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Catastrophe Losses in 2007 Impacted by High Losses from Flood and Storm Damage in Europe

December 29, 2008

According to initial estimates, tens of thousands of people were killed by natural and man-made catastrophes in 2007. The catastrophes led to overall financial losses of $61 billion across the globe. Property insurers had to contend with losses totaling $25 billion.

The preliminary estimates of catastrophe losses in 2007 mentioned in the Swiss Re sigma include three insured losses running into the billions in Europe, two in North America, and one in Asia. Although the insured losses, at $25 billion, were $9 billion higher than in the previous year, 2007 is below the long-term loss trend.

The largest losses occurred in the first half of the year and were concentrated in Europe. The second half of the year, as of Dec. 11, has been less eventful. Over the course of the year, more than 20,000 people died in catastrophes. Bangladesh, for example, was hit several times, with monsoon rains and landslides in July and August and then with Cyclone Sidr in mid-November, killing more than 4,000 people and destroying extensive parts of the country's southwestern region.

Property insurers pay out losses in excess of $22 billion for natural catastrophes...

In 2007, Europe was unusually hard-hit by natural catastrophes. In January, Germany, the UK, Belgium, and the Netherlands reported losses from winter storm Kyrill. During the summer, the UK was also hit twice by heavy rains and flooding.

In the United States, a winter storm struck the East Coast in April, bringing heavy rainfall and flooding. At the end of October, the Witch forest fires raged in California. As these woodland areas are densely populated, these fires, known as urban forest fires, caused extensive property damage. The fires in California are associated with the heat and extreme lack of rainfall. Japan was spared record losses, whereas Australia reported flood and storm damage in New South Wales (NSW) in June.

...and more than $2 billion for man-made catastrophes

Major man-made disasters caused insured losses in excess of $2 billion in 2007, with major industrial fires, explosions, and aviation and spacecraft losses at the top of the list. Insured property losses were approximately of the same magnitude as those in 2006.

Source: Swiss Re

© Copyright 2007, National Association of Mutual Insurance Companies (NAMIC).

State looks at mediation on Ike claims

December 29, 2008

Amid a growing number of conflicts between Texans and their insurance carriers over hurricane damage, state regulators are taking a look at mediation to help solve disputes.

With more than 730,000 claims filed since Hurricane Ike blew through Texas in September, regulators expect the number of complaints to climb. The program would help expedite resolutions for consumers unhappy with their claims offers.

"We think the volume of Hurricane Ike claims may lend itself to this type of process," said Audrey Seldon, head of consumer protection at the Texas Department of Insurance.

In comparison, consumers filed 95,000 claims after Hurricane Rita in 2005 and 50,000 claims so far after Hurricane Dolly hit the South Texas coast earlier this year.

The state is considering mediation programs, in which an independent party would help resolve claims without binding the homeowners or insurers to the decisions. The programs are usually paid for by insurers.

Mediation could be faster than the state's complaint process and also cheaper than an appraisal process, in which the policyholder and the insurer hire separate damage appraisers who review the company's offer and choose a third appraiser to act as an "umpire" and make a binding ruling on any disagreements.

Seldon's agency is studying mediation programs in Florida, California, Louisiana, Mississippi and North Carolina to determine what would work best here, she said.

In other states, the insurer usually pays for the mediation process.

The department has received more than 1,200 complaints since Ike and has been able to get consumers $6.5 million. Under its complaint process, the department usually presents any evidence of underpayment or other grievance to the insurer, which then repays. But the state can't force the insurance companies to take any actions unless they are violating Texas insurance codes, Seldon said.

"Sometimes you have disputes where the parties don't come to a quick agreement, at which point this mediation process would give us another avenue," she said.

Nearly 3 months later

It might benefit consumers like Claudia Bernal, who is still trying to get her insurer to reimburse damages to some appliances and pay to replace her roof, nearly three months after Ike blew three trees onto her Spring home and more than a month after filing a complaint with the state.

"They haven't really done anything on our behalf," Bernal said, adding that she simply received a copy of an explanation from her insurer that she's also disputing.

The department declined to comment on the complaint, saying it's still open.

Bernal says her insurer wants her to go through the appraisal process, but she worries about its fairness and its expense.

She's trying to save as much money as possible given that she's been turned down for federal assistance and didn't qualify for a Small Business Administration disaster assistance loan because the agency questioned her and her husband's ability to repay.

Plan by January

The state plans to have a proposal ready by January. If there's enough interest from the industry and consumers, the department could pass a rule adopting the program, have insurers sign agreements or wait for lawmakers to create a program in the upcoming legislative session.

If the program is truly optional and doesn't thwart consumers from pursuing other avenues, such as litigation, it could be beneficial to consumers, said Alex Winslow, head of Texas Watch, a consumer group in Austin.

"I'd want to look at the proposal and see how it's handled and be sure it isn't an attempt to make it more difficult to grant co-insurers access to the legal process," Winslow said.

Insurers like idea

Insurers also said the program has potential.

"We would welcome TDI's proposed mediation process if it provides a fair and expedient agreement in settling Hurricane Ike claims," said Mark Hanna, a spokesman for the Insurance Council of Texas, an industry trade group. "Any agreement settled outside a courtroom will simply mean a faster reimbursement for policyholders."

Copyright © 2008 The Houston Chronicle

La. wish list on storm recovery: Don't forget us

December 29, 2008

NEW ORLEANS - More than three years after Katrina and Rita, and with billions of federal dollars already committed for recovery, Louisiana still has major requests � and complaints � pending on a wish list for the next president as rebuilding from the storms continues.

Louisiana's post-Katrina wish list for the next Congress and incoming Obama administration, lengthened by 2008 hurricanes Gustav and Ike, boiled down in a transition brief to one essential message: Don't forget us.

While progress has been made since Katrina and Rita lashed Louisiana in 2005, "our state still suffers an extreme housing crisis with affordable rental property hard to come by and billions of housing and infrastructure repairs yet to be completed," the Louisiana Recovery Authority said in the brief dated Dec. 8 and which the LRA provided a copy of last week.

The state's wish list for the Katrina and Rita aftermath include an extension of federal disaster housing assistance, including rental subsidies, set to expire March 1.

It also includes a call to push back by two years, to December 2012, a deadline to finish housing projects benefiting from tax credits due to the sour national economy. And there's also a call for establishment of a "blight removal fund" to help speed cleanup of thousands of derelict properties that are seen as stalling reinvestment in some devastated communities.

Louisiana also may seek a congressional appropriation if it can't come to more favorable terms with the Federal Emergency Management Agency on the level of Katrina damage to New Orleans' former public hospital for the poor, Charity. The state believes it's due $492 million; FEMA's offered $150 million.

Signs of Katrina's destruction remain in hard-hit communities of New Orleans and neighboring St. Bernard Parish. Hopeful signs � new, elevated houses, reopened businesses � give way to eery desolation in vast stretches of the Lower 9th Ward.

Abandoned apartment complexes blight slow-to-return neighborhoods in eastern New Orleans. Some houses still bear brownish-yellow water lines and the tattoos left by searchers in Katrina's frantic aftermath.

But progress is being made: In New Orleans alone, officials claim hundreds of millions of dollars in infrastructure projects are planned, under way or now completed. Hundreds of millions of additional dollars are lined up for neighborhood rebuilding and economic revitalization.

"The evidence of the recovery is going to get stronger and stronger as time goes on," said Mayor Ray Nagin.

But he also worries about "the people side of issues" � affordable health care and improved mental health services in a community where he says many still grapple with post-Katrina trauma.

In his own letter Nov. 26 on the city's outstanding needs, directed to House Speaker Nancy Pelosi, Nagin listed terminal improvements at the city's commercial airport; upgrades at the train and bus depot used as part of hurricane evacuation plans; and water and sewer system work among the "ready-to-go" infrastructure projects, independent of Katrina, that he believes merit consideration for inclusion in a stimulus package.

"In the next Congress, your continued support of our ready-to-go infrastructure, as well as other priority issues" � including rebuilding the city's health care and criminal justice systems, devastated by Katrina, and reforming the federal act that governs disaster recovery � "is critical," Nagin wrote.

President Bush's hurricane recovery chief, retired Maj. Gen. Doug O'Dell, said in a recent interview that he thinks the federal government has provided ample resources to Louisiana and Mississippi for recovery � and that a key task now is putting that money to work.

Of the $4 billion for permanent infrastructure work that FEMA set aside for Louisiana, $1.2 billion has been paid to the local level by the state, which has an accounting system of its own for the dollars.

One reason is the huge volume of work due to Katrina. Another, according to the state, is continuing frustration in getting FEMA to agree to what costs it will cover so cities have a clearer idea of what they can put out to bid.

FEMA spokesman Bob Josephson said there's often too much focus on a final dollar figure instead of on the overall scope of what needs to be done. He said the goal remains to cover "all actual and eligible costs."

O'Dell, who began in the post earlier this year and whose office is to be phased out early next year, began sit-downs with local, state and federal officials several months ago. His goal: to break through logjams and speed major projects.

While he calls FEMA's $150 million offer for Charity firm and all that's allowable under the federal law governing disaster recovery, he believes there's a potential public-private solution to the Charity fight.

The state's hurricane recovery chief, Paul Rainwater, wants to take his case for the $492 million to the Obama administration or Congress.

Major concerns following Gustav and Ike, which affected south Louisiana in September, include restoring wetlands that are a first line of defense against storms; investment in "a consistent" flood protection standard in coastal areas, outside the New Orleans' area; and providing aid to hard-hit farmers and fishermen.

Copyright 2008 The Associated Press. All rights reserved.

With Fed's Help, AIG Unloads $16 Billion in Credit Default Swaps

December 29, 2008

American International Group retired $16 billion in credit default swaps, the contracts that almost caused the company's collapse, after buying the underlying securities with help from the Federal Reserve.

The fund created by the Fed and AIG to protect the insurer's customers from losses has now purchased collateralized debt obligations with a face value of about $62.1 billion, the firm said in a statement.

The purchases bring AIG closer to winding down the financial products unit that triggered the worst of AIG's losses. The business guaranteed more than $70 billion in securities created by pools of different kinds of debt, including subprime mortgages, that plunged in value. The federal government committed $150 billion to bail out AIG and prevent losses at investment banks that bought protection on fixed-income securities from the insurer.

The fund, called Maiden Lane III, paid about $6.7 billion to the investors for the securities in the latest purchases. The counterparties were also able to keep more than $9 billion that AIG had posted in collateral, reimbursing them at face value for the assets. AIG "continues to analyze" ways to retire another $12.3 billion in contracts it sold, the company said.

AIG had to post collateral to investment banks including Goldman Sachs Group that purchased protection through swaps, pushing the insurer to the brink of bankruptcy in September. The government extended an $85 billion loan that month, and the bailout expanded to about $150 billion in November after the Fed created funds to limit losses tied to swaps and the firm's securities-lending program.

The Federal Reserve Bank of New York will provide as much as $30 billion to the fund retiring the swaps, with AIG contributing $5 billion.

Write-downs on AIG's swaps and mortgage-backed securities led to four straight quarterly losses totaling about $43 billion. Shares of AIG climbed 1 cent to close at $1.56 yesterday. The stock has plunged 97 percent this year.

Older Drivers' Fatal Crashes Trend Down; Many Say They Self-limit Driving

December 24, 2008

Despite growing numbers of older drivers on the road, fewer died in crashes and fewer were involved in fatal collisions between 1997 and 2006 than in years past, a new Insurance Institute for Highway Safety study reports. Crash deaths among drivers 70 and older fell 21 percent during the period, reversing an upward trend even as the population of people 70 and older rose 10 percent. Compared with drivers ages 35 to 54, older drivers experienced much bigger declines in fatal crash involvements. Reasons for the fatality declines aren't clear, but another new Institute study indicates that older adults increasingly self-limit driving as they age and develop physical and cognitive impairments.

Compared with drivers ages 20 to 69, fewer people 70 and older are licensed to drive and they drive fewer miles per licensed driver. However, older people now hang onto their licenses longer, drive more miles, and make up a bigger proportion of the population than in past years as baby boomers age. There were more than 20 million licensed drivers 70 and older in 2006, compared with just under 18 million in 1997. The total annual miles these older drivers traveled climbed 29 percent from 1995 to 2001, compared with a 6 percent rise among 35- to 54-year olds. Per mile traveled, crash rates, and fatal crash rates increase starting at age 70 and rise markedly after 80.

These trends have raised concerns about older drivers in fatal crashes. Their fragility makes them vulnerable to getting hurt in a crash and then to dying from their injuries. Physical, cognitive, and visual declines associated with aging may lead to increased crash risk.

Fatal crash involvements decline: Earlier research predicted that older drivers would make up a substantially larger proportion of drivers in fatal crashes, so "the findings are a welcome surprise," says Anne McCartt, Institute senior vice president for research, and an author of the new studies. "No matter how we looked at the fatal-crash data for this age group " whether by miles driven, licensed drivers, or population " the fatal-crash involvement rates for drivers 70 and older declined, and did so at a faster pace than the rates for drivers 35 to 54 years old."

Declines per licensed driver increased with age, so that drivers 80 and older had the most dramatic decreases. If the fatal crash involvement rates for older drivers had mirrored the trend for younger ones from 1997 to 2006, nearly 7,000 additional older drivers would have been in fatal crashes (1,376 drivers 70- to 74-years old; 1,680 drivers 75 to 79; and 3,935 drivers 80 and older). Fatal crash rates fell among older drivers for most types of crashes, and the decline was dramatic for crashes at intersections.

"The large drop in intersection crashes is especially important because Institute and other studies have shown that older drivers are overrepresented in multiple-vehicle crashes at intersections," McCartt says. "The data don't allow us to point to any one reason why older drivers' fatal crash experience has improved. Some drivers may have benefited from newer and safer vehicles, and older people generally are more fit than in years past, with better access to health care."

Older drivers are mostly a danger to themselves; 75 percent of people who die in crashes involving older drivers are these drivers themselves or their older passengers.

Older drivers limit car trips: One way some older drivers lower their crash risk is to limit driving. A separate ongoing Institute study is examining how older adults restrict their driving in response to declines in their health, mobility, vision, and memory. Researchers recruited drivers 65 and older in three states as they renewed their licenses between November 2006 and December 2007. In the first of several planned interviews, more than nine in 10 of these drivers said that driving themselves is their primary way to travel. Fewer than 1 percent said they'd been advised by family, friends, or a doctor to give up driving.

Most drivers reported at least some impairment, and the extent of impairment increased with age. For example, 26 percent of drivers 65 to 69 reported having at least some type of mobility issue, compared with 43 percent of drivers 80 and older. The oldest drivers were more likely to say they restricted their own driving. Drivers 80 and older were more than twice as likely as 65- to 69-year olds to self-limit driving by doing such things as avoiding night driving, making fewer trips, traveling shorter distances, and avoiding interstates and driving in ice or snow.

The percentage of drivers who said they limit their driving increased with each added degree of impairment. Drivers cited memory and medical impairments more often than vision or mobility ones. For example, among drivers 80 and older, 74 percent reported medical conditions such as diabetes or arthritis; 69 percent cited some memory impairment, such as more often forgetting names and appointments or misplacing items, compared with five years ago.

Source: Insurance Institute for Highway Safety

© Copyright 2007, National Association of Mutual Insurance Companies (NAMIC).

California Receives Highest Marks For Traffic Safety Laws In National Survey

May 28, 2009

California was the only state in the nation to receive consistently top marks across the board on a recent ranking of traffic safety laws conducted by the Insurance Institute for Highway Safety (IIHS). The study examined the strength of traffic safety laws in six key areas, including: DUI/DWI, young driver licensing, safety belt use, child restraint use, motorcycle helmet use and red light cameras.

"I am extremely pleased by the results of the IIHS study," said Office of Traffic Safety Director, Christopher J. Murphy. "We ended 2008 on a very high note, with seat belt and child safety seat use at an all-time high, plus alcohol impaired and total traffic fatalities were down significantly. The synergy between California's traffic safety laws, enforcement, engineering, emergency medical services, and public awareness are really paying off."

The State's 2008 adult seat belt use rate was 95.7 percent, with teens buckling up at a rate of 89.6 percent and child safety seat use at 94.4 percent. Total traffic fatalities are projected to be down over 13 percent from 2007, translating into well over 500 lives saved in just one year. Although 2008 figures for alcohol impaired fatalities are not yet available, the 2007 fatality total was down 9.5 percent from the previous year.

California was the only state to receive 'good' ratings in all six categories, the highest rating possible. Only Delaware, the District of Columbia, Oregon and Washington received five out of six 'good' scores.

After a nearly two year process, California instituted a Strategic Highway Safety Plan in September of 2006 to significantly reduce deaths and injuries. Hundreds of state and local agencies, advocacy groups and private industries helped develop the plan, which has been integrated into the on-going efforts of agencies and organizations throughout the state.

"California is on the forefront of every major movement in the nation," said Murphy. "We are proud to be the leader in traffic safety, since it means that we are saving lives and protecting futures."

Copyright © 2009 PR Newswire Association LLC. All rights reserved.

A Surgical Approach to Regulatory Reform

May 28, 2009

Given the enormity of the financial crisis, a predisposition toward bold legislative action among lawmakers seems natural. Yet, a measured, surgical response that takes into account the peculiarities of insurance while recognizing its central place in the financial services industry may be the correct one.

Patricia Guinn, managing director, risk & financial services, at New York-based Towers Perrin, favors such an approach. Indeed, Guinn recently testified to this effect at hearings held by the House Committee on Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises titled "How Should the Federal Government Oversee Insurance?"

Citing the industry's strong risk management culture and the historical success of state regulators, Guinn stressed that any new federal regulatory effort needs to be carefully structured and designed to supplement and improve the existing regulatory framework, not replace it.

After the hearing, Guinn elucidated this viewpoint in an excluded interview with Insurance Networking News. "There are reasons that Federal attention is warranted, but it should be balanced by the realization that there is no need to start from scratch," she said. "Any new role for the federal government in insurance regulation should build on the industry's positive risk management characteristics and the good elements of the current regulatory structure."

To quell systemic risk, Guinn said she favors a holistic regulatory framework that includes insurers along side commercial banks, investment banks and hedge funds, citing the United Kingdom, Australia and Canada as models for comprehensive financial services regulation. However, she stressed that federal oversight of the insurance industry needs to recognize its unique characteristics. "A one-size-fits-all approach derived from the banking industry would likely not work well," she said.

Moreover, any new legislation should seek to eliminate regulatory arbitrage, while acknowledging the complexity of the insurance landscape, especially at the holding company level. To accomplish this, she suggests adopting a principle-based approach that values transparency as much as rules.

Lastly, Guinn said that Federal regulators should strive for the lightest footprint possible and only intervene in the direst of circumstances. "State insurance regulation has served the industry, by and large, quite well. The best of it should be preserved."

For more information on related topics, visit the following channels:

• Compliance
• Insurance Network
• Risk Management
• Editors' Picks

2009 Insurance Networking News and SourceMedia, Inc. All rights reserved.

Wholesalers Optimistic Future Will See Improvement

May 28, 2009

A hard insurance market may not be on the horizon any time soon, according to wholesale line executives, but no signs of pessimism were evident among attendees of this year's meeting of the American Association of Managing General Agents.

In his remarks during the opening session of the AAMGA annual meeting in Boca Raton, Fla., Bernd G. Heinze, executive director of the association, commented that times have changed dramatically in one short year.

He noted that this time last year, the Dow Jones Industrial Average was over 1200 points, and American International Group was the most powerful insurance company in the world.

In an interview with National Underwriter during the meeting, Alan Jay Kaufman, president and chief executive officer with the wholesale brokerage firm Burns & Wilcox, said the economic crisis has had a huge impact on the insurance markets�impacting policyholders, which in turn impacts their insurance purchasing.

While it is hard to know how long this crisis will go on, he said there is still business out there to be written. For his firm that has meant they are working harder to maintain premium volume.

“We have intensified our efforts in all areas,” he said.

One big issue among retail agents, he said, is carrier solvency. Burns & Wilcox, said Mr. Kaufman, is using this issue to its advantage by placing business with well-rated carriers.

For Liberty International Underwriters, a large program business carrier with a diversified portfolio, solvency was one issue that did not come up with brokers, said Joe Peloso, vice president of liability programs for LIU, a division of Liberty Mutual Group.

Mr. Peloso said brokers were confident of the company’s financial condition and that it would remain a strong player in wholesale and program markets.

Among insurers, he said competition remains intense, with some hard market signs “here and there.” While there is a growing need for underwriting profit, that has done little to alter the competitive landscape, he noted.

While not naming the insurer, he indicated that the business disruption at American International Group has not created the kind of business opportunities expected for Liberty. He said it was surprising that more brokers have not moved their business in the face of those disruptions.

Margaret Zechlin, underwriting practice group leader and executive vice president for wholesale broker Swett & Crawford, said there are currently no capacity issues, but there is firming in some lines of business.

Speaking to NU in a telephone interview after the meeting, Ms. Zechlin said some lines such as property catastrophe, earthquake, and errors and omissions for financial institutions are showing increases.

“Everyone is hoping for a hard market,” she said, but that does not appear to be happening any time soon.

She said many insurers at the meeting were expressing a lot of interest in program business—a few were particularly interested in inland marine—but what seems difficult to understand is why competition remains so intense when underwriters’ profits are hurting.

“We thought it would have been firmer and pushing rates up, but we did not hear that, only on catastrophe property,” she noted.

The markets remain competitive for placing business, she said, and retail agents “who are efficient will be there [in the future], and those who are not won’t be.”

“I’m an optimist,” said Mr. Peloso about his company’s prospects. “I feel good about this industry,” and while others who entered the wholesale market to take advantage of the soft market may disappear, LIU “will be there to step in” when the markets change.

For Burns & Wilcox, Mr. Kaufman said this has been a time of opportunity, hiring experienced executives and beefing up its technology with talent that was not available before the economic downturn. It also helps to be a diversified firm with a number of business interests, including premium financing.

“The competition has weakened and contracted and given us an opportunity in certain areas,” said Mr. Kaufman.

He noted, “As tough as it has been, we’ve taken advantage of the situation, improved our infrastructure, and we are getting ready for when the markets improve.”

Transportation Rates Continue To Flatten

May 28, 2009

Rates in the transportation insurance segment continued to level off through the 2009 first quarter, even as the number of new entrants increased, according to a new survey.