2004-A PIVOTAL YEAR

Rough Notes, Mar 2004

Based on the results reported for the first nine months of 2003, 2004 should be "a brief period of time when everything is just right," predicts Robert P. Hartwig, Ph.D., CPCU, senior vice president and chief economist with the Insurance Information Institute. "Pricing will be neither too high nor too low and business and consumer demand for insurance will generally be met with relatively few areas of acute shortage," he continues. "Interest rates will rise but not too quickly. ... For the icing on the cake, the expanding economy ensures that exposure growth will accelerate-meaning that insurers will at least have some opportunity to compete for new business rather than resort to destructive price wars with each other for the same old business. all in all, market conditions could be just right in 2004."

The industry reported its best profit performance in five years in the first nine months of 2003, with net income after taxes reaching $21.1 billion, a dramatic 320.6% increase from the $5 billion through the same period of 2002, according to data compiled by ISO and NAIL Surplus rose 12.1% to $319.9 billion from $285.4 billion at year-end 2002. Improvements in both underwriting and investments spearheaded the recovery. However, Hartwig goes on to warn that the industry is not yet out of the woods.

"[T] he industry's voyage toward recovery has proved to be exceptionally slow, difficult and dangerous, despite pricing and underwriting discipline," Hartwig says. he points out that, in spite of the improvement in the combined ratio to 100.3, that still only resulted in the property/casualty industry providing a return on equity of less than 10%. That compares with 13% to 14% for the Fortune 500. Hartwig says that "more improvement is needed in 2004 and 2005. ... Insurers today need to push their combined ratios down to the low 90s (and keep them there) before they can expect to generate Fortune 500 type rates of return."

In short, what all this means is that 2004 will be a critical year to watch the performance of the property/casualty industry. If underwriting discipline is maintained, then we can anticipate some continuing success in future years. However, if pricing softens ...

Hartford Steam Boiler has property reinsurance program

Hartford Steam Boiler Inspection and Insurance Company introduced a "plug-in" property underwriting program for insurers and alternative risk transfer (ART) organizations. The program provides property reinsurance capacity for all-risk property and equipment breakdown with a turnkey set of underwriting and risk management services. The company offers treaty and facultative, pro rata, quota share, and program business support.

New risk retention group for long term care facilities

A risk retention group, Lewis & Clark LTC RRG, Inc. (L&C), has been formed by 29 long term care facilities to provide liability insurance to long term care facilities in 13 western states. Domiciled and licensed in Nevada, the RRG will write professional and general liability insurance for skilled nursing, assisted living, and independent living facilities on a claim-made form. Defense costs will be included within policy limits. Prior acts coverage will be available to 2000 at additional cost and subject to review of individual applications. The coverage will be offered initially in Idaho, Iowa, Montana, Nevada, Oregon, Utah, Washington, and Wyoming; operations will be launched later in Colorado, Kansas, Nebraska, North Dakota, and South Dakota.

Uni-Ter Underwriting Management Corporation (UUMC) of Atlanta will provide management services, including underwriting, marketing, risk management, claims handling, billing, collection, accounting/financial, regulatory compliance, information technology, and general administration.

Chubb offers personal D&O

The Chubb Group introduced a policy that covers the personal assets of directors and officers when their employer is unable, unwilling, or legally prohibited from funding indemnification. Called D&O Elite^sup SM^ the policy offers a dedicated limit of liability that is not shared with the corporate entity. The policy is noncancellable as long as the premium is paid. Coverage is fully severable, so that knowledge possessed by one board member cannot be imputed to another. The policy has no exclusions for pollution, errors and omissions, failure to maintain insurance, or libel/slander or defamation. Insured individuals are allowed to choose their defense counsel. Coverage applies to executives, their spouses or domestic partners, and heirs or estates if they are named as codefendants.

Schinnerer expands college policy to include GL

Victor O. Schinnerer & Company, Inc., has added general liability coverage to EdChoice, its program for small to mid-sized public and private colleges and universities with enrollments of up to 5,000. The GL coverage is available for exposures such as corporal punishment, athletics or sports activities, abuse and molestation, host liquor liability, and limited pollution liability.