A unique momentum.Fresh on the heels of the costliest storm on record and investigations that dislodged some industry titans, the insurance industry moves into 2006 distinctly altered by its struggles of 2005. No one would have predicted last January the changes to come in the way brokers do business or the repercussions repercussions npl → répercussions fpl repercussions npl → Auswirkungen pl of the hurricane season Hurricane season refers to a period in a year when hurricanes usually form. For more information see: Tropical cyclone#Times of formation. For a lists of past seasons, see:
Investigations Spawn Disclosures, Fee Changes. When Eliot Spitzer Eliot Laurence Spitzer (born June 10 1959 ) is an American lawyer, politician and the current Governor of New York. Spitzer was elected governor in the November 2006 election. filed a lawsuit against insurance broker Marsh & McLennan Cos. in October 2004, implicating im·pli·cate tr.v. im·pli·cat·ed, im·pli·cat·ing, im·pli·cates 1. To involve or connect intimately or incriminatingly: evidence that implicates others in the plot. 2. major insurance carriers in bid rigging Bid-rigging is an illegal agreement between two or more competitors. It is a form of collusion, which is illegal in the United States. It is a form of price fixing and market allocation, and involves an agreement in which one party of a group of bidders will be designated to win schemes, the New York state attorney general The New York State Attorney General is the chief legal officer of the State of New York. The office has been in existence in some form since 1626, under the Dutch colonial government of New York. charged that his investigation had revealed widespread corruption that required me insurance industry to take a "long, hard look at itself" at its fundamental business model and take major corrective action A corrective action is a change implemented to address a weakness identified in a management system. Normally corrective actions are instigated in response to a customer complaint, abnormal levels if internal nonconformity, nonconformities identified during an internal audit or . Unquestionably un·ques·tion·a·ble adj. Beyond question or doubt. See Synonyms at authentic. un·ques  tion·a·bil , insurers have taken a long hard look at themselves
over the past year--some voluntarily and others through the power of
subpoenas. The allegation of pervasive wrongdoing wrong·do·er n. One who does wrong, especially morally or ethically. wrong  do , however, remains a
contentious issue.What started as a producer compensation probe triggered other state and federal investigations and hundreds of class action lawsuits class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax ; brought the use of finite reinsurance Finite Reinsurance A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced through accounting or financial methods, along with the actual transfer of economic risk. under scrutiny; resulted in more than a dozen criminal indictments and 16 guilty pleas; forced a number of insurers to restate financial results; prompted brokers to agree to return more than $1 billion to clients; and resulted in ousters In Dan Simmons' Hyperion universe, the branch of humanity that left the Worldweb and the Hegemony, and chose instead to travel among the stars, adapting away from planetary life and the influence of the TechnoCore. and resignations of key executives, as well as mass layoffs. In the past year, regulators have passed rules to ensure adequate disclosure of contracts and transactions, and some carriers have embraced new corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. structures to strengthen internal controls. Earlier in the year, several major brokers decided to stop accepting contingent commissions--fees that regulators charged were the incentive for rigging bids and steering business. Rebuilding trust with clients and regulators will be critical going forward, experts say. A world without contingent commissions Contingent commissions is a term used in the American insurance industry for any kind of broker's commission which is contingent upon some event occurring (instead of a commission paid on the sale itself). In the UK this form of payment is known as Overriders. will test the business model of major brokers, including those that are counting on less overhead costs overhead costs see fixed costs. and a tapering legal and regulatory climate regulatory climate The extent to which a regulated firm or industry is permitted to earn an adequate return on the stockholders' investment. This term is nearly always used in reference to utilities, which are required to obtain approval for rate changes. to improve earnings. --David Dankwa Hurricane Katrina  Editing of this page by unregistered or newly registered users is currently disabled due to vandalism. Reshapes Insurance MarketHurricane Katrina is reshaping not only the Gulf Coast but the entire insurance industry. When Katrina slammed into Louisiana as a powerful Category 4 storm on Aug. 29, severe damage was expected by catastrophe modelers and experts. The actual destruction exceeded expectations, reaching $34.4 billion in insured losses and surpassing 1992's Hurricane Andrew This article is about the 1992 hurricane; there was also a Tropical Storm Andrew during the 1986 Atlantic hurricane season. Hurricane Andrew is the second-most-destructive hurricane in U.S. history, and the last of three Category 5 hurricanes that made U.S. as the costliest storm on record. The storm's aftermath will likely include not only a rise in property insurance rates along the coast, but across the country as the cost of building supplies increases because of the demand in the South as it rebuilds. And Katrina's losses will hit reinsurers heavily, leading most industry watchers to predict a rise in the cost of property/casualty reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. and even a lack of availability. Several property/casualty insurers have said they will limit their coastal exposures in the wake of Katrina, which will likely further strain the resources of residual markets and small regional insurers in coastal states The U.S. Coastal states are states in the United States that have a coastline. This can be an ocean coast, a gulf coast, or a Great Lake coast. There are twenty three ocean/gulf of Mexico states, and eight Great Lake states. (New York is both an ocean state and a Great Lake state. . While some small regionals may face financial difficulties due to their exposure in hurricane-prone states, limited reserves and exceeding their reinsurance limits, other small companies may enter the markets other insurers are leaving, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Robert Hartwig, chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the for the Insurance Information Institute. Several lawsuits attempting to get insurers to pay for flood damages may have serious economic consequences if successful. And the sheer amount of losses caused by Katrina has resulted in calls from Allstate Corp. and several insurance commissioners for a national hurricane catastrophe fund, similar to a state fund already in place in Florida. --Rick Cornejo Congressional Agenda Needs New Push in '06 Coming into 2005, many insurance leaders had high expectations for the 109th Congress and President Bush's second term in office. But after early victory on class action reform, both the president's agenda and that of several key congressional leaders floundered through a series of public disappointments, bringing the industry along for the ride. Efforts to impose national caps on medical-malpractice awards went nowhere, while House-supported sanctions on frivolous lawsuits languished in the Senate. The Senate Judiciary Committee The U.S. Senate established the Committee on the Judiciary on December 10, 1816, as one of the original 11 standing committees. It is also one of the most powerful committees in Congress; among its wide range of jurisdictions is investigation of federal judicial nominees and oversight of was able to move a long-awaited trust fund bill, but only after granting concessions that led even many formerly supportive insurers to turn against the concept. No room could be found in a bloated federal budget for an above-the-line tax credit for long-term-care insurance, and when the president's Social Security reform efforts went up in smoke, it brought the possibility of mandatory annuitization of benefits along with it. The SMART Act--Rep. Mike Oxley's insurance regulatory modernization proposal--received a great deal of press, but no formal introduction on the floor of Congress. And even the extension of the federal terrorism insurance backstop went down to an 11th hour compromise proposal that, at press time, still had not been accepted by the House and Senate. But for some sectors of the industry, Washington's miasma miasma noxious exhalations from putrescent organic matter; the basis for an early concept of the origin of epidemics. of inaction may have proved a blessing. Administration-backed proposals to repeal the estate tax and to license association health plans--opposed fervently by the life insurance and small group health sectors--ended the year just as stalled as those parts of the president's agenda the industry supports. --R.J. Lehmann Medicare Part D in Full Swing Beginning in 2005 and continuing into 2006, health plans are gearing up for what Karen Ignagni, president and chief executive officer of America's Health Insurance Plans, calls "the most important benefit expansion in 40 years." The new drug benefit for seniors--Medicare Part D--goes into effect Jan. 1, 2006. "For decades, seniors have been talking about the need for prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, coverage under Medicare, and finally Congress has delivered," Ignagni said. To prepare for the benefit's arrival, insurers have undertaken outreach efforts such as sponsoring community seminars and education programs, issuing public service announcements, increasing call center staff and setting up special toll-free numbers to answer questions, and educating brokers. Those efforts are expected to continue this year, particularly throughout the open enrollment period that ends in May. Under Part D, Medicare will pay part of the cost of prescription drugs for those who sign up for managed care plans offering drug coverage or purchase policies from a private firm. "For the first time, there's a relationship that many organizations will have with the Medicare Advantage and Part D program that will be far more expansive than anything we've ever seen before," said Jane Galvin, director of regulatory affairs for the Blue Cross Blue Shield Blue Shield A US not-for-profit health care insurer that is a reimbursement intermediary for physicians. Cf Blue Cross. Association. In addition, the program will offer more choices to seniors, and Ignagni believes a growing number of individuals without retiree coverage through the private sector will seek coverage and be interested in Medicare Advantage and other products. --Lori Chordas Nonpublic Insurers and SOX--the plot thickens With sticky issues such as costs vs. benefits to consider, the industry debate over applying the Sarbanes-Oxley Act of 2002 to mutual insurers occupied the top half of the agenda for many insurer advocates in 2005. At center stage was the National Association of Insurance Commissioners' draft model law, which proposed requiring nonpublic insurers to comply with the same corporate governance standards applied to publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. under SOX, the law that was originally enacted to protect shareholders from the type of malfeasance The commission of an act that is unequivocally illegal or completely wrongful. Malfeasance is a comprehensive term used in both civil and Criminal Law to describe any act that is wrongful. exemplified by the Enron Corp. While it drew heated argument in 2005, the issue in 2006 is expected to maintain a calmer tone. Groups such as the National Association of Mutual Insurance Companies--which earlier in the year conducted a cost/benefit study that showed implementation would cost nearly eight times the maximum potential benefit--are claiming victory for getting regulators to withdraw their original proposal to transfer SOX's internal control framework to state insurance regulation. With "full SOX" off the table, the NAIC's Title IV Subgroup is considering an alternative plan offered by a group of industry "interested parties." Still, not all is perfect. While the industry plan does not include the costly auditor's attestation component of the NAIC's original Title IV proposal, some have raised concerns that its implementation guide would allow a "back-dooring" of some of the original burden. Following an expected move up though the NAIC NAIC See National Association of Investors Corporation (NAIC). hierarchy, a final proposal is roughly slated for a vote in the spring. --Eleanor Barrett Low-Cost Life Product Sparks Reserving Fight The popularity of a low-cost permanent life insurance product precipitated a battle last year that will determine whether the product, no-lapse universal life, will continue to offer low rates. After formation of the Affordable Life Insurance Alliance, compromises by members of the industry, and some diligent work by regulators, the product will likely survive, but more regulatory work on the issue remains to be done this year. The battle, some in public and some not, pitted companies that favored traditional forms of reserving against those that exploited regulatory loopholes to offer no-lapse UL, permanent insurance with rates closer to term life. The loopholes enabled direct writers to reserve less than under the traditional, formulaic approach, and to gain an advantage that cut into sales of competitors and even led to policy replacements. The competitors argued that such reserves were inadequate and could lead to solvency problems. Jim Poolman, North Dakota's insurance commissioner and chair of the NAIC's Life Insurance and Annuities Committee, said the committee is working toward a principles-based approach to reserving because the current formulaic approach is "outdated." He said the committee would adopt a work plan for this year with "aggressive timelines" Scott Harrison, the alliance's executive director, said affordable insurance is sorely needed by middle-income Americans and is important to the industry. Domestic insurers face competition not only from foreign insurers, but also from other financial-services providers, he said, and he vowed that the alliance will continue its work to ensure the issue does not quietly die away. --Ron Panko [GRAPHIC OMITTED] New Capital Floods Bermuda Market Record-breaking catastrophe losses in 2005 prompted another round of capital blood-letting in the Bermuda reinsurance market, and, as in the waning weeks of 2001, fresh capital moved in to reinvigorate the market. Most Bermuda property/casualty companies--reinsurers and insurers alike--tapped into capital markets in some way to shore up battered balance sheets and prepare for the 2006 reinsurance market. The trick for some will be to survive long enough to take advantage of better premium rates. Even insolvency breeds new things in Bermuda. Alea Group is selling off parts of its business after taking a hurricane battering, but the company can take the path of Goshawk goshawk: see hawk. goshawk Any of the more powerful accipiters (hawks in the genus Accipiter), primarily short-winged, forest-dwelling bird catchers. Best known is the northern goshawk, which reaches about 2 ft (60 cm) in length with a 4.3-ft (1. Holdings, which placed Rosemont Re into runoff. Enter a Bermuda start-up with private investors led by Ace Ltd.'s former vice chairman Don Kramer, with a plan to buy and reinvent Rosemont Re. If refurbishing battered reinsurers isn't appealing, there's the start-up from scratch. The latest include Arrow Re, Harbor Point Re, Lancashire Insurance, New Castle Re and Validus Holdings, all registered in Bermuda. The attractive ness of reinsurance as an investment following great disasters even inspired a formation in the Cayman Islands [Greenlight Re], the first for that domicile in many years, the locals say. London market players also are funneling capital into Bermuda. Lloyd's Hiscox and Amlin launched Bermuda start-ups, as did Omega Underwriting, all doing what will likely become more common in 2006 and beyond--funding underwriters in Bermuda while also boosting capital at Lloyd's. --David Pilla Integro Ltd.--New Broker on the Block A new player crashed the brokerage scene in May with the launch of Integro Ltd., a full-service, global independent insurance brokerage and risk management firm, which had raised some $320 million in private equity start-up funds from several large institutions and individual investors. Integro is the brainchild of Robert Clements, former chairman of Arch Capital Group Ltd., who recruited as chief executive officer, Roger F. Egan, most recently chief operating officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. at Marsh & McLennan Cos., and as president, Peter F. Garvey, former Marsh president. In Latin, Integro means "to renew, replenish, repair and refresh" and also "to make well or make better." According to the company Web site: "We chose the name to reflect our desire to address the need in the insurance marketplace for a fresh choice." Alluding to New York state Attorney General Eliot Spitzer's allegations of bid-rigging and improper use of contingent commissions, Egan noted that Integro would "stay away from traditional compensation models." Instead, the company's brokers are salaried, with profit-sharing and equity participation options. Integro is positioned to target the "complex risks" segment of the market: directors and officers, property/casualty insurance, and industrial businesses. Based in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of with regional offices in San Francisco, Chicago, Toronto, Montreal, Bermuda and London, Integro plans to expand to other major North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. cities. Its business plan includes hiring 2,500 employees over five years. To date, Integro has recruited more than 60 experienced insurance professionals from Aon, Willis, Palmer & Cay, Hartford, Ace and Chubb. --Bonnie Brewer Cavanaugh</p> <pre> Integro's Leadership Name Position Most Recently Served As Robert Clements Chairman Chairman, Arch Capital Group Ltd. Roger E. Egan Chief executive officer Chief operating officer, Marsh Peter F Garvey President President, Marsh Joseph D. Salerno Chief financial officer Retired chief financial officer, Marsh </pre> <p>Lloyd's Leads Drive for Contract Certainty Within the London insurance market, Lloyd's has emerged as a champion of contract certainty. This role is likely to continue in 2006 as underwriters and brokers face an end-of-year deadline from the U.K. Financial Services Authority The Financial Services Authority ("FSA") is an independent non-departmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. Its main office is based in Canary Wharf, London, with another office in Edinburgh. to bring in an acceptable structure. Nick Prettejohn, Lloyd's former chief executive, was strongly identified with this effort, with his regular stump speech to insurance gatherings on the dangers that a continuing lack of contract certainty would pose to the London market's position in international insurance. In a typical address in London in May, Prettejohn said that "contract certainty is a commercial necessity rather than a regulatory concept. The commercial reasons are overwhelming." Contract certainty had moved up on the agenda as a result of the rancorous ran·cor n. Bitter, long-lasting resentment; deep-seated ill will. See Synonyms at enmity. [Middle English, from Old French, from Late Latin, rancid smell, from Latin legal disputes that followed the terrorist attacks on the World Trade Center on Sept. 11, 2001. The speed at which London's proportional market had been able to put the coverage together had not been matched by an ability to establish clear contract terms. As Lloyd's pushes for change, it is undergoing a cultural shift of its own. At the beginning of 2005, Lloyd's moved from its traditional three-year accounting period into the more standard one-year system. This ended a tradition of more than three centuries, bringing the market into symmetry with U.K. Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . Legend has it that the three-year system was pegged to the length of time it took a ship to circumnavigate cir·cum·nav·i·gate tr.v. cir·cum·nav·i·gat·ed, cir·cum·nav·i·gat·ing, cir·cum·nav·i·gates 1. To proceed completely around: circumnavigating the earth. 2. the world: If a vessel had not returned within that time, it was not going to. --Robert O'Connor Quest for Scale Dominates Life Sector MetLife Inc. closed on its $11.5 billion acquisition of Citigroup Inc.'s Travelers Life & Annuity unit Annuity Unit An accumulation unit for which the annuitant has annuitized their contract. This is a sub-account of the retiree's total accumulated annuity. These units represents a fixed share of ownership of the insurer's accounts portfolio. and nearly all of Citigroup's international insurance businesses, while Lincoln National Corp. is expected to acquire Jefferson-Pilot Corp. to form the fourth-largest U.S. life insurer. Such combinations are likely to remain a key feature of the life marketplace for some time to come, predicted A.M. Best Vice President Edward Easop. The MetLife-Travelers deal, approved in July, made MetLife North America's largest individual life insurer based on sales. Travelers Life & Annuity is a leading U.S. underwriter for variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. , structured settlements, universal life and variable universal life products. MetLife will expand its distribution by making products available through some Citigroup distribution channels. In October, Lincoln National said it would acquire Jefferson-Pilot in a $7.5 billion deal. Lincoln and Jefferson-Pilot together would have significant reach in life insurance, annuities and investment products, with combined revenue of about $9.5 billion. One equity analyst said the Lincoln National-Jefferson-Pilot combination is one driven by a tough environment for growing earnings--low interest rates and higher capital requirements--a trend that doesn't bode well for the life insurance sector. "We believe these companies combined out of weakness as growth has been stalled and the macro environment continues to weigh down To overbalance. To oppress with weight; to overburden; to depress. - Milton. to sink by its own weight. See also: Weigh Weigh Weigh their fundamentals," said John Nadel, a life insurance analyst with Fox-Pitt, Kelton. --Fran Matso Lysiak After the Deal Selected rankings by line, including the purchase of Citigroup's life business by MetLife. * Hartford Life $16.44 MetLife/Citigroup $15.46 AIG Life $10.54 Capital and Surplus ($ Billions) MetLife/Citigroup $19.67 AID Life $17.82 TIAA Group $10.24 * based on year-end 2003 A.M. Best Co. data Note: Tables made from a bar graph. |
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