My brother Darryl and my brother Darryl – and we’re all in this together

Remember Larry from Newhart? I think about him and his brother Darryl and brother Darryl – both of whom were mute, btw – when I look at these graphs of the changing picture of investors in insurance linked securities (ILS).

A look at who securitizes insurance risks as of July 2007 shows insurance and reinsurance are the leading ILS sponsors.

Another view of the changing picture is seen in the ILS natural catastrophe investor base is illustrated in the companion graphic below. Continue reading “My brother Darryl and my brother Darryl – and we’re all in this together”

Bet your sweet potatoes on the weather and take the pot!

Insurance has a steep learning curve – and understanding what a policy covers, believe it or not, is the bottom of the curve. Some say learning is more caught than taught; and, if that’s the case, I caught a lot more than I bargained for last week – and learned even more from research over the weekend.

Before I explain why you need to invest your sweet potatoes on the weather, you need to take a look at this picture of the the insurance industry. It’s the one I had in my head – although far more developed (understatement) – when I posted this link on the ALL Board in response to a comment from Slabbed’s friend cominglatersooner.

Now. about those sweet potatoes – or commodities as they’re known when they’re not groceries. Continue reading “Bet your sweet potatoes on the weather and take the pot!”

I Noticed This On Our National Underwriter RSS Feed

The National Underwriter is reporting that a Travelers Risk Management VP proposed Federal reinsurance paid for by insurers. Remember folks, when an individual asks the government for help it is called a subsidy, when an industry goes with it’s hand out it is called good policy. At least potential solutions to the coastal wind insurance crisis are being discussed Nowdy.

A Travelers executive speaking at a rating agency conference last week said his company’s proposal to deal with insurance issues arising after natural catastrophes now embraces the concept of a federal reinsurance program.

Distinguishing the concept of reinsurance from proposals for a federal backstop, Eric Nelson, vice president of risk management for Travelers Personal Insurance and Small Business in Hartford, said under the Travelers concept insurers would pay the premium for reinsurance coverage of extreme catastrophic events. Continue reading “I Noticed This On Our National Underwriter RSS Feed”

Spike needed in US economy, keep the soup!

Bermuda is what “Insuranceland” would look like if Disney added such a unit to its Epcot Center. On practically every block in downtown Hamilton, you see a major insurance company or brokerage office. It’s almost impossible to sit down at any public place and not run into someone you know from the business.

Sam Friedman paints an interesting picture of Bermuda – You’ve got to love a place that spikes its soup! – and a troubling one as well. While covering Professional Liability Underwriting Society conference, Friedman filed this report.

Bermuda faces a number of threats to its supremacy as a global insurance center, including a potentially “catastrophic” challenge to its relative tax advantage, the U.S. consul general warned in a speech here. Continue reading “Spike needed in US economy, keep the soup!”

Breaking: Obama Goes After McCain for Stonewalling Coastal Insurance Solutions

The National Underwriter is reporting on an Obama media event from Florida where he blasts John McCain for opposing the Homeowners Defense Act (HR 3355). He was joined by co sponsor of the bill US Rep Ron Klein of Florida. Coastal insurance has the potential to swing states like Florida squarely into the Obama column as I highlighted in my recent posts Solutions….The Dems Unite. I intend to vote my personal finances this November. Here is the report:

Democrats may be viewing the national catastrophe fund issue as a potential opening to help their presumed presidential nominee, Sen. Barack Obama, D-Ill., gain ground against his Republican rival.

The Obama campaign criticized Sen. John McCain, R-Ariz., for his opposition and sought to tie him to President Bush as the presumptive Republican nominee traveled to Orlando to speak at a meeting of newspaper editors on the state. Continue reading “Breaking: Obama Goes After McCain for Stonewalling Coastal Insurance Solutions”

Reinsurance lobby credited with defeat of Wicker’s amendment

Senator Wicker’s attempted amendment adding wind coverage to the National Flood Insurance Program failed on a 73-19 vote. Sop reported the vote here using the McClatchey story from the Sun Herald. The Associated Press carried a slightly different versions of the story.

Sen. Roger Wicker, R-Miss., who has pushed the measure in the Senate, noted that a review by the Congressional Budget Office estimated that the proposal would create no “significant budgetary impact.”

“By covering wind and flood risks in one policy, the multiple peril option will allow coastal homeowners to buy insurance and know that hurricane damage would be covered,” Wicker said. He called it a “commonsense proposal” that would prevent homeowners from having to go to court to determine whether a house was damaged by flood or wind.

Unfortunately, commonsense was in short supply when the vote was taken. “It’s not that we disagree, it’s a legitimate issue,” Dodd said. “But this amendment could end up costing us billions more than we anticipate. We don’t have any idea.”

Rebecca Morbray provided background in GAO report criticizes plan to add wind coverage to National Flood Program. Continue reading “Reinsurance lobby credited with defeat of Wicker’s amendment”

Multi-Peril Insurance: Dead for the Year?

Last Thursday, the National Underwriter contained a story of the unusual coalition that had developed in opposition to HR 3121. Matt Brady reports:

In a case of politics making strange bedfellows, J. Robert Hunter of the Consumer Federation of America and the Reinsurance Association of America have joined to oppose legislation expanding the National Flood Insurance Program.

Those that closely follow insurance issues know Mr. Hunter runs insurance issues for the Consumer Federation of America a non profit group composed of other consumer oriented non profits that speak with a single voice on issues they deem important. In this case the debate on HR 3121 and the CFA’s opposition derives from the intersection of environmentalism and insurance theory.

The basis for his opposition to plans to expand the NFIP, Mr. Hunter said, is that while it may sound like something that could help consumers, he believed it would instead likely only aid developers looking to build along the coast. Continue reading “Multi-Peril Insurance: Dead for the Year?”

Florida Insurance Hearings: Not Every Company is Losing Money

We noted in our continuing coverage of the Florida Senate Hearings concerning their property insurance mess that Allstate used unapproved short term weather models to make actuary decisions on the purchase of reinsurance. Those poor business decisions have caused losses for Allstate’s Florida operating company, losses they now wish to dump on Florida consumers.

Allstate has since been joined by Nationwide and Farm Bureau in admitting the use of unapproved short term models to drive reinsurance purchase decisions. Farm Bureau also admitted losses deriving from that fact.

In a refreshing change, we have a story from the Miami Herald that Florida based American Strategic Insurance testified Tuesday they used approved long term models and have profited from the better decisions that resulted from that fact.

American Strategic, a St. Petersburg company that managed to cut rates an average 11.5 percent due to the money it saved by buying a portion of its reinsurance from the Florida Hurricane Catastrophe Fund.

The company also lowered rates another 9.5 percent later in the year, mostly because it paid a lower cost for additional reinsurance bought in the private market and had fewer claims and better cost controls.

”Generally speaking, apples to apples, reinsurance costs were coming down for everyone in 2007,” said CEO John Auer, who expects to see another drop this year.

Unlike many insurers, American Strategic said it is writing new homeowners policies, even some on the coast. The company has 260,000 policies, making it the third-largest insurer behind state-run Citizens and State Farm.

Sen. J.D. Alexander, R-Winter Haven, questioned American Strategic’s heavy use of reinsurance to cover potential losses. He asked if it would be in financial trouble if its reinsurers, especially the state catastrophe fund, couldn’t make good on their
policies.

Auer said the company, started 10 years ago, has already lived through highs and lows in the reinsurance market, noting that reinsurers are pleased with American Strategic’s management. And A.M. Best raised American Strategic’s rating to A-minus from B++ last December.

As I opined on the Allstate Yahoo Finance Message Board, the testimony of Allstate, Hartford, Farm Bureau and Nationwide Insurance reminded me of the confessions of an accomplished three card monte dealer. They expect their customers to foot their mistakes; both the mistaken decision to purchase more reinsurance and the decision to buy expensive reinsurance at all for that matter, rather than the cheaper variety offered by the State of Florida. Is insurance the only line of business that doesn’t have to pay for their business mistakes? In the small business world where I come from there is no government backstop save bankruptcy so the concept of profit entitlement is foreign to me.

In any other line of business the shareholders, not the public would be eating these business mistakes. So while we congratulate American Strategic and their owners for their ability to profit while their competitors languish we also hope free market principles apply equally to those who make bad business decisions.

Simply put there is a point where the insurance industry needs to take ownership of their mistakes. The mess in Florida illustrates exactly why so few present day insurers would survive in a truly competitive marketplace without that anti-trust exemption they currently enjoy. Our position is that the free marketplace should reign supreme where ever possible and the culture of big insurance profit entitlement should end.

Finally the events in Florida now have me wondering if our state regulators here in Mississippi have been hoodwinked by similar tactics. Our wind pool premiums are in the stratosphere, largely due to the astronomical cost of reinsurance. Given what we have learned through the application of Sunshine to the insurance industry by the Sunshine State, I challenge Mr. Chaney to hold rate hearings for any increases in property insurance, not just those he arbitrarily deems too high. We have quickly arrived at the point where he should put the interests of the citizens of this state ahead of the profit interests of these out of state insurance companies.

sop

Breaking news: Another Massive Reinsurance Failure

Well folks, the crooks in Gucci suits have outdone themselves this time. Out of the blue here comes another ENRON type scam and business failure

Reinsurers with MBIA ties to record Q4 charges
Wed Jan 16, 2008 8:43pm EST

By Lilla Zuill

NEW YORK, Jan 16 (Reuters) – Bermuda reinsurers RenaissanceRe Holdings Ltd (RNR.N: Quote, Profile, Research) and PartnerRe Ltd (PRE.N: Quote, Profile, Research) said on Wednesday they will write off 3-year-old investments in Channel Re, a reinsurer formed solely to do business with MBIA Inc (MBI.N: Quote, Profile, Research), the world’s largest bond insurer.

The announcement comes after Channel Re notified the companies that fourth-quarter losses stemming from its business with MBIA are expected to exceed its shareholders equity.

RenRe said its investment in Channel Re carried a value of $126.7 million at the end of September. PartnerRe said it would take a $74 million fourth-quarter charge, equal to about $1.31 per share, to write down its investment.

Reinsurers effectively insure other insurers, spreading the risk of losses among more than one party.

Channel Re expects $200 million in credit impairments from a $3.3 billion mark-to-market charge at MBIA, according to Partner Re’s statement.

David Lilly, an outside spokesman for RenRe, declined to comment further on the Channel Re development. PartnerRe could not immediately be reached for comment.

Rising defaults in mortgage-related bonds have threatened to wipe out a significant amount of capital for bond insurers such as MBIA, putting ratings under threat of downgrade.

Last month MBIA took steps to shore up capital, securing up to $1 billion from private equity firm Warburg Pincus, and last week sold $1 billion of surplus notes.

Investors appear to still have doubts; MBIA shares fell 16.5 percent to $13.40 on Wednesday.

OFFSHORE PROTECTION

Channel Re was jointly formed in Bermuda in 2004 by MBIA, RenRe, PartnerRe and Koch Financial to do business exclusively with MBIA, which held a 17 percent stake. RenaissanceRe was the largest owner with about 33 percent, Koch owned roughly 30 percent and Partner Re, 20 percent.

Channel Re had a triple-A rating, with a stable outlook, from McGraw-Hill Co’s (MHP.N: Quote, Profile, Research) rating firm Standard & Poor’s.

Bermuda, an offshore reinsurance center, is home to more than 1,500 insurers and about half a dozen bond reinsurers, including another that counted MBIA as a large customer, Ram Reinsurance Holdings (RAMR.O: Quote, Profile, Research).

Separately, RenaissanceRe said it will also take a $55 million charge in the fourth quarter to increase its incurred, but not realized, reserves for subprime-related exposures in its casualty clash reinsurance business.

RenRe said it expects to post a profit in the fourth quarter and for the full year despite the charges. It is due to report quarterly earnings on Feb. 5.