Slabbed Daily Weekend Edition: June 6/7. Catching up on insurance news.

I finished my first radio appearance a few minutes ago and thought the show went very well. Kevin Buckel was kind enough to call in explaining his public records lawsuit against the Commish as we covered a variety of insurance related topics from appraisal to the actual cost to insure a home here in the GO Zone. Now here is a months plus worth of insurance news with more to come. (H/t to Editilla and Alan Lange)

First up we have a trio of somewhat conflicting articles out of the Louisiana insurance market, which the Wall Street Journal editorial board held up as a stellar example of a well working state insurance market, while not mentioning Louisiana has some of the highest homeowner insurance rates in the country. I’ll start with the “good” news that Louisiana Citizens rates are dropping in Orleans Parish per the Times Picayune which cites “increased competition” as the reason:

As of May 1, homeowners policies in Orleans Parish will reflect a 9 percent decrease. The stripped down “dwelling” policies, which don’t include liability coverage, dropped 22 percent, said John Wortman, chief executive of the state-sponsored insurer of last resort.

“This is because the market rates have gone down and we follow the market place,” Wortman said.

Statewide, however, the average rate climbed 7 percent and homeowners rates also rose in St. Tammany and Jefferson parishes as well.

By law, Citizens must set its prices to match that of the most expensive insurer in each parish.

Private insurers new to the area have been driving down their prices as they compete with each other for business, Insurance Commissioner Jim Donelon said.

“It’s all being done by companies new to our state that heretofore had not been writing here,” Donelon said.

Citizens has encouraged private insurance companies to take over some of its policies to lessen the chances that Louisiana taxpayers will get stuck paying for property damage. The company has reduced its number of policies from 170,000 just after Katrina to 130,000, about 5,000 fewer than it had before Katrina. Donelon said he expects another 7,000 policies will be shaved from the current number by June 1.

Given the areas population loss I’m not certain if Citizens has less policies in force per capita. In this case the numbers are decieving IMHO.

Next up we have La Insurance Commish Jim Donelon bemoaning the lack of name brand insurers that are providing that competition he cited in the earlier story. What is interesting about this City Business story is the tie into to Jeff Amy’s story on Allstate and their new venture North Light that we profiled last month here on slabbed. Jeff contacted me when he was researching the story and I made two points with him, one of which Amy Bach with United Policyholders also made involving Allstate providing their exclusive sales force with a homeowner’s insurance option to sell in coastal areas. The other point I made to Jeff that didn’t completely tie into the thrust of his story was  the possibility that these new unregulated market entrants were taking advanatge of the way the various state windpools are set up such as Louisiana Citzien’s in the story above. As Deon Roberts reports for City Business I’m not the only one that has picked up on that fact:

Dean Basse, general manager for Metairie-based Dan Burghardt Insurance Agency, said Citizens’ high rates are causing private insurers to keep costs high south of Lake Pontchartrain.

Insurance companies are keeping rates just below Citizens’ inflated rates, he said, adding that private rates are “are probably a little above what they should be in this area.”

Rates in the private market are as much as 400 percent higher in the New Orleans area than before Katrina, Basse said. In Jefferson Parish, Citizens has raised rates 40 percent, a move that “boggles the mind,” he said.

Citizens’ rates are not the only reason private insurers’ rates are high, Basse said. Some insurers “don’t want to be writing here,” so they are maintaining high rates to discourage homeowners from buying coverage, he said.

That leads to higher Citizens rates because it has to charge more than private companies do, he said.

As a result, Citizens customers are “being nailed,” he said.

“They’re being penalized because the rates are unrealistic. For certain areas, they’re way out of whack,” such as in Jefferson and Orleans parishes, he said.

Next up is bad news for Donelon. AAA insurance evidently does care what the WSJ editorial board thinks about Louisiana’s insurance market because they are packing their bags and getting the heck outta dodge. Rebecca Mowbray has the T/P story:

In August, Auto Club Family Insurance Group, better known as AAA, will begin dropping all homeowners insurance policies, becoming the only insurer of homes to pull out of the state since Hurricane Katrina.

AAA said that it has lost twice as much money as it has collected in premiums since it began insuring Louisiana homes in 1999, and it can’t afford to keep doing business in the state.

“We had to eventually reassess the risk down there,” said Mike Right, vice president of public affairs for AAA of Missouri, which includes Louisiana in its territory. “We can’t continue to expose ourselves to potential maximum losses with our book of business in Louisiana.”

Louisiana is the only state where AAA is discontinuing its homeowners insurance. Starting in August, the company will nonrenew all 9,985 homeowners insurance policies in the state as they come up for renewal throughout the year. Customers should receive notice of the company’s plans to exit the market in the next few weeks, and then will receive notices 45 days before their policies expire reminding them to find other coverage.

Next up is yet another Cat Bond default related to the collapse of Lehman Brothers. We’ve profiled the subprime problems this past winter as it related to Allstate’s SPE Willow Re and State Farm’s tangled web of offshore reinsurance special purpose entities and thier affinity for buying subprime loans and other toxic paper with the investor money held in trust. This latest Lehman related default is Aspen Insurance’s Ajax Re which defaulted last month per this Reuters story:

A second Lehman Brothers-backed catastrophe bond is in default after issuer Ajax Re Ltd failed to repay principal in full at maturity, according to credit rating agencies.

The $100 million bond, issued in April 2007 to give Bermuda-based Aspen Insurance Holdings Ltd cover against losses from earthquakes in California, had been expected to default following the collapse of Lehman, its effective guarantor.

Credit rating agency Standard & Poor’s said in a May 11 statement that it had lowered its rating on the bond to D, signifying default, and withdrawn the rating.

It said Ajax Re had paid all the interest due on the bond, “but the ultimate payment of principal was not made in full on May 8, 2008 due to a shortfall in the realizable value of the collateral assets under the TRS (total return swap)”.

S&P had said a default was likely despite a timely payment of interest on March 16 [ID:nL5052139].

The deal is among four catastrophe bonds that used a unit of Lehman Brothers as TRS counterparty, contracted to ensure the collateral backing the bonds was sufficient to meet interest and principal repayments, and to make up any shortfall.

Finally we have two Mississippi based insurance news reports. First our Commish has hired AIR Worldwide to study wind mitigation per recent legislation. We are very familar with AIR and it’s founder Karen Clark, who we’ve written about extensively here on slabbed. Claims Journal has the story:

Mississippi Insurance Commissioner Mike Chaney and wind engineering firm AIR Worldwide have agreed to terms on a contract on a cost/benefit study required by the Mississippi Legislature leading to development of a hurricane wind damage mitigation program.

The study will estimate the costs and benefits associated with various residential and commercial construction features which can “mitigate” or reduce hurricane wind losses.

AIR Worldwide said it will also recommend the best ways to encourage use of these features in both new and existing structures, by providing incentives in property insurance premiums and education about the return on investment in mitigation.

This mitigation program has proceeded at a snails pace IMHO, especially given the work already done in Florida on a similar program.

Finally the Commish has deposited $2MM to the state’s general fund generated by surplus line fees his office has collected. It is a drop in the bucket compared to the state general fund money given in subsidy to the Mississippi windpool but is a good thing nonetheless as the Insurance Journal reports:

Mississippi Insurance Commissioner Mike Chaney has delivered a $2 million check targeted for the state’s general fund.

The money, derived from fees paid by the surplus lines insurance industry, will go to the Department of Finance and Administration for deposit into the general fund.

This money shift was made possible by recent legislation.


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