Merry Christmas! Some Scenes of the Season

By Mark E. Ruquet

Browsing the news this morning I have one of two choices: get depressed or cheer up.

Here are a couple of stories from the New York Times I thought would bring a smile to your face as it did mine.

Merry Christmas! I hope you enjoy them as much as I did. And thank you for reading my blog.


Bill Cunningham| Red and White All Over. A photo essay of New York and the Christmas season.


Atheists, Work With Us for Peace, Pope Says on Christmas. Includes of Christmas celebrations from around the world.

Why Did FEMA Make My Wife Cry?

By Mark E. Ruquet

Why did FEMA make my wife cry?

The agency that is in the business of coming to the rescue in times of disaster is putting her dreams to an end thanks to the broken promise that government should be there to aid the public in its greatest time of need. That need is now a disaster caused by our own government as community after community along the coastline and rivers of the United States get slapped with unsustainable flood insurance increases.

For us, we received our renewal in early November with a shocking rate increase of over 151 percent to more than $3,000 a year on $100,000 of property coverage. We held off paying, hoping that Congress would realize it created a monster that will drive many middleclass Americans out of their homes and roll back the increases. Well, a small group of narrow minded legislators have held-up the bill to help middleclass America, no doubt at the behest of their deep-pocketed conservative lobbyists. The result is deepening panic in communities throughout this country.

FEMA and legislators in flood-exposed districts must be getting an earful, and the chorus is only going to get louder as more Americans are hit with these astronomical flood insurance rate increases. If our more experience with our renewal is any indication, the situation is about to get worse.

We received our 151 percent renewal quote increase before FEMA reviewed the elevation certificate they required us to obtain with the renewal. That alone was no bargain either since it required us to hire a surveyor for the certification. A few days ago, FEMA sent us a new bill after reviewing the elevation certificate, something we hoped would help us, not hurt us. Our rate increase now stands at 200 percent at well over $4,000.

This is getting close to a backbreaker, limiting our options for our future. Biggert--Waters, the law mandating these increases, requires rates to rise 25 percent over the next four years. Some quick math and that would mean our flood insurance would rise to well over $8,000 a year within four years. That is unsustainable.

My wife's tears are not just for the astronomical rate increases we are facing. We are being placed in a dire position where we have to sell the home she worked 25 years to pay off, or walk away from it because we can't afford to live here anymore.

After Sandy, we are not in a position to invest more in this house. We're working to pay off the debt we accumulated to get back in, and we can't take on more debt to remediate flood exposure issues. Even if we could do the work, could we be certain it will have a positive impact. Can we sell? With these flood rates, can we find a buyer for the house? Maybe, if the buyer plans to tear down and build the house high enough that they get the discount.

The reality is those of us in flood-exposed communities are in a bad situation placed there by an insensitive, ignorant group of legislators and a department that says its hands are tied, but is not lifting a finger to help homeowners. We know we are not alone. Our insurance agent at Norman Heil Insurance Inc., Staten Island, told my wife that she is swamped with calls from people who can't afford to obtain the elevation certification, much less the insurance. 

My wife is crying, because the government is destroying her dream, and I'm sure she is not alone in shedding tears over these increases that are unjustly striking middle America—destroying dreams and communities.

Barney & Barney Raises $60,000 For CHOC Children's

Some of what agents do for people:

ALISO VIEJO, Calif., Dec. 16, 2013 /PRNewswire/ -- Barney & Barney, LLC, one of the nation's largest independent insurance brokerages, today announced that The Barney & Barney Foundation Orange County Golf Classic raised $60,000 for the Neonatal Intensive Care Unit (NICU) at CHOC Children's Hospital (CHOC) in Orange County, California.

The second annual tournament took place on Monday, Dec. 2 at the Dove Canyon Country Club and included 150 golfers. Proceeds from donations, golf registrations and sponsorships fund the Foundation's mission to support CHOC's NICU babies and their families. Over the past two years, Barney & Barney has raised $100,000 for CHOC. Last year, its inaugural tournament raised $40,000.

"CHOC is so thankful for Barney & Barney's commitment to improving the lives of infants and families impacted by illness or preterm birth," said Dr. Vijay Dahr, Medical Director of the NICU at CHOC. "With the incredible generosity and financial support of our community, we can provide life-saving care and make a tremendous difference in the lives of Orange County families."

CHOC operates one of the nation's most highly regarded NICUs and provides tertiary and quaternary care to premature infants and babies born with a variety of serous conditions requiring specialized care. 

"Barney & Barney is proud to support the wonderful work of CHOC," said Travis Trask , Principal and Managing Director of the firm's Aliso Viejo office. "Our sincere thanks to everyone who participated in the Foundation's Orange County Golf Classic and gave so generously. As our team continues to grow inOrange County, we look forward to making an even greater contribution to the community."

Since it was founded in 2009, the Barney & Barney Foundation has given more than $1 million to community-based, nonprofit organizations in California.

Reinsurance Competition Grows

Ex-MMC CEO Duperreault to lead
former SAC reinsurance unit. 

By Mark E. Ruquet

Two veteran insurance executives have found it hard to say good-bye to their industry connections and are launching new ventures in the reinsurance industry intensifying competition.

Former Marsh & McLennan Companies Chief Executive Officer Brian Duperreault is leading a group of investors to purchase the Bermuda-based operations of SAC Capitol Advisors LP, SAC Re. Terms of the deal were not disclosed. Bloomberg said the sale by SAC comes in the wake of an agreement with federal prosecutors to pay $1.8 billion in fines to avoid criminal charges over allegations of insider trading.

Duperreault was quoted saying he looked forward to working with hedge fund partner Two Sigma Investments LLC.

On the reinsurance brokering side of the business, Grahame Chilton, the co-founder of Benfield, now owned by Aon, and renamed Aon Benfield, has severed ties and will launch a new reinsurance brokerage firm with rival broker Arthur J. Gallagher. The Telegraph says Chilton will reveal the new venture Thursday.

The competitive nature of the reinsurance market is highlighted by the continued growth in capacity fueled by catastrophe bonds and other alternative risk retention vehicles, according to Guy Carpenter's mid-year market report. Obviously, there are some well experienced executives out there who believe this end of the industry continues to be a good bet.
    

Ignorance is Bliss – As it Ruins Middle America

Conservative thinkers fail to comprehend the pain middle-class
homeowners are facing over increasing flood insurance rates.

By Mark E. Ruquet

If anyone thought that rolling back the astronomical flood insurance premium increases middle-class homeowners are suffering under Biggert-Waters would be an easy task—think again. Common sense should rule the day, but a look at two influential conservative publications should have many middle-class homeowners worried.

Recently, the Wall Street Journal published an editorial saying flood insurance increases should not be delayed. The author reasons that the only homeowners demanding this change are millionaires with beachfront properties seeking cheap insurance.   The Times-Picayune, which reported on the editorial, called it “a setback” for supporters of the rollback because of the papers influence with Republican legislators.

Another publication, The American Press, notes that R Street, an influential non-profit conservative think tank, published its own thought piece objecting to plans to delay increases. Like the Wall Street Journal, they say only a few homeowners are affected by rate increases—they say 90 percent are unaffected—and the only real losers are the members of the “1 percent club.”

R Street pointedly criticizes Rep. Michael Grimm (R-New York) for proposing a four-year moratorium on rate increases. They imply that the Congressman is working to subsidize the wealthy. Obviously, the writers of this piece have no idea who the Congressman represents otherwise they would be printing retractions.

Both publications point out the $25 billion deficit the Flood insurance program is in and worry about taxpayers footing the bill. They go back to their neo-conservative positions that no government program is a good program, and only the private market model can solve the ills society faces today.

People in the worst hit communities of New York and New Jersey who suffered through Superstorm Sandy, and those in Louisiana still recovering from Hurricane Katrina, know full well two blaring realities these publication ignore: most of us don’t have million dollar homes and we continue to struggle to put our lives back together after these disasters. I personally can testify to the fact that the modest rate increases these publications speak of are not modest in the least. We saw a renewal increase of 151 percent, and there was nothing cheap about what we were paying initially. On top of that, we’re to get 25 percent increases for the next several years under the current law. Guess what? The rich are not paying for the $25 billion flood insurance deficit. It’s the middle-class.

The writers of these editorials need to get out into the real world and understand the plight of the majority of Americans. The rich can afford to pay more. Real middle-class Americans, continually under pressure to make ends meet, do not have ready access to liquid commodities to afford these increases.

Both the Wall Street Journal and R Street editorials also fail to come to grips with who is calling for these changes. Flood insurance coverage is limited to $250,000 property. That’s only a quarter of the coverage needed to replace a million dollar home. What does that mean? Those in the high-end income bracket are purchasing excess insurance coverage for the value of their high-value homes. An individual who can afford to go out and buy excess coverage is not going to be overly concerned when their primary coverage increasing by a few thousand-dollars. They have the money.

The people crying for change and hurting from these flood insurance increases are those who can afford it least and live in homes that are not luxury villas. Ignorance is a beautiful thing when individuals want to disregard the realities of the pain shortsighted planning causes average Americans.

MMC Names New Chief Execs at Oliver Wyman and Marsh

Scott McDonald, to become CEO
of Oliver Wyman Group Jan. 1.

Scott McDonald, currently President of Oliver Wyman, was named Chief Executive Officer of Oliver Wyman Group, effective Jan. 1, the parent company, Marsh & McLennan Companies, said today. As CEO of Oliver Wyman Group, McDonald will have responsibility for managing Oliver Wyman, NERA and Lippincott. He will report to Dan Glaser, President and CEO of MMC and will become a member of the MMC executive committee.

John Drzik, the current Chairman and CEO of Oliver Wyman Group, will move to Marsh, Inc., the insurance brokerage partner of MMC, becoming president of Global Risk and Specialties. In this role, he will report to Peter Zaffino, President and CEO of Marsh, and will oversee a number of businesses, including Marsh’s Global Industries, Global Practices, Risk Solutions, Global Analytics and Technologies, and the Insurer Consulting Group. Drzik was also named chairman of the newly formed MMCs Global Risk Center.

John Drzik, named President of Marsh
Global Risk and Specialties. 

“The changes we are announcing today will strengthen Marsh & McLennan Companies,” said Dan Glaser, President and CEO of MMC. “Scott is a proven leader at Oliver Wyman and will be a great addition to the senior management team at Marsh & McLennan Companies.

"Similarly, John has distinguished himself at Oliver Wyman Group as a thoughtful and effective leader. He will bring a new perspective to Marsh as it looks to accelerate growth in key areas of its business. The ability to move senior business leaders across our organization is a validation of the depth of our management team,” said Glaser.

McDonald was named president of Oliver Wyman since 2012. Previously, he was the managing partner of Oliver Wyman’s Financial Services practice. Prior to that role, he was the Global Head of the Corporate & Institutional Banking Practice within Financial Services, which includes the firm’s activities in the areas of Corporate Banking, Investment Banking, Capital Markets, Asset Management, Exchanges, and other related businesses. McDonald joined Oliver, Wyman in 1995 and was elected a partner in 2000 and managing partner in 2007.

Drzik joined Oliver, Wyman in 1984 and was named chairman in 2000. He played a key role in establishing the firm’s leadership position in financial services strategy and risk management consulting. In 2003, MMC acquired Oliver, Wyman. In 2006, he was named chairman of Oliver Wyman. Drzik is the author of numerous articles on strategy, risk management, and financial services, and is also the founder of the Oliver Wyman Institute, a cooperative academic forum designed to accelerate knowledge transfer between the academic community and the financial services industry.

Insurance Exposure Limited for MTA

Overhead view of Sunday's Metro-North Railroad train
accident in the Bronx (ABC News). Latest news here.

By Mark E. Ruquet

Sunday’s disaster of the Metro-North Railroad train in the Bronx, N.Y., would typically raise serious concerns among insurers in terms of property damage and liability issues, especially where there is loss of life.

Four people died and more than 70 injured when the train derailed while going around a curve at excessive speed, the National Transportation Safety Board said yesterday. The train hit the curve at 82 mph, far above the 30 mph speed limit for that section of the track. Why this happened is still under investigation, but officials appeared to indicate that, right now, there is no evidence of mechanical failure.

Whether the fault is with the engineer, William Rockefeller, or mechanical, liability will be limited for both the Metropolitan Transportation Authority, which oversees operation of the rail line, and the insurance industry.

A captive (self-insurance) program, First Mutual Transportation Assurance Co., provides the MTA’s insurance. The program buys reinsurance on the private market at different layers, depending on the exposure, limiting its exposure. According to the MTA’s budget report, the agency is experiencing 10 percent increase on its entire program due to the hardening market. The exception is All Agency Excess Liability (Primary and Excess) that is increasing at 20 percent because it was underpriced and has been the subject of large losses since 2007.

Sunday’s accident will no doubt subject the program to another large loss, but unlike the private sector, there are limits to its loss. Under federal law, railroad liability losses are limited to $200 million per occurrence. 

Further, the award can be made “only if the plaintiff establishes by clear and convincing evidence that the harm that is the subject of the action was the result of conduct carried out by the defendant with a conscious, flagrant indifference to the rights or safety of others.”

Now there are reports that the engineer is saying he zoned out before the accident. There’s still a long way to go in this investigation, and before it is through, more than a few from the plaintiff's side may be questioning if $200 million limit is enough.

Update: 5 p.m. EST -- NTSB says no brake malfunction, no alcohol or drugs involved. The investigation continues.  

Giving Thanks for a Mild Atlantic Cyclone Season

Photo of Illinois tornado devastation. A concert "Rock to the
Rescue" will be held Dec. 4 for victims. Click here for details. 

By Mark E. Ruquet

The day after Thanksgiving this 2013, the insurance industry should be giving thanks to Mother Nature’s magnanimity. Unlike last year, when many of us here in the New York and New Jersey region were still reeling from Superstorm Sandy, we have avoided major tropical cyclone activity along the Atlantic, especially late in the year.

The tropical storm season for both the Pacific and Atlantic ends tomorrow, Nov. 30. Unless there is a sudden burst of cyclone activity, this year’s Atlantic season will prove to be one of the mildest in a while. In the Atlantic, there were 13 named storms this season. The worst of the Atlantic storms were Hurricanes Humberto and Ingrid in September with maximum sustained winds of 85 mph. Of those two, only Ingrid made landfall, striking Mexico, which turned into a challenging weather event for the nation.

Mexico suffered a double whammy when Hurricane Ingrid and Hurricane Manuel in the Pacific struck the nation in the same week to produce close to $6 billion in economic loss and claim more than 200 lives. Aon Benfield put insured losses at close to $1 billion.

In terms of human and economic impact, Super Typhoon Haiyan is at the top of the list. The storm struck the Philippines Nov. 8 decimated Leyte province with sustained winds of 195 mph.  In terms of insured loss, this is a minor event. AIR Worldwide issued a statement estimating insured losses would range between $300 million and $700 million. However, in economic terms, the catastrophe modeling service put range of loss at $6.5 billion and $14.5 billion.

Victims of the typhoon are straining to recover and just survive. To get some money flowing into the economy locals are now hired to help with the clean-up. The death toll, estimated at 10,000, has officially climbed to over 5,000. Families struggle to put their lives back together after the loss of loved ones and their means of earning a living either from the loss of their livelihood or the family’s breadwinner.

Closer to home, storms have raised havoc over the Midwest once more, producing late season tornadoes that destroyed or damaged 1,000 homes around Washington, Ill. According to Insurance Journal, an official with catastrophe modeler RMS put the insured loss at around $1 billion, the first severe weather event of that size for the industry in November. A benefit concert "Rock to the Rescue" is scheduled for Dec. 4. 

Elsewhere in the world, winter storms in Europe have come as an unwelcomed surprise. A windstorm in late October, struck Denmark, Germany, the United Kingdom, France, Netherlands, and Sweden causing between $2 billion and $3 billion in insured damage. Torrential rainfall in Italy on Nov. 18 caused flash flooding in Sardinia, taking 17 lives and prompting Italian officials to declare a state of emergency.

Looking back, for us survivors of Superstorm Sandy, even those still waiting to get back into their homes a year later, we can be thankful we dodge the severe weather bullet this year—and we hope for decades to come.

Progressive Loses Its Vision

The adventures of Flo, the Progressive insurance spokeswoman dressed in white, touting the virtues of the company's pricing and option models, may just not be the same with the passing of the company's visionary leader over the weekend.

Chairman Peter B. Lewis passed away over the weekend of heart attack, according to several media sources.

Lewis, 80, was Progressive's chief executive officer for 35 years taking over the company from his father, Joe Lewis in 1937. He stepped down in 2000 and was named non-executive chairman.

Lewis will be replaced by CEO Glenn Renwick, 58.

Casualty of the Affordable Care Act: a Critic

By Mark E. Ruquet

The foul-up surrounding the rollout of the Affordable Care Act has claimed one of its first victims, but he had nothing to do with the design of the technology at the heart of the administration’s nightmare.

Late last week, Washington D.C. Mayor Vincent C. Gray dismissed Insurance Commissioner William P. White after the commissioner criticized the president’s plan to allow holders of sub-par health insurance policies to renew the plans for a year.

The New York Times says that Gray released a statement criticizing President Barack Obama’s plan before clearing it with the mayor. Gray contends that it was normal procedure for his office to issue statements without clearance.

Gray’s office did not comment.

The Washington Post reports that there were heated exchanges between White and Gray’s office after the release of the commissioners statement.  White went to great lengths to save his job, but the mayor “lost faith” in the commissioner’s judgment.

PPACA may have cost one commissioner his job, but at least the administration has come to its senses and made a high profile attempt to seek help and advice from the people who have to make sure the plan is ultimately implemented properly: the state insurance commissioners.

On Wednesday, members of the National Association of Insurance Commissioners met with the president and other White House officials to discuss the Administration’s efforts to stem criticism that the president lied when he people they could keep the insurance policy they liked after PPACA took effect.

In a statement, NAIC President and Louisiana Commissioner Jim Donelon said that after working hard to make sure policies were compliant with PPACA, the proposed changes “are creating a level of uncertainty that we must work together to alleviate.”  He added that the commissioners would work to “implement changes that make sense” while protecting consumers.

The statement was non-committal about what the commissioners would ultimately decide, which should not be a surprise since not all states have embraced PPACA and created exchanges for individuals in need of adequate healthcare coverage, leaving it to the federal exchange to do the work. In fact, the president’s remedy for extending the pre-PPACA plans is meeting resistance in some states.

Yesterday, California’s healthcare exchange—Covered California—rejected extension of non-compliant plans saying doing so would lend to confusion among consumers and might keep healthy customers out of the risk pool. Close to 80,000 people have enrolled in California’s exchange, the Los Angeles Times said, and about 1 million people have non-compliant policies in the state.

In the end, the insurance commissioners may end-up inadvertently bailing out the president on this one. The West Virginia MetroNews said West Virginia has joined a dozen other states in rejecting the president’s call to extend the non-compliant policies. In essence, the president can say he came up with a solution, but the commissioners rejected it because it was unworkable.

A year from now, after they have ironed out the kinks in the software, and 40 million Americans who never had coverage see the benefits of the program, this will be forgotten—and replaced by some other immediate crisis. It’s just a question whether it will be the Republicans or Democrats who will do a better job of mucking things up.

Mellissa 13th Named Storm of Atlantic Hurricane Season

National Hurricane Center reports 13th named
storm of the Atlantic Hurricane season.

By Mark E. Ruquet

While the Midwest is beginning to recover from a series of devastating tornadoes and people pick-up the pieces from Typhoon Haiyan in the Philippines, the Atlantic Hurricane season has virtually been forgotten. That does not mean it hasn't been a busy one nevertheless.

The National Hurricane Center reports that Subtropical Storm Melissa formed this morning over the Central Atlantic with maximum sustained winds of 50 mph. The storm is expected to strengthen to a tropical storm by tomorrow. There are no coastal warnings or watches in effect. Melissa's path is not expected to threaten the East coast.

The storm is the 13th named storm of the 2013 Atlantic Hurricane Storm season which extends to Nov. 30.

Tornadoes Rip Through Midwest; 6 Dead in Illinois

Photo from FEMA photo library 

By Mark E. Ruquet

The National Weather Service reports a major storm system ripped through the Midwest yesterday resulting in scores of homes damaged and at least six deaths in Illinois.

The NWS Storm Prediction Center says there were 82 tornado reports yesterday and 546 high wind reports. The figures are subject to change as duplicate reports are eliminated.

Tornado activity was concentrated in Illinois, Indiana and Kentucky. Tornadoes were also reported in Missouri, Michigan and Ohio.

Illinois was the worst hit, with an F4 tornado hitting Washington, Ill. The Weather Channel reports that 500 homes were damaged in the town.  

Devastation to the Philippines a Minor Loss for Insurers

By Mark E. Ruquet

Aerial photo of Tacloban on Nov. 11 posted on USAID site
Photo Credit AFP/Noel Celis

As the residents of the Philippines struggle to survive the impact of Super Typhoon Haiyan, it is worth noting how this storm demonstrates the divide between the developed and under-developed worlds.

Haiyan, which hit the island nation on Nov. 8 with sustained winds estimated at 190 mph, wiped out the city of Tacloban and other towns and villages that aid workers continue to have great difficulty trying to access. After a week, the relief effort is reportedly ramping up in earnest and essential supplies of food and water are getting out to the populace. After the survivors bury their dead, estimated to be as high as 10,000 and debris is cleared, the rebuilding will begin.

The promise of an insurer is to make one whole again, but only a few will see the benefits of that pact. Catastrophe modeler Eqecat estimates insurance losses from Haiyan is not expected to exceed $100 million.  Eqecat notes that there will be some “high value” losses, but the lack of insurance penetration has spared the industry a major hit.

By contrast, Superstorm Sandy, which struck the coast of New Jersey and New York City in 2012, cost the insurance industry close to $19 billion, with another $7.5 billion coming out of the coffers of the National Flood Insurance Program. The storm is considered the fifth costliest natural catastrophe event in history.

Insurance has provided some comfort to the victims of Sandy—even though one doesn’t have to go far to hear a word of dissatisfaction about the claims process or the result, but at least there was some financial backing to help. Many people in the Philippines will not be so lucky and they will be looking to the global community for help after they’ve shed tears for loved ones lost and begun the clean-up, something we here in New York and New Jersey can identify with.

3Q Results for Insurance Broker’s Profitable—for Most

The four major global insurance brokers 3rd quarter revenue
continued a positive trend--for the most part. 

By Mark E. Ruquet

If the four major U.S. insurance brokers are any indication, producers should be enjoying continued revenue growth through 2013 as commercial premiums continue their steady climb, despite signs that the industry may be reigning in rate increases in some lines of business.

Within the past two weeks Marsh & McLennan, Aon, Willis and Arthur J. Gallagher reported third quarter revenue growth ranging from 2 to 5 percent, with Arthur J. Gallagher outperforming the group.

AJG reported the largest third quarter revenue jump of the four at 29 percent to $836 million, and organic growth of more than 6 percent. Despite its success, the broker missed investment analyst’s consensus earnings by 5 cents a share, coming in at 57 cents or net income of $75 million. AJG’s performance for the first nine months of this year reflects the same strength with revenues increasing 24 percent to $2.3 billion and net income up 29 percent to $209 million.

Willis had the next best results—in terms of revenue—for the quarter as revenues were up 5 percent and organic growth was just shy of 6 percent. Revenues beat analyst consensus estimate by close to $9 million. A net loss of $27 million, or loss per share of 15 cents, tempered the broker’s results. Willis blamed the loss on the early extinguishment of debt to the tune of $60 million and expense of $1 million for related fees. Judging the brokers performance based on adjusted net income for continued operations, the firm missed consensus by 1 cent coming in at 19 cents a share. So far this year, revenues increased 5 percent over the first nine months to $2.74 billion, while net income dropped 17 percent to $297 million.

Aon managed to beat analyst’s expectations with earnings per share beating consensus by 9 cents a share. The firm’s net income rose 25 percent to $256 million on revenue of $2.8 billion, an increase of 2 percent. Earnings per share rose 20 cents to 82 cents a share. For the nine months, net income was up 10 percent to $758 million, with revenue increase of 2 percent, or $207 million, to $8.6 billion. The firm reported organic growth overall of 3 percent driven by its risk solutions business.

Marsh & McLennan appears to have regained its position as the top brokerage firm, reporting third quarter revenues of more than $2.9 billion, an increase of 3 percent over the prior year. Net income rose 5 percent to $253 million. The results were in line with analyst’s expectations. Revenues over the nine months rose 2.5 percent to $9.15 billion with net income of $1.05 billion, up 15 percent. The company’s risk and insurance segment, made up primarily of insurance broker Marsh and reinsurance broker Guy Carpenter, showed revenues for the third quarter and nine months of this year up 4 percent to close to $1.5 billion and $4.96 billion, respectively. Organic growth for both periods increased 3 percent.

The chief executives at all four firms were upbeat about their company’s performance.

Willis’ Chief Executive Officer Dominic Casserly said the firm delivered “strong top line growth” and a strengthened balance sheet by refinancing portions of its near term debt to take advantage “of the favorable debt market.”

Aon’s CEO Greg Case said the firm “is on track for a solid finish to 2013 and continues to strengthen the platform of long-term growth, strong fee cash flow generation and increased financial flexibility in 2014.”

AJG’s Chairman, President and CEO, J. Patrick Gallagher Jr. had the most to crow about in the company’s performance, scoring two major acquisitions in the third quarter with New Jersey-based Bollinger and London-based Giles Group of Companies. AJG expects the two to generate over $240 million in revenue, adding 1,600 employees to the firm. Gallagher was probably speaking for many of the brokers when he said the firm is “encourage by the state of the rate environment, adding, “We believe we are in a new era of proactive and rational rate setting by carriers, which bode well for the brokerage industry.”

However, if there was anything to give pause to the celebration in revenue growth, there was the release of the October MarketScout Barometer that indicates a slight drop in overall rate increases by 1 percent for both commercial and personal lines from the previous month. MarketScout’s CEO Richard Kerr said the drop was “a slight loss of steam” that needs to be watched. He attributed the drop in personal lines to the light catastrophe season. Commercial lines witnessed dramatic decreases in businessowners policies—from plus-5 percent to plus-3 percent—and general liability rates—from plus-6 percent to plus-3 percent.

Another view of the markets came from Steven P. Hearn, Chairman and CEO of Willis Global explaining during a conference call that reinsurance rates on the global stage are down 5 percent overall, and lower on North America to as much as 25 percent. On the insurance side, he said Property and Casualty is up as much as 5.5 percent. He pointed out that while rates affect revenues, Willis’ performance also comes from fees and new business—which was very strong for Willis and the other brokers cited new business as one important ingredient driving their revenue.

Brown & Brown Searching for New CFO

Insurance broker Brown & Brown's Chief Financial Officer Cory T. Walker is leaving the firm and a search is on the way for his replacement.

The Daytona Beach, Fla.-based firm said late last week that Walker will retire in March after the company makes its annual regulatory financial filing for the year 2013.

Walker joined Brown & Brown in 1992, spending 17 of his 22 years with the company as CFO.

J. Powell Brown, president and chief executive officer called Walker "a valued leader and resource."

Zurich Says No 'Undue Pressure' in CFO's Suicide

According to reports, a statement from global insurer Zurich says no undue pressure was placed on Chief Financial Officer Pierre Wauthier, who committed suicide in August, by then Chairman Josef Ackermann. The statement also says the company was cleared of any financial misreporting.  

Healthcare.gov: It Will Get Fixed

By Mark E. Ruquet

Everyone has an opinion on this issue, so I feel I would be remiss if I did not add my own two cents to the debate.

I feel the healthcare system in this country is broken.  The inequity of our system that denies healthcare to millions because they cannot afford the insurance premiums should embarrass all of our elected representatives and business leaders.

The Patient Protection and Affordable Care Act, more popularly known as Obamacare, while far from perfect, is at least a step in the right direction to provide coverage to a greater number of Americans. That said, the computer glitches we have seen are appalling. It amounts to a waste of time, money and erosion in confidence for buyers. If the government cannot make the sight work properly, how can a buyer be certain they are getting the right coverage at the right price?

No one should be too surprised that issues would arise during the initial rollout, but to make the sight utterly unusable is either a sign of incompetence or ignorance. Somebody dropped the ball big time.

That said, the cadre of opponents trying to gut the program has not helped. This is not an excuse, but I can imagine a group of professionals in the Department of Health and Human Services feeling so much pressure to get the sign-up launched by Oct. 1 that they failed to understand the technical issues that resulted in what amounts to a system meltdown.

The opponents have not helped matters. The Congressional hearings are a charade of outrage by House Republicans. They cannot be happier. However, no representative has expressed a workable alternative or spent much time identifying problems with Obamacare and offering solutions—other than let’s start over.

Of course, the Obama administration has no one to blame but itself. Anyone hear of Beta testing? We do not need Congressional hearings to tell us that the system did not go through adequate testing phase before rollout. If it had, we would be moving onto the real issue: Does the program provide affordable healthcare to those who need it?  

In a recent column by Nicholas D. Kristof, he quoted Dr. J. Scott Gibson saying, “Website problems are a nuisance. Life and death is when you need care and can’t afford to get it.”

Access to Healthcare.gov will be fixed; but the need for adequate coverage will remain until the millions without coverage or with inadequate coverage have a decent insurance plan. Too many people die today because they failed to see their doctor in time. A superpower should do better.

Superstorm Sandy Remembrance, Midland Beach, Staten Island; One Year Later

By Mark E. Ruquet

We gathered near the beach at the war memorial along Fr. Capodanno Blvd. to remember the neighbors lost a year ago, Oct. 29, 2012, to Superstorm Sandy. Taken that day were:

Patricia Bevan – 638 Hunter Ave.

Charlotte Breaers  – 1025 Olympia Blvd.

Eugene Contrabis – 162 Kiswick St.

David Hagley – 1025 Olympia Blvd.

David Maxwell – 110 Mapleton Ave.

Jack Paterno – 787 Nugent Ave.

Anastasia Rispoli – 158 Grimsby St.

Beatrice Spagnaolo – 164 Grimsby St.

“A year later, we are not where we want to be,” Staten Island Councilman James Oddo told about 100 residents gathered for the candlelight vigil last night. “People can talk about building and FEMA, Build it Back, sand dunes—this is about people. And to individual Staten Islanders, those of us in office, and the community, [we] have not forgotten that this is about people. And while we are not where we want to be, we’re going to get there and we’re going to work together and that’s our solemn vow to you.”  

After Sandy, More Hopeful Signs of Progress

By Mark E. Ruquet

Midland Beach, Oct. 30, Lincoln Ave. from Fr. Capodanno
Blvd. (Photo: Mark E. Ruquet)

Today, Oct. 29, is the one-year anniversary of Superstorm Sandy. The local TV networks are doing their special coverage focusing on how far we’ve come since that hellish night. This evening, the Midland Beach Civic Association will hold a candlelight vigil in memory of the people lost in those desperate hours after the floodwaters changed so many lives forever.

Frankly, I’ve grown weary of reliving that day and the days after. I’ll leave the reminiscing to others. There are enough voices out there to do that. Even the BBC is taking notice. Today, we’ll feel sadness and hope for a better future where we don’t need to worry about our lives once more being profoundly altered by storm surge. Some good engineering and getting some lucky breaks for decades in the future would help. Many of us continue to struggle not only with the financial burdens the storm brought, but also with the emotional anxiety whenever there is talk of another storm coming up along the East coast that brings heavy rainfall and warnings of local flooding.

On this anniversary though, the greatest challenge we face is not rebuilding our homes or developing storm

Midland Ave. on Oct. 30, an empty container sits in
the middle of the street. (Photo: Mark E. Ruquet)

management systems to prevent, or at the least, lessen the impact of a tremendous storm like Sandy. No, for individual homeowners the major challenge today has less to do with nature and everything to do with paying for the recovery after this disaster. This is a challenge not only for those of us affected by Sandy, but those of us facing the crippling cost of flood insurance.

At least on this front, the good news is that legislators are getting an earful from their constituents and doing something about rates. According to some reports, a bipartisan deal  was crafted between members of the House and Senate to put a freeze on the increases until a new plan is put in place to make the Flood Insurance program solvent, but not put the entire burden of solvency on those who can least afford it.

Among those in Congress who have been pushing for this change is Congressman Michael Grimm (R-N.Y.) who has spent the past week in Staten Island keeping people informed of progress on Capitol Hill while doing his bit to keep this issue front and center in the mind of the public.

It has been a long road for many of us—and there is still a long way to go until this journey of recovery ends. On this anniversary, there is hope that at least one burden is lifted from our shoulders.

Flood Insurance: Rate Increase Relief Coming

Rep. Michael G. Grimm (R-NY) spoke to Midland Beach
residents last addressing their concerns about recovery.
(Photo: Mark E. Ruquet)  

By Mark E. Ruquet

Staten Island Congressman Michael G. Grimm (R-NY) says he is hopeful that homeowners facing crushing increases from their flood insurance renewal premiums will get relief by the end of the year if a bi-partisan effort is successful at getting a bill on the president’s desk.

Grimm spoke to residents in Midland Beach, Staten Island, N.Y., last night to explain why homeowners, a year after struggling to recover from the devastation inflicted upon them from Superstorm Sandy, now face staggering premium renewal rates for flood insurance and what some members of Congress are doing to address the issue.

“Some of the increases are so astronomical that you could never afford them,” Grimm said, adding, “It is happening all over the country.”

To combat the increases, Grimm said he is reaching across the aisle to Democrats to work-up a bill that will suspend the increases for two to three years. In the interim, the Federal Emergency Management Agency will need to complete an affordability study to determine rates that will not bankrupt homeowners or force them to walk away from their homes. The delay would also give homeowners time to determine their options and perform necessary remediation work aimed at lowering flood insurance rate increases.

“People will walk away and that will create all types of problems,” said Grimm echoing resident’s arguments that if flood insurance becomes unaffordable it will ruin neighborhoods and potentially create pockets of decay where homes are abandoned because the increases made it impossible to live there or to sell the house.

Under the Biggert-Waters Flood Insurance Reform Act, flood insurance premiums are to rise to reflect actual insurance market rates. Congress felt the government should no longer subsidize the program and property owners should pay the close to $24 billion deficit in the program primarily caused by losses from Hurricane Katrina, Rita and Wilma in 2005 and Sandy last year.

Grimm said that before the rate increases were to go into effect FEMA was to perform an affordability study and finalize the flood maps—which it has not done.

FEMA Director Craig Fugate testified before the Senate Committee on Banking in September and told members that the law has him boxed in and he can do nothing about the increases without the help of Congress.

Despite the rancor and partisan divisions in Congress, Grimm sounded optimistic that Congress will pass a bill by December and he was confident President Barack Obama would sign it into law. He emphasized that he is willing to work with anyone from any party to defend the interests of his constituents—noting his willingness to buck his party when he angered the House leadership by chastising members for delaying aid for Sandy victims.

While he works on the bill, Grimm urged those homeowners who do receive premium increases “not to push the panic button” and contact his office. He made no promises about what his staff would do, but he said, “We have been able to move mountains.”

Grimm also touched on funding of New York City’s Build it Back program, saying there are ongoing discussions between him, city officials and Department of Housing and Urban Development Secretary Shaun Donovan over who will have priority to receive funding. Grimm said he is pushing for the money to go initially to those still waiting for permanent housing, while the city wants to distribute the money by income level.  

“We are trying to adjust some of their priorities,” said Grimm.

The disaster relief has also uncovered what Grimm feels is serious dysfunction at the Small Business Administration that he feels has been less than helpful to recovery efforts. He said the department is “the most broken” piece of the recovery system and the government “needs to redo the whole department.” That effort will have to wait.

“It is bigger than me right now,” said Grimm.

Grimm said he is pledging to see the recovery through to the end, whether voters send him back to Congress or not, saying he will work “to the best of my abilities to get this done.”

P&C Premiums on the Rise; But Where Does Trouble Lie

P&C Industry results find underwriting profits,
but what problems lurk below the surface? 

By Mark E. Ruquet

What do the early quarterly results this week tell us about the financial performance of the property and casualty insurance industry? Essentially, nothing new, except that companies can have a good quarter when there are no substantial catastrophe losses and premiums continue to rise.

W.R. Berkley reported third quarter net income up 39 percent to $137 million. Travelers’ third quarter results come in flat at $864 million, but earnings per share was up 9 cents based on “higher underwriting gain and share repurchase.” ACE beat earnings estimates by 26 cents a share as net income rose 43 percent to $916 million. Even BB&T Insurance Services, the insurance brokerage arm of BB&T bank, reported some increase in its net income in its insurance division, despite the fact the overall results were down.

On a quarter-to-quarter basis, BB&T said insurance services net income decreased $44 million to $22 million. The bank blamed the drop on seasonality in the P&C business and a refund of reinsurance premiums of $13 million. The firm underwrites a limited amount of P&C business. Comparing the performance to the same period a year ago, net income increased $6 million thanks to organic growth of $23 million in wholesale and retail P&C operations. BB&T also credited the performance with improved market conditions as an improving economy increases exposure units, and premium pricing continuing to firm.

The results correlate with the findings of a Towers Watson survey of Chief Financial Officers. In its fifth annual North American Property & Casualty CFO Survey, 23 P&C insurance company CFOs weighed in on the direction of premium pricing. Of those surveyed, 75 percent said the property market is hardening or at the top of the cycle and 65 percent said the casualty market is hardening or at the top of the cycle. Towers Watson said the CFO’s opinion that P&C insurance rates are on the risk is 30 percent higher than last year for property and 52 percent higher on for casualty. Those who see the casualty market hardening believe the duration of the increases will be longer than on the property side. Few believe lines are softening.

“The impact of the softer market the past several years, combined with low interest rates, has hurt insurers’ profitability,” said Bruce Fell, a managing director in Towers Watson’s Risk Consulting and Software business. “The state of today’s market should give insurers some breathing room and an opportunity to increase their bottom–line.”

In a report from Aon Benfield, the reinsurance broker examined rating agencies’ outlook and trends of the P&C industry and said the consensus view is more favorable, noting, “...the excellent level of capital adequacy and an improved aggregate combined ratio indicate the industry is moving in the right direction.”

In its report, United States Evolving Criteria, Aon Benfield observed that over the past 12 months the four global rating agencies have grown closer to consensus on the industry’s outlook as A.M. Best, S&P, Fitch and Moody’s rating personal lines and reinsurance companies stable. Turning to commercial lines, A.M. Best is alone rating commercial lines negative while the other three give the other three a stable rating, which is an upgrade from negative for S&P.

There are concerns with the sufficiency of rate increases, reserve redundancies and catastrophe losses, said Aon Benfield. However, the industry aggregate combined ratio of 98 through June of this year, a four-point improvement over last year, has the rating agencies coming to near consensus.

The bottom line is that the P&C industry still needs price increases to get back to an underwriting profit equal to almost a decade ago, said William R. Berkley, Chairman and CEO of W.R. Berkley Corp. Insurers that pursued volume during the soft market are now paying the price with bad results today, he said. Some are dealing with their mistakes and taking action by withdrawing from markets they should not have gotten into or re-capitalizing while “others are going in the wrong direction.”

He mentioned three—Tower Group, Medowbrook Insurance Group and Torrus—that are taking action to right their ship. Fitch downgraded Tower after the company said it would take $364 million in adverse reserve development. Medowbrook said it is working to strengthen its balance sheet and terminated a quota-share agreement with Swiss Re. Torrus received a shot of investment capital in July when Enstar Group purchased 60 percent ownership in the company. 

Berkley said the question for many insurers that thought they entered greener pastures and “will discover it was Astroturf,” is whether they will admit they made a mistake and find a solution “or be like the ostrich and keep their head in the ground and behave as if a problem does not exist until there is a crisis.”

Getting Back to Reality

Congress ends the shutdown, but have
legislators learned anything? 

By Mark E. Ruquet

So, 16 days and $24 billion later the government is open for business, economic catastrophe was averted and a number of Washington pols have egg on their face. What did we get out of this? A lot of stress; a lot of waste in time and money; and maybe— just maybe—a little closer to getting a budget in place.

Insurance industry executives have to be feeling a combination of relief and stress with the end of the shutdown. On one hand, the credit and good faith of the American economic system took a hit, but didn’t fall off the cliff, saving their investments and unforeseen triggers to financial insurance instruments the carriers may not be aware of—a repeat of recent history when the mortgage backed securities market blew-up for AIG and bond insurers. On the other hand, this event has to concern carriers with the prospect of getting at least one industry issue resolved in their favor.

The conservative movement remains firmly entrenched and an obstacle to any legislation that smacks of government involvement in the private sector or smells of corporate welfare. The Terrorism Risk Insurance Act is case in point. We can hope Congress is no longer preoccupied with its fiscal kamikaze act, but one House faction’s steadfast opposition to increased spending and obsession with ditching what they dub wasteful government programs puts TRIA in their crosshairs.

Insurance associations and regulators have already come out swinging, attempting to catch legislator’s attention by underscoring TRIA’s importance not only to the industry, but also for the nation to keep commerce moving. However, the shutdown demonstrates one thing—legislators are in no hurry to get things done—unless it is urgent.

Many insurance association leaders are familiar with this road, and are under no illusion about where this ride will take them. Just don’t expect anything early, and if the latest fiasco is any indicator, one can expect any resolution to the extension of TRIA to come after its expiration—when it becomes urgent.

For many homeowners across the nation what has become urgent is the fight against astronomical rate increases for flood insurance that threaten to send many to the poorhouse if a dose of reality does not temper the current premium trajectory.

A recent letter from the National Association of Mutual Insurance Companies indicates the fissure between Washington and homeowners struggling with flood insurance increases. In it, Jimi Grande, senior vice president, Federal and Political Affairs, said its 1,400 member insurance companies, of which 25 percent are participate in the National Flood Insurance Program’s ‘Write-Your-Own’ program (they administer the program on behalf of NFIP, but assume none of the risk) “strongly oppose any efforts to delay implementation of these much-needed reforms.”

The reasoning is that the program is “billions of dollars in debt to the taxpayers” and rates need to “reflect the true cost of providing flood insurance coverage” putting the program “on a more fiscally responsible and sustainable course…” He adds, “...the government should not continue to mask the risks of living in a flood-prone area by delaying these much-needed reforms.”

In a bow to the criticism driving calls for the rollback of the Biggert-Waters Act, NAMIC says it supports “providing assistance on a means-tested basis for those who truly cannot afford the increased rates.”

Out here in the real world—no one is talking to middle-class homeowners about giving any help with paying for insurance. If the past is any guide, the “means-test” will be set so low that it will leave many homeowners in the same position they were before, unable to afford coverage and face economic ruin—or abandon their home. Fortunately, New York’s Sen. Charles Schumer and other representatives who are listening to their constituents on this matter understand these rate increases are unsustainable. However, homeowners should be under no illusion that the supporters of Biggert-Waters will use NAMIC’s letter as evidence of overwhelming support for the increases. 

Washington needs reminding that what looks great on an actuarial table will leave most homeowner’s tables empty. Some folks in Washington don’t get it. One only needs to look at the shutdown for proof.

No Let-up In Broker Demand for Healthcare Guidance

By Mark E. Ruquet

Brown & Brown CEO
J. Powell Brown

Brown & Brown’s President and Chief Executive Officer J. Powell Brown continues to be bullish about the opportunities healthcare reform offers insurance brokers, saying that clients need their services as the Patient Protection and Affordable Care Act takes hold over the nation.

The public exchanges continue to be difficult to access and offer less to clients in terms of the number of doctors participating in those insurance plans in return for lower cost, said Brown. However, the system is still evolving and the bottom line for business owners is they want to take of their workers.

“Our clients are very interested in providing quality healthcare to their employees,” said Brown. “We continue to deliver that across the board.”

The options in the marketplace are growing, ranging from defined contribution plans where employers give a fixed amount to employees and the employee allocates the dollars, to the traditional plans where the employer chooses a program for employees and pays a portion of the premium.

Brown said there continues to be interest in private exchanges and Brown & Brown has 13 clients in a private exchange representing 1,300 lives. Company sizes range from 27 to 400 employees, he said.

Whatever the direction an employer takes, brokers will remain indispensable, noted Chief Financial Officer Cory Walker, saying, “At the grass roots, it is talking one-on-one.”   

The only certitude around health insurance, Brown said, is “it is expensive, utilized and confusing and we think it is an opportunity.”

During today’s conference call discussing the broker’s results, Walker said the firm’s earnings miss occurred because of acquisition costs related to a major target they did not win. Brown and Walker explained that the acquisition expense was a one-time, non-recurring expenditure that was unique because it involved attorneys and other parties not normally involved in its traditional acquisition targets. Brown said there is a non-disclosure agreement preventing release of additional details.

The acquisition of Beecher Carlson also had an impact on earnings because of "transition issues" that affected the company's writing new business. They wrote "a lot of new business," but the production was slow by their standards, said Walker.

Brown & Brown Net Income Up 15%; Misses 3Q Earnings Target by 1 Cent

By Mark E. Ruquet

Brown & Brown 3Q net income Rises 15%,
but Beecher Carlson acquisition costs
earnings by 1 cent a share 

When a company increases its net income by almost 15 percent one would think there would be celebration. Instead, the first note I see is that Daytona Beach, Fla.-based insurance broker Brown & Brown missed the consensus-earning target by 1 cent.

Is there something wrong with this picture? The NYSE will make its judgment by the end of today, but in the meantime, a net income of close to $58 million for the third quarter sounds pretty good, translated to 39 cents a share, up 4 cents from the same period last year. Revenues jumped more than 18 percent, or $55.5 million to more than $359 million.

J. Powell Brown, President and Chief Executive Officer said one-time, non-recurring acquisition-related expenses accounted for 1 cent per share.  In a statement, he went on to say “all four of our business divisions enjoyed strong quarterly organic revenue growth rates, most notably our wholesale brokerage division," which grew by 16 percent.

Net income for the nine months $167 million, up close to 20 percent to $1.16  share, an increase of 19 cents a share. Total revenue for the nine months was $1.02 billion, up $123 million or almost 14 percent.

Brown & Brown is one of a few brokerage firms with an aggressive growth strategy that involves the acquisition of agencies with revenues ranging from $2-$10 million. However, out of character, the broker made a major acquisition in May buying Beecher Carlson Holdings Inc. for $336.5 million from a private equity firm. Brown called it an opportunity that it could not pass up, allowing Brown & Brown greater access to the niche large account business.