured — the N.Y.-headquartered National Football League and NFL Properties L.L.C. — against concussion-related lawsuits brought by former NFL players and their families. Bermuda-based Alterra filed its court papers in August with the Supreme Court of the State of New York in a civil action. It’s one of a growing number of legal actions related to claims of neurological injuries. The underlying actions involve thousands of former NFL players and allegations that they sustained neurological injuries during their playing careers. The players claim that their neurological injuries were caused by, among other things, the NFL’s negligence and fraud.

Online Post Goes Viral

In August, Progressive Corp. reached a settlement with the family of Kaitlynn Fisher — a policyholder who died in an auto accident when her car was struck by an under-insured driver in Baltimore in 2010. Her story generated national interest when her brother — N.Y.-based comedian Matt Fisher — posted a story online on his Tumblr blog.

Superstorm Sandy Wreaks Havoc

In late October, Superstorm Sandy, one of the biggest storms ever to hit the United States, roared ashore with fierce winds and heavy rain on the New Jersey coastline — forcing mass evacuations, shutting down transportation and bringing widespread flooding and power outpages. Superstorm Sandy’s record damages continue to be felt throughout the Northeast region. Catastrophe modeling firm Risk Management Solutions’ insured loss estimate for Sandy is in the range of $20 billion to $25 billion, according to a report from The Wall Street Journal. Eqecat’s insured loss estimate range is between $10 billion and $20 billion while AIR Worldwide’s insured loss estimate range is $16 billion to $22 billion.

Sandy is being blamed for about $62 billion in damage and other losses in the U.S., the vast majority of it in New York and New Jersey — a number that could increase. It’s the second-costliest storm in U.S. history after 2005′s Hurricane Katrina, which caused $128 billion in damage in inflation-adjusted dollars. Sandy caused at least $315 million in damage in the Caribbean.

According to the latest study from ISO and the Property Casualty Insurers Association of America (PCI), the property/casualty insurance industry’s results during the first nine months of 2012 show that insurers have the financial wherewithal necessary to absorb Sandy losses.

Many residents in the affected regions continue to suffer in the wake of Sandy. Meanwhile, the superstorm is also bringing to the forefront many insurance issues, such as hurricane deductibles, the National Flood Insurance Program and the storm’s impact on insurance companies.

Treasury Completes Final Sale of AIG Stock

In December, the U.S. Treasury Department said it completed its final sale of common stock in American International Group (AIG), reducing its shares in the insurer to zero four years after a massive government bailout. Overall, Treasury and the Federal Reserve received a $22.7 billion positive return on their combined $182.3 billion bailout, the department said. AIG has also begun using AIG as the name for all of its global property/casualty operations, including Chartis, in most locations, and the company’s life and retirement segment is now called AIG Life and Retirement.

Markel Acquiring Alterra for $3.1B

This month, Glen Allen, Va.-headquartered specialty insurer Markel Corp. has agreed to acquire Bermuda-based Alterra Capital Holdings Ltd. for $3.1 billion in cash and stock to increase business diversification and expand into reinsurance. When the deal is completed, Alterra will become a wholly owned subsidiary of Markel. Markel executives and senior management will continue in current roles and key Alterra senior leaders and underwriters will be retained.

Canadian Private Equity Firm Onex Completes USI Acquisition

Also in December, Canadian private equity firm Onex Corp. said it has completed its previously announced acquisition of Briarcliff Manor, N.Y.-based USI Insurance Services from Goldman Sachs Group’s GS Capital Partners for approximately $2.3 billion. The transaction was first announced in November. At closing, a considerable investment was made from USI employees, according to an announcement from USI. Onex, Onex Partners III (in which Onex is a limited partner) and USI employees now own 100 percent of USI.

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