Natural, Manmade Disasters On the Rise, Sigma Study Notes; Arthur J. Gallagher Acquires Providium C

Insurance Industry Roundup

Natural, Manmade Disasters On the Rise, Sigma Study Notes

While 2007 was not a landmark year in terms of catastrophes, statistics show an upward trend in the number and cost of natural and manmade disasters, according to a recent Swiss Re sigma study.

The study reported worldwide there were 143 natural catastrophes and 193 manmade disasters in 2007. These resulted in the loss of 20,000 lives and $70 billion in economic losses. Property insurers paid out $28 billion in insured losses.

The top five most costly events in terms of insured losses were all natural catastrophes. In total, insurers paid out more than $23 billion for natural catastrophes in 2007, Swiss Re found.

Rudolf Enz, one of the study's authors, said Europe took the worst hit, absorbing the top three most costly events for insurers for the year. Winter storm Kyrill led the way, causing $6.1 billion in losses in January. Additionally, two instances of heavy rains and flooding caused $4.8 billion in insured losses in the U.K.

The study noted the U.S. experienced a mild year for natural catastrophes in comparison with previous ones. A storm in April resulted in the largest U.S. insured losses–$1.6 billion. Forest fires in California in October caused more than $1 billion in losses. These two occurrences were the fourth- and fifth-largest events with respect to insured losses.

Insurers paid out more than $4 billion for manmade disasters. Major industrial fires, explosions, and aviation and spacecraft losses led the way with respect to monetary losses. Shipping and boating accidents, bombings, and social unrest caused the majority of the 6,900 deaths.

Arthur J. Gallagher Acquires Providium Consulting

Insurance broker Arthur J. Gallagher & Co. said it has acquired Providium Con-sulting Group, LLC, headquartered in Fairport, N.Y.

Formed in 2002, Providium offers employee benefit consulting and brokerage services as well as human resource consulting services to its clients in the northeastern United States. It provides strategic and operational human resource services and benefit plan design with an emphasis on implementation, compliance, and cost containment.

Providium founder Richard Bannister, Keith Williams, principal, and approximately 40 associates will continue to operate from the Fairport and Buffalo locations under the direction of David Ziegler, eastern regional executive vice president of Gallagher's employee benefit consulting and brokerage operations.

ACE to Incorporate in Zurich, Leave Caymans

Bermuda-based ACE Ltd. announced it will move from its original corporate domicile in the Cayman Islands to Switzerland to protect its reputation, secure a better tax situation, and have an improved location to manage its capital.

ACE CEO Evan Greenberg said, “Cayman brings little to us, yet it exposes us from a reputational, financial, and tax perspective and creates unnecessary uncertainty while bringing little.”

He did not venture specifics, but firms located in venues such as Bermuda have been under attack in Congress for using arrangements with offshore jurisdictions to avoid U.S. taxes.

ACE shareholders, the firm said, will be asked to vote in favor of the proposal in July at the company's annual meeting in Hamilton, Bermuda.

If approved by ACE's shareholders, and subject to certain regulatory approvals, ACE said it expects the redomestication to be effective in July. In connection with the redomestication, ACE said it plans to establish a corporate holding company office in Zurich.

Following the redomestication, the ACE Group of Companies will continue to operate as they do currently. ACE Ltd. will continue to maintain executive offices in Bermuda, and ACE Group Holdings will maintain executive offices in New York.

Georgia Tornado Damage Now Put at $250 Million

Georgia Insurance Commissioner John Oxendine increased his estimate of the damage from the March 14 tornado that struck Georgia to $250 million.

Describing the tornado, Guy Car-penter's Instrat unit in a CAT-i report said the funnel had moved east through the city center. The tornado was rated a category EF-1 by the National Weather Service when it touched down at approximately 11:40 p.m. local time.

It intensified to an EF-2 category as it moved through the Vince City neighborhood with winds reaching up to 135 mph, said the National Weather Service, which estimated the twister's length at six miles and its width around 200 yards.

Reports indicated the tornado was the first to touch down in Atlanta since record-keeping began in the 1880s. A state of emergency was declared in the affected Atlanta area, and more than 40,000 people lost power.

FASB Asks for Advice on Retirement Benefits Disclosure

The Financial Accounting Standards Board wants to hear from the public on proposed guidelines for disclosures about retiree health plans and other post-retirement benefit plans. FASB is asking for comments about proposed FASB Staff Position Number 132(R)-a, Employers' Disclosures about Postretirement Benefit Plan Assets.

The proposal would amend FASB Statement 132, which deals with public and nonpublic employers' disclosures about postretirement benefit plan assets. A technical amendment that would require a nonpublic entity to disclose net periodic benefit costs also is included.

Among the proposals are: a requirement for disclosure of the fair value of categories of plan assets based on the types of assets held in the plan; a list of categories of plan assets that should be disclosed; a requirement for disclosures about the nature and amount of concentrations of risk arising within or across categories of plan assets; and a requirement for disclosures about fair value measurements.

Highline Data: Life Direct Premiums Increase 10 Percent

U.S. life insurers' direct premium revenue increased to $657 billion in 2007, up 10 percent from the 2006 total. Researchers at Highline Data, a unit of Summit Business Media, LLC, have published these figures in a summary of data drawn from the company's latest 2007 life insurance industry data update.

Preliminary 2007 totals are available through Insurance Analyst PRO, a Web-based database that includes detailed statutory financial data. The database now contains information from 857 companies, or about 92 percent of all life insurance companies that are expected to file 2007 blanks and 98 of the top 100 filers, according to Highline Data, part of the National Underwriter Company, which is the publisher of Tech Decisions.

Direct premium revenue grew 16 percent for individual life insurance products, 9.1 percent for individual annuities, and 3.9 percent for group annuities. Total admitted assets increased 5.8 percent to about $5 trillion, and only 23 companies reported a decrease in total admitted assets.

Fitch to Consult Insurers on Rating Model Changes

Fitch said it plans to consult with guarantee insurers before making any broad changes in its model that fell under criticism from one of the carriers it rated.

In a special report titled “Fitch Discusses Financial Guaranty Capital Model and Ratings Methodology,” the New York-based rating service laid out its system for rating guarantee insurers and the logic behind the actions.

Fitch said it developed its system after determining the risk for United States municipal bond exposures is overstated and the risk of many structured finance bonds is understated. The key goal of its new capital model (Matrix), introduced in January 2007, “was to address this perceived imbalance found in existing models.”

For certain investor-owned utilities, default rates can be reduced by 50 percent, the report said. The overstatement of municipal business, producing low returns, may have contributed to the “financial guarantee industry's searching for higher returns by growing its structured finance business.”

Net Variable Annuities Sales Rise

Net flows of cash into variable annuities rose to $8.9 billion during the fourth quarter of 2007, up from $5.2 billion in the fourth quarter of 2006. NAVA reported those figures in its latest quarterly report on the VA market.

The positive flow of cash helped increase VA net assets to $1.5 trillion at the end of the fourth quarter, up 8.4 percent from the total recorded a year earlier.

Qualified retirement plans accounted for about 61 percent of total VA sales premium volume, NAVA said. Total sales increased to $48 billion from $40 billion.

The share of assets invested in stock investment funds and balanced options held steady at about 68 percent. The share flowing into fixed accounts fell to 17 percent from 19 percent, and the share flowing into allocation accounts increased to about 12 percent from about 10 percent, NAVA said.

Life Settlement Players React To Bear Stearns Deal

A unit of the Bear Stearns Companies Inc. is one of the six members of the Institutional Life Markets Association. The announcement J.P. Morgan Chase & Company will be acquiring Bear Stearns, New York, an investment bank, for about $240 million in stock, or the equivalent of about $2 per share, will not affect the ILMA, according to Jack Kelly, ILMA government relations director.

Bear Stearns is one of a half-dozen ILMA members. The company will continue as an ongoing entity, and life settlements are investments that are uncorrelated with other investments, thereby offering diversification in an institutional investor's business portfolio, Kelly said.

Doug Head, executive director of the Life Insurance Settlement Association, said the life settlement market continues to offer investors diversification and a chance to invest in noncorrelated assets. “The very fact it is not related to [stock] market swings or the degree of vulnerability of other markets” makes it a good investment, Head said.

N.Y. Insurance Fraud Bureau: Busts Up 17 Percent

The New York Insurance Department reported there were 708 arrests in insurance fraud cases last year, up from 604 in 2006 for a 17 percent increase.

Insurance fraud schemes investigated by the department's Frauds Bureau along with local authorities also led to court-ordered restitution of $20 million stemming from convictions against 147 people in 2007, the agency said.

The bureau established a Major Case Unit to focus on the investigation of systemic insurance fraud involving organized conspiracies, with unit investigators handling complex cases involving no-fault, commercial rate evasion, healthcare fraud, and workers' compensation premium fraud.

Steven Nachman, deputy superintendent for fraud and consumer services, said, “The Insurance Department intends to continue its aggressive efforts to crack down on insurance and healthcare-related fraud. These activities are illegal and hurt all honest New Yorkers by needlessly driving up the cost of health, auto, property, and many other forms of insurance.”

Most insurance fraud cases now are tracked electronically by means of a Web-based case management system that became fully operational in 2007, the bureau reported. The system, it was explained, enables insurers to transmit suspected fraud reports electronically to the bureau and allows bureau personnel to track investigative tasks and events from initial assignment through closure.