Category: Industry

Catastrophe losses continued to dampen U.S. property and casualty underwriters’ results for the third quarter of 1998, according to A.M. Best Company.

The industry’s net income for the period fell 15% from the previous year’s level, due to higher underwriting losses and declining investment income. The industry’s combined ratio clocked in at 104.2 for the nine months, 3.2 points worse than the same period last year.

The deterioration in the financial results was primarily blamed on last year’s rise in weather-related catastrophe losses. Cat losses added at least five basis points to the third quarter’s combined ratio, compared with less than one point in the third quarter of 1997. The total estimated third-quarter catastrophe loss was US$3.7 billion, of which Hurricane Georges accounted for $2.5 billion after its devastation of Puerto Rico and the U.S. Virgin Islands. Hurricane Bonnie’s damage to the Southeast U.S. contributed a further $360 million.

Through the first nine months, the industry incurred about $8.3 billion in catastrophe losses. In addition to the third-worst losses in history in the third quarter, the industry posted record-high losses in the second quarter. These losses are keeping pace with the $8.9 billion yearly average for the past decade, but the 10-year average is inflated by the Northridge earthquake and Hurricane Andrew losses.

A.M. Best believes the industry’s reported combined ratio for the full year for 1998 will be slightly higher than its originally projected at 104.8, which compares with 101.6 in 1997.

Other A.M. Best announcements:

Blue Cross Blue Shield Life Insurance of Canada has been downgraded from its “A-” (Excellent) rating to “B++” (Very Good). The downgrade reflects the company’s disappointing earnings in Ontario, which continue to be affected by increased claims and narrow margins in the group health segment.

The rating agency has affirmed a rating of “A++” (Superior) on the Munich Re Group, and its reinsurance subsidiaries in Canada, Australia, South Africa, Italy, as well as to New Re, Geneva and Great Lakes Reinsurance (UK), London. Life reinsurer Munich American Reinsurance Company, Atlanta, was assigned a rating of “A+” (Superior).

Bavarian Reinsurance Co. of Munich, Germany has been affirmed the “A++” Superior rating reflecting the company’s financial strength, underwriting discipline and client-focused strategy, which has translated into consistent profitable operating results.

Lindsey Morden Group has sold Hambro Assistance (HA) to Eastgate Group Limited of London England for $132.4 million. HA, which provides telephone helplines and other assistance services in the United Kingdom, is a unit of Lindsey Morden’s Hambro Insurance Services Group (HIS) subsidiary. Lindsey Morden acquired HIS earlier this year for approximately $210.2 million. The other substantial unit of HIS, which will continue to be owned by Lindsey Morden, provides claims adjusting and related services in the United Kingdom, continental Europe, the Far East, Latin America and the Middle East.

The proceeds from the HA disposal will be used to repay loan notes issued when the company acquired U.K. adjuster Ellis & Buckle last October.

Queensway Financial Holdings Ltd. (QFH) has entered into an agreement to acquire Alliance Insurance Group, a property and casualty insurance holding company located in Chicago, Illinois. Alliance, posting gross premiums written totalling $17 million in 1997, specializes through subsidiaries in writing general liability and property coverages for small to medium sized businesses in 39 states on an excess and surplus lines basis. The transaction, costing $17 million, will include Alliance and its affiliates Alliance General Insurance Company and Bermuda-based Armagh Insurance Company Ltd. and Beacon Insurance Company Ltd.

The last six years have seen dramatic change in the structure and method of business of the property and casualty insurance industry. These “winds of change” sweeping through the industry are primarily a result of the unprecedented consolidation activity and the ever increasing level of competition, notes Richard Gardner, the outgoing president of the Registered Insurance Brokers of Ontario (RIBO) at the regulatory body’s recently held annual general meeting.

As a member of the RIBO board of directors for the past six years, Gardner observes, “I have watched as our industry, like so many others, witnesses unprecedented consolidation and increased competition. RIBO recognizes that change is inevitable and traditional business practices are a way of the past.”

Gardner’s comments refer not only to the broad changes occurring mainly at the distribution point of the p&c business, but of the future role of industry bodies and associations in the evolving Canadian financial services sector. Specifically, the mandate of RIBO as a self-regulatory body of Ontario’s brokers could be significantly impacted by the Ontario government’s new Financial Services Commission of Ontario (FSCO) plan for regulating the distribution of financial service products in the province.

Furthermore, insurance regulators across the country have expressed keen interest in developments of FSCO’s review plan as a possible blueprint for a standardized regulatory environment. FSCO’s prime focus is increased consumer protection while at the same time opening up competition in the selling of financial service products across the various sectors. RIBO’s future role as a regulator of insurance brokers hinges on the final decisions taken by the Ontario government, conclusion of which is expected in the spring.

As such, Gardner says, “as an industry we have proven that self-regulation is both effective and beneficial from a brokerage and consumer standpoint. We must now revisit why it has been effective and beneficial and look for ways to improve our performance.”

During the past year of discussions between industry bodies and the Ontario government concerning FSCO’s future legislative framework, RIBO has been an extremely active participant in the process, notes Gardner. In that light, and through the ongoing talks, RIBO has to apply caution not to make decisions that could unduly restrict the ability of brokers to compete or reduce in any way the protection currently afforded to the public, he states. “In keeping with our mandate, RIBO must enhance the professionalism of insurance brokers in Ontario while at the same time making sure that the public is more than adequately protected.”

In so doing, RIBO is pushing ahead with new communication initiatives and the evaluation of education programs. “We continue to see an increase in the number of courses offered across the province and the number of providers who have interesting courses,” Gardner comments. He also called on brokers to keep RIBO informed of whether the education programs evaluated by RIBO meet their expectations, “this way, RIBO will be able to monitor the caliber of courses made available”.

Lorie Guthrie Phair, the newly elected president of RIBO, says the prime objective in coming months will be to ensure the independent broker message is heard and taken into account in FSCO’s review process.

She notes that the consultation period allowed for industry comment concerning the FSCO discussion paper recently concluded. However, through this process RIBO was able to press home several key broker standpoint issues to the new regulator, says Guthrie Phair. “The government has listened to what we had to say and I believe we will see a positive reaction.”

Although some of RIBO’s past responsibilities may change under the proposed regulatory framework, the organization will remain intact, she predicts. “I see RIBO continuing on as a strong example of self-regulation.” In particular, she notes, RIBO has created an environment where brokers are willing to communicate freely their views and concerns. “We have opened up a channel for brokers to gain information without feeling like they are dealing with a police-style watchdog,” Guthrie Phair says.

Toronto-based Cross Border Underwriting Services Inc (CBUS), a subsidiary of the listed KRG Insurance Group, notched up half a million in premium dollars in its first year of operation.

A specialist wholesale brokerage operator, CBUS was created a year ago to provide Canadian brokers with a means of servicing their clients with offshore exposures. In particular, notes Paul Martin, the company’s president, CBUS’ main focus is the U.S. market in providing carrier facilities catering to the more complex coverages such as workers’ compensation.

Based on the company’s market research, approximately a quarter of a billion dollars of Canadian premiums leave the country every year due to a lack of local servicing and underwriting capacity. CBUS plans to bring back between $1.5 million to $2 million of this outflow by its third year of operation, says Martin.

CBUS underwriting manager Wanda Thrush points out that, on workers’ compensation alone, close to $50 million in Canadian premiums are taken up by U.S. third-party brokers and carriers. “Our objective is to bring this premium back to Canada by offering local expertise and bulk buying power to brokers,” she adds.

While brokers have been frustrated by a lack of local facilities in servicing offshore business needs, Thrush notes that many are unaware of the potential rewards of servicing this growing market segment. Canadian franchises have blossomed over recent years and have gained popularity not only in the U.S. but around the globe. “I really believe that brokers are missing an earnings opportunity by not maximizing on this expansion.”

Although CBUS has concentrated its efforts on servicing Ontario’s brokers, the company has established links with both east and west coast operators, observes Martin. “We have gained a position on the east-coast, and through word-of-mouth, established a modest presence on the west-coast.”

Part of the company’s growth plan is to go national and establish a direct office in the U.S. Initial talks have been held to achieving the latter objective, he adds, which could result in a CBUS U.S. office opening by the spring of next year. CBUS currently deals with underwriters operating from within Canada but with offshore writing authority. “The real problem brokers have faced in contending for this offshore-flowing premium is the lack of volume on an individual-to-individual basis in placing the business with a local carrier, and for that matter, finding one which can write business in the U.S. or the U.K., or any other country. This often results in the Canadian broker referring the client, and therefore a good slice of the business, to U.S. brokers,” he adds.

CBUS has established relations with carriers licensed to underwrite business in the U.S., Central and South America, as well as several European countries. It has focused on niche areas of business such as workers’ compensation which, Martin explains, requires a greater level of expertise in structuring an insurance program. “We’re picking areas where we can add value at the higher end level of the market,” he says.