NY Reinsurance Collateral Proposal

Reinsurance regulation in the U.S. has long been a broad  issue of debate about which different parts of the industry have varying opinions. Last week’s proposal put forward by New York insurance superintendent Eric Dinallo addresses just one area of the debate: collateral requirements. Currently, any U.S. or non-U.S. reinsurance company that is not authorized or accredited to do business in New York must post collateral equal to 100 percent of its share of policyholder claims. Under Superintendent Dinallo’s proposal, well-capitalized non-authorized reinsurers with the highest credit rating doing business in New York would be treated on an equal footing with authorized companies and would no longer be required to post collateral. Companies that are not as strong would still have to post collateral on a sliding scale from 10 to 100 percent. New York is the first state to suggest the change and it remains to be seen how other states may react. Clearly, reinsurance is an international business that enables risks to be spread more widely. It plays a critical role by increasing capacity in the global insurance marketplace and offering catastrophe protection. But from insurers’ perspective concerns have been raised over ceding insurer solvency and reinsurance recoverables. We welcome your comments on this issue.  Check out the NAIC for further information on its reinsurance modernization proposal. Check out  further I.I.I. facts & stats on reinsurance.

Insurance and Changing Demographics

Insurers are constantly looking to develop products for the future, products that respond to emerging trends and changing customer needs. One of those trends is shifting demographic patterns. A media roundtable hosted by Allianz next Tuesday in Manhattan will address the topic of changing demographic trends in the U.S. and how this will play an increasingly important role in the products offered by insurers and financial services companies. A panel of experts from Allianz companies will address different aspects of this trend. Fireman’s Fund will talk about the aging society and the increased need for assisted and senior living facilities as an opportunity for the commercial insurer. Allianz Life will discuss how a life insurer can cater to the changing face of the U.S. population with increasing influence from Latino and other ethnic communities. Allianz Global Investors will discuss the importance of financial planning for the future given increasing college participation at skyrocketing costs. The event will take place 10-11am Tuesday October 23, at Allianz Global Investor HQ, 1345 Avenue of the Americas, 49th Floor, New York, NY 10105. Tel: (212) 938-0630.  

On The Hill Update

A quick update on the terrorism and flood measures in the Senate. The bill to further extend the federal terrorism risk insurance program passed the Senate Banking Committee by a vote of 20-1 yesterday. The Senate bill would extend the program for a further seven years from its upcoming expiry December 31. Undoubtedly this is a positive step, as a continued federal terrorism risk insurance program is critical to ensuring that terrorism insurance remains available to those businesses that want and need the coverage. The White House also said it would back the Senate version, another positive development. While the bill does not expand the program to cover chemical, nuclear, biological and radiological (CNBR) terrorism, it does require a study into the existing insurance market for CNBR by the Government Accountability Office (GAO). On what was a busy day, the same Senate Committee also approved legislation to reform the National Flood Insurance Program (NFIP). The contentious issue of adding windstorm coverage to the flood program was not included in this measure. For more on the risks posed by expanding the NFIP to include windstorm, check out I.I.I. president Dr. Robert Hartwig’s testimony delivered before the U.S. House subcommittee on Housing and Community Opportunity earlier in July.  

Litigation Trends

U.S. companies may afford themselves a sigh of relief, albeit brief, when they take in the headline findings of the fourth annual Litigation Trends Survey by Fulbright & Jaworski showing a distinct drop in the number of new lawsuits and regulatory actions filed against them. Based on interviews with in-house counsel at 250 major U.S. corporations, 17 percent of respondents said their companies had escaped the past year without having to defend a single new lawsuit, a sharp increase from just 11 percent in 2005-06. But despite the fact that internal investigations are down and fewer businesses are filing suit, Fulbright cautions that the litigation landscape remains fully loaded, with one-third of U.S. companies facing at least 25 lawsuits, and 18 percent defending 100+ cases domestically. As industries go, it appears insurers along with retailers faced the most litigation. Some 93 percent reported having to defend at least one new case this past year, and more than half from both sectors got stung with one or more $20 million dispute – the highest of 10 industry segments represented. Insurers contended with the most $20 million-plus cases with 54 percent taking on more than 20 such actions. The upshot is that even with fewer companies reporting new lawsuits this past year, Fulbright notes that the vast majority of U.S. businesses remain significantly exposed to litigation. Check out further I.I.I.  facts  & stats  on  litigiousness.

Terrorism and Flood Bills Before Senate Committee

Keep your eye on Capitol Hill tomorrow where the U.S. Senate Banking Committee will consider both further extension of the federal terrorism risk insurance program and reform of the National Flood Insurance Program (NFIP). Votes on both measures are expected  in the  morning. The House passed its version of the terrorism bill on September 19 (see our September 20 posting). Word on the street is that the Senate version is very different to the House bill in scope, as it would extend the program for seven years and not extend coverage to group life. The debate on extending coverage to chemical, nuclear, biological and radiological (CNBR) terrorism also remains undecided. Check out I.I.I. information on terrorism risk and NFIP  facts & stats  online.

Global Insurance Regulators Meet

“A Global Climate for Change: The Future of Insurance Regulation† is the billing for the 2007 annual conference of the International Association of Insurance Supervisors (IAIS) which kicks off in Fort Lauderdale later this week. For a conference that promises global perspectives on future trends in insurance regulation, we note with interest that Florida Governor Charlie Christ is scheduled as one of the keynote speakers. Other keynote speeches will be delivered by: Zhou Yanli, vice chairman, China Insurance Regulatory Commission (CIRC); Dr. Fariborz Ghadar, director of the center for global business studies, Penn State University; and Dr. Evan Mills, staff scientist, Berkeley National Lab, who will speak on insurance and climate change. Additional panel discussions will focus on a range of topics including: emerging markets and regulation; reform of reinsurance regulation in the U.S.; global accounting standards; Solvency II and its impact; and the use of securitization in insurance markets. Check out I.I.I. updates on reinsurance and accounting and  our International Fact Book for further related info.

Firm Foundation 2008

For those of you looking for tangible numbers telling the important story of how the insurance industry contributes to state, local and national economies, look no further. The I.I.I. has just released an updated edition of its online publication “A Firm Foundation†. The 2008 edition again shows the myriad ways in which insurance supports the economy, from offering employment and fueling the capital markets, to defraying the cost of catastrophes and providing financial security and income to individuals and businesses through the payment of claims. State-specific editions also highlight the industry’s role as a key player in a number of state economies, including California, Florida and Texas. The latest state edition focuses on New Jersey and can be accessed on the I.I.I. Web site at http://www.iii.org/static/statepdfs/newjersey.pdf.  

NY Cat Fund Debate

The availability and affordability of coastal property insurance is an issue that elicits a wide range of viewpoints. Insurers, legislators and regulators face growing challenges in managing this problem because of the escalating values at stake. Even in a hurricane season without a major U.S. landfalling storm, the numbers at play are of grave concern. Let’s revisit some of the figures: total value of insured coastal exposure nationwide is more than $7 trillion and growing; Florida and New York — with more than $1.9 trillion insured coastal property each — have the highest coastal exposure as a share of all insured exposure in their states; coastal populations continue to surge; natural disasters cost insurers $14.5 billion annually in the 20-year period from 1986-2005, and since 2000 the toll has increased to $20 billion annually, mostly due to hurricane damage. To-date many proposals have been put forward to deal with the coastal property insurance problem. The latest solution, unveiled late last week by New York insurance superintendent Eric Dinallo, would require insurers to create a catastrophe reserve fund to help pay claims from hurricanes and other natural disasters. Like many issues in our industry, there  are varied responses to this plan. National Underwriter’s October 9 online article by Daniel Hays “Insurers of Three Minds on N.Y. Cat Fund Proposal† sums up where we are right now. We welcome more feedback on this topic.  

Avian Flu Update

In the four months since his last update on H5N1 (the Avian flu), I.I.I.’s chief economist and resident bird flu expert Dr. Steven Weisbart notes that 22 more people have been confirmed to have been infected with the disease, and 15 of them have died. This brings the cumulative total to at least 201 dead and 329 confirmed infected since December 2003 (the start of the current outbreak) through October 2, 2007. In 2007 alone there have been 66 infections and 43 deaths (65 percent), roughly the same pace of infections and deaths as in 2006 (69 percent death rate). Dr. Weisbart explains that the lethality rate of the virus varies substantially: in 2007, 25 percent of those infected in Egypt died, compared to 87.5% of those infected in Indonesia. Human infection is still believed to be mainly from birds to humans, basically from very close contact with infected chickens and similar birds in home environments. Virtually all of the cases continue to be under 40 years old. There are still no cases of birds or people in the U.S. with this flu virus.  

Considering Stoneridge

Today the U.S. Supreme Court will begin hearing a major securities litigation case with potentially enormous implications for businesses. The outcome of Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. will decide whether shareholders can sue third parties (such as accountants and lawyers) charged with aiding a corporation that has defrauded its investors. The Securities and Exchange Commission (SEC) already has the ability to sue third parties for aiding corporate fraud, but a decision in favor of investors in this case would likely expose U.S. companies as well as  those doing business with them to significant additional costly shareholder suits. We don’t need to remind you of how much litigation costs U.S. businesses. For more on this, check out I.I.I.’s liability issues update. Further commentary on the Stoneridge case can be found at The D&O Diary, a blog focused on D&O liability issues.

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