Tuesday, September 28, 2004

The insurance industry in a nutshell

From the CEO of St. Paul/Travelers:

"Not only can this company not grow the top line [revenue], but margins are also under pressure," said Chris Winans, an insurance analyst at Lehman Brothers of New York, who has an "underweight" rating on the St. Paul's stock. "It's not a message that investors are likely to take well."

The weak pricing comes at a time when the insurance industry is still tallying losses from the costliest hurricane season on record. Four hurricanes have hit Florida over the past six weeks, costing insurers more than $25 billion. The St. Paul's losses from the storms top $900 million and could wipe away 90 percent of its third-quarter profit, according to Winans of Lehman Brothers.

Fishman said Monday that the storm-related losses now rival those that the insurance industry incurred from the 9/11 terrorist attacks and could cause some insurers to raise rates. "These are big numbers that are starting to add up," he said.

To make matters worse for many insurers, yields on bonds have declined since the Federal Reserve started raising short-term interest rates. That hurts the St. Paul because it allocates about 80 percent of its investment portfolio to bonds. As yields decline, so does the interest income that the company earns on those securities.

"There are times when because of growth opportunities, you can put capital to work thoughtfully and there are times when you can't," Fishman said. "Perhaps [capital is] better sitting with your shareholders than sitting earning 4 percent in your own bond portfolio."

Tuesday, September 21, 2004

Lloyd's Chairman calls on Texan businesses to guard against "21st century risks"

...a recent industry survey that revealed that only 46 percent of US companies are buying terrorism coverage.

Lord Levene said cyber-security – against computer viruses and hacking attacks by “cyber terrorists” – is reportedly immature and, according to a recent survey, 40 percent of Western companies do not have adequate plans in place.

Tort reform update: House of Representatives passed H.R. 4571 by a vote of 229 to 174, sending it on to the Senate

Specific provisions include:

Making monetary sanctions against attorneys who file frivolous lawsuits mandatory rather than discretionary, and removing an earlier "safe harbor" provision that allows attorneys who file frivolous lawsuits to avoid sanctions by withdrawing their suit after a motion for sanctions has been filed
Allowing sanctions for frivolous or harassing conduct during discovery
Allowing a plaintiff to sue only where he or she lives or was injured, or where the defendant's principal place of business is located