Mason Power - MAPO Online

A new chapter

2009-11-20T05:50:00.003Z

It's been 10 years since I worked for a company with more than 400 employees. Today with the sale of AgencyPort, which was bought by a large ($270m in sales) global services and software company (Sword Group), I'm part of a company with over 1,800 in staff globally.

I'm looking forward to it actually. The role is a good one for me, and Sword operates in 50 countries, I enjoy working in different markets. We get to keep our team together, we pick up the US operations in the insurance industry and other software complementary offerings for our target market.

I'll still be working on strategy, selling new products, selling in new markets, doing product marketing and other means of growing the top line. Sword does $77.5 million in insurance with the acquisition complete and we are targeting $96 million in 2010. Clients get the combination and value our larger footprint (meaning our balance sheet story just got stronger and it's easier for buyers to reccommend us), and the feedback about the announcement has been great.

Social Media & Insurance?

2009-10-07T13:24:00.003+01:00

Watching a solid social media hype video which has some interesting factoids, I started thinking about adoption in the insurance industry. My knee-jerk reaction was to say the insurance industry would be 10 years behind the times again, but insurance professionals are already using some social media tools.

Tons of Job Finding is done through LinkedIn, Twitter, online job boards, etc.

But Travelers is on Twitter for auto insurance news/promotion; The Hartford is also on Twitter including a recent Tweet about their new CEO's podcast (very web 2.0...)

FaceBook is used by some insurance companies for Groups (discussions/Q&A type of stuff). GEICO is pretty clever with a "Page" and some groups around their cavemen characters. GEICO also features FaceBook on its home page so that policyholders can recommend GEICO to others.

Obviously ACORD believes in video, as does AgencyPort. But most use of YouTube is for re-runs of tv ads like those by Hiscox.

Blogging works, even in large commercial where the D&O Diary is a good example of a niche that Kevin covers really well.

If traditional marketing agencies don't offer social media as a skill-set to insurance company clients, boutique providers of such services will inevitably crop up. As the video says, it's not a fad, it's here to stay.

I'm not going to be talking about D&O anymore, not for a lack of love for all things litigious, but instead because I have a new crush - I've fallen for insurance distribution technology. Who knew that agent portals or commercial auto upload was so hot? I've joined AgencyPort and am blogging about automating insurance transactions.

Lastly, it's my nephew's birthday today and he asked "Can I do dangerous stuff now that I'm 4?"

Aon, Insurance Information Institute and Swiss Re join Advisen on Webinar

2009-05-12T13:57:00.002+01:00

We're going to hold a webinar tomorrow (Wed May 13th) at 3pm EDT (sorry to our friends overseas, scheduling all panelists mandated this time). Early registration means attendance will likely exceed the most popular webinar of the year which was Madoff. We might hit our max of 1,000 on the conference call, who knows.

The discussion will revolve Advisen’s latest briefing "The Insurance Market in 2009: A Market Poised for a Change" that examines the forces at work on commercial insurance premiums, claims and investment income in 2009. Download this new Briefing, free of charge, at http://corner.advisen.com/reports_topical_hard_market_2009.html.

Register for free here.

While the briefing groups together findings of several recent Advisen reports, there are several points that are new - see the breakout of trends by coverage on page 4, a discussion of broker consolidation to come - on page 5 (we are going to publish a full piece on this soon), and the implications of the new Obama administration on page 7.

Jim Blinn of Advisen will moderate a panel including:

Eric Andersen, CEO-Aon US Retail
Dave Bradford, co-founder and EVP of Advisen
Bob Petrilli, Head of Swiss Re’s IRI Americas
Steven Weisbart, Chief Economist for Insurance Information Institute

Buyers, brokers and underwriters of all major lines will learn from the report and the webinar discussion. If Property, D&O, GL or Workers Compensation insurance are important to you, we urge you to register for the free webinar here.

We'd love to see you on the call and answer your questions. The best way to get your question answered is to submit them to jblinn@advisen.com in advance.

Climate Change, a D&O Loss Event?

2009-05-07T18:41:00.002+01:00

Firms on the wrong side of the environmental movement have seen an enormous amount of suits filed against them, and plaintiffs have sought compensation from many forms of insurance policies, including directors & officers insurance.

Advisen Front Page News (here) carried an interesting article this week from the Chief Counsel to ACE Professional Risks, Carol Zacharias, who recapped the state of play in climate change litigation and how it increases the exposure to companies and their directors and officers.

Excerpting from the article:

The new cases address the adequacy of a company’s assessment of the financial
consequences of climate changes and the adequacy of disclosures to shareholders
of that financial impact. Since questions regarding disclosures to shareholders
raise the prospect of management liability exposure, these developments present
liability risks to directors and officers that should be considered.
Click here for the full article.

So I searched Advisen's large loss database for "climate change disclosure" and found a match on a case where Xcel Energy settled with the Attorney General of New York. Excerpting from our case profile:

Attorney General Andrew M. Cuomo today announced the first-ever binding and
enforceable agreement requiring a major national energy company to disclose the
financial risks that climate change poses to its investors. Cuomo's agreement
with Xcel Energy (NYSE: XEL) ("Xcel") comes as many power companies, including
Xcel, are investing in new coal-burning power generation that will significantly
contribute to global warming emissions.

Certainly climate change disclosure is not going to decrease under the Obama administration.

To get your hands on this case or other cases you want to follow, click here and indicate you want everything we have on climate change or whatever search criteria fits your needs.

And You Thought the Plaintiffs Bar Couldn't Get More Busy

2009-05-04T02:20:00.002+01:00

Insurance executives ask their heads of claims the same thing: "How many Securities Class Action Cases (SCAS) were filed?" There's no industry standard definition and Advisen, our friend Kevin LaCroix at the D&O Diary (blog here), and other service providers like NERA or Cornerstone have varying counts.

NERA and Cornerstone make their money by serving as expert witnesses during trial and pre-trial stages. NERA and Cornerstone collect data as a byproduct of this business.

Advisen makes its money collecting data and licencing access to this data on a one-time or continuous basis. Data and predictive models are our core business and we are dedicated to the commercial insurance industry so our output is tailored to their specific needs.

So the answer to the executive's question is "Depends on what you define as a SCAS" but, more importantly, SCAS is only one part of the exposure to liability insurers. In fact, in Q1 2009, SCAS dropped to less than 40% of all securities filings. Advisen tracks shareholder and other derivative suits and cases involving breach of fiduciary duty and securities fraud.

Advisen tracks filings in US federal and state courts and collective actions and other cases filed in overseas courts against US and non-US companies.

In summary, there is no standard definition of "securities class action suit." But for management liability professionals, the more important question is"How many and what types of lawsuits are likely to result in claims under D&O, E&O or fiduciary liability policies?" Advisen tracks and reports on all manner of suits, filed in state, federal and foreign courts, that are likely to result in losses to companies and their management liability insurers. The Advisen database is the most complete, accurate and timely of its kind.

Today Advisen released the findings of its quarterly securities litigation review and the report is available free of charge here. The headline is that filing activity was up significantly from 2008 rates, but the pace can't be sustained and will likely level off over the year.

The executive's follow up questions are "how many of these companies do we write policies for" and "what do we need to reserve". Reserving capital erodes profit so frequency is not popular, but frequency of filings is only part of the picture.

The elephant in the D&O room is whether these cases will yield insured loss. Advisen has already written (see here) about how defense costs are going to eat significantly into the policy limits but that for many reasons, this increased frequency is unlikely to result in an increase in claims paid.

D&O and E&O professionals would benefit from reading the report (here) and seeing if their clients are on the list (here).

Not For Use on Moving Vehicles

2009-05-01T15:50:00.001+01:00

I love the Friday funny news story.

Quoting a UPI article:

A warning submitted by a man in Hampton, Ga., regarding the use of a portable toilet has topped this year's Wacky Warning Label Contest, an event sponsor says.

The Foundation for Fair Civil Justice said in a release that Hampton resident Steve Shiflett won the 2009 Wacky Warning competition by sending in a warning label attached to "The Off-Road Commode."

"Not for use on moving vehicles," the label on the portable toilet, which can be attached to a vehicle's trailer hitch, reads.

Other winning entries this year include a cereal bowl warning that urges adult supervision for use and a livestock castration ring product that insists the product only be used on animals.

Bob Dorigo Jones, who created the annual contest, said such seemingly unnecessary labels are an indication of an ongoing economic trend.

"Once a year, millions of people around the world get a collective laugh from our winners," Jones said. "The truth is, this is no laughing matter. Outrageous warning labels confirm that the American civil justice system is out of whack! In today's economy, Wacky Warning Labels demonstrate the tax we all pay for lawsuit abuse."

Why Say Yourself What a Client Can Say Better?

2009-04-17T09:14:00.000+01:00

One of our retail broker subscribers posted a note internally to colleagues about why they should use Advisen - because it helps them make money. I have excerpted in the below for weekend reading - on the flight to RIMS?

Ready to Close that Deal?
Advisen may be the solution!

Whatever happened to the good old days of loyalty coupled with an insurance broker who provides better value than their competitors? In these tough times as all sectors of the economy struggle to tread water, many of us are probably wondering why accounts that we have had ten or twenty years are heading for the door. There is one answer: The bottom line. Do not give up quite yet! There is a software tool that can:
1) Increase the ratio of your sales
2) Provide your client or prospect with valuable information about their industry and insurance policy
3) Clearly put the term “value” back into the minds of the consumers

Advisen is fueling global business insurance with the industry’s first ever online knowledge marketplace.

Advisen’s wealth of information resources, combined with a sophisticated search engine, data mining, and analytical tools provide strategic information services to the insurance industry. By aggregating information relevant to the business insurance industry, Advisen has created a workspace where insurance underwriters, brokers and business managers assess, quantify and evaluate risk within and across domains, benchmark performance against best practices, and track regulatory developments.

Recently, a colleague asked me if I could check what the self-retention average for a company who specializes in real estate management with revenue over $100 million dollars would be. After filling out the brief search engine questionnaire on the software, I was able to create a graph which illuminated the average retention of similar companies across the country. Based on this information, we were able to determine that the retention was right where it needed to be.

We didn’t stop there. I used Advisen to do a policy form comparison between the incumbent broker’s policy form and the carrier’s form that we were planning to use. We were able to show the prospect where the norm in terms of retention fell for their industry, the difference in wording between policies, and also how that could affect the payout of a claim in the event of a loss. To say the least, the prospect was very impressed.

What's 30,000 Reference Resources Between Friends?

2009-04-15T08:50:00.004+01:00

I had a caller from Willis in Oklahoma today call about a client who wanted to be insured against liability for problems at their Italian restaurant chain in the mid-west. The broker wanted a loss run to compare to the clients' own claims experience.

I checked out our MSCAd Large Loss Database (see info here) and since we cover the largest cases first, we covered the infamous "Why didn't you tell me your coffee was hot?" suit against McDonald's (and another one where a Mom sued for a kid falling out of its high chair at McDonald's - my 2yr old son does that at least twice a meal, he must have been born with a steel plate in his skull). But this wasn't going to do - the client had 100 claims last year and we didn't have enough of this granular loss data.

So I turned to our catch-all database called rmLibrary which contains links to 30,000 pages on the web and other resources and found the four links below. I love that in addition to preventing them (the best scenario) there are resources devoted to investigating and proving the damages!

Anyway, this is why Advisen partners with Libraries & Directories and carries their rmLibrary product for all of our subscribers. (See details about expanded partnership here). They don't have loss runs for this either but they have killer content at your fingertips.

The fellow in Oklahoma should subscribe soon and I couldn't resist asking him what caused most of the clients' 100 claims: overwhelmingly it was "chicken bones in the spaghetti". GROSS.

Workers Comp Costs: A Price of Doing Business?

2009-04-14T20:21:00.005+01:00

Insuring your workforce is a tricky task. Our staff at Advisen has grown older this year as we've changed some faces and, sadly, we all seem to get older every year despite trying hard not to behave accordingly.

So our benefits renewal was not pretty - the older the staff the higher the premiums. Definitely not something we considered when making hiring decisions - but material to the expense line.

Looking at Workers Compensation insurance, there are a few main drivers for success. One of them is productivity - can you get your staff utilization up and the other is cost - can you keep your fees down and lower your workers comp coverage.

Recently we met Rebecca Shafer who's had a distinguished career at Marsh (pioneering Injury Management Consulting) and at Aon (CEO of the workers' compensation consulting unit of Aon Risk Services, Aon Management Institute (AMI) in Glastonbury, CT, and was responsible for the development of "Comp Camp.").

An attorney, Rebecca retired from Aon and must not have read enough about how hard it is to start up a company from scratch - she founded Amaxx to build the Workers Comp Kit to manage workers comp and her site at ReduceYourWorkersComp.com - also note her blog in my Blogroll to the right.

From her site "Many of her clients have experienced cost reductions of 20 to 50 percent. Her clients have included Rite Aid, Warner Lambert, Continental Airlines, U S Airways, Universal Orlando, New York Times, TV Guide, CVS, Knight-Ridder, New Haven Terminal, Centerplate, Simpkins Industries, American Tourister, and numerous other national, mid-market accounts and small accounts."

From our joint press release today comes the following pithy comment full of good keywords to get unsuspecting Google searchers to discover us at Advisen:

“Companies typically spend 30% of their risk management dollar on workers’ compensation, according to the RIMS 2008 Benchmarking Survey, but most managers are unsure how they can reduce these costs,” said Mason Power, GM of Advisen. “While companies buying workers comp and their brokers are a key part of the 100,000 industry professionals who subscribe to Advisen, the Workers’ Comp Kit® also offers a predictive analysis enabling insurance companies, state funds, captives and reinsurers to establish a threshold risk profile for underwriting purposes. This partnership further demonstrates Advisen’s commitment to providing invaluable insight to the commercial insurance marketplace.”

Beyond the salesy stuff (the WC Kit is for sale through our store), it's clear that our subscribers find Rebecca's work relevant, particularly how it helps them benchmark workers comp producitvity and cost. We ran a series of seminars with hundreds of attendees on each session and the feedback has been terrific. ReduceYourWorkersComp is a welcome addition to our Partners (see here for further info about the partnership). Rebecca and Advisen will be at the upcoming RIMS conference in Orlando starting this Sunday.

Stanford Ponzi and D&O / E&O Insurance Coverage

2009-03-20T12:35:00.003Z

The Chief Investment Officer of Stanford is the only one against whom criminal charges have been filed...so far. Her assets and the assets of Stanford being frozen, she isn't finding takers for legal representation on contingent fees.

In today's news (story here) she sues Lloyd's for coverage under Stanford's D&O and Company Indemnity policy seeking $5m in actual damages and to get the media to cover the story and try to embarrass the Lloyd's Managing Agents involved, $40m in punitive damages.

Paraphrasing from what I've been told by law firms involved in bankruptcy protection and unwinding these matters, the following is how I understand it to go. Do you the readers agree with what I've been told?

The law firm defending the Stanford group in its bankruptcy goes to court and as the first act, asks for estimated legal fees (big sum) to be set aside in escrow.

That law firm then discusses all of the claims for money against Stanford with the claimants to do an off-the-record assessment of the merits.

The cases are ranked by the anticipated outcome (from must pay to no chance) and then the lawyers for the claimants are notified of their standing (again off the record). The lawyers for the claimants have their own assessment of the merits and they either proceed to settlement or an actual review of the merits through court. But guiding the discussions is the fact that the assets available (net of legal fees) is always a small fraction of what's been claimed in lawsuits.

The D&O or E&O insurance firms are in very close contact with the bankruptcy law firm and when the cases are ranked, they act. If these insurance companies are to pay the legal fees and then not get anything returned if fraud is proven, they are wasting money so they wait for the first assessments of the merits.

The tough part for everyone involved (including information outlets like Advisen) is that there is no transparency to the real horse-trading here. And because everyone knew that Lerach was straightforward and predictable as a deal-maker, the D&O or E&O guys could reserve accordingly. But with the new bumper crop of Lerach wannabes, it's anybody's guess.

Ponzi Schemes

2009-03-19T21:12:00.005Z

This week the Insurance Insider wrote about D&O insurance exposure in Lloyd's and the London insurance market to the ponzi schemes in the US.

Quoting from the recent Advisen report on Securities Litigation and the D&O Market, the article lists the proliferation of 2009 litigation (433 Madoff and 9 Stanford not to mention another 70 subprime and credit crisis-related cases). You can buy a list of this litigation here.

Apparently the law firm which represented Enron in its bankruptcy made almost as much as Milberg who brought the class action. This means both sides are racking up big legal bills before even getting to a judgment on the merits of the case.

Therefore these cases are going to lead to use of D&O coverage for mounting legal fees and when merits are judged, it's more likely that significant E&O or Professional Indemnity claims are paid. Core D&O claims are less likely to be paid as the losses were so "systemic" - how could any D or O be more culpable?

Similarly with the ponzi schemes, if you're bringing a case against the Ds&Os, where's the money to go after? Ruth Madoff only has so much jewelry and the rest of the Madoff business isn't worth $50b. Instead and in addition, go after the funds and pros that fed Madoff.

On this point, I remember a ponzi scheme that raced through UVM while I attended. The guys at the top of the pyramid fully knew that it would collapse under its own weight but that so long as they got out at least twice they would be playing with other people's money until the inevitable collapse.

While I'm happy to see Madoff's staff and family (was there really a distinction?) getting indicted like his accountant (all of these people had to be in on it), I am waiting to see how the scheme can be unwound to find the people who gave Madoff money at the beginning of the Ponzi scheme. These are the crooks Madoff is pleading guilty to protect.

On the insurance coverage of ponzi litigation, there could be negligence in due diligence on the part of feeder funds and investment professionals who put their clients into Madoff recently, and that could be covered under E&O insurance. But criminal charges will be overwhelming when they unearth Madoff's true accomplices - those with Madoff at the top of the pyramid. I doubt any insurance company would honor their E&O.

Volume Discounting

2009-03-10T14:30:00.002Z

Having established at least a beachhead with 500+ insurance companies, brokers, buyers, law firms and others I'm focusing our sales, marketing and customer service on moving beyond 1 login:1 user to corporate licenses with our accounts.

The goal is to provide what clients want, when they want it and the way they want to consume the information.

Our clients are overwhelmingly receptive to this approach as they want to find the path of least resistance to get our information to their staff in the cheapest and easiest route.

Our service has expanded in breadth and depth so that many clients are canceling other services to accommodate a greater spend with Advisen within existing budgets.

2009 customer implementations have all been solutions-oriented rather than one-size-fits-all.

As we get set to publish our rate card for this solutions-oriented approach, I'm researching how best to reward customers for doing more business. Any comments from readers would be much appreciated to mpower@advisen.com. How do you volume discount in your business?

Jack Degnan Speaks Part II

2009-03-10T08:42:00.003Z

Talking about the market, Mr. Degnan predicted that "2009 will see dramatic hardening across all lines, all sectors" because of deteriorated combined ratios, investment return, rate reductions and poor yields in the market. Chubb CSI saw Q4 rate increases, the first in 18 quarters.

Countervailing measures are there:

forecasts like the above seem rational, but the insurance industry doesn't act rationally
the economic implosion reduces exposures and it's hard to raise the top line when demand shrinks

Speaking of the credit crisis, Mr. Degnan thought the "hyperbolic forecasts" of big losses were way overblown. Citing high dismissal rates and other measures he discussed in Chubb's last earnings call, Mr. Degnan thought the $10, 15 20b numbers are overblown. Was he subtly asking Advisen to revise its forecast?

In the Q&A he was asked about direct distribution and said it had been seriously reviewed at Chubb but Chubb is "strongly committed" to working with brokers who provide a significant "value add".

Jack Degnan Speaks Part I

2009-03-09T09:00:00.003Z

I had the opportunity at an industry function to hear a terrific speech by Chubb's Vice Chairman John Degnan (see bio here). As a former New Jersey politician and lawyer, and as head of most of Chubb's operations, he's a very effective and entertaining speaker with good stories.

Mr. Degnan started with the experience of the last two days testifying in front of Congress in Washington and forecast that "by the end of this year there will be a Federal Systemic Risk Regulator" and that while insurance is not likely to be covered in phase I, regulation is moving to the federal government from the states.

Mr. Degnan compared the relative pain for European insurers trying to do business in the US and how they have to open in 50 markets, not just 1 market and wonders if they will take countermeasures at some point for US firms operating in Europe.

Analyzing recent testimony by NY State Insurance Superintendent Eric Dinallo (bio here) that NY regulation saved the markets from AIG's implosion, Mr. Degnan called it a "truism" because they only regulate the insurance company subsidiaries and not the rest of the holding company such as the Financial Products division that caused the implosion.

Mr. Degnan also reminded the audience of Mr. Dinallo's approval of $20b in AIG subsidary dividends going to the parent before the federal government bailout. While noting that this might have been politically motivated (saving jobs in NY), it was ironic nonetheless.

Mr. Degnan said that before Chubb got out of credit derivatives in 2002 not one state regulator had asked Chubb about these, and that state regulators aren't equipped to regulate this type of thing. "Federal Systemic Risk Regulation is happening" and while "systemic" is hard to define, there may be a role for the ratings agencies and wondered whether it would be more than solvency regulation.

Noting resistance to this movement, Mr. Degnan said insurance agencies are so numerous and such effective lobbyists and that agencies favor the state system. I assume this is because agencies compete in niches such as geographical areas that global or national brokers don't serve as well.

Noting that he's a Democrat, Mr. Degnan told the audience to be very aware of "economic populism" in Washington and while the industry might enjoy federal oversight, it might watch what it asks for.

Noting that trial lawyers own Democrats, Mr. Degnan warned of the ascendancy of the Trial Bar. Citing one of the "very few" positives from the George W. Bush years, Mr. Degnan cited good legislation that kept the trial lawyers down (e.g. District Attorneys outsourcing to trial lawyers). "Even the stimulus bill had pro-plaintiff language." Part II tomorrow.

Short the Makers of Slipcases, Martin Kett has found his Soapbox

2009-02-27T20:51:00.004Z

I shared an office for 2 years in London with a couple of smart guys applying good technology to make the commercial insurance industry more efficient and less stone age. Martin Kett & Geoff Maskell were very supportive of me launching a blog even when I called them "muppets".

Martin has started a blog and just commented about a favorite topic of mine, Lloyd's quest to retire paper processing and to adopt technology (onwards Web Connectivity). See the post here and enjoy Martin's dry with and love for dry gin.

Notes from the PLUS D&O Conference

2009-02-26T13:32:00.003Z

Always good to see clients, friends and even some folks who admitted to being readers of this blog. We're in the process of redesigning www.advisen.com and will be featuring blog posts from Dave Bradford and me among others and pull in from other favorite commentators.

Dave presented at PLUS about the correlation of bankruptcies and D&O loss and the audience really seemed connected to this important topic. The findings Dave presented were a small part of the research Advisen can conduct and we are looking for equity partners in the project.

This means firms with interest in getting a securities litigation risk score for all U.S. public companies based on their risk of bankruptcy should contact me. By joining others in the initial funding partners will be the only recipients of these risk scores. mpower@advisen.com if interested.

VJ Dowling who I enjoyed meeting at the Allied World party (they have a company rock band which did some good covers), provided a bit of color to Dave about the performance of Odyssey Re (see earlier post about trailing twelve month market cap performance for commercial insurance companies).

Apparently Odyssey's CEO has said he'd love to claim underwriting genius but it was the brilliance of their chief investment officer who foresaw the credit crisis and bet accordingly. If you look at the chart he must have been selling what Joe Cassano at AIG was buying.

Insurance Company Stock Performance

2009-02-26T09:35:00.001Z

We all know stocks are down and that the financial services sector has been hit the hardest, but I thought it interesting to note the relative performance of the commercial (re)insurance underwriters.

The chart shows that amazingly there are 2 firms in Odyssey Re and Navigators that are up in market cap in the last 12 months.

Unsurprisingly, the firms most in the news including AIG, Hartford, XL & Swiss Re are the firms losing more than 80% of market cap.

I believe the prices reflect investor's opinions of the investment performance and exposure to credit insurance more than underwriting performance, but those underwriting loss ratios will be a big driver of market cap growth as the big claims from subprime and the credit crisis make their way through the system and reserves are set.

E-mail support@advisen.com to get charts like this and other insightful data and analytics.

D&O Liability: Beyond Class Action Lawsuits

2009-02-25T18:43:00.002Z

Advisen has just published a 38-page report on securities litigation and new challenges to Boards of Directors and the D&O insurance market. Securities class action suits – which were a minority of securities suits filed in 2008 – no longer are a reliable barometer of public company D&O insurance trends.

Methodologies used by the D&O market to price trends in the past are no longer relevant. The Advisen report goes well beyond anything published by other researchers to break out all forms of securities litigation that might trigger Directors & Officers or Errors & Omissions coverage and details shortcomings in D&O claims management that are contributing to higher defense costs.

To help readers track potential exposure by company, Advisen’s report includes the list of companies facing lawsuits in 2008 and the list of companies facing multiple lawsuits over the past thirteen years.

The information contained in Advisen’s report is not freely available on the web or in any other source and is more complete and relevant than reports from other sources which charge far more for their reports.

Click here to purchase your copy.

Among my favorite quotes in the report from an Advisen customer is “We miss Bill Lerach”.

The Advisen report contains new research but follows a series of Advisen research papers detailing the impact of the subprime and credit crisis on the D&O market. The running tally by Advisen now shows more than 660 major lawsuits from this global economic trauma including 148 securities class actions.

Even in Jail, Weiss Has the Last Laugh

2009-02-25T18:27:00.002Z

Today's Wall Street Journal opinion page has a scathing attack on the government handling of the settlement with Milberg law firm. While there was a large fine paid and Melvyn Weiss landed in jail, he orchestrated the settlement such that he could get paid from the firm's future fees even after being disbarred.

Part of the shady dealind included hiring the NY State Judge who ruled in favor of the Milberg law firm. Here's the recap from the WSj

A class-action firm's name partners are nailed in a 30-year fraud.
Class-action firm rewards lead perpetrator with share of future earnings. State
judge sanctions the earnings deal. Class-action firm hires state judge. We'll
let our readers decide what they think of this "fact pattern," as a plaintiffs
lawyer might put it.

Notes from the RIMS NY Chapter Meeting on D&O

2009-01-15T20:24:00.003Z

Chad Roth has done a terrific job getting to know the markets and market players and below are Chad's notes from today's NY chapter meeting which touches on new and interesting hot topics in the D&O market with some comments in CAPS about ideas we have. Feel free to share your ideas or needs in this area so we can help. Thanks, Mason

I attended this morning's RIMS Chapter Meeting focusing on D&O. The moderator of this session was Brian Wanat (Aon). The panelist were Mike Price (HFP), Tony Galaban (Chubb), Mike Smith (AIG), and Scott Meyer (ACE).

Here are a couple of thoughts / notes I jotted down during the session.

- With all the FI issues out there, portfolio management seems to be a big topic. Making sure your book is diversified is necessary to weather subprime. I was thinking Advisen should try and put together some type of e-mail that describes some of the off-line work we can do w/ to help senior management at carriers better understand their book and explain it to their superiors. Taking some of the data Advisen can provide and then tying it in with their loss info could be kind of powerful. Any thoughts?
TWO THINGS WE CAN DO: (1) WE CAN RUN THEIR POLICYHOLDER LIST AGAINST OUR VARIOUS INDUSTRY/FINANCIAL FIELDS TO IDENTIFY THOSE CLUSTERS OF COMPANIES MOST LIKELY TO REPRESENT ACCUMULATION RISKS. I'M NOT EXACTLY SURE OFF ALL THE KEY INDICATORS WE SHOULD BE LOOKING FOR, BUT I SUSPECT OUR CLIENTS HAVE SOME IDEAS. (2) LOOKING ACROSS LOBs, MSCAd's RELATED CASE FEATURE CAN BE USED TO MODEL ACCUMULATION RISK.

- Red Flag: A red flag that the markets seem to be looking at is large debt payments due in 2009. Typically in the past a company might refinance their debt before these large payments.
Given the current credit environment, they might not be able to refinance or it may be it a higher rate. It may be a fun little exercise to create a list of the companies with the highest debt payments due in 2009. Maybe release that list in conjunction with the PLUS D&O Symposium.

- Counter Party Risk: They were saying how some risk managers are starting to ask more questions about the carriers they use. They want to make sure that those carriers will be around to pay their claims. It seems like they have lost faith in the rating agencies.

- Defense cost is still a hot topic. Underwriters are curious as to who the outside counsel is on their risk and the relationship. I'm not sure what we can do here, but this topic is not going away. It would be interesting if we could do some analysis of the counsels involved in MSCAD cases.
DEFENSE COST IS GOING TO BE A MAJOR PART OF OUR FORTHCOMING REPORT ON 2008 SCAS ETC. IN THE NEW ENVIRONMENT, PLAINTIFFS FIRMS ARE BRAINSTORMING NOVEL NEW THEORIES AND ARE FILING MORE CASES IN STATE COURTS, WHICH WILL MAKE IT MORE DIFFICULT TO CONSOLIDATE CASES INTO LARGE CLASS ACTIONS. AS A RESULT, DEFENSE COSTS ARE LIKELY TO SKYROCKET.

Chad M. Roth
Advisen Ltd.
+1.212.897.4792 desk
+1.917.428.8966 cell
croth@advisen.com

Another Measure of D&O Risk?

2008-11-13T13:42:00.002Z

My grandfather never believed in the efficacy of reforming the criminal mind, "once a crook..."

I don't know Barry Minkow beyond reading the story in the WSJ today (here and on pg1 of Marketplace) but after serving time for a "stock swindle" he seems to have won the praise of the FBI according to the article and is trying to (profit from) pointing out corporate fraudsters.

This reminds me of the early days when Howard Schilit (who never served time) used business school students to demonstrate manipulation of corporate earnings and wrote his book "Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports" (description on Amazon here).

Advisen reached out to Howard, we had a great breakfast meeting listening to how he took some reports on a handful of companies from the grad school lab to an actual business. I always enjoy hearing these stories from entrepreuners like Howard, the courage to start a business using your own family money can't be appreciated enough.

Howard started CFRA in 1994 and sold it on to what is now the RiskMetrics Group (see press release here). Howard brought in an executive from Goldman Sachs to institutionalize his models such that there would be indicative scoring on thousands of public companies while deep forensic due diligence might only be completed on a few hundred public companies.

To provide commercial insurance underwriters with an important measure of risk, especially to those in the D&O market, Advisen has carried the indicative scoring, the full reports and a dashboard of CFRA scores to make risk analysis quicker and more complete. This measure of risk is incorporated into our company exposure look-up pages, available in our risk & insurance search engines and in our configurable underwriting work-ups.

I'm curious whether readers would find Mr. Minkow's research worthy of being included in our risk profiles. His company is the Fraud Discovery Institute here.

Please let me know in the comments or by e-mail.

Thank you

The Professional Lines Market Speaks

2008-11-06T21:11:00.002Z

Yesterday Advisen published a report on how D&O losses will be $5.9 billion from subprime and the credit crisis, the report is here.

Today we published a report on E&O losses - an additional $3.7 billion. We are the only player to publicly forecast this figure - because we have data that others don't have. The report is here.

In today's press release we also called for the end of the soft market. Not just in D&O or E&O for financial institutions, but broadly. See the release here.

We've had a ton of feedback on this. Tomorrow we're publishing comments from the following: Ryan Collier, Kevin Lacroix, Christopher J. Cavallaro, Peter Taffae, Joe O’Donnell, Chris Warrior, Brian Wanat, Gary Dubois, Paul Schiavone, Chris Duca, Nick Conca, Chris Hewitt, Tim Kelly, Jason White, Larry Goanas, Dennis Donovan and Dennis Gustafson.

I just wish we'd hooked up a chat board around this.

$9.6 billion in Insured D&O and E&O Loss from the Credit Crisis

2008-11-05T20:59:00.005Z

The PLUS International conference expects over 1,600 attendees in San Francisco this week including 4 from Advisen.

Timed for the start of this conference Advisen has launched a special edition newsletter (see here) to publish news stories about professional liability and most importantly, to publish unique and groundbreaking research by Advisen.

Today we started with a revised forecast (upwards) as a result of the meltdown of the subprime mortgage market and the ensuing credit crisis. for D&O insured loss. In February, Advisen forecast $3.6 billion of insured losses but as the credit crisis has mushroomed into a global financial calamity, we have revised the forecast to $5.9 billion.

The free report on D&O losses is available here.

Advisen is the first to forecast the insured loss for E&O from the credit crisis saying that E&O losses will be centered around mortgage brokers who will see thousands of smaller lawsuits and around mortgage lenders who will see fewer, but higher value suits, the total being $3.7b.

The free report on E&O losses is available here.

AIG has had top market share in both financial institution D&O (19%) and E&O (34%) and Advisen expects new insurers to enter the market. To prepare buyers, brokers & insurers for operating in the new world order in the financial services sector, Advisen has published a comprehensive 38-page study of the changed industry landscape and how it impacts on risk and insurance.

The full report on the financial services industry is available here.

Commercial Insurance Brokers Speak out about AIG

2008-10-07T21:04:00.003+01:00

Below is a summary of our report on what 611 commercial insurance brokers had to say about the AIG situation. For the full report click here.

I thought it noteworthy that 47% of brokers said they believe the AIG commercial insurance units will be broken up and they had concerns such as one broker saying "AIG's book of multinationals needs all the the p&c Companies to stay in place worldwide."

AIG uses its marketshare as leverage and this isn't always appreciated, as one broker said, "Couldn't have happened to a more appropriate carrier! As you sow, so shall you reap!"

Others disagreed: "The knee jerk reaction by some brokers to replace AIG is insane. This is not the revenge of Kemper or Reliance, and it's unfortunate that there are so many ignorant brokers out there."

With AIG's stock down over 90% and shareholders diluted 79.9%, AIG employees with stock compensation and stock in their retirement accounts are hurting and other carriers are poaching talent as quickly as they can. One broker summed up their concern as follow "It will be difficult to continue doing business with AIG as in all probabliity the personnel at AIG will change with good people finding new positions with more promise then a wounded AIG can offer.

Some brokers thought they would be comedians: "If AIG fights to to pay claims for/to its insureds, what logic says that AIG will repay its loans to the federal government?"

Some showed appreciation for Advisen which I appreciated, "Thanks for conducting this survey -- I've been curious about what other insurance executives think."

Below is the press release. Contact me if you have questions or trouble getting the full report.

SECOND ADVISEN SURVEY SHOWS THAT BROKERS ARE MORE CONFIDENT THAN RISK MANAGERS IN FINANCIAL SECURITY OF AIG COMMERCIAL INSURANCE UNITS

HOWEVER 47% OF BROKERS BELIEVE AIG WILL HAVE TO SELL SOME UNITS; CONCERN EXPRESSED

New York. October 7, 2008 – Advisen Ltd., the leading provider of content, analytics, and technology to the global commercial insurance industry, today released a special report based on a survey of brokers following the American International Group (AIG) liquidity crisis. On the heels of a similar survey of risk managers, Advisen sought to measure brokers’ confidence in AIG after the $85 billion loan by the federal government. “Wary” was how the vast majority of brokers characterized the attitude of their clients towards the unfolding situation at AIG, but with only one respondent claiming that clients are “panicked”, most brokers of commercial insurance are confident in AIG after the federal loan and few are recommending clients switch from AIG.

The Advisen survey of risk managers found that about two thirds intend to get quotes from AIG’s competitors at policy renewal, but according to the broker survey, few buyers have yet given their broker firm instructions to replace AIG. Brokers also opined in survey results about the potential impact the insurance pricing cycle and the potential impact on their fee and brokerage income.

“Survey results show that brokers have communicated to policyholders that AIG’s insurance subsidiaries are secure,” said David K. Bradford, EVP and Chief Knowledge Officer of Advisen. “However, while brokers have been a force for calm in the marketplace, survey responses indicate that brokers don’t yet know how much diversification clients will seek, or whether this crisis will impact overall market pricing or brokerage income.”

This Special Report is based an exclusive survey conducted by Advisen from September 26th-30th with 611 respondents Almost 65 percent of respondents described themselves as “executive management.” Eleven percent classified themselves as “producer,” and a similar number as “marketer/broker.” Almost 20 percent of participants worked for one of the four largest brokers.

“In conversations with brokerage firm executives attending this week’s CIAB Insurance Leadership Forum the story lines are the same as when we surveyed brokers a week ago” said Thomas P. Ruggieri, CEO of Advisen from the conference in Las Vegas. “Execution risk of the asset sales has been cited as a common concern among brokers. They also worry about potential of breaking up the commercial P&C units. While brokers are watching ratings actions carefully, they are comfortable with the present security of AIG’s property & casualty subsidiaries.”

The eleven-page Advisen Special Report on the Broker survey results is available here:
https://www.advisen.com/downloads/BrokersSpeakOutonAIG.pdf.

What Risk Managers are Saying about AIG

2008-10-02T17:17:00.003+01:00

In the wake of AIG's near collapse, there were a lot of rumors about a mass exodus of corporate policyholders of the AIG insurance subsidiaries.

Advisen had 1,000 buyers of commercial insurance complete a survey. Having a 15% response rate means they were dying to speak up.

Most commercial insurance buyers reported to Advisen that, while they are confident in the financial strength of AIG following the $85 billion loan by the federal government, two thirds of AIG commercial lines policyholders plan to get quotes from AIG’s competitors when their policies renew. Excerpting from Advisen’s Special Report, one likely outcome is that AIG will compete vigorously to retain business, potentially intensifying price competition in an already-soft insurance market.

The full report is available by e-mailing corner@advisen.com.

The AIG Liquidity Crisis and It’s Impact on the Insurance Market

2008-09-18T15:55:00.004+01:00

Advisen has just published a QuickNote (find it here) which explains how AIG is set up, how one of the smallest of its 4 divisions (less than 10% of overall revenue) got involved in derivatives based on mortgage back securities, including subprime securities.

These securities don't trade on exchanges like stocks and they don't have daily pricing from many sources and as the subprime market collapsed, AIG was forced to show lower value for these securities and the derivatives. This led to the market asking AIG to put up cash collateral (over $40b) and AIG the parent didn't have the cash.

AIG has 2 divisions with many subsidiaries writing insurance policies, 1 division for commercial lines and 1 division for personal lines. Together they are 88% of the parent's total revenue and nearly all of the positive value of the balance sheet. AIG can't take cash from these subsidiaries because state regulators require cash on hand to cover claims. Therefore AIG was forced to announce a plan to sell assets (non-core businesses).

AIG wasn't able to do this quickly enough to provide cash collateral so the government provided an emergency loan, fired the CEO for not averting this crisis and brought in a new CEO to get the assets sold to pay back the government.

Meanwhile the insurance subsidiaries are profitable and have lots of cash to pay claims.

AIG staff have seen their stock wealth disappear, risk managers are getting questions from their officers and directors, the ratings downgrades didn't help. and generally this may lead to a reduction of market share by AIG.

These are the issues in the marketplace and this paper gives buyers and brokers the facts they need to separate the problems in the one division that nearly bankrupted the parent from the sound health of the insurance subsidiaries.

Below is the executive summary of the briefing by Advisen on AIG. The full report is available here.

Liabilities incurred under sophisticated financial instruments ravaged American International Group. As AIG teetered on the verge of bankruptcy Monday and Tuesday, brokers were flooded with calls from nervous AIG policyholders. However, the financial strength of AIG’s insurance subsidiaries was not threatened: insurance regulations insulated the insurance entities from the losses. Tuesday evening the U.S. government announced an $85 billion loan to the company, averting a collapse. Assuming AIG’s customers don’t abandon the company in large numbers, the long-term impact of the crisis on the insurance pricing cycle should be minimal.

This Briefing was written by David Bradford, Executive Vice President and Editor-in-Chief, dbradford@advisen.com, 212.897.4776.

Penny for your thoughts

2008-09-18T15:55:00.002+01:00

With the size of these market cap drops, how steamed up are Mssrs. Lerach and Weiss in their cells today?

Advisen M&A ?

2008-09-10T20:43:00.003+01:00

I was asked recently by Mergermarket about whether Advisen would be interested in M&A activity. Here's the relevant excerpt from the published article (which is for their subscribers only so I don't provide a link):

New York-based insurance data group Advisen ... although US-based, ... operates in Europe, through its London office. Advisen's managing director for Europe Mason Power ... said the group could engage in M&A activity if there was a "two plus two equals six type of concept". "We are always looking for third parties we can work with. If it made more sense to our clients to do M&A, then we would look at it," he added. Advisen has some 100 employees, and provides information into underwriting, marketing and purchasing commercial insurance. The group is privately-funded and independently-owned.

Advisen has partnered with dozens of firms (clients and third parties) to aggregate the leading database and set of analytics in the commercial lines insurance industry. Where we can work with any third party to deliver value to our customers, we are very interested. Contact me to discuss.

Notes from the John Street Club Luncheon - New York, Sept 5th

2008-09-08T15:50:00.005+01:00

Talking about the soft market:

John Keogh, head of ACE Overseas pointed out that beyond continued overcapacity, rates won’t change while carriers are cash flow positive in a soft market. But that when cash dries up they will have a panic and topping up balance sheets now will not be as easy as in 2005. John thought we’re probably 2 years away from the bottom.

Greg Flood, head of IronPro, echoed those thoughts and noted that the soft market will be strengthened after the end of the releasing of reserves but also pointed out that subprime is percolating and is major, even beyond the D&O market for financial institutions.

Talking about industry M&A activity:

Bill Malloy of Private Equity firm Aquiline Capital talking about actively looking for new investments but finding the challenge in valuations, focused on “distribution space” saying that 1-2% growth doesn’t sustain their desired valuations of 8-10x EBITDA.

Willis and Contingent Commissions

2008-07-15T10:47:00.003+01:00

To follow up on my post about Marsh hoping for new revenue from contingent commissions (here), Willis CEO Joe Plumeri spoke out in a story (story here) saying that it's unfair that only certain brokers are prohibited from taking these commissions while other brokers and agents are free to do so.

Mr. Plumeri believes that transparency is a competitive advantage for Willis and would like to see these fees abolished for all brokers.

In the UK, risk management association AIRMIC took one of its strongest positions on the subject (story here) calling for automatic disclosure. Currently if asked brokers must disclose, but AIRMIC is calling for disclosure even when not asked by clients.

The issue has been addressed by the FSA, the regulator for financial services including the insurance industry, but the latest position seems to indicate that the market should decide. The association of brokers (BIBA) has unsurprisingly agreed that regulation is not required.

If AIRMIC didn't stand up to take this position and raise awareness to the FSA, nobody would.

Marsh stock, 4 years later

2008-07-10T13:54:00.004+01:00

As a follow-up to my earlier post today about Marsh, the following stock price shows the dramatic fall in prices in late 2004 after the Spitzer investigations were announced. The market took out nearly $1b from Marsh in reflection of the projected lost revenues from contingent commissions. Since then both Willis and Aon have outperformed Marsh with Aon up close to 75% from its 2004 share price.

Marsh settlements - closure?

2008-07-10T11:15:00.004+01:00

Two stories in the news about Marsh this week caught my eye.

First was Advisen Senior Legal Analyst Anne Wallace's summary of an update to one of the nearly 9,000 cases in Advisen's large loss database of litigation which talks of the closure or final settlements stemming from the Spitzer investigation:

On July 3, 2008, attorneys for Marsh filed a Settlement Agreement and Brief in support of settlement of the Multidistrict Litigation entitled “In Re Insurance Brokerage Antitrust Litigation” filed in 2004.

This action alleged that insurance companies and insurance brokerage firms worked with one another to allocate customers and markets resulting in charging and collecting inflated premiums from policyholders.

The district court dismissed plaintiffs’ federal antitrust and RICO claims in the commercial case. Plaintiffs’ third attempted appeal has been withdrawn in favor of this settlement.

This Settlement is funded by the undistributed remainder of the earlier NYAG settlement, which totals about $69 million. $62 million will form the Litigation Settlement Fund; $5 million of this fund will be to resolve state claims. The remaining $7 million will be available to Marsh to settle the remaining “tag along” cases.

All parties have agreed with this settlement and set a final fairness hearing date of August 8, 2008.

When settlement is approved, this will bring to a close a large chapter in this 4 year saga for the insurance industry.

The class for this settlement does not include any valid “opt-out” plaintiffs or any party that has benefited from any prior “actual or threatened or other proceeding…concerning their purchase of Insurance, including but not limited to any Participating Policyholders in the NYAG Settlement Agreement”.

The class plaintiffs have previously settled with both the Zurich and Gallagher Defendants for $121.8 and $28 million respectively.

Second was the story by Liam Pleven of the Wall Street Journal (story here) which talks about how authorities in NY are reconsidering the settlements and opening the door to potential reinstatement of contingent commissions in some form. Liam's articles states how Marsh has a lot riding on this.

So is it closure? With European brokers reinstating these fees at 2.5% of premium and the EU to review this and potentially New York reconsidering, could we see these come back? I know our friends at AIRMIC and RIMS will have a lot to say about this, or should.

To subscribe to our alerts on this and similar litigation e-mail me or call +1.212.897.4820.

Nanotechnology: Liability risks on par with asbestos?

2008-07-09T10:12:00.001+01:00

Advisen published a briefing written by Research Analyst Johanny Cruz (contact) which details the scope of the commercial market for this emerging technology, the potential risks involved, the research underway to measure the potential exposures, and how the insurance industry is handling the potential liability.

A quick look at Advisen's Policy Form Repository and Clause Comparison Tool would show that the industry is likely to exclude this liability until products can be developed.

Recent press coverage on the report include Bermuda's Royal Gazette (story here) and Strategic Risk (here). Excerpting from the report (which can be purchased by calling +1.212.897.4800):

Lines of insurance potentially impacted by nanotechnology include:

Workers compensation insurance: coverage for employees involved in developing,synthesizing and processing engineered materials, as well as workers using engineered nanomaterials in their jobs.
General and products liability insurance: exposure to loss from users of products containing or releasing nanomaterials.
Product recalls insurance: the cost of recalling a nanotechnology product with unacceptable claim experience or safety defects.
Environmental liability insurance: damage caused to the environment from engineered nanomaterials released intentionally or accidentally.
Property insurance: the fine particle size of engineered nanomaterials could cause ignitable dust to form.
Medical malpractice insurance: physicians and hospitals using nanoengineered medical products face potential liability for errors and unforeseen negative outcomes.

While nanotechnology holds enormous promise, the risks associated with these new processes and materials are still largely unknown. The insurance industry is only now beginning to assess the liability issues ... and a lack of insurance availability could stifle innovation and slow the introduction of valuable new products.

The current exposure to manufactured nanoparticles is mainly concentrated in workers in nanotechnology research and in nanotechnology companies. The US national nanotechnology initiative has estimated that around 20,000 researchers are working in the field of nanotechnology.

However, according to a report released by the International Council on Nanotechnology, only about one in three manufacturers of nanotechnology conducted monitoring for exposure to substances.

Target: Anheuser-Busch

2008-07-02T13:18:00.003+01:00

Nice plug for Advisen's Dave Bradford in a story (see here) in a local paper about Anheuser-Busch and how shareholder suits are being threatened should the company not negotiate a sale to InBev. I expect there to be leaks that will publicize the size of their D&O program and who writes it.

It includes the obligatory play on Budweiser advertising:
"Shareholders are mad because the board has just said 'no' and pulled up the drawbridge and said, 'This Bud isn't for anybody but us,' "

Market Reform in London: a status report

2008-06-25T09:13:00.000+01:00

The Market Reform Office recently held a briefing citing the continued success of adopting online processing of accounting and claims in the London market.

April showed 90% of premiums were filed electronically with 65% of changes in premiums filed electronically. The goal is to get both figures to 100% and to have no vans driving paper from Lime Street to the processing centers outside London.

Brokers are still filing these accounting notices mostly through ACORD messaging but also uploading scanned documents as well. It might sound like scanning documents which then get printed at the processing centers is not really a big step, but the market had to start somewhere and the end vision remains of having structured ACORD messages to move data from one database to another without re-keying at the bureau processing centers.

The MRO highlighted how activity is picking up where Bermuda business processes through the London bureau – no doubt due in part to the efforts of Advisen and Web Connectivity who have now installed the island’s first ACORD messaging gateways.

While these back-office processes are moving online, the front-office insurance placing process remains a laggard in terms of market adoption. Aon proudly cited how “80% of recent treaty renewals were supported electronically”, but a recent report from consulting firm Watertrace showed that the market only wants to get involved in e-placing when full integration is available. ACORD is responding by “fattening the skinny placement guidelines”, to be piloted later this year.

Straight Talk from Bernstein Research

2008-06-25T09:12:00.001+01:00

I always appreciate people like Todd Bault at Bernstein Research who tell it like it is.

Bernstein Research is the NY-based arm of securities brokerage Sanford Bernstein & Co and Todd is the Senior Analyst covering the insurance industry. One of their most important metrics is the Bernstein Statistical Monitor (BSM) which tracks price trends as a component in analyzing the financial health of insurance underwriters.

Todd has decided to stop relying on data collected by the CIAB survey of brokers and agents and instead to rely on data collected by Advisen on behalf of RIMS – and to restate previous BSM figures dating back to 2004.

In explaining why, Todd doesn’t hold back in citing the bias of brokers and agents when reporting pricing changes. I’ve posted before about the supremacy of empirical data over anecdotal data – that data that Advisen collects straight from risk managers is more reliable than calling brokers and asking them to summarized quarterly client renewals in ranges such as “down 5-10%”.

All of us at Advisen are glad Todd did his research and found our survey results, available here.

Report from AIRMIC: The Global Pain of Tax on Premiums

2008-06-24T09:10:00.000+01:00

Cargill is the second-largest private company in the US and operates in 66 countries. David Ketley, Cargill’s UK risk manager, explained how even the best of best efforts result in less-than-perfect compliance.

Every country has rules about what tax on premium is due, who has to pay it, what filings are required and when they are due. These taxes vary by coverage type and business class, so it’s a matrix on top of a matrix. Frequently it’s the underwriters who pay on behalf of the client but sometimes it’s the duty of the broker and in some cases the client who has to pay.

Advisen carries data from a third party service provider on the rules and regulations in 165 of the world’s 195 countries, including how taxes on premiums are to be paid. David Ketley said it’s hard to keep up and cited how Advisen Front Page News alerted him to a change in Australia’s rules. But this panel discussion highlighted that while the tracking of these rules is tough, it is far from the whole of the challenge.

For example, while the tax liability is ultimately paid by the risk manager, as AIG said – it’s part of their expense ratio, getting an invoice or receipt is next to impossible and ensuring that the amount has actually been paid is also difficult – this is quite unpopular with corporate compliance officers.

Allocation by risk managers of these taxes is also difficult – the consensus among the audience was that it was more important to regulators to see a consistent approach over many years than to get every allocation correct down to the last penny.

Cargill was joined on the panel discussion by Mike Stalley, Founder & CEO of Fiscal Reps which effectively administers the tax calculations and filings and payment on behalf of insurers in EU countries, another in a never-ending series of cottage industries in the global commercial insurance market.

When the panellists ended the session by saying that tax on broker fees was another massive challenge, we left the session informed, but perhaps depressed.

Report from AIRMIC: Today’s D&O Cover (Part II of II)

2008-06-23T15:05:00.001+01:00

With recent D&O cases focusing on fraud exclusions, extradition and a focus on financial mismanagement, you could easily forget some of the other core exposures for companies and their Directors & Officers.

Law firm K&L Gates reminded us of the need for protection against cases where Directors & Officers are sued for “putting profits in front of safety” in cases where employees suffer fatal accidents on the job – where Derivative Actions can be brought on the back of suits against the company.

Further exposures include where Directors & Officers are held liable for pollution by the company, or where cartel activity occurs (see the 2 British Airways executives resigned after the fuel surcharge price-fixing investigations).

Jane Harte-Lovelace and Sarah Tulpin of K&L Gates’ Insurance Coverage Practice (they defend companies and their Directors and Officers, and don’t act on behalf of insurers) gave a series of tips – specific policy form wordings that can cause the D&O product not to work as expected. I will ask them if we can republish their whitepaper in Advisen Front Page News but here are a few highlights:

The definition of “wrongful act” needs to include any “breach of duty” as the recent Companies Act of 2006 in the UK codified the duty of Directors & Officers to include the broad definition “duty to promote the success of the company”.
Ensure that the allocation provisions are in place should the company and the Directors & Officers share defense legal teams and costs.
Pay particular attention to the definition of “investigation” as it relates to cartel activity

Advisen has a repository of over 2,000 standard policy forms including 400+ D&O policy wordings. Each can be compared on a topic-by-topic basis and with keyword searching, it’s very easy for clients or their brokers to check these terms of coverage. Drop me an e-mail for more information.

Report from AIRMIC: Today’s D&O Cover (Part I of II)

2008-06-23T10:03:00.001+01:00

In a detailed presentation to close the workshops at last week's AIRMIC Conference in Edinburgh, broker HSBC and law firm K&L Gates gave a serious lesson about how the devil is in the details for companies and their Ds & Os looking for the right form of coverage.

Adrian Jenner, who heads HSBC’s Mergers & Acquisitions and Management Liability practices out of London, talked about the evolving D&O structure saying that most companies are pulling back on excess entity coverage for the company’s securities and instead focusing premium spends on coverage for the Directors and Officers themselves as well as for the company.

Adrian further noted that HSBC has just placed D&O policies for 3 clients where there was specific DIC D&O coverage for individual directors, and that all of these clients had taken audit committee Side A coverage as well.

This talk of evolving D&O program structures reminds me that in the PLUS Bermuda D&O Symposium that Dan Bailey suggested separate sublimits for defense claims and expect Advisen to issue a report shortly on rising defense costs and why the end of the Lerach and Weiss era is not as warmly received among underwriters as you might expect.

Report from the AIRMIC Conference in Edinburgh, Scotland

2008-06-17T17:50:00.004+01:00

Good showing at the Conference - the biggest turnout for a non-London event in AIRMIC's history. Some of the developing themes in discussions here:

Two issues highlight the delicate balance AIRMIC straddles between the demands of the membership of risk managers and the leverage of the insurers whose products are so necessary to those risk managers.

First, risk managers last year announced that they would band together to produce a benchmark of claims paying by underwriters. In the last 12 months there has been a high level of serious discussion with the insurers but no product. Perhaps this discussion is the baseline goal for AIRMIC, but they are looking to produce some results of this survey by the end of the year.

Second, risk managers are upset about insurers' overuse of Reservation of Rights in the claims negotiation. The expected response from underwriters of an agreed protocol for this was well-received.

Separately, Directors & Officers Insurance (D&O insurance) is at the forefront of many panel discussions and with the hardening market for financial institution buyers of D&O and the expected impact on the general corporate market for D&O, it's not surprising.

Marsh sent a press release out about its online benchmarking database which highlights just how much larger Advisen's is.

And finally, John Hurrell, CEO of AIRMIC is a great public speaker and not just because of his impassioned plug for the Advisen / AIRMIC Benchmark Survey, but because he's already connected to the AIRMIC membership in this, his first Annual Conference.

How big is the Global D&O Market?

2008-05-21T09:00:00.001+01:00

For a number of reasons there isn't a precise number for the total value of premiums on Directors & Officers insurance. For one, every company reports using a different nomenclature or taxonomy for their coverages.

Advisen estimates total global D&O premiums at around $10.5B.

Of this the total U.S. D&O premium is $6.25B of which $4.25B is public company D&O premium, and $2B private company D&O premium.

Our methodology for this figure is based on
(a) Advisen's benchmark databases (the largest online database) where the D&O premium is adjusted by the relative market share of our database participants
(b) estimates of D&O premium as a percentage of total reported Other Liability – Claims Made premium, and
(c) input from a number of large D&O writers as concerns their D&O premium volume and their estimates of their total market share

The figure is important as a reference for what happens when subprime claims hit the market. Advisen's February 2008 estimate of $3.6b in insurable D&O loss will be revised upwards in a soon-to-be-released report (including Errors & Omissions loss estimates), but the single-year impact will not approach total premiums.

The impact will hit the financial institution carriers hard and the resulting ripple effect will be very significant in the D&O space, but is not enough to put the whole market underwater. Let me know if you want to be on the list when the report is announced.

D&O Premium Correction, When not If

2008-05-20T09:00:00.002+01:00

Further to my recent posts about the coming change in D&O premium rates (see here), another wholesale broker in London and Advisen client gave some specifics about REIT D&O policies being non-renewed (again, non-renewals are rare) and also suggested an interesting angle about coverage terms.

With D&O underwriters only now issuing new forms in response to the subprime crisis, by the time premiums correct these forms will still be in use meaning that premiums will go up and coverage terms stay broad.

When will premiums correct? His forecast is that general or commercial D&O rates will shift to a hard market in Q2 or Q3 of 2009.

Subprime cases by type of filing

2008-05-19T11:20:00.003+01:00

With 282 subprime lawsuits and other actions to follow, the chart above shows the breakdown by type of case including some of the most noteworthy:

82 Subprime Securities Class Action cases

23 Subprime Derivative Shareholder cases

19 Subprime ERISA Class Action cases

15 Subprime Securities Fraud cases

So if Henry Paulson feels the worst is over in terms of the creation of subprime and other credit exposure (story here), the fun is just kicking off for the insurance industry.

282 And Counting

2008-05-14T09:49:00.004+01:00

Advisen is now tracking 282 subprime lawsuits and other actions related to the overall credit crisis and yesteray's v7.0 of Advisen enables on-demand charting which I hope readers will find helpful. The above is a distribution by industry sector.

The Price of Apples

2008-05-14T09:40:00.002+01:00

Amazing how many good D&O stories I missed on vacation last week from the Siemens claim to Aspen hiring away quality D&O underwriters from Lloyd's Managing Agent Novae, to D&O legend James Weatherstone taking the helm for Arch Europe.

Catching up with a Lloyd's broker yesterday who brings in US risk to London, D&O price volatility is up. In the Financial Institution market for D&O and E&O, the underwriting markets are shrinking their lines, and in one case flat-out non-renewing a policy. In general corporate D&O the impact is less profound but the tide will turn.

I'm also happy to report that the AIRMIC Benchmark Survey is well underway with the majority of respondents coming from Financial Institutions who want to get a good sense of where the D&O market is.

Don't forget us little people

2008-05-01T13:44:00.003+01:00

I want to congratulate our friends at Exari on building a business from scratch and finding the right investment partner to get them to the next level.

Exari is document assembly software and while it was initially designed by lawyers for use by other lawyers who build the same legal documents repeatedly, the software is well-suited to the commercial lines insurance industry. Guy Carpenter have found a great way of using it and Marsh is working it into their systems now.

I share offices with Geoff Maskell and Martin Kett who opened up Exari Europe and launched it into banking and insurance companies and if you read the press release about the private equity firm's investment (here), you'll see how they are now big shot VPs and Board Members. I just hope that when they return from the RIMS Conference, that they remember us little people.

Congrats also to Exari founder Jamie Wodetzki, whose Breakfast Blog is among my favorite reads.

Benchmarking comes to the UK

2008-05-01T12:24:00.001+01:00

Yesterday Advisen and AIRMIC announced the launch of a Benchmark Survey similar to the one Advisen has produced for RIMS for 6 years.

Picking up on my theme of how empirical data is superior to anecdotal data (see post here) AIRMIC Benchmark Survey is the only one of its kind in the UK where data is collected directly from risk managers, thereby providing the most accurate tracking of buying trends for all major coverage lines across a wide array of commercial insurance buyers.

For more information on participating or getting results, please e-mail airmic@advisen.com.

The survey results will provide AIRMIC members and other subscribers with benchmarking charts using relevant peer group comparisons. The data will make risk managers and other industry professionals more informed in considering the structure and expected cost of their insurance programmes. The service will answer questions such as “How much coverage do my peers buy?” or “Am I paying too much for my insurance?”

Risk managers who are not currently AIRMIC members are welcome to participate and/or to use the results of the survey in making more informed decisions about their insurance programs.

AIRMIC chief executive John Hurrell said,

“We have long admired the RIMS Benchmark Survey and are delighted to work
with Advisen on producing something similar.”

Credit Crisis Loss Review: Clash Cases Abound

2008-04-29T13:32:00.003+01:00

In looking at the developing litigation database around subprime, Advisen tracks ‘clash’ cases, also called ‘related cases’ in a number of ways.

First, the classic related case, a single complaint that names multiple parties. In these cases, especially securities class actions, a company is sued and the complaint also names the auditors and/or lawyers for any malpractice and possibly underwriters related to any public debt offerings.

Advisen categorizes these cases by party and allegations made against that entity. A company is entered under Securities, the auditors/lawyers/underwriters are entered under Professional Practices. Losses are associated with the party that actual paid it, making it simpler to calculate D&O losses from E&O losses.

For the Subprime/Credit Crisis, we have 30 related cases as of April 28:
Related ID: 7561 Calamos Global Dynamic Fund 2008
Related ID: 7201 Deutsche Bank 2008
Related ID: 7182 Bank of America 2008
Related ID: 7181 Huntington Bancshares 2007-2008
Related ID: 7061 HSH Nordbank - UBS 2008
Related ID: 7041 Centerline 2007-2008
Related ID: 6982 Nomura 2008
Related ID: 6962 MBIA 2008
Related ID: 6961 Ambac Financial 2008
Related ID: 6941 National City 2008
Related ID: 6862 Morgan Stanley 2007-08
Related ID: 6841 Teletech 2008
Related ID: 6802 Tarragon 2007
Related ID: 6801 Impac Mortgage 2007
Related ID: 6781 E*Trade Financial 2007
Related ID: 6742 Luminent Mortgage 2007
Related ID: 6741 New Century Financial 2007
Related ID: 6321 Bear Stearns 2007 - 2008
Related ID: 6241 Sagittarius CDO 2007
Related ID: 6222 Thornburg Mortgage 2007
Related ID: 6181 UBS 2007
Related ID: 6003 Homebanc 2007
Related ID: 5981 Regions Morgan Keegan Select Bond Funds 2007
Related ID: 5661 Citigroup 2007
Related ID: 5603 Washington Mutual 2007
Related ID: 5283 Hovnanian 2007
Related ID: 5163 Beazer Homes 2007
Related ID: 5162 Countrywide Financial Corp 2007
Related ID: 5161 Fremont General Corp 2007
Related ID: 5021 American Home Mortgage 2007

Second, Advisen tracks cases that have a common initial trigger. Examples of this are Enron, the In Re: IPO cases and the Subprime and Credit Crisis cases.
Subprime & Credit Crisis: Related Case ID 4000 – Total Cases to date: 280; Losses to date: $87,156,390.
Clash cases that are sub-types to the Credit Crisis:
Related ID: 7503 Student Loans - Credit Crisis 2008 - Various cases as secondary to Subprime
Related ID: 7123 Credit Default Swaps 2008 - CDS failures re subprime crisis
Related ID: 7202 Auction Rate Securities 2006 - 2008 - Cases related to ARS, sales practices and credit crunch

Third, we track cases by type of remarkable risk. These types of cases filed by different parties and governmental entities around specific allegations. For example: anti-trust and price-fixing charges, market timing violations and the Foreign Corrupt Practices Act.
The example of this for Subprime/Credit Crisis cases is:
Related ID: 5923 Predatory Lending - Investigations from Mortgage Crisis

Subprime and credit crisis litigation is so pervasive that we now have to track the various strains of it.

Benefits of ECF

2008-04-28T14:08:00.003+01:00

This month's Market Reform newsletter (here) offers a very good article by executives at Lockton detailing how use of ECF has allowed a higher degree of focus and execution on the complex tasks of broking claims while reducing the unnecessary overhead of handling routine claims matters. Here are some of my favorite quotes:

You can put together a package of, say, six claims, totalling no more than
€1000 in a matter of minutes. Previously these would have taken hours to walk
round the market.

The MI reports that the in house workflow system is now capable of producing
allow for a much more proactive approach to the working day....(which) allows us
to start to measure each stage of the process. This in turn means we can start
to set target turnaround times for each stage and flag up where these aren’t
met. This means that we can manage by exception and not just progress work in
strict order.

(Before ECF) claims staff were constrained by the hours that underwriters
were open to accept files

What brokers do and how they get paid

2008-04-28T12:50:00.000+01:00

How do buyers of commercial insurance work with their brokers now? Since the Spitzer investigations rocked Marsh and others in the industry, have things changed? How has the fierce soft market impacted the way brokers are paid? Advisen and RIMS wanted to find out.

Today is the first day of the annual RIMS Conference and we announce the results of the Advisen / RIMS Broker Services and Remuneration Study — based on data gathered in February from 1,519 participants — which has found that insurance buyers are driving brokers to change their service offerings and the way brokers are compensated.

The results are part of the 2008 RIMS Benchmark Survey™ book available here.

While virtually all survey respondents continue to use brokers to place insurance programs, the majority agree that brokers are shifting from commissions to fee-based compensation. With this shift towards fee-based pricing, respondents note a broker trend towards supplementing dwindling commission income with added services.

It's an incredible tool for buyers to benchmark the value for money received from their brokers and for management at brokerage firms to benchmark the level of services they offer as compared to their competition.

The other half of return

2008-04-23T13:33:00.003+01:00

Insurance companies make their earnings from underwriting profit and investment profit on the premiums collected. I haven't really covered that angle to date.

While the big story has been the bond insurer subsidiary (SCA), and subprime exposure, yesterday's XL's earnings announcement (here) talks about the hit from investment return.

The Finance Director of Lloyd's gave some comments to assure the markets that the Lloyd's Central Fund is well tended to - see coverage here.

The subprime bodies are buried in both areas and upcoming earnings announcements will show further evidence of what we at Advisen are seeing, an end to the soft market in one important market sector (Directors & Officers and Errors & Omissions insurance for Financial Institutions), although the imbalance of supply and demand is too great to change the overall market dynamic. For more on the topic, click here.

Return of the Anecdotal Jedi

2008-04-23T13:29:00.003+01:00

Just as I had posted about the significance of empirical data in analyzing premium rate trends in the commercial insurance marketplace, CIAB comes out with an announcement that proves my point clearly. See here for coverage including the following:

three-fourths of the agents and brokers reporting that renewal premiums for
their small and medium accounts were down 1-20 percent compared with fourth
quarter 2007.

I'd like to see how a broker could be taken seriously using data so imprecise. See www.rims.org/benchmark for precision.

Empirical strikes back

2008-04-17T09:28:00.004+01:00

A lot of one, one of the other.

Many journalists are running stories on the soft market and are using surveys as the base of their articles. There are two types of surveys data: anecdotal and empirical. There are a lot of anecdotal surveys while the RIMS Benchmark Survey produced by Advisen is the only one based on empirical data.

Today we announce the publication of the 2008 RIMS Benchmark Survey book which details the 2007 buying year for Risk Managers in North America (get your copy here). Just as our quarterly results showed, the soft market gained momentum across the board, including falling property rates for the first time since the 2005 hurricanes.

The annual book goes deeper than premiums and analyzes the total cost of risk (TCOR) including the retained losses and the expense of risk administration (salaries, etc.).

Anecdotal data comes from questions of brokers such as "do you think rates will continue to fall?" or "will they fall between 5 and 10%?" Instead, Advisen collects data right from risk managers on their buying of all commercial lines insurance coverages and with over 1,000 corporations reporting in 2007, the data set is the largest available.

While the overall picture is of a free-fall in premiums, this amount of benchmarking data enables comparison by industry, size of company, and other combinations to find any aberrations. For instance, changes in TCOR were not evenly distributed across industries and the book lists 14 industry groups for peer comparison.

Importantly, we also include the first installment of an annual survey about broker compensation. Risk managers provide a clear indication of how they compensate their brokers (general fee / placement commission); how much they compensate their brokers; broker market share by product; which services are currently included in their fees and which additional services risk managers would like to buy from their brokers.

It's an incredible benchmarking tool for corporate risk managers to demonstrate their relative sophistication in insuring their risk as well a road map for brokers to develop additional products and services for clients and prospects.

To buy your copy of the RIMS Benchmark Survey book including the full results of the broker survey click here. Discounts apply to RIMS members.

Subprime propaganda

2008-04-15T08:59:00.002+01:00

Greg Flood is on a concerted campaign to reverse the soft market. Today Advisen Front Page News carried an article by AM Best in which the Ironshore underwriter explains the magnitude of the claims from subprime on the D&O and E&O markets. See the story here.

Last week Greg was quoted in Post magazine (story here) talking about how he sees insured loss from subprime surpassing $8b.

IronPro is new to the market, is well-rated, and doesn't have legacy subprime exposure to force high reserves. In other words, Greg has been sitting on the sidelines waiting for the right time and apparently he believes the time is now:

“We’re taking excess layers that are very high. We’re looking to reestablish
insurance for companies that are looking to get it.”

Chalk this up as another indicator of the bottom, the end of the soft market, at least for the specific buying of D&O and E&O for Financial Institutions. Greg says his competitors are seeing 30-40% increases in D&O and he wants in. Data from the RIMS Benchmark Survey and from retail and wholesale brokers do not show this type of increase, but we won't be surprised if the next batch of renewals did.

Subprime Updates

2008-04-10T12:05:00.002+01:00

Fitch published an estimate of $3-4b in D&O losses from subprime. See press coverage here. Echoing what Advisen published long ago and agreeing with Advisen's stated opinion that losses will be felt by a handful of large underwriters, Fitch said they didn't see a change in overall premium rates.

I have written about the imbalance of broad market supply and demand (here) as too great for even several multiples of the $3.6b estimate insured loss. Next up for Advisen is update this estimate and to include Errors & Omissions losses.

Meanwhile back at the plaintiffs bar ranch, Advisen is tracking 269 subprime and credit crisis-related lawsuits, of which 62 are Securities Class Actions used in modelling insured D&O losses. This count continues to climb.

Show me the data

2008-04-09T16:24:00.005+01:00

According to an article I just read covering the World Insurance Forum in Dubai, discussing whether the financial market turmoil will impact underwriters' willingness to pay claims, Martin Sullivan, CEO of AIG,

pointed out that the recent profits reported by the insurers are not commonplace. He said that the U.S. insurance industry had only made a profit in three out of the last 30 years.

1 in 10 years? For now, I am filing this in the "how is this correct" file.

I have been in this industry for nearly 6 years and I have yet to see a real debate about claims payments except those that involve attorneys. Typically they are characterized by marketing professionals who purport to run claims departments talking about claims being their "shop window".

Q1 2008 Premiums: No broad market impact by subprime

2008-04-08T10:42:00.003+01:00

Advisen released the results for Q1 2008 of the RIMS Benchmark Survey. See the press release here. The picture continues to be good for buyers and not helpful to broker earnings nor the long-term profit picture for insurance underwriters.

The cycle has not found bottom despite incredible financial market turmoil. My post yesterday discussed how Lloyd's is not concerned. Advisen clients I speak with are of mixed minds - those that are in the market for professional lines insurance (e.g. directors & officers, errors & omissions, crime) to financial institutions (lenders, investment banks, funds), those guys are not comfortable with what they have written and are looking forward to the influx of claims that will shake up who writes what and how this volatility will increase pricing in this space quickly.

We have to wait and see how litigation progresses - currently we are tracking 259 cases, including 62 securities class actions related to subprime and the credit crisis. The potential is for the concentric circles of loss to mount into something that has ripple effects within the markets far beyond D&O for financial institutions. See a recent post about this here.

The results have been picked up in the trade press already with an additional quote by Advisen's Dave Bradford in a story by Financial Week here.

Mr. Bradford said financial services and investment businesses, which have been
hit hard by the subprime mortgage meltdown, will see directors and officers’
liability insurance rates rise because of the increase in claims they face. But,
he added, there will be a steady decline in rates for most companies not exposed
to mortgage losses. “It wasn’t until the first quarter that underwriters pushed
through significant rates increases for financials. But it hasn’t spread beyond
that fairly narrow group.”

Lloyd's Profits up, subprime concern down

2008-04-07T12:46:00.002+01:00

Lloyd's reported record profit of GBP3.85bn for 2007, up from GBP3.66bn in 2006 (enough to give CEO Richard Ward a 46.5% pay raise).

Despite growing fears in the market about the impending losses from subprime and other market turmoil, Lloyd's brushed off an anticipated GBP 100m in such losses as not material and "within the normal course of business".

Ward highlighted the job ahead (and perhaps why Rolf Tolle earns slightly more than Ward) as "to manage the cycle, focus on underwriting discipline and focus on underwriting for profit".

See the full story here.

In other Lloyd's news, the search for Lord Levene's successor is apparently on and the bar is set high - see a full detail of Levene's career path here (including how he, like me, roots for Chelsea).

PLUS

2008-04-04T15:17:00.002+01:00

CEO in town week is always action-packed. Some of the highlights of movements around London:

Advisen has been added to the committee for PLUS Europe. Tom Ruggieri is on the main committee and I am on the Working Group, chaired by Tom Sheffield of Aon. PLUS has built a solid franchise for networking and learning in the Professional Lines industry and we are pleased to help them take the Europe chapter forward under the leadership of Andrew Newman of RK Carvill.

Interestingly, Tom Sheffield practiced law for a firm in Chicago in defense of insurance companies in D&O cases, and Aon has made a very shrewd move in hiring Tom to lead their Technical Practice. With his deep experience on the way the product works, Tom is a leading expert on how wordings and structure can be tailored to respond as imagined by a client.

On the subject, I loved this quote from Matthew Allen of London law firm Eversheds:

Insurance is not like a betting slip you just collect on, it's a living,
breathing organism that you have to manage with careful expertise to ensure it
responds when you need it.

Steve McGill was at the PLUS dinner, having just left as leader of XL's Professional Lines in Paris to head up a similar team for Catlin US, based in Los Angeles.

There will be another PLUS Europe Symposium in London in October 2008 dealing with the impact of the financial markets turmoil on the D&O and PI / E&O industries with Advisen leading a panel.

Exhaustion Trigger Language

2008-03-27T18:13:00.002Z

I can't think of any other context than insurance policy wording where the two words "exhaustion" and "trigger" would come together.

Thanks to a tip from John McCarrick of Edward Angell Palmer & Dodge (a founding father of PLUS and a good friend to Advisen), Kevin LaCroix explained the significance of the ruling by California's intermediate appellate court on March 25th which found that Qualcomm could not collect on its excess Directors & Officers (D&O) policy where it had settled with the primary carrier for less than the full limit.

See the D&O Diary post here.

Without blaming any party or any type of industry player in general, Kevin noted that the product needs improvement in order to prevent an insured getting "stuck" and noted how "many excess D&O carriers now offer exhaustion trigger language that reduces the restrictions on the kinds of payments that could trigger the excess carrier's payment obligation."

Advisen's database of over 400 D&O policy forms enables a full comparison of which policies offer this trigger language and we will be conducting a study on the topic for our subscribers. For information about this, contact me on mpower@advisen.com.

The Devil is in the Details

2008-03-26T12:01:00.002Z

When incorporating a business, setting up the bylaws seems less important than getting revenue operations going.

But an interesting article in today's Advisen Front Page News Europe notes how a bit of forethought early on could pay off in terms of D&O coverage:

Not honoring the laws of the business type they've chosen is the "main mistake"
entrepreneurs make, she said. Common mistakes include ignoring bylaws, not
having a corporate board and using business assets for personal objectives.

The "she" is Nancy Rapoport, the Gordon & Silver Ltd. Professor of Law at the Boyd School of Law at the University of Nevada, Las Vegas.

To subscribe to Advisen Front Page News Europe click here.

Chase Them Down

2008-03-21T10:21:00.003Z

Hits to this blog show one of the most widely-read posts discussed complaints about the small decrease in capacity of Lloyd's - see the post here.

In today's Advisen Front Page News we ran a story on the topic about Lloyd's managing agent Ascot Underwriting who announced they were decreasing their "premium income capacity by 28% to GBP450m". See the story here.

In citing how the weak U.S. dollar and the soft market of decreasing prices for commercial lines insurance coverage combined for a "double whammy", Ascot's business development manager Michael Bullock provided a noteworthy comment:

You might well find you lose out on good accounts because you can't chase them
down quite to the extent the market might do.

We haven't seen new capacity in the past month or so, we're seeing existing providers announcing cuts like Ascot - it's just a matter of time before some claims come in and change the supply & demand equation and they are likely to happen in a big way in the area of management and professional lines coverage for financial institutions (D&O, E&O/PI).

Where that ripples in terms of increased pricing remains to be seen. Overall, supply is still disproportionately high as related to demand.

To follow this and other stories subscribe to Front Page News here.

The Cinderella Story

2008-03-20T09:17:00.004Z

With the title of this post I refer not to the beginning of the college basketball tournament in the U.S. which begins today and is known for the "Cinderella stories" of overachieving college teams, but rather to a story in today's Advisen Front Page News quoting Lord Levene, Chairman of Lloyd's.

Levene hits on two of my favorite themes about Lloyd's - the need for paperless processing (see my posts on the subject here) and the tension among old and new capacity providers at Lloyd's in today's soft market (see my recent post here).

In discussing how progress has been made in ending the van runs from Lime Street, Levene notes that there is a long way to go before paperless processing is a reality and hints at the fact that the insurance industry could be at a competitive disadvantage to other capital providers such as the investment banks pouring money into the industry and securitizing policies. I love this quote from Lord Levene:

'If we are to end our status as a Cinderella industry we have to improve
the quality of our systems.'

Advisen has invested in Web Connectivity which enables paperless processing through its award-winning ACORD messaging gateway EnabledB2B.

And answering the complaints (of Mr. Hiscox and Mr. Catlin) about allowing new money into Lloyd's, in affirming how Lloyd's has agreed to manage the cycle through the Franchise Directorate, Levene said:

'I think there is an extreme lack of candor in this industry.'

The story can be found here.

Who covers Bear Stearns?

2008-03-19T16:51:00.002Z

The Insurance Insider does it again, see their story here which lists Chubb as writing the first $15m above Bear's retention of $25m with XL on the next $15m and HCC the last $15m and AIG writing a $25m excess of $50m Side A.

Tipping Point

2008-03-19T12:39:00.004Z

Commercial lines insurance pricing is set by the economics of supply and demand.

As evidenced by the chart on the right there is a serious imbalance. Using US policyholder surplus as supply and US GDP as demand for insurance, the ratio of supply:demand is represented by the red line currently at 3.7%.

Note that the median in recent decades is 3.2% meaning we are at high levels and that there is a fierce downward pressure on pricing.

When does it change? What's the tipping point? Could the new litigation beyond subprime bring about this change?

I heard an interesting take today from a senior reinsurance broker in London who says the tipping point has always been the first major reinsurance firm that refuses to write anything further and that this has a ripple effect, starting with the primary insurance underwriters that rely on this reinsurance.

This broker sees a period of time beginning in the next 6 months where capacity is scarce and serious profits can be made from escalating prices, despite the fact that as the crisis widens and deepens, Advisen's $3.6b estimate for D&O losses is likely to increase.

He sees Q2 2008 reports leading to painful discussions about reserves among underwriting firm managers and that this will lead to somebody being that first firm to close up the Financial Institution D&O shop.

In the meantime he's placing a ton of excess layers for those wanting to take advantage of capacity while it's still available.

As the turmoil in financial institutions continues to play out wickedly in front of our eyes, the insurance industry awaits the inevitable claims. The question is whether the inevitable contraction of capacity and increase in pricing will be isolated to financial institution D&O or even to D&O or whether the impact of these claims can have a material impact on overall insurance pricing.

Update on Subprime cases

2008-03-18T16:10:00.002Z

Advisen now tracks 236 subprime-related lawsuits. Of these, securities-related cases lead the table with 74.

As the underlying exposures continue to evolve beyond subprime, Advisen is tracking related write-downs, litigation & the expected impact on insurance. It's likely to be more of an E&O or PI event for insurers than a D&O.

For a look at Advisen's large loss database including all 236 subprime cases, call +1.212.897.4820 in NY or +44(0)20 7929 6929 in London or london@advisen.com.

To follow this and other stories on Advisen Front Page News click here.

The ink on the contracts isn't even dry...

2008-03-17T19:14:00.003Z

On the first trading day after the JP Morgan buyout of Bear Stearns, Coughlin Stoia filed the first Securitis Class Action Suit against Bear Stearms.

Advisen has been tracking all of the other (subprime-related) cases against Bear Stearns that lead up to this liquidity crunch and buyout.

Advisen Front Page News will will have a Featured Case article covering the suit and listing out the other cases for tomorrow's edition. To subscribe to Front Page News click here.

To get your hands on Advisen's database of over 4,000 security class actions (out of 8,000+ cases in total), call +1.212.897.4820 in New York or +44(0)20 7929 6929 in London or info@advisen.com.

Spirit or Letter of the Contract?

2008-03-13T13:50:00.004Z

Law firm Barlow, Lyde & Gilbert LLP wrote an excellent story concerning the relationship between the reinsurance contract and the original insurance contract. We covered it in Advisen Front Page News Europe today (see here).

The English Court of Appeals ruled in favor of the reinsured (a ceding insurance company from the U.S.) over the London market reinsurer in saying that the spirit of the reinsurance contract was to match the coverage terms of the original insurance contract.

Never mind that the case deals with the original insurance companies having to pay for losses which occurred outside the term of the insurance contract. The ruling is an important one for the London reinsurance market signalling that where the insurance company pays the reinsurance company must honor the legal ruling that led to this payment.

Being an American in London, I particularly enjoyed the following conclusion from the article:

"Reinsurers' arguments in the present case had a whiff of an assertion (although they were careful not to say so expressly) that Lexington were an American Corporation and had therefore to take unsatisfactory decisions on the chin, while reinsurers were English (or doing business in the English market) and could not be expected to do so. That, of course, will not do."

Barlow, Lyde & Gilbert have just subscribed to Advisen and join the list of law firms with insurance industry practices that use Advisen for our database of large losses and for our wordings comparison analytics.

To subscribe to Advisen Front Page News Europe click here.

To learn more about how Advisen helps law firms help their clients call +44(0)20 7929 6929 in London or +1.212.897.4820 in NY.

Complaints about Capacity at Lloyd's

2008-03-11T09:36:00.004Z

Advisen Front Page News Europe ran a story today entitled "Some of Lloyd's Biggest Underwriters are Crying Foul Over Bloated Capacity" which piqued my interest.

The story by AM Best details the soft market in commercial lines insurance pricing, which I have covered here, but what interested me was the public statements by the heads of two of the largest Lloyd's Managing Agents.

The background is that Lloyd's total capacity is forecast to be down 2% in 2008 and yet some of the largest players are instilling their own underwriting discipline and cutting capacity further. From the article:

Even before the Lloyd's announcement, many Lloyd's underwriters in the fourth
quarter last year were announcing 2008 capacity cuts well above 2%. Liberty
Syndicates cut its capacity by 9.5%, R J Kiln cut 2008 capacity 14%, and Hiscox
reduced capacity for its Syndicate 33 by 20%.

Quotes in the article from the head of Catlin and the head of Hiscox expressed disappointment in the move by Lloyd's. What struck me is that Lloyd's doesn't mandate a minimum that Hiscox nor Catlin nor any syndicate must write, so why the complaint?

How it works: Lloyd's sets a maximum capacity that any syndicate may write - the aggregate was that which was lowered by 2%. How it's changing: Rolf Tolle pointed out that Lloyd's will no longer announce this number in advance and will instead report previous year's performance only - in keeping with competitors' practices.

What is really behind these complaints, then, is that these managing agents are not happy that there are new entrants at Lloyd's. Syndicates have increased from 66 to 75 in 2008 (including 5 Special Purpose Syndicates (SPS's) and Managing agents have increased to 46 in 2008 (see here).

With new money in from other underwriters, and from the capital markets (Goldman Sachs, Bank of America), current Managing Agents don't like the increased competition.

You can sign up for Advisen Front Page News Europe here and follow this and other stories from the commercial lines insurance industry in Europe and globally.

Capital Markets & (Re)Insurance - Unstoppable Momentum?

2008-03-10T10:44:00.004Z

Some further data highlighting how the convergance of the capital markets and the (re)insurance industry is picking up steam:

According to today's edition of Trading Risk, 2007 Catastrophe Bond issuance was 49% above 2006 issuance and 251% above 2005 issuance.

Also in the news today, Lehman Brothers, which reports (here) 70% market share in issuance of US Life Insurance, Reg XXX/AXXX/Embedded Value insurance linked securities and claims to be the "leading trader of catastrophe bonds in the secondary market", hired Stephen Matanle from Marsh.

Steve was very senior at Marsh and had a long and distinguished career of 32 years with Marsh including (from the press release) "the role of Global Placement Leader. He had previously been Chairman and CEO of Marsh Global Broking."

Last fall Lehman launched Libero Ventures which markets itself as leading the charge in "Reinsurance Financing" which it defines here. The main points of differentiation are in the structure (cedants can opt for multi-year deals and take an equity stake in the Notes created by Lehman) and the origination (Lehman Re acting as principal to speed the process).

As Michael Spencer, ICAP's founder and CEO, pointed out in Trading Risk, the secondary market for these instruments must become more liquid, but tapping Matanle and his proven deal-making ability is big news for Lehman and the whole new issue market of insurance-linked securities.

Report from a Subprime Conference

2008-03-07T10:08:00.004Z

Lexis-Nexis subsidiary Mealey's ran a conference on litigation from subprime yesterday. Advisen's Anne Wallace attended and reported:

It looks like we are facing a bigger nightmare than first thought. Less
D&O risk, but a larger E&O and Fiduciary Liability and an additional
EPLI with regards to whistleblower charges.

Advisen's estimate that subprime will be a $3.6b D&O event just from securities class action suits (see here) was discussed as were the worst-case estimates from Bear Stearns and Lehman Brothers (who can't track the insured amount).

Look for Advisen to announce a webinar series on the broadening underlying exposures (beyond subprime to other credit markets) and where litigation will go and how this will impact on the commercial lines insurance industry. Meanwhile you can follow our coverage on Front Page News (subscribe here).

Another Lloyd's Survey

2008-03-06T13:38:00.002Z

Lloyd's recently released the results of its annual survey of its underwriters citing their concerns for the upcoming year, see my comments here.

Today I read about a survey measuring satisfaction with Lloyd's as related by 506 brokers, reinsureds, insureds and coverholders. The results are on page 3 of the .pdf document found here - overall satisfaction increased from 7.6 out of 10 to 7.8.

It's noteworthy that the results show good scores for turnaround speed in all areas except contract documentation and staying informed during a claim - noteworthy because these are the most important to the client. The reform agenda is working to improve these areas with contract certainty and electronic processing of claims.

The case is made that there is an uptick in overall satisfaction which can be attributed to the gains made in modernizing the processing of policies at Lloyd's. I support the assumption because of the significant progress made in processing accounting messages and claims online instead of by paper.

To evidence this progress, see the story on the same page which cites the Market Reform Group's report that 70% of accounting messages and 92% of claims are now processed online.

In terms of the impact this reform is having on brokers, one of the big 3 brokers uses ACORD messaging (the Web Connectivity gateway) and told me this week that the ROI from online processing of accounting and claims is already being felt in their bottom line.

U23D

2008-03-06T13:16:00.002Z

This is not some new fashion faux pas, Sarah & I saw a concert movie last night - shot in 3D and shown in a London IMAX theater.

U23D is the first movie of its kind, the technology is simply unreal and we both loved it (we both happen to be big fans of the band).

Brokers & Cycle Management

2008-03-04T14:10:00.005Z

My earlier post (here) talked about risk managers reacting to the furious soft market (isn't there a term for an modifying adjective that contradicts the object and is my grandmother rolling over in her grave to get her ruler to rap my knuckles?).

See images of the soft market above - the first is rates for Directors & Offices (D&O) cover showing 4 years of declining premiums. The second is the rate of change for every quarter in the past 4 years - note that the 11% decline in Q4 2007 is the 2nd biggest in these 4 years - meaning the soft market is showing no signs of abating.

I have posted many times now about underwriters managing the cycle through "underwriting discipline" (see here and here and here).

In looking at developments in the broker market, Jardine Lloyd Thompson's (JLT) results today (here) showed top-line and bottom-line growth. This is noteworthy because most brokers fees are a percentage of premium and as the soft market erodes premium, the broker looks for other ways to grow. JLT did a lot of right-sizing to achieve these profits.

What are brokers doing?

The COO of a London market broker told me he'd taken out all of the cost he could and growth would need to come from new revenues. His Board was looking at consulting services to provide clients wth even greater advice in enterprise risk management.

Going back to JLT, our friends at the Insurance Insider wrote (here) that they felt JLT and competitor Thompson Heath and Bond (THB) were looking for new revenue by launching underwriting divisions. See press releases for JLT here and THB here.

It's going to be very interesting to follow these developing stories - will Thistle Underwriters (JLT) and Unicorn Underwriting (THB) be soft-market panaceas or more disruptive innovations for the industry. Advisen Front Page News will follow this story - subscribe here.

Cycle Management

2008-03-04T12:27:00.002Z

Financial Week published a great article (here) about the soft market and declining commercial insurance prices, citing research by Advisen and the RIMS Benchmark Survey and a quote from Dave Bradford, Advisen's Chief Knowledge Officer.

The article is written with buyers of insurance in mind and is a thoughtful explanation of the forces at play that are driving lower pricing namely the lack of losses such as storms and other catastrophers as well increased competition to take a slice of the profits that the insurance industry has generated each of the past 2 years.

I noted that Aon has responded (here) to Advisen's research on D&O rates for banks and other financial institutions impacted by the subprime crisis.

For all my posts about insurance pricing see here and to learn how Advisen benchmarking of limits and rates can help show insurance pricing by industry, by type of company, by coverage type, please call +1.212.897.4820 in the US or +44(0)20 7929 6929 in London.

Answering Gargamel – Part II of II

2008-02-27T21:53:00.002Z

To further the discussion of how the insurance industry is evolving, it’s important to put into context what commercial insurance is transacted online.

ACE, among others, offers D&O quotes on its website. This is driven by a matrix of basic exposure assumptions as maintained by ACE underwriters. The key is that this commoditisation of D&O is only available for small clients, to get a quote from anyone, including ACE, you have to speak to an underwriter which means you have to go through a broker.

No insurance underwriter is prepared to provide online quotes for large, complex risk. There’s no liquidity, no exposure benchmarks to use, it’s not like adding spreads to treasury bonds and deriving pricing. Just like new issue pricing in the bond markets, new issue insurance pricing is more art than science.

This is why the adoption of technology is evolving late – just as I was nearly done with implementing online trading solutions for the secondary bond market before we drafted the first prototype for new issuance.

That being said, it’s sad that there is still paper in the process and I applaud the progress made by those firms at Lloyd’s who have made online accounting and online claims processing such a success. The majority of this success is made possible by simple, yet deep, integration using ACORD standards.

Mr. Gargamel I apologize for the delayed response, but I hope I’ve addressed your points. Thank you for the thoughtful comment to Part I of this response (see here).

Answering Gargamel – Part I of II

2008-02-27T21:49:00.002Z

I admit to poor form in spending more time trying to (unsuccessfully) identify “Mr. Gargamel” who posted a thoughtful comment to a post (here) than in addressing the many and important issues in the comment.

The crux of his comment is the pivot point of who is boss in the insurance industry – He Who Pays Premium, Places Premium or Writes Policies for Premium.

If you agree that the impact of the internet has been to empower the consumer (who now dictates the terms of engagement for the purchase cycle of many products), then why hasn’t the commercial lines insurance industry evolved to this model?

Personal lines insurance products have – they are all transacted online, competition is fierce and comparison sites are hugely successful.

What’s the difference in commercial lines whether in the US, Bermuda or on Lime Street?

I compare the commercial insurance industry to the syndication of new bond issuance. Although Bill Hambrecht has launched an auction site to connect companies raising capital through IPO or secondary offerings to investor capital, this is both new and relatively insignificant.

Ford issues paper through Merrill, Morgan, Lehman & Goldman because of distribution – these houses can provide valuable analysis AND provide a wide network of significant buyers. There is no comparison site for this large issuance and there is little to no activity on the insurance equivalent – RI3K.

For these reasons, I disagree with the sentiment from the comment that “traditional agency channels will almost certainly decline”.

PS - Adoption of ACORD standards will not by itself empower the Risk Manager, the influence dynamic will not shift from the brokers and underwriters. Instead, adoption of efficient placement using ACORD will help take unnecessary cost out of the process and these savings should be passed on to the client. Call the management team at Web Connectivity to learn more.

Comments on the Lloyd's Annual Underwriting Survey

2008-02-27T21:41:00.006Z

What does thr Lloyd’s Annual Underwriting Survey tell us?

1) Lloyd’s is committed to providing more information about its performance than its competitors do. Survey respondents cited such transparency as a major competitive advantage and I believe it's part of why Lloyd’s brand is one of the business world’s most powerful.

2) Subprime is a concern to all, not just the D&O guys. The majority of respondents write property, marine, energy, and reinsurance yet “Managing the Cycle” is the most important issue, and “Global Financial Market Instability” the most significant factor, facing the global insurance industry in 2008.

3) Head East – the greatest area of growth according to Lloyd's underwriters is in China and India. I think this should say “untapped area of growth” because I believe Lloyd’s could write a lot more North American risk than it does. The combination of relaxed rules about how brokers can bring risk to Lloyd’s and the ease-of-access through adoption of ACORD standards will make it far easier for brokers to include quotes from Lloyd’s in marketing run-of-the-mill U.S. risk.

4) On the subject of Lloyd’s Market Reform, there is great progress in going to paperless accounting and claims. The report cites 82% agreeing that there is “high commitment” to reform but I’d like to see Lloyd’s boost its market reform marketing efforts by conducting a study about the impact of adopting ACORD standards. For instance, is manual upoad/download sustainable as compared to integrating ACORD standards into the process? We at Web Connectivity have volunteered to conduct this survey.

5) There is one underwriter who should be removed from the premises – see the chart below:

Hitting for the Cycle

2008-02-27T21:34:00.003Z

I find today’s markets confusing and contradictory.

Where are we in the cycle?

Clearly the insurance cycle is clear – we are in price freefall.

However, in the cycle of efficient markets, we are still writing the history of subprime and its impact on global markets.

Going back to the great quote (here) about the daily losers in the global game of subprime hide and seek, credit market insiders reveal that it’s worse than most know. I there is one constant theme across everyone I know on credit desks, it’s that the worst is yet to come.

Take the story I heard over Sunday brunch about how buyers of loans can’t buy performing loans without having to agree to take on the non-performers that could destroy their chances of good performance. In a rush against the clock, banks are hoping to off-load these non-performers before write-down Judgement Day.

So if it’s going to get worse, why is there price support in the capital markets?

Reading a quote by James Paulsen, Chief Investment Strategist at Wells Capital, a Wells Fargo company, I was struck by his assertion that the housing market malaise has not impacted consumer spending. He’s bullish on stocks. Further, he cites how the falling US Dollar is helping reverse a trend of net exports and that rising value from exports is having a material effect on GDP (appx 1.5%).

Another article in the same magazine talked more about what’s next - that eventually the write-downs will ebb (we estimate that will be at $440B and we’re only just over $260B); that some clever structured finance groups will find another match good investment money with need for good capital needs in a variety of good vehicles, that these vehicles will be securitized and that the bond insurers will have something new to back. Efficient markets win again.

Where are we in the impact of subprime on the insurance industry?

We’re in the denial stage. Advisen data shows clearly that pricing is not affected yet, even among banks buying D&O. As unbelievable as this is (and note that Aon published numbers showing an increase of 18% - see here), one savvy insurance insider told me today in London that the D&O market is not likely to change with the first claims but instead wait until the first reserves are hit. There’s just too much money chasing underwriting profits.

Much like the litigation and resulting D&O hard market came to life years after the investment impact of the corporate scandals of Enron and WorldCom, subprime will be a story for the insurance market in 2010 while the capital markets are onto something new.

As an information provider to commercial insurance providers we constantly review whether we are ahead of the information demand curve – are we providing what our customers need? Recent comments from brokers and underwriters indicate “a subprime fatigue” and one even said that there is “too much analysis”. These comments only make sense if profit-hunting will continue until it’s way too late.

Waiting for the Tide to Go Out

2008-02-22T08:11:00.006Z

See the picture to the right of "Mason Power, Search Marketing Guy".

This quote from yesterday at the Search Engine Strategies conference captured the spirit of search marketing:

You don't know who is swimming naked until the tide goes out

This was to illustrate that without web analytics, you can't track what your customers want and where they are struggling to find it.

Further, Google Analytics apparently has automatic uploads to CRM systems. This level of sophistication means there's an incredible opportunity for Advisen to further raise the bar for insurance professionals looking to grow their book of business.

In a soft market (see posts here), the job is to increase efficiency by doing more without increasing your expense line and the tools & techniques I saw can definitely help Advisen help our customers.

Search Marketing 101

2008-02-21T08:38:00.004Z

It's been 7 years since I worked for internet.com which owned and operated the Search Engine Watch web site and related trade shows. I am currently attending the London show thanks to friend and former colleague Susan Leiterstein (contact info here), a VP of Sales at Incisive who bought the properties from internet.com.

While online marketing is still <10% on average of corporate marketing budgets, it offers pinpoint performance tracking. While this has always been the case online, the breadth and depth of what's now available in analytics and benchmarking of online ad performance is incredible.

The big news in web analytics is that the cottage industry of analytics providers now has to compete with Google which has launched Google Analytics and Google Optimizer as FREE companion products to Google Adwords.

Advisen has so much to offer subscribers and I am amazed by how many simple tactics now exist that can help our subscribers find more of what they want and to help us find new subscribers.

This has all been sparked by high demand for our recent reports on subprime and other topics, as posted here. More to come on this subject.

Subprime Compared to S&L

2008-02-15T10:34:00.004Z

In the second comparison of subprime to the S&L crisis I've heard recently (the other being by Kevin LaCroix of the D&O Diary as posted by me here), Navigant Consulting said that the rate of litigation filing is ahead of the pace of litigation filed in the S&L crisis. See Advisen's story on this report here.

Maybe it's just that it's Friday, but the math in their announcement doesn't seem to add up:

The number of subprime-related cases filed doubled during the second half
of 2007, from 97 to 181 (for a total number of 278) cases.

I suppose this means that they found 97 cases in 1H 07 and 181 in 2h 07. I've contacted Navigant for a copy of the report. 278 seems high, but perhaps their definition of subprime-related is different than ours. Advisen tracks subprime-related cases for the benefit of the insurance industry, our table currently shows 194 cases. For information, contact me or see http://fpn.advisen.com/.

Insurance Industry Events

2008-02-15T09:59:00.003Z

More than any industry I've worked in, insurance is relationship-driven.

Lloyd's in particular thrives on the trust between brokers and underwriters and buyers of insurance feel comfortable that their assets are covered based on a handshake.

This is both good for the customer and bad for those trying to document the policies involved. It's no wonder insurance litigation is so prevalent around claims. In fact, I've just hired a terrific new Sales Director (Colin Fennelly). In past positions Colin sold outsourced services to insurance companies to reduce the defense costs associated with this litigation, getting paid out of any savings found. It's an amazing economic ecosystem.

London has achieved a higher degree of "Contract Certainty" through recent reforms (see here for more), and the challenge of online processing of commercial insurance is still formidable. For example, how do you trade handshakes online?

Advisen invested in Web Connectivity which is the market leader in ACORD messaging software which is a key reason why Lloyd's and London market brokers and underwriters are moving accounting and claims processing online. Web Connectivity's growing client list and increased online volumes are highly correlated.

While the Lloyd's and London markets congregate in the square mile of postcode EC3 and meet socially all the time, and Bermuda is a close reinsurance community, the rest of the global insurance industry frequents industry events to meet with customers and trading partners. I was floored at the number of events Advisen is tracking. See list here.

I'm planning to attend the ACORD Conference in Las Vegas in May and the AIRMIC conference in Edinburgh in June and Advisen has a big presence at the year's biggest event - the RIMS Conference in April.

Long live the King (content)

2008-02-13T14:50:00.005Z

I have worked for most of 14 years in businesses founded on business-critical content with embedded analytics to enable more informed decision-making. See my LinkedIn profile for a list including Bloomberg and internet.com.

This week's Advisen report on the expected $3.6b D&O loss from subprime has been an important story for insurance professionals globally. It's not a matter of if, but when, the tide will turn in the insurance cycle and Advisen has proprietary data sets which enabled the prediction.

We charged for the report ($200 for customers, $500 otherwise) and this has led to an intensive review of how we charge for our content and analysis. Advisen's is a blended model meaning that there is free, ad-supported content and we have password-protected content.

Taking stock of where consumers are willing to pay for content, the most notable story is whether Dow Jones' WSJ.com is to remain a subscription service. See a post with interesting comments here.

First, Dow Jones made their editorials free (opinionjournal.com) while charging smaller fees for certain columnists. Second, in Davos Rupert Murdoch confirmed that there will still be subscription-only WSJ.com content and that, in fact, subscribers should expect a price increase.

While only 4% of Dow Jones' revenues, WSJ.com annual revenue is around $75m, the envy of internet content publishers. Estimates are that WSJ page view traffic would have to increase anywhere from 3 to 12 times to replace subscription revenue with advertising revenue (Lehman Brothers analysts said 2x-3x while Bear Stearns said 12x). Also, while traffic would certainly increase, the impact on the massive print revenues are what keeps WSJ.com for subscribers only (for now).

Search guru Danny Sullivan blogged (here) about how WSJ has (knowingly?) allowed access to subscriber-only content via Google News.

The New York Times gave up on its online subscription product Select awhile back and according to Eliot Pierce, Vice President, Strategy & Operations there, the Online Grey Lady has never looked back. Real Estate classifieds and advertising are strong. These are different content offerings, the WSJ boasts some of the best reader demographics available to advertisers.

Here in the UK, the Financial Times just announced a blended model for FT.com where "casual readers" get free access to 30 stories/month. And, oh by the way, FT content is no longer included in Factiva's subscription fees, it's now a big premium (see post here).

The Street.com and Bill O'Reilly.com both offer premium subscribers additional content and also online chat access to Bill and to Street.com analysts like Jim Cramer.

On the other hand I worked for Alan Meckler long enough to hear his many arguments about why subscription models don't work (this was before he built an images business). Certainly search engines don't find password-protected content, depricvng publishers of valuable traffic.

While business models and consumer take-up vary, there is one irrefutable truth: If you have content that is business-critical, consumers will pay for it. Our subprime report is a good example.

Advisen on CNBC

2008-02-12T16:32:00.001Z

Dave Bradford and his report on why subprime will be $3.6b in D&O losses from securities class actions was featured on CNBC today. See the video here.

To get a copy of the report click here.

The Turn of the Phrase

2008-02-12T13:13:00.000Z

From the Lex Column of today's FT about the writedown announcement by AIG:

Another day, another loser in the global game of subprime hide and seek.

Bravo

Advisen Subprime Report: Impact on D&O and E&O

2008-02-11T10:12:00.000Z

Advisen's report entitled "The Crisis in the Subprime Mortgage Market and Global Credit Markets: The Impact on D&O and E&O Insurers" will be published later today. Since announcing it by press release and on Front Page News last week:

Dave Bradford, co-founder and Chief Knowledge Officer of Advisen and the report's author, spoke at the John Street Club. Thanks to Bill Brown, current President, for the invitation
Advisen attended the PLUS conference in New York
Many voiced their incredulity at the data about FI D&O pricing going down and coverage terms broadening despite subprime

So Advisen has had excellent chances to test-market the findings of our report with the best and the brightest in the industry and our assertions have stood up well. Lehman Brothers is now using our findings in its latest report to clients.

Press coverage of the report can be found here. The full report is available to subscribers of the full Advisen information platform for $200, and to non-subscribers for $500 by calling Advisen at 212.897.4800, or emailing support@advisen.com in the US, or +44 (0)20 7929 6929 or london@advisen.com in the UK. As a reminder of why you would buy the report, the findings include:

A full list of the writedowns reported by 132 global companies
Details of the $2.7 trillion in market cap losses experienced by those companies
A cross-referencing of the 191 subprime-related lawsuits against the companies with write-downs that show that 76% of the 132 global companies have not yet seen a lawsuit
Full explanation of how Advisen predicts $3.6b in D&O losses, just from securities class action suits (other D&O events and E&O losses expected on top)
Market share of the top ten writers of financial institution D&O and E&O
The contribution of subprime losses to 2007 and 2008 loss ratios, and
The impact of the subprime meltdown on D&O and E&O pricing and coverage terms to date

Part-time Risk Management

2008-02-07T14:09:00.000Z

Large companies have dedicated Risk Managers with the largest companies having a team of 10 or so to manage risk at a corporate level and ensure best practices within each division.

What if you're a medium-sized business or small company? You're not likely to have a full-time risk manager and your staff that handles risk management as part of their role is likely to not have formal training in the art nor the science of risk management.

David Gamble, formerly the Executive Director of the Association of Insurance and Risk Managers (AIRMIC), has launched an online training course to help spread the gospel of effective risk management to these part-timers.

Advisen is delighted to announce a partnership with PRORIM, the name of the course (their banner is to the left) and we have begun promoting the course on our newsletter Front Page News.

D&O Losses from subprime to be $3.6b

2008-02-06T13:47:00.000Z

D&O insurers are likely to suffer $3.6 billion in subprime-related losses.

David Small or Bear Stearns has estimated $9.3b as a worst-case D&O scenario. As I posted here and here, David uses a sensible methodology to generate this estimate.

Advisen is able to generate an estimate of what is likely versus what is worst-case. Based on historical securities class action settlement patterns and D&O program limits and retention data from Advisen’s Program Benchmarking database, data sets available only to Advisen allow us to generate this estimate.

Advisen will publish a report (see press release here), “The Crisis in the Subprime Mortgage Market and Its Impact on D&O and E&O Insurers,” on Monday, February 11 which covers how we arrive at $3.6b and details:

An updated list of subprime writedowns reported by more than 120 financial institutions across the globe,
Market cap losses experienced by those companies,
Subprime-related lawsuits filed against those companies,
An analysis of the 181 subprime-related lawsuits,
Advisen’s forecast methodology for subprime D&O and E&O losses,
Market share of the top ten writers of financial institution D&O and E&O,
The contribution of subprime losses to 2007 and 2008 loss ratios, and
The impact of the subprime meltdown on D&O and E&O pricing based on program data reported by risk managers and brokers, and on the results of a survey of 110 financial institution insurance buyers.

“The Crisis in the Subprime Mortgage Market and Its Impact on D&O and E&O Insurers” is available to subscribers of the full Advisen information platform for $200, and to non-subscribers for $500 by calling Advisen at 212.897.4800, or emailing support@advisen.com in the US, or +44 (0)20 7929 6929 or london@advisen.com in the UK.

Subprime investigator finds an informant

2008-02-05T12:14:00.000Z

The Insurance Insider's coverage of Advisen's survey results yesterday (story here) included a mention to a story I hadn't seen:

Clayton Holdings, which provided due diligence to banks on some of the home
loans they turned into bonds, has agreed to co-operate with Andrew Cuomo in
exchange for immunity from prosecution.

Clayton describes itself on its website as "an information and analytics company serving lenders, loan buyers & bond issuers, servicers and fixed income investors in mortgage-related loans and other debt instruments".

According to an article in Advisen "Sources say one key issue AG Cuomo is looking at is underwriting "exceptions" granted by project managers working for Clayton on Wall Street accounts." Despite a share price drop of 87% since the beginning of the subprime crisis (see chart below), we are not aware of any lawsuits against Clayton.

The majority of subprime cases as tracked in Advisen's large loss database deal with not adequately disclosing and/or misrepresenting the nature of loans and CDOs. Evidence that firms knowingly did so would be a major boost to plaintiffs in subprime cases and increase the potential exposure for the D&O industry. This will certainly be tracked in the news including Advisen Front Page News.

Underwriters fighting an uphill battle

2008-02-04T10:36:00.000Z

Prices for commercial insurance, notably for Directors & Officers liability coverage, move in a predictable cycle.

In today's market, D&O claims frequency and severity are both down and as a result, underwriting profits are up despite falling prices. These profits have enticed a rush of money into underwriting creating an imbalance of supply & demand.

With the subprime crisis resulting in $200b in write-downs and 178 lawsuits so far, it is only a matter of time for the inevitable impact on the D&O and E&O industry. A handful of claims notifications have been made already but the story is still playing out in the financial markets and not yet in the insurance industry.

Advisen monitors and reports on premium trends in North America, both on behalf of the Risk and Insurance Management Society as the administrator of the RIMS Benchmark Survey™, and in Advisen.com. Our data showed that, despite having had 9 months to digest subprime, renewal pricing for D&O and E&O for financial institutions is falling just as it is for other industry sectors.

To confirm the findings of the empirical data collected from risk managers and brokers, we conducted a survey of financial institution insurance buyers. The results of the survey are available here and contain details on financial sector price trends and an unexpected trend in the terms of coverage.

Later this week Advisen will publish a more comprehensive analysis of the potential impact of the subprime mortgage crisis on the insurance market, covering reported write-downs to-date, subprime-related lawsuits filed to-date, an analysis of potential losses to the insurance market, and estimated market share of the major writers of financial institution D&O and E&O. To obtain a copy, call Advisen on +44 (0)20 7929 6929 or london@advisen.com in the UK or +1.212.897.4800, or emailing support@advisen.com in the US.

Subprime lawsuits now over 175

2008-02-01T15:39:00.000Z

Updating a previous post (here) about the total number of lawsuits related to the subprime crisis, Advisen now tracks 177 cases, which includes 52 Securities Class Action cases. The pace of new filings is showing no signs of abating. Even the FBI is getting involved, see story here.

Realistic goals: Fewer vans, less paper

2008-01-31T09:10:00.001Z

London is an amazing coexistence of the old and the modern. Where else can you walk from pubs that have been in continuous operation since the 16th century and walk across London Bridge to modern buildings like the Swiss Re building?

Lloyd's itself is a unique microcosm of this coexistence of the old and the modern. Lloyd's is as relevant today as ever before with operations expanding across the globe (China last year, Brazil just announced).

However, much of Lloyd's announced £15.95b 2008 capacity will be transacted by paper. See my December 2007 post (here) for more background. Lloyd's, other London underwriters and brokers all process through the "bureau" in a joint venture with Xchanging. New deals, changes to existing deals, accounting statements for reconciliation among brokers and underwriters, new claims and updates to existing claims are all processed centrally.

Much progress has been made to convert central processing from paper-based to electronic. The advantages are obvious - reduction in manual data (re)entry, reduction in the inevitable errors from manual (re)entry of data, and process efficiency which all translates to reduced time and cost of binding policies. Ultimately the client should benefit and Lloyd's and London should be on a more competitive level playing field with other insurance markets globally.

As I posted in December (here) the adoption of electronic processing of claims and accounting reconciliations is progressing significantly. With more and more electronic messaging using the ACORD standards and most via the Web Connectivity gateway, there is palpable momentum and there is no question that the bureau's vans carrying paper to offsite processing centers will soon be extinct.

Lloyd's now expects all new claims to be electronic by the end of March 2008 and other London underwriters are targeting the end of September 2008. Everyone is expecting to reconcile accounting statements electronically by the end of March 2008.

While new deal syndication (aka "placement") is going to be via paper this year, the market is expecting to build momentum to electronically communicate changes to existing deals (aka "endorsements") in 2008.

It might seem to make sense to start with the beginning of the process (placement) but this didn't work with Kinnect (£70m spent with no result) and the bond and equity markets moved to electronic processing of accounting first before the equivalent of placement was moved online. In fact online bond trading was just taking off when this author joined Bloomberg in 1994. It was great to be in the middle of that transformation and equally rewarding to be part of the solution here.

Forecast calls for gain

2008-01-30T13:08:00.000Z

A.M. Best issued their 2007 summary and 2008 projections for the insurance industry, some facts are staggering:

Net Premiums Written were down 1.2%, the first decline since 1943. This is not the first soft market since 1943, so the degree to which premiums have fallen since 2003 is incredible. See my earlier post (here) for a picture of Advisen's data on this.

With $19b in underwriting profits in 2007 plus more and more money comes into the insurance industry, such as from capital markets players looking for diversification, Best reports that Policyholder Surplus was up for the 5th straight year.

We track the imbalance of supply and demand by using Policyholder surplus as the measure of supply and GDP as the measure of demand and can demonstrate where the current soft market is relative to past cycles.

Reading between the lines of Best's report (found here) the benign claims environment is the major factor in these profits. Until this changes, premium rates can continue to fall and there will still be profitable underwriters.

One interesting tidbit was a note by Best about whether enterprise risk management was helping -meaning that companies and their risk managers have adopted ERM and this is what is causing lower loss rates. We'll have to speak with our friends at RIMS to see if we can quantify this.

Bear Stearns subprime conference call with Kevin Lacroix

2008-01-29T10:15:00.000Z

Yesterday (28th Jan) David Small, Bear Stearns' insurance sector equity analyst, hosted a conference call with Kevin LaCroix of the D&O Diary as a briefing on the status of litigation that will impact the D&O and E&O industries. Thanks to David for including Advisen on the call.

David Small explained a few points about his report of last week where the worst-case scenario for D&O subprime exposure was tripled to $9.3b:

the estimate is gross, not tax-effected
much of that will be reinsured, though what amount of that is insurable is not known
with each insurance company defining Financial Institution coverage differently, assessing market share is tough, David says there's roughly equal market share between AIG, Chubb, Travelers, Lloyd's, XL and maybe CNA a bit below that

David then then introduced Kevin LaCroix who:

is a partner in Oakbridge Insurance Services, an Executive Liability specialist wholesale broker, and Kevin works in their Beachwood, Ohio offices
writes the widely-read D&O Diary found at http://dandodiary.blogspot.com/
is a past President, a member of the Board of Trustees, and very active with PLUS

Kevin's full profile including contact details is found here

Kevin highlighted his tracking of 41 subprime-related Securities Class Action Suits (SCAS) (including 4 filed in Jan '08) and 9 subprime-related ERISA lawsuits. This data closely tracks Advisen's database of such lawsuits though we list more ERISA cases and also different types of subprime-related cases including fraudulent trade practice, shareholder derivative cases, underwriting malpractice, etc. with 173 in total.

Please contact london@advisen.com for more information about the Advisen database of subprime lawsuits, our complete listing of subprime write-downs, changes in premium due to suprime, market share by insurance company and much more.

Of the SCAS, Kevin noted concentration in the 6798 SIC (REITs) and banking & mortgage lending, noting that this rash of suits reminds him of the the S&L crisis with a broad array of targets, but high concentration in financial sectors.

Kevin pointed out that the full impact of companies not in financial sectors who have made investments and need to value them ahead of impending reporting deadlines will be very interesting, this could lead to a new wave of suits.

Moving on to claims scenarios, Kevin pointed out two cases which illustrate the unique nature of subprime suits:

the complexity of the case against MBIA with the complaint being about "CDO squared" deals with complex securities and complex transactions with intricate procedures for accounting and valuations before even getting to disclosure
State Street setting aside $618m "to address legal exposures" has been misinterpreted in the media as being for D&O exposures when no Ds nor Os were named and there are not allegations based on alleged violations of the securities laws so it is not an entity claim under a D & O policy so it's more to deal with the investments made

Moving on to assessing the size of the D&O loss, some cases will be difficult to win (pleading obstacles, hurdles), many losses won't be covered (many large banks self-insure or have side A only towers and side A doesn't cover) and an important part of this story will be the legal costs (see MBIA point above about complexity which means legal costs will be higher)

In terms of general trends in SCAS, Kevin cited recent NERA / CORNERSTONE reports showing a return to normal historical frequency levels. 2007 frequency was higher than 2006 even without subprime cases with activity in pharma, semiconductor, radio/telephone, prepackaged software all above 2006 levels, and those sectors aren't in subprime ground zero.

Kevin pointed to two recent trials JDSU (verdict for defendants) and Apollo Group (verdict of up to $277m for plaintiffs). Given that few cases go to trial, there is heightened interest in these verdicts but in Kevin's opinion, they don't point to an increased likelihood of securities lawsuits going to trial.

I thought it noteworthy that Cornerstone says 33-40% of SCAS are dismissed.

To put the subprime estimates in perspective, David noted that Enron was $7.2b and WCOM $6.1m D&O events (although not all of those losses were insured) and that from a severity perspective, this is much greater than back-dating but less than the corporate scandals (Enron/WCOM) as those huge companies went bankrupt while Merrill, Citigroup, UBS, etc. are still thriving businesses.

Kevin added that an important part of this story will be legal fees (Apollo said their fees in connection with their recent jury trial were $25m). Also, Kevin noted that this isn't a one-time event (noting that D&O is characterized by a series of one-time events), that lawsuits will continue through 2008 and into 2009.

In sum I took from the call that:

losses are likely to be closer to those of the corporate scandals, greater than those of the options back-dating scandals
$9.3b is the current estimate of a worst-case scenario, but that it's likely to be less as not all is insurable
Kevin LaCroix agrees with Advisen's stated opinion that these cases are likely to be very hard to win, though legal defense costs are likely to be very high and when cases are settled the amounts will be high

Update on SocGen

2008-01-28T09:43:00.000Z

At the AMRAE annual conference for risk managers in France, Michel Yarhi, the risk manager of SocGen said in a speech that SocGen believes their insurance policy covers some, but only a portion, of the rogue trader losses.

This is in conflict to what underwriter sources are saying. Remember, the first test for paying claims is whether they are "valid". This will be an interesting story to follow.

Today we covered (here) the shock among Davos attendees that this could still happen.

SocGen, subprime, lots of news

2008-01-25T16:48:00.000Z

Kudos to Aon's marketing discipline. Within hours of the announcement of the SocGen fraud, they issued a report on the implications and promoting their product to cover just such an incident:

“Employee fraud, and in particular unauthorised trading, is insurable but the
challenge has been persuading some banks to admit such exposure exists...it will
be interesting to see how the take up rate of the unauthorised trading product
{marketed by Aon I presume} is influenced by today's news."

Our sources indicate that their D&O policy had a specific unauthorised trading exclusion, but with their stock taking a big hit and this perhaps being an indicator of lack of management oversight, a more run-of-the-mill case might be forthcoming.

Back to subprime, Clear Capital reported that certain Lloyd's syndicates were particularly exposed to subprime and reduced their price forecasts for their shares.

I was floored by Clear Capital's statistic that there have been 50 credit crunch-related notifications in Lloyd's already. Given that Advisen is tracking nearly 150 subprime-related lawsuits, 50 seems logical for the global insurance market, but not London, and not Lloyd's only. The source of this data appears to be a survey of London brokers. Anecdotally, I can count in single digits the number of subprime-related notifications in the London market.

This is why the RIMS Benchmark Survey is so popular, unlike other studies of premiums, it's the only one to be based on actual data versus what a subset of insurance brokers say they are seeing.

Not to be outdone, David Small of Bear Stearns found that the number of companies in the Russell 3000 that have lost more than 40% of their market cap through 2007 has jumped 7 times and thus revised upwards his potential subprime exposure figure from $3b to $9.3b.

Subprime explained

2008-01-24T16:29:00.000Z

With the news of the market tough to take, the following is a light-hearted explanation of the subprime crisis:
http://www.youtube.com/watch?v=SJ_qK4g6ntM

Good summary of subprime litigation

2008-01-23T10:16:00.001Z

Yesterday I spoke with a client, a well-respected Lloyd's underwriter, who started talking about just how complicated the unravelling of subprime is becoming. He noted that it's a spiral effect at Lloyd's just like the old days where one syndicate brings in the risk and then another reinsures the syndicate and then another reinsures them and then the original reinsures it thereby taking the risk back and nobody really knows. We're going to cover this story soon.

Meanwhile, we carried a terrific article by the Herald Tribune which summarizes the breadth and depth of subprime lawsuits.

IT as a leading indicator for litigation?

2008-01-22T11:40:00.001Z

Listening to a podcast by InternetNews.com I was struck by a story about a forthcoming announcement by Hewlett-Packard and Clearwell about a new class of eDiscovery services.

Identified as a significant emerging IT market, eDiscovery is software that enables firms to recover, analyze and build relevant data sets of all digital files, e-mails, text messages, and instant messages relevant to litigation. IDC reports that the market will have double-digit growth each of the next 3 years and will be a $21b market in 2011.

This is a bullish indicator for the plaintiffs bar and means that Advisen's database of lawsuits will continue to grow exponentially.