The U.S. property/casualty insurance industry reported a 10.7% increase in net income, to $32.6 billion, for the first half of 2007 compared with the same period a year ago, according to the Insurance Services Office Inc. and the Property Casualty Insurers Assn. of America. The increase reflects a $3.29 billion increase in realised capital gains, which offset a $616 million decline in pretax operating income, according to ISO and the PCI. Among other results, the industry’s combined ratio increased to 92.7% for the first half, compared with 92% for the same period a year ago. Net premiums written increased 0.1%, to $223.4 billion, which “was the weakest for any first half in at least two decades,” Michael R. Murray, ISO’s assistant vp for financial analysis, said in a statement. The industry’s policyholder surplus increased 5.5%, to $512.76 billion.

Financial Times

Dominic Fodera, the former chief financial officer of HIH Insurance Ltd., on Wednesday pleaded guilty in an Australian court to charges relating to the company's A$5.3 billion collapse more than six years ago. The Australian Securities and Investment Commission said Fodera pleaded guilty in the Supreme Court of New South Wales to a charge of knowingly or recklessly failing to act honestly in the discharge of the duties of his office. He pleaded guilty to dishonestly attempting to gain an advantage for HIH, "namely a beneficial accounting treatment," ASIC said in a statement. ASIC brought the charges following HIH's demise in March 2001, which remains Australia's biggest corporate collapse. It left thousands of builders, lawyers, doctors and homeowners uninsured.

Dow Jones

Catastrophe risk modelling company AIR Worldwide estimates insured losses from both wind and precipitation-induced flooding from Typhoon Wipha are unlikely to exceed $250m (£124m). The estimate covers insured losses to property and contents for onshore properties. Typhoon Wipha struck the coast of mainland China Wednesday and raked the region with heavy rains and high winds. “The storm made landfall about 50 miles south of Wenzhou City in Zhejiang province at 2:30 am local time with maximum sustained winds of near 100 mph,” said Dr Peter Sousounis, senior research scientist at AIR Worldwide.  “Tiles on roofs were blown off and streets were flooded as the storm dumped more than 7 inches of rain.” Power was cut to hundreds of communities. Early reports from local officials suggested that close to 10,000 homes were destroyed in Fujian and Zhejiang provinces, with another 42,000 damaged. Most are unlikely to have been insured. Prior to landfall, local authorities evacuated more than 2 million people in the provinces of Shanghai, Fujian, and Zhejiang. In Zhejiang, 1.6 million people were evacuated in the largest mass relocation in more than 50 years.

Insurance Times

Towergate, the privately-owned insurance group, on Monday announced the acquisition of Open International, a supplier of software to insurance brokers, from Montagu, the private equity firm, in a deal worth £276m. It is the biggest in a string of acquisitions that has fuelled Towergate's rapid growth from its creation in 1997 to become the UK's biggest independent insurer, with 3,500 staff and 100 offices. Open International, bought by Montagu in March 2006 for £182m, supplies software to 40 per cent of the UK's insurance brokerage market. It had revenue of £35m and operating profit of £18.8m last year. Towergate is its biggest customer. Jason Gatenby, director of Montagu, said: "Towergate approached us and bought it off-market, otherwise we would have held on to it for another couple of years." Mr Gatenby said the deal showed trade buyers were still an attractive exit route for private equity investments. "In a more subdued credit market there will be less leverage and that would suggest that the trade buyer is going to be more of a force." HBOS provided £300m of finance for a special purpose vehicle to fund the takeover of Open International, in spite of what Towergate described as "an exceptionally difficult debt market".

Financial Times

German insurance giant Allianz SE is purchasing a minority stake in expanding UK broker consolidator Oval Group, continuing the trend for insurers to acquire greater control of distribution networks, according to sources. Allianz Insurance – one of the UK’s largest non-life insurers – is close to acquiring a ten percent stake in the Yorkshire-headquartered broking business. If the deal is completed, it will be the third strategic stake-building move by the firm this year in the UK following the acquisition of a 5 percent interest in AIM-listed broker Jelf in March and the decision to increase its holding in Manchester-based CBG to 5.6 percent in June. Allianz has an established relationship with the broking group, providing capital for a number of Oval insurance products through a six-year partnership with the firm. Privately-owned Oval, which is backed by Caledonia Investments with a 37 percent stake in the company, has acquired 20 brokers since its creation in 2003. The group reported £47.3mn turnover for 2006, and to 31 May 2007 the figure was £60mn.

The Insurance Insider

Insured wind losses from Hurricane Humberto could reach $200m, catastrophe risk modelling company AIR Worldwide has estimated. Humberto slammed into southeastern Texas on 13 September before shifting to southwestern Louisiana. Some two inches of rain fell per hour at the Port Arthur refining centre and strong winds in Port Arthur cut power to Europe's third-largest oil refinery, Total SA, which produces 240 000 barrels of oil a day. Valero Energy Corp, which also closed due to the storm, produces 325 000 barrels daily. The predicted losses cover insured wind losses to property, contents, business interruption and additional living expenses for onshore properties. The Category 1 storm swept ashore between Galveston and Port Arthur at the coastal community of High Island. Heavy rains there flooded streets. Flooding from Humberto also closed State Highway 87 just south of Port Arthur, isolating Sabine Pass, which serves the Beaumont-Port Arthur region. 85 mph winds toppled trees and knocked out power to about 100 000 customers.

Post Magazine

Insurance for the McDonnell Douglas MD82 jetliner that crashed in Phuket, Thailand Sunday is led by Global Aerospace Underwriting Managers Ltd. in London, sources say. The jetliner owned by domestic budget carrier One-Two-Go Airlines burst into flames after it skidded off the runway on its flight from Don Muang Airport in Bangkok and crashed into trees on its second attempt to land at Phuket Airport in a thunderstorm. About 90 people are reported to have died in the accident. According to the airline, there were at least 43 survivors including 14 Thais; 26 Europeans from Ireland, Britain, Austria, Germany, the Netherlands, Sweden and Italy; and three Iranians. The airline’s hull was insured for $4 million, and liability coverage is placed by London broker Grimme Butcher Jones Ltd., a subsidiary of Bertil Grimme A.G. in Hamburg, London market sources say. The airline’s insurance program renews November 16. The crash will put this year’s total airline hull and liability insurance losses to over $1 billion, according to data analysts Ascend, part of the Airclaims Group of Cos. in London.

Business Insurance

Many UK businesses are failing to test the effectiveness of their business continuity plans, according to a survey into risk management practices and attitudes. More than a third of the companies (39%) surveyed stated that their continuity plan had never been tested compared with 43% who said that they had not tested their plan in the 2006 survey. The survey was sponsored by the Institute of Directors and HSBC Insurance Brokers and was conducted between April and August this year. The main threats to business, according to the survey, were considered to be loss of key staff and possible involvement in litigation. One in seven respondents (70%) identified the loss of key staff to be a significant threat while litigation or falling foul of regulation was the second highest response.

Insurance Times

Swiss insurers are joining bankers and other financial institutions in an effort to develop Switzerland into one of the world’s top three financial centers within eight years. The Swiss Insurance Association is part of the effort that aims to strengthen financial regulations, ensure taxation is internationally competitive, establish the country as a top destination for research and education and make other changes that will enhance the country’s financial center status by 2015. A joint strategy towards that goal has been developed by the SIA, the Swiss Bankers Association, the Swiss Funds Association and other participants. Depending on the success of the initiative, it could create from 40,000 and 80,000 new jobs and up to 17 billion Swiss francs in additional tax revenues, the group said in a statement.

Business Insurance

Hurricane Humberto rumbled onto the upper Texas coast on Thursday with 85 mile per hour (135 kph) winds and heavy rains that threatened widespread flooding. The storm, which brewed up in the Gulf of Mexico on Wednesday, made landfall near High Island, about 30 miles northeast of Galveston, the U.S. National Hurricane Center said in a report at 2:10 a.m. CDT (0710 GMT). Humberto had been expected to come ashore as a tropical storm, but suddenly strengthened in the gulf's warm waters. It struck a lightly populated area, and there were no reports of damage or injuries. The storm was expected to plow through southeastern Texas and head east into Louisiana, where officials braced for flooding. Humberto was a minimal, Category 1 storm on the Saffir-Simpson scale, but forecasters said it could dump up to 15 inches (38 cm) of rain because it was dawdling along at just 8 mph (13 kph).

Reuters

Insurance Futures Exchange Services, a member of the Climate Exchange group of companies, and Deutsche Bank are to trade in catastrophe event-linked futures (ELF) on the Chicago Climate Futures Exchange later this month.  Climate Exchange is a holding company whose subsidiaries are principally engaged in owning, operating and developing exchanges to facilitate trading in environmental financial instruments. Its chief executive is former Brit chief Neil Eckert. ELF contracts are standardised exchange-traded futures derivatives contracts, also know as “contracts for difference”, providing a binary payment based on natural catastrophe events which result in industry-wide insured losses, similar to the Industry Loss Warranty (ILW) features found in some insurance agreements. ELF contracts will offer investors the ability to trade natural catastrophe loss risk outside the framework of conventional insurance and reinsurance contracts, as well as provide hedging contracting capability for property/catastrophe insurance-linked exposure.

Insurance Times

Felix losses put at less than $200 million.

Hurricane Felix is likely to cause less than $200 million in insured losses, according an estimate released Tuesday by Risk Management Solutions Inc. The hurricane, which came ashore early Tuesday as a Category 5 storm packing 160 mph winds, struck a scarcely populated area along the border of Honduras and Nicaragua, the Newark, Calif.-based catastrophe modeler noted. “Despite being a maximum-strength storm, the small population combined with relative poverty and low insurance penetration in the area means the economic loss will be low, though the humanitarian cost will be high,” RMS said in its estimate.

Business Insurance Europe

Hurricane Felix to batter Honduras, Nicaragua today.

A strengthening Hurricane Felix will batter the coasts of Honduras and Nicaragua today with winds of at least 150 miles per hour (241 kilometers per hour), before moving toward Belize, the U.S. National Hurricane Center said. The “extremely dangerous” Felix, a Category 4 hurricane on the five-step Saffir-Simpson scale, was centered about 100 miles east-southeast of Cabo Gracias a Dios on the Honduras-Nicaragua border, the centred said on its website at 2 a.m. Miami time. “Some additional strengthening could occur while the center of Felix remains over water,” the center said, adding the hurricane may “reach Category 5 status prior to making landfall in a few hours.” The system is heading west at 17 miles per hour, it said. Belize declared a state of emergency yesterday and opened hurricane shelters around midday. The prime minister froze prices on all goods and services, the National Emergency Management Organization said in a statement on its website. “Large and dangerous battering waves” and surge flooding of at least 18 feet above normal tide levels are possible where the eye of the system hits the coast, the hurricane center said.

Bloomberg

Hurricane Felix became an extremely dangerous Category 5 storm on Sunday as it swept through the southern Caribbean on a path toward Central America and Mexico's Yucatan Peninsula, U.S. forecasters said. On a similar, though more southerly, track as last month's powerful Hurricane Dean, which killed 27 people, Felix's top sustained winds had increased to 165 miles per hour(270 kph) by 8 p.m. EDT, the U.S. National Hurricane Center in Miami said. That made the second hurricane of the 2007 Atlantic storm season, located about 390 miles southeast of the Jamaican capital, Kingston, a Category 5 storm on the five-step Saffir-Simpson scale, capable of causing catastrophic damage. U.S. Gulf of Mexico oil and natural gas producers, who account for a third of the United States' crude production and 15 percent of its natural gas production, were monitoring Felix, but had not evacuated offshore workers so far because its forecast track did not appear to threaten them. Category 5 hurricanes have been rare. Before the devastating 2005 hurricane season, only two years on record had seen more than one Category 5 hurricane.

Reuters

U.S. insurance companies should be able to weather current turmoil in the subprime mortgage market with no impact on ratings, Fitch Ratings and Standard & Poor's said on Wednesday. Property and casualty insurance companies have minimal exposure to the subprime mortgage market and no ratings are expected to be downgraded this year because of subprime issues, Fitch Ratings said in a report. Separately, S&P said it has surveyed all the insurance and reinsurance companies it rates globally and found most had only negligible subprime exposure and enough liquidity to meet their financial obligations. "The level of industry capital should be sufficient to absorb the volatility over the next year," S&P said in a report. The agency said it is keeping a stable outlook on U.S. property, casualty and life insurers, global reinsurers and managed care sectors.

Reuters

European insurers will not feel a direct impact from the subprime credit market crisis in the United States, but could later experience some indirect fallout, a recently released report concludes. The report from the London branch of Moody’s Investor Services explains that public disclosures by many of Europe’s largest insurers indicate that exposures to subprime residential mortgage-backed securities are generally of high credit quality. “Although the full extent of second-order effects is difficult to ascertain at this stage, a general spreading of weak investor confidence beyond purely subprime exposed investments could deepen, leading to a protracted decline in market value of corporate bonds and higher-rated structured credit products along with reduced liquidity, losses in equity markets, as well as a dislocation in capital markets that may reduce insurers’ own access to debt and equity funding, and have negative implications on their financial flexibility,” Timour Boudkeev, author of the report, and vice president and senior credit officer at Moody’s, said in a statement.

Business Insurance

The state of Ohio has filed an anti-trust lawsuit accusing Marsh & McLennan Cos, American International Group Inc. and three other insurers and their subsidiaries of price fixing and other anti-competitive behavior, Attorney General Marc Dann said Monday. The lawsuit, filed Friday in Cuyahoga County Court of Common Pleas, accused the companies of participating in an “unlawful conspiracy to allocate customers, divide markets and restrain competition” for casualty insurance policies for businesses in Ohio between January 2001 and late 2004. Commercial casualty insurance includes workers compensation insurance, which protects companies from liabilities from worker injuries. Marsh & McLennan spokesman Mike Kachel said the company has already settled claims brought by most of its clients and intends to “vigorously” defend itself against the lawsuit. A spokesman for AIG, the world's largest insurer, had no comment on the lawsuit. The other defendants are ACE Ltd, Chubb Corp. and Hartford Financial Services Group Inc. The companies could not be reached for comment late on Monday.

Reuters

The current crisis in the US sub-prime market and the related uncertainty surrounding structured vehicles will not have a direct material impact on European insurers. Overall, the absolute level of exposure to sub-prime mortgages and non-investment grade Collateralised Debt Obligations (CDOs) is generally low, and would represent a relatively small percentage of shareholders' equity, although the rating agency also stresses that it is not appropriate to infer the degree of exposure or to forecast the possible extent of financial loss merely from the size or average credit quality of exposures, says Moody's Investors Service in a new Special Comment. Moody's report - entitled 'US Sub-Prime Market Crisis: Direct Impact on European Insurers is Largely Limited; Second-Order Effects are Likely to be of Greater Significance' - explains that for many of Europe's largest insurers, public disclosures indicate that exposures to sub-prime residential mortgage-backed securities (RMBS) are generally of a high credit quality. Nonetheless, large multinational insurers domiciled in Europe may have a somewhat higher level of exposure than medium- and smaller-sized regional insurers, and the degree of exposure to structured credit assets varies greatly in the European insurance industry," says Timour Boudkeev, a Moody's Vice President-Senior Credit Officer and author of the report.

Post Magazine

Mexico's mountains knocked the wind out of Hurricane Dean today, prompting U.S. meteorologists to downgrade it to a tropical depression and warn of flash floods.

Sustained wind speeds dropped to 55 kilometers (35 miles) per hour, the National Hurricane Center said at 11 p.m. Miami time. Dean earlier tore across the Yucatan Peninsula ago with winds of 270 kilometers per hour. “This is the last public advisory,'' the hurricane center said. “Dean is rapidly weakening and expected to dissipate over the mountains of central Mexico tonight or early Thursday.” The westward-moving storm, last located 153 kilometers northwest of Mexico City, may dump as much as 50 centimeters (20 inches) of rain in some areas, the Miami-based center said. “What keeps us in a state of alert is the enormous amount of water,” Veracruz state Governor Fidel Herrera said in an interview today with Grupo Televisa SAB. Rain may fall for five days, he said.

Bloomberg

Hurricane Dean slammed into Mexico's Yucatan Peninsula today with “potentially catastrophic” winds of 260 kilometers (160 miles) per hour, the U.S. National Hurricane Center said on its Web site. The eye of Dean was 160 kilometers east of the city of Chetumal in Mexico at 1 a.m. local time, the Center said in the latest advisory posted on its Web site. The storm was moving west at 32 kilometers an hour. Dean is strong enough to rip off roofs, flood seaside buildings and down trees, shrubs and signs, the center said. “Preparations to protect life and property along the east coast of the Yucutan Peninsula should have already been completed,'” the advisory said. Dean was forecast to pass near Chetumal, about 50 kilometers from where the eye is expected to cross land. Mexico closed its biggest Gulf oil platforms and tourists had largely evacuated the beach resorts of Cancun, Cozumel and Playa del Carmen about 390 kilometers to the north of Chetumal. The storm is forecast to cross the peninsula and head for the warm waters of the Gulf of Mexico, where it may gain strength and threaten coastal areas there.

Bloomberg

Category 4 Hurricane Dean was located about 50 miles south of Kingston, Jamaica as of 5:00 PM EDT. Maximum sustained winds are 145 mph—unchanged from this morning. Minimum central pressure has risen very slightly to 930 mb. According to Dr. Justin Cox, research scientist/meteorologist at AIR Worldwide, "Dean is currently exhibiting concentric eyewalls, with the strongest winds in the outer eyewall. Hurricane force winds extend 60 miles from the center of the storm; tropical storm force winds extend to 205 miles. This means that the capital, Kingston, will feel the effects of strong hurricane force winds and battering waves, despite the fact that the center will remain offshore." AIR estimates that two thirds of the insured value of Jamaica’s properties is located in the parishes around Kingston. Dr. Cox added. "While Dean may regain some strength after crossing the Yucatan and re-emerging into the southern Gulf of Mexico, track guidance models are currently in good agreement that Dean's second and final landfall will be in Mexico, well away from offshore interests along the Texas coast," added Dr. Cox.

Post Magazine

Hurricane Dean, which could strengthen into a Category 4 hurricane over the next few days, will likely cross the islands of the eastern Caribbean on Friday and could threaten the Gulf of Mexico next week. Meanwhile, Tropical Depression Erin continued to produce heavy rains over portions of Texas as it weakened after moving inland over the south Texas coast this morning. The energy market was watching the weather models to see if Dean will enter the Gulf of Mexico where it could disrupt the region's oil and natural gas facilities, which account for roughly a third of U.S. oil production. Most models now show the storm will enter the Gulf early next week. The NHC issued hurricane warnings for the Lesser Antilles islands of Dominica and St Lucia. A hurricane warning means the NHC expects a hurricane to strike the warning area within 24 hours.

Reuters

Insurers are braced for a wave of claims against directors of companies in the wake of the subprime crisis. Jill Sulkes, a managing director in the financial institutions practice at Marsh, the insurance broker, said some class action lawsuits were already being brought against subprime lenders that had filed for bankruptcy protection. "I think this is just the tip of the iceberg since this is a somewhat new development and there certainly is a potential for other types of directors' and officers' claims," she said. Traditional directors' and officers' policies protect a director or officer of a company from paying out from their own pocket in a case arising from their duties as a director of a corporation. A potential increase in claims in relation to the subprime crisis is particularly worrying for insurers as the cost of D&O cover has remained stable over recent years in spite of concerns that the risks faced by directors are rising. Ms Sulkes said insurers' exposure might not be limited to D&O policies. They could also face claims under policies that protect against errors and omissions. Jonathan Davies, a partner at Reynolds Porter Chamberlain, a UK law firm, said investors in hedge funds exposed to the subprime crisis could be examining whether they could bring claims against the funds. However, Ms Sulkes said subprime lenders were more likely to buy D&O insurance than were hedge funds.

Financial Times

PricewaterhouseCoopers L.L.P. should be barred as American International Group Inc.’s outside auditor due to irreconcilable conflicts of interest, a petition by C.V. Starr & Co. Inc. contends. The petition, filed with the Securities and Exchange Commission earlier this month, represents the latest move in a bitter feud between former affiliates AIG and Starr. Starr is led by former AIG Chairman and Chief Executive Maurice R. Greenberg. Starr—which, despite its severed relationship with the insurer, remains an AIG shareholder—alleges in its petition that AIG’s longtime independent auditor should be forced to resign because an AIG special litigation committee earlier this year authorized shareholders to pursue a derivative action against PwC in Delaware Chancery Court. “AIG’s decision to have the derivative plaintiffs prosecute the claims against PwC on behalf of AIG instead of having AIG’s own counsel prosecute the claims cannot eliminate the conflict that exists,” the Starr petition says. Starr asks the SEC to call formal proceedings to determine PwC’s independence.

Business Insurance

A company that will enable investors to take a punt on the Lloyd's insurance market will today announce plans to float on Aim. Hampden Underwriting is aiming to raise up to £15m through an offer for subscriptions to the public. Hampden Capital, the holding company for the largest members' agent on Lloyd’s, will be investing £1m. Hampden Agencies, with £2bn of capacity under management, will be advising Hampden Underwriting. Jeremy Evans, a director, said Hampden Underwriting would pursue a three-pronged strategy. First, it would bid for capacity in its own right in the September auctions at Lloyd's. Second, it would hope to acquire capacity through the acquisition of other corporate members of Lloyd's. Previous names who have set up small companies to limit their liabilities would be able to sell for shares in the Aim company. Third, it would make investments in other Lloyd's insurance-related products. Mr Evans said Hampden Underwriting would be the only opportunity for investment in a quoted company with the main objective of participating in a spread portfolio of Lloyd's syndicates rather than managing the syndicates themselves.

Financial Times

Lloyd’s popularity as an underwriting platform is at levels unseen for ten years, as prospective investors and overseas (re)insurers circle the market for opportunities to acquire businesses. Ariel Re’s swoop for Atrium Underwriting last month also demonstrated that buyers are not being deterred by historically high prices – the quoted Lloyd’s insurer followed Talbot Underwriting in achieving around two times net tangible assets – or by the prospect of Names entrenched on the firm’s two syndicates. The interest comes as Lloyd’s received a further fillip with its well-regarded franchise performance director Rolf Tolle committing himself to the Society until 2009, scotching speculation that he would leave the market much earlier. His tenure has coincided with a marked upswing in Lloyd’s underwriting results which, together with the sale of Equitas to Berkshire Hathaway and improvements in process reform, led to its Standard & Poor’s upgrade to A+ earlier this year. Echoing the rush of ten years ago when the likes of ACE Ltd, XL Capital and Stockton Re arrived in Lime Street, Bermudian (re)insurers are again leading the way. Against a backdrop of declining rates, Lloyd’s is being viewed as a vehicle to build more diversified revenue streams because of its distribution networks, ratings and international licences.

Insurance Insider

Lloyd’s Syndicate 1400, managed by Imagine Syndicate Management, has launched a dedicated insurance liability product to protect FSA approved persons. The product protects financial services professionals against the costs of responding to investigation by UK regulatory bodies, including the FSA. Specialist insurance broker Regulatory Protection Insurance Brokers, in conjunction with Lloyd’s broker, Lonsdale Insurance Brokers, will be managing the new product. Regulatory Protection Insurance is a fully web-based insurance product which can be applied and paid for online.

Insurance Times

Aviva, Britain's biggest insurer, has sustained £400 million in weather-related losses during the first six months of the year, dragging its operating profits down 8 per cent to £1.54 billion. The insurer reported a £235 million loss in the six months to June 30, 2007, with the subsequent bad weather during July adding a further £165 million to Aviva's losses, which will be reported in its full-year results. The company said today that "some of the worst floods in living memory", as well as an increasingly competitive market in general insurance, reduced profit in its UK business by 34 per cent to £560 million during the first six months of 2007. Underwriting profits from general and health insurance fell from £222 million last year to a £46 million interim loss. Operating profits, which fell from £1.67 billion in last year's interim period to £1.54 billion, narrowly missed City forecasts which pegged Aviva's operating income at £1.56 billion. Despite the weather's adverse effect on profits, Aviva remained upbeat, revealing that worldwide sales of its insurance products and services had risen by 25 per cent to £19.2 billion. However, shares fell from 705.5p to 697.5p in early trading.

The Times

The recent UK flood events in late June and mid-July across selected areas of the north of England and south England / Midlands are likely to have no impact on UK non-life insurers’ credit ratings, according to Moody’s. Although the two events look set to have a significant impact on 2007 earnings, strong financial performance and strengthened balanced sheets ensure that the losses are manageable for the industry overall and for key players, said the rating agency. The report explains the difficulties of reliable claims estimation from such events. However, based on ABI estimates, a gross cost of at least £2.5bn is likely. Dominic Simpson, a Moody’s senior credit officer and author of the report, said: "The spread of this cost throughout the industry will, ultimately, depend on the lines of business written by each insurer, with Moody’s anticipating the majority of flood-related claims to come from property (personal and commercial) and business interruption lines."

Insurance Times

A three-judge federal appeals court panel ruled on Thursday that the flood exclusion in Louisiana commercial and homeowners policies precludes recovery for water damage sustained when levees failed after Hurricane Katrina struck New Orleans in September 2005. A group of about 40 policyholders held that the exclusion should not apply because the levees had been poorly designed and built. In a ruling issued on Nov. 27, 2006, a U.S. district court judge drew a distinction between natural and manmade flooding, holding that the language in most of the policies involved was ambiguous regarding manmade flooding and therefore allowed the coverage suit to proceed. About a dozen insurers named as defendants in the case appealed. A three judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans, however, ruled against the policyholders on Thursday. The panel noted the policyholders’ arguments but held “we conclude, however, that even if the plaintiffs can prove that the levees were negligently designed, constructed or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs’ policies unambiguously preclude their recovery.”

Business Insurance

QBE confirmed today that it had withdrawn a proposed offer to buyout the remaining Names that participate on its specialist liability Syndicate 386, managed at Lloyd's under the Limit brand within QBE European Operations. It follows a rejection by the members agents representing the Names. The insurer claims the offer price would have been by far the highest ever offered within a Lloyd's capacity offer and represented approximately three times the price QBE has been previously prepared to pay for smaller capacity transactions in the 2006 capacity auctions. This premium attempted to reflect the benefits of 100% alignment for QBE, as well as compensating Names for relinquishing their investment in one of the market's leading syndicates. But the proposed offer has been withdrawn following confirmations from the members' agents representing the Names that they did not believe the offer to be sufficiently valued and that they would not therefore be prepared to make a positive recommendation in support. Frank O'Halloran, CEO of QBE Group added: "The Lloyd's agency and annual venture system is archaic and in our view in need of urgent reform. I urge Lloyd’s to address this with the same vigour that it has applied to modernisation of the market's business practices.”

Reinsurance

Nearly eight weeks have passed since the last tropical storm in the Atlantic-Caribbean region faded away, but banish any notion the 2007 hurricane season has been unusually slow and beware the coming months, experts say. The peak of the six-month season is just around the corner and forecasters are still predicting a busy one. "There's absolutely nothing out of the ordinary," Gerry Bell, a hurricane forecaster for the U.S. National Oceanic and Atmospheric Administration, said of the Atlantic season's first two months. "It's not slow. It's not fast." On average, June and July produce zero to two named storms or hurricanes. So far this year there have been two. Andrea formed in early May, Barry on June 1. There's plenty of evidence the first two months are meaningless as an indicator for the rest of the season. NOAA's forecast calls for a range of 13 to 17 storms, seven to 10 hurricanes and three to five intense hurricanes. London-based Tropical Storm Risk predicts 14.7 storms, 7.9 hurricanes and 3.5 intense hurricanes.

Business Insurance

The torrential rainfall that brought flood chaos to large swaths of Britain over the past four weeks could hit the insurance industry with claims worth more than £3 billion and is almost certain to push up premiums for homeowners. It is the highest prediction yet of the impact of the flood damage, which would see the UK insurance industry hit with record levels of claims. It comes as Britain's homeowners begin to count the cost of the heaviest flash flooding in more than 60 years amid fears the situation could get worse before it gets better. Fitch, an agency that rates the creditworthiness of insurance companies, said in a report published today that unless further investment is ploughed into flood defences, insurers could withdraw the provision of cover for some of the 2.2 million properties built on flood plains. "Fitch believes the flooding may impact the premium rate environment for domestic and commercial property insurance. It is likely to result in a significant hardening of rates in the most affected areas and a general increase in premium rates in the property market as a whole," it said.

The Times

New York-based American International Group Inc. leads the liability and hull insurance program that would respond to losses arising from the crash of a TAM Linhas Aereas S.A. passenger jet in Sao Paulo, Brazil, according to sources. The crash killed 189 people on the plane and on the ground. A brokerage unit of New York-based Marsh & McLennan Cos. Inc. placed the coverage for Sao Paulo-based TAM, Brazil’s largest airline. The TAM Airbus 320, which was en route from Porto Alegre, Brazil, crashed Tuesday evening while trying to land in rainy conditions at Congonhas Airport in Sao Paulo. After skidding off its runway, the jet slammed into a TAM cargo building and exploded, killing all 186 passengers and crew on board plus three TAM employees in the cargo building, an airline spokeswoman said. In addition, five TAM employees are missing, and 11 more were hospitalized, she said. Authorities are investigating the cause of the crash.

Business Insurance

Ailing ground zero workers went to court on Tuesday to demand that the company overseeing a $1 billion Sept. 11 insurance fund spend the money to pay for their health care. The workers have already filed a class action lawsuit claiming the toxic dust from the World Trade Center site gave them serious, sometimes fatal diseases. On Tuesday, they sought compensation from the WTC Captive Insurance Co., the company in charge of money appropriated by Congress to deal with Sept. 11 health-related claims. "The WTC Captive has consistently refused to pay any of the ground zero workers who have become ill on the work site, including any compensation" for lost salaries, pain and suffering, medical treatment, medical monitoring or burial expenses, according to the lawsuit, filed in state Supreme Court in Manhattan. It was filed by attorneys representing thousands who became ill after working to clean up the site while breathing toxic trade center dust, including more than 100 who have died.

AP

Willis Group Holdings Ltd. agreed to reimburse more than a dozen Florida public entity clients $2.6 million to settle concerns of state officials over its compensation practices. Under terms of the settlement reached with Florida Attorney General Bill McCollum, Chief Financial Officer Alex Smith and Insurance Commissioner Kevin McCarty, Willis also agreed to fully disclose to clients its commissions and to pay $600,000 in attorneys fees and other costs associated with the investigation. A joint investigation by the Attorney General’s antitrust division and the Department of Financial Services led to allegations that Willis improperly collected undisclosed fees or commissions when it placed various coverages with insurers, according to a press release from Mr. McCollum’s office. Willis’ clients included more than a dozen public entities in the state of Florida, including economic development councils, school boards, and city and county governments. Willis denied any wrongdoing but agreed to reimburse its clients without any formal action taken by the state agencies.

Business Insurance

Hector Sants is to take over from John Tiner as chief executive of the U.K. regulator, the Financial Services Authority, on July 20. Mr. Sants, who is currently managing director of wholesale and institutional markets at the FSA, joined the regulator from Credit Suisse First Boston in May 2004, where he was chief executive of Europe, Middle East and Africa. He has voiced his commitment to the reforms Mr. Tiner has ushered in. “I firmly believe in the risk-based and more principles-based approach the FSA has pioneered and I will work with the industry to ensure that market solutions deliver the best outcomes for all stakeholders, with a particular focus on consumers,” he said in a statement. Mr. Tiner, who is leaving the FSA to seek employment in the private sector, has held the position since September 2003.

Business Insurance

The biggest overhaul of EU insurance regulation in 30 years will boost the competitiveness of European groups against rivals from abroad and set a benchmark for the rest of the world, the European Commission claimed yesterday. Charlie McCreevy, internal market commissioner, said the planned reform - which introduces a risk-based system for calculating insurers' buffer capital and cuts regulatory burdens - would come as a blow to US insurers in particular. "There is growing nervousness in the US about the EU surging ahead while the US itself is stuck with highly fragmented insurance regulation. This proposal represents yet another opportunity to give European enterprises a head start in the global economy," he said. The new regime, known as Solvency II, will allow insurers to match the amount of capital they have to hold to cover their liabilities with the true risks they face. This will benefit large and diversified insurers such as Allianz, Axa and Aviva, because it will recognise the fact that the spread of their businesses lowers the group's overall risk. According to European Commission officials, the recognition of these diversification benefits may allow big groups to shave up to 40 per cent of their solvency, or buffer, capital - and so free up vast sums for more profitable investment.

Financial Times

Sweeping new European legislation to be unveiled today could spark a wave of merger and acquisition activity in the insurance industry, experts predict. The new regime, known as Solvency II, will overhaul the rules that determine how much buffer capital insurers must hold. It will seek to match the capital more closely to the risks they face, and will replace a patchwork of local regulations with harmonised rules designed better to protect policyholders. Big, diversified groups are expected to be among the winners from the European Union directive, because their operations across different markets should make them less risky. Solvency II will allow these groups to reduce their provisions in line with the lower risk arising from diversification, potentially freeing up billions of euros in capital for more profitable investments. Niche companies, with a competitive edge in their home markets, should also be able to win capital advantages. The Solvency II package, which will be unveiled by Charlie McCreevy, EU internal market commissioner, is one of the rare examples of EU regulation that has found almost universal acclaim among industry.

Financial Times

One of the world's largest insurance brokers is suing three former energy brokers who left to join a rival, after cashing in £4.5m of share options. Jardine Lloyd Thompson claims the three knowingly took advantage of government legislation on the transfer of employees (TUPE) in order to enact a planned move to a rival after taking the decision to cash in their shares. The FTSE 250 broker also claims the trio - Jonathan Smith, Mark Jenner and Sam Martyn - approached one of its major clients in a bid to take its business with them. The High Court lawsuit highlights the lengths insurance firms are willing to go to in order to protect their reputation and their clients. The three, considered to be leaders in offshore energy, worked for Lloyd's energy and natural resources broker Agnew Higgins & Pickering, then a part-owned subsidiary of JLT. JLT is seeking damages and an account of profits.

The Daily Telegraph

A.M. Best Co. Inc. has assigned a financial strength rating of A to Catlin Insurance Co. Inc. and has upgraded the financial strength rating of Catlin Specialty Insurance Co. to A from A-, the ratings agency said Friday. The outlook for both ratings, however, is negative, due to Best’s negative outlook on the companies’ Bermuda-based parent, Catlin Insurance Co. Ltd., Oldwick, N.J.-based Best said. While the ratings for both CSIC and CIC, based in Atlanta, reflect the significant quota share reinsurance support and credit risk protection provided by their parent, that is partially offset by challenges inherent in the operation of any company during its early states, Best said. CIC will begin writing business in the third quarter of 2007, Best said.

Business Insurance

Hannover Re is opening a branch in Bahrain that will begin writing business in 2008. Hannover Ruckversicherung A.G, Bahrain Branch, will concentrate on traditional reinsurance in the Middle East. Hannover Re launched a retakaful unit in the region last year. Wilhelm Zeller, chief executive officer of Hannover Re said in a statement that the reinsurer’s additional presence in Bahrain will “reduce our operational risk since the two offices optimally complement and dovetail with one another.”

Business Insurance

R J Kiln & Co, the managing agency of Kiln's four syndicates at Lloyd's, has said that in light of expected competition in certain classes of business next year, the company plans to reduce its overall capacity at Lloyd's by 14% for 2008. Kiln announced the decision in its business plans to Lloyd's for the 2008 year of account. Kiln Group chief executive officer Edward Creasy said: “This reduction in capacity for 2008 is consistent with our long held strategy of underwriting for profit rather than volume. Our underwriters continue to maintain discipline where they see rate reductions and there are still areas of considerable opportunity in the market. We are applying our efforts to those sections of our portfolio where we see good potential and long term benefit for our capital providers.”

Insurance Times

Lloyd's to raise profile in CEE: Levene.

Lloyd's of London, recognising the growth potential of the Central and Eastern European insurance market, is attempting to raise its profile in the region, according to its chairman. While Lloyd's derives most of its business from outside the United Kingdom, the CEE countries represent just 1% of the market’s business volume, according to Lloyd's Chairman Lord Peter Levene. "We recently established ourselves in China; we spent a lot of time looking at areas like that. But much closer to home in Europe, we think there is significant chance to grow our business," said Lord Levene during a visit to Vienna Tuesday. Lord Levene met with representatives from the Austrian insurance market, and was scheduled to travel to Poland on Wednesday. He said it was too early to say whether Lloyd’s would be opening representative offices in the region, although "we'd certainly look at it" if that was deemed important, he said.

Business Insurance

Leinster Syndicate to reapply for Lloyd's approval.

A new Lloyd’s syndicate will reapply for approval to trade starting in November. Leinster Syndicate 4882, backed by members’ agent Hampden, did not receive approval from the Lloyd’s franchise board this month. A Lloyd’s source told Post: “Adrian Ryan will be putting together a revised proposal for the application. But, it has been difficult for him as he is doing three jobs at once. He has to put together an acceptable business plan, insure the business plan by hiring underwriters and raising sufficient capital.” Hampden committed £40m to the new syndicate from third party investors. However, the source said it was not sufficient. “The syndicate needed to raise £75m capacity for this year.” The next application window for the new syndicate is 1 November. “If Mr Ryan is able to put together a plan for November, and if it’s accepted, the syndicate will begin trading.”

Post Magazine

ABI predicts £1 billion losses from flood claims.

The Association of British Insurers has given a bleak assessment of claims resulting from recent flooding, doubling RMS' estimate with a prediction of £1bn in liabilities. In a statement, the ABI said insurers are working round the clock to assist customers who have been flooded. The ABI estimates that 27,000 homes and 5,000 businesses have been affected by the recent floods and storms and that the cost of claims is expected to reach £1bn. "This figure could rise if more properties are affected by further flooding", it said. Stephen Haddrill, director general, said “Insurers are working as hard as possible to reach customers and to visit properties early. But these events are so widespread that insurers are redeploying staff to affected areas, increasing staffing levels in call centres and undertaking visits to community centres. However, even emergency procedures cannot deliver our normal standards of service.”

Post Magazine

The bitter legal battle between American International Group Inc. and its former affiliate, C.V. Starr & Co., took another turn on Tuesday when C.V. Starr sued AIG, seeking to potentially recover profits AIG realised through its previous business relationship with managing general agency units of C.V. Starr. The lawsuit was filed in Delaware Chancery Court as a cross-claim to a 2002 shareholder derivative suit brought by the Teachers’ Retirement System of Louisiana against both AIG and C.V. Starr. The retirement system contends in its suit that C.V. Starr and certain AIG officials—including ex-AIG Chairman Maurice R. Greenberg, who now heads C.V. Starr—improperly benefited from the millions of dollars in commissions paid to entities controlled by Mr. Greenberg through C.V. Starr of New York. C.V. Starr’s lawsuit seeks “the hundreds of millions of dollars in profits and benefits realised by AIG as a result of its relationship with Starr” from 2000 to 2005, according to the complaint.

Business Insurance

Insurers estimated yesterday that the cost of flooding in Britain in the past few weeks will run into hundreds of millions of pounds. The Association of British Insurers (ABI) said that so many claims are likely this week that it is impossible to give a precise figure. A spokesman said: "The latest claims come on top of thousands submitted after flood damage a few weeks ago. It is going to be an expensive month." Weather-related claims this month were up by 800 per cent on the average. Abbey estimated that 8,600 claims were submitted yesterday for damage to property, businesses and cars. The ABI warned the Government that greater investment in flood defences is urgently needed to manage future risk, calling on it to increase its annual spending to £750 million.

The Daily Telegraph

The smoking ban – coming in to force in England on July 1 – while protecting health may bring a new risk of fire if not properly managed, said Norwich Union. The insurance company suggests a number of potential problems arising from the blanket ban on smoking inside business premises. Allister Smith, Norwich Union’s property risk manager, said: “Being smoke-free is obviously good news for people’s health and well-being, but a total ban on smoking inside a building can bring a new risk of fire caused by smokers gathering outside, or can even lead to surreptitious smoking taking place inside buildings, and this needs to be properly managed on an ongoing basis. Where smokers are relocated to areas outside premises, the risk of fire goes with them, caused by cigarettes being discarded either in bins or on the floor where there may be combustible materials.”

Insurance Times

Brit Insurance said on Friday it had entered into a three-year catastrophe swap contract with Fremantle Ltd that would pay it up to $200 million in the event of four to nine qualifying catastrophes. Fremantle, which was created to issue loan notes underpinning a catastrophe swap programme, will pay Brit $40 million for each of the fourth and fifth natural catastrophes and $30 million for each of the sixth to ninth events. The first three catastrophes are excluded.

Reuters

The Act of Parliament that governs Lloyd’s is to be changed to enable the Society to reform its structure and processes, it was announced yesterday. The Economic Secretary to the UK Treasury, Ed Balls, confirmed yesterday that the Government will develop legislative proposals to “modernise the governance arrangement for Lloyd’s” by amending the Lloyd’s Act, 1982. The proposal comes after work between the Treasury and Lloyd’s to identify areas where the Society’s corporate governance arrangements are out of step with modern practices. These could include areas such as reforming the Annual Venture, where syndicates have to begin trading at the beginning of each year by reinsuring the previous year’s liabilities. Lloyd’s chairman Lord Levene said: “We warmly welcome this move by the Government. In the past two decades, Lloyd’s has undergone significant changes and the proposals to modernise the governance arrangements of Lloyd’s will bring us into line with today’s thinking in the wider corporate arena. We look forward to working with the Treasury.”

The Insurance Insider

Montpelier Re has announced it has received approval from Lloyd’s to start trading on 1 July through its new syndicate, Montpelier Syndicate 5151. The syndicate will underwrite a book of non-marine property and engineering classes and a limited amount of specialty casualty business sourced from the London, US and European markets. Stamp capacity for 2007 is set at £47m, but is planned to increase to £143m in 2008, subject to market conditions. The active underwriter of the Syndicate will be Richard Chattock, who has been with Montpelier as a senior underwriter since the company’s inception and was formerly underwriting manager, property and casualty division at Cox Syndicates Limited. Initially, Montpelier is partnering with Spectrum Syndicate Management Ltd., who will act as the managing agent of the syndicate.

Insurance Times

Zurich American and two law firms have been accused of trying to delete coverage documents. Zurich American Insurance Co, a division of Zurich Financial Services, and two of its law firms have been fined for trying to delete evidence relating to cover for the World Trade Center Properties LLC, according to a report in the Wall Street Journal. The newspaper reported that Zurich American Insurance and the two firms, Wiley Rein and Coughlin Duffy, were fined some $1.25m by US District Court Judge Alvin Hellerstein for allegedly seeking to wipe electronic evidence of an insurance document relating to cover for the WTC. The companies were also accused of asserting "unsupported defenses in insurance litigation over the Sept. 11, 2001, terrorist attacks".

Insurance Times

Lloyd's syndicates will now receive a £335m windfall after the corporation successfully set the terms for the issue of £500m of Tier 1 subordinated debt. Those syndicates that have paid into the Lloyd’s Central Fund, levied at the rate of 0.75% of capacity, will now be repaid later this year. Lloyd's said the transaction was met with a positive response from a wide range of quality institutional investors following a three-day road show and was several times oversubscribed. Chief executive, Richard Ward said: “The appetite we have seen for this transaction is testament to the high regard in which Lloyd's is held by the financial markets. Its timing is ideal, coming as it does off the back of our strong financial performance in 2006, the recent Equitas deal and the upgrade of our credit ratings by both Standard & Poor’s and Fitch.”

Insurance Times

American International Group moved to take control of a shareholder lawsuit yesterday, claiming billions of dollars in damages from Hank Greenberg, the insurance company's former chairman and chief executive. Lawyers said the action appeared to be an attempt by AIG to improve its position in its efforts to reach an early settlement with Mr Greenberg. AIG last night filed a suit against Mr Greenberg and Howard Smith, former chief financial officer, claiming damages for the costs associated with the multibillion- dollar accounting restatement the company made last year. The costs include the $1.6bn the company paid to settle charges brought by the regulators. Yesterday was the deadline for AIG to take over the suit from lawyers who launched the action on behalf of shareholders. In a statement, AIG said the special litigation committee of its board had decided it would be in the best interests of the company and its shareholders "for AIG to pursue these claims against Messrs Greenberg and Smith rather than have them controlled by the plaintiffs' bar". AIG is keen to settle all the outstanding legal actions relating to its accounting restatement and lawyers said the move would strengthen its hand.

Financial Times

The Contract Certainty Steering Committee has published a code of practice designed to ensure policies continue to be fully agreed prior to coverage becoming active. The code brings together all contract certainty guidance issued over the last two years and is the first ever from a UK market body to cover both the subscription and non-subscription insurance markets. The Financial Services Authority has welcomed the code of practice which has been endorsed by all the UK’s leading insurance industry bodies, including: the Association of British Insurers; the British Insurance Brokers’ Association; Lloyd’s, the Lloyd’s Market Association; the London Market Insurance Brokers’ Committee; the Market Reform Group; the International Underwriting Association; and the Association of Insurance and Risk Managers.

Post Magazine

Royal & SunAlliance is at the centre of a US bidding war, according to a number of reports. Shares in the company have risen sharply amid rumours that US insurance giant AIG may be set to buy the group. Finnish insurer Sampo has ruled out a bid for Royal and SunAlliance, following speculation that it was interested in making an offer. Sampo’s chief executive Bjorn Wahlroos was reported to have ruled out a bid out, stating that the company did not have the “slightest interest in making our way into the British non-life insurance market”.

Insurance Times