S&P Report Says Oman Insurance Market Still Strong After 2007 Losses

In its latest report on the insurance market in the Sultanate of Oman, Standard & Poor's Ratings Services says that despite the heavy losses from Cyclone Gonu in 2007, the sector has much to commend it.

"Oman has developed a thriving domestic retail and commercial insurance sector. A buoyant economy and supportive regulatory regime are particular factors in this growth," explained credit analyst David Anthony.

S&P"s report, titled "Growing Opportunities For Insurance And Reinsurance In The Sultanate of Oman," also looks at the details of the changing regulatory environment and how these will affect the market.

"The Capital Markets Authority as Oman's regulator is one of the most respected in the region. We expect the CMA to continue its pragmatic approach to market regulation, moving increasingly to a risk-based capital assessment of insurers' solvency, while avoiding unnecessarily restrictive regulations, thereby allowing the market to continue its positive development," Anthony added.

Source: Standard & Poor's

Higher Gas Prices, Lighter Vehicles Could Mean Higher Insurance Costs, Study Shows

The cost of auto injury claims involving lighter-weight vehicles tends to be higher than the cost of claims involving heavy vehicles, according to new research from the Insurance Research
Council (IRC).The average claims payment involving lighter weight vehicles is more than 14 percent higher than it is for claims involving heavier vehicles, the researchers said. Injuries in lighter vehicles are more likely to be more serious, require hospitalization and keep people from returning to work right away, they found.The insurance research group said its findings may have implications for those seeking to understand how higher gas prices will affect auto insurance costs. According to IRC, a reduction in the amount of driving is not the only consequence of higher gas prices that could affect automobile insurance costs. IRC says its findings suggest higher gas prices could also lead to higher average claim costs.IRC found that the average auto injury claim payment in accidents involving lighter-weight vehicles was 14.3 percent greater than the average payment in accidents involving heavy vehicles. These findings suggest that, as rapidly rising gas prices prompt more drivers to choose lighter and more fuel-efficient vehicles, the average cost of injury claims arising from motor vehicle accidents can be expected to climb.

"The impact of higher gas prices on drivers, accident severity, and insurance costs is anything but simple," said Elizabeth A. Sprinkel, senior vice president of the IRC. "Our findings indicate that higher
average claim costs associated with lighter vehicles have the potential to offset, to some extent, whatever beneficial effects might occur from less driving. It's far too early to know how all these effects together will influence insurance claim costs."

To investigate the potential impact of rising gas prices on insurance claim costs, IRC analyzed 9,140 personal injury protection (PIP) claims closed with payment in 2007. IRC compared average total claim payments for the lightest 25 percent of the vehicles involved in accidents resulting in PIP claims with average total claim payments for the heaviest 25 percent of vehicles. Only claims involving automobiles, minivans, and sport utility vehicles were examined.
Claims involving fatalities or permanent total disabilities were excluded to eliminate the distorting effects of these few claims on average cost calculations.

Of all vehicles involved in PIP claims closed in 2007, 25 percent weighed 2,771 pounds or less, and another 25 percent weighed 3,726 pounds or more.

The average payment for claims in the lighter-weight group was $5,554, which is 14.3 percent greater than the $4,859 average payment for claims in the higher-weight group.

IRC found additional evidence that it says confirms the greater seriousness of injuries involving lighter-weight vehicles. Among claimants in heavier vehicles, 46 percent lost no time from work following their accidents. In contrast, only 38 percent of claimants in the lighter-weight vehicles lost no time from work.

Claimants injured in lighter-weight vehicles were also 12 percent more likely to be hospitalized following their injury than were claimants in heavier vehicles.

Rapidly rising gas prices are expected to have various consequences for consumers and businesses. One widely-observed consequence is a reduction in the amount of driving, as drivers eliminate unnecessary trips and use more public transportation. IRC said that whether less driving will result in fewer accidents, and, in turn, lower automobile insurance costs, is unclear. But, according to IRC, what is clear is that a reduction in the amount of driving is not the only consequence of higher gas prices that could affect automobile insurance costs. IRC says its research findings suggest higher average claim costs as another potential consequence of rising gas prices.

Source: Insurance Research Council

Ratings Roundup: Stoneheath Re, Insurance Australia, Toa Re

A.M. Best Co. has removed from under review with negative implications and affirmed the debt rating of "bb+" on $350 million non-cumulative perpetual preferred securities (preferred securities) issued by Stoneheath Re (issuer), a Cayman Islands exempted company. The assigned rating outlook is stable. "Stoneheath Re is licensed as a restricted Class B reinsurer under the laws of the Cayman Islands and was formed to provide multi-year reinsurance capacity to certain insurance and reinsurance subsidiaries (ceding insurers) of XL Capital Ltd (XL Capital) (Cayman Islands)," Best explained. " The terms of the reinsurance agreement between Stoneheath Re and XL Capital provide that upon a payment by the issuer to the ceding insurers, triggered by a catastrophic event, XL Capital will issue and deliver to Stoneheath Re Series D preference ordinary shares of XL Capital (XL preferred securities) in an amount equal to the payment made by Stoneheath Re. Cash from the issuance of preferred securities by Stoneheath Re, which previously had been deposited into a trust account and subsequently disbursed as claim payments, will be replaced by the XL preferred securities."Standard & Poor's Ratings Services has affirmed its 'A+' ratings on Insurance Australia Group Ltd. (IAG) and the 'AA-' ratings on IAG's core operating companies, including Insurance Australia Ltd. and IAG New Zealand Ltd. The rating outlooks on IAG and the core operating companies remain stable. "These rating actions follow IAG's announcement of a net loss after tax of about A$261 million [US$223 million] for the 2008 fiscal year, affected by one-off write-downs and restructuring costs," S&P explained. "The results were also affected by higher claim costs from natural perils as well as mark-to-market impact of widening credit spreads." Credit analyst Thomas Cherian observed: "While acknowledged as poor results,difficulties in the U.K. business and the sustained impact of volatile weather and investment market conditions were already factored into our ratings downgrade on May 7, 2008." S&P then added: "The rating affirmation reflects the group's excellent market positions in Australia and New Zealand, where a majority of its portfolio is in short-tailed lines in which pricing is starting to harden. The group has also maintained conservative reinsurance and reserving practices. The risk management framework continues to be robust and the group is expected to simplify the business model going forward with a heightened focus on expense management, underwriting discipline, and profitability. However, although IAG continues to hold capital well above the regulatory minimum, it is not capitalized to a level consistent with the rating. A.M. Best Co. has affirmed the financial strength rating (FSR) of 'A+' (Superior) and the issuer credit rating (ICR) of "aa-" of Japan's Toa Reinsurance Company, Limited with a stable outlook. Best also affirmed the FSR of 'A' (Excellent) and the ICR of "a" of The Toa Reinsurance Company of America (TRA) (headquartered in Morristown, NJ). The outlook for both ratings is stable. Best said: "These rating actions reflect Toa Re's superior capitalization, excellent underwriting performance in the recent two years and established market presence in Japan. Toa Re's superior risk-adjusted capitalization is reflective of its Best's Capital Adequacy Ratio (BCAR) and low underwriting leverage. The company also strengthened its BCAR ratio over the past two years by disposing of its listed equity. The domestic equity investment decreased to 28.9 percent of total assets as of fiscal year 2007 from 41.8 percent as of fiscal year 2004." In addition Best noted that "Toa Re improved its business portfolio by reducing participation in the competitive motor business while increasing quality lines of business (e.g., life business). The combined ratios in fiscal year 2006 and fiscal year 2007 stood at 85.1 percent and 89.8 percent, respectively. The low combined ratio was attributed to the lack of a major catastrophe event in Japan and to the improved underwriting results over the past two years.
Insurance Journal

Tower and CastlePoint to Acquire Hermitage Insurance for $135M

Tower Group, Inc. and CastlePoint Holdings, Ltd. announced today that CastlePoint Reinsurance Co., Ltd., a Bermuda-based subsidiary of CastlePoint, has agreed to acquire HIG, Inc.Bermuda-based CastlePoint said it will pay the seller, a subsidiary of Brookfield Asset Management Inc., $27 million in cash plus the adjusted closing book value of Hermitage. The total cash consideration is expected to be approximately $135 million with no external financing required.On August 5, 2008, New York-based Tower entered into an agreement to acquire CastlePoint and they expect to close that transaction in early December 2008. Tower and CastlePoint expect that the acquisition of Hermitage will close in late December 2008, after the closing of the Tower-CastlePoint acquisition.

Hermitage is a specialty property and casualty insurance holding company offering both admitted and excess and surplus products to small commercial customers throughout the eastern United States. Hermitage has two operating subsidiaries: Hermitage Insurance Co. and Kodiak Insurance Co.

The Hermitage transaction represents the acquisition of a profitable book of business and an E&S lines platform covering 29 states and the District of Columbia. The Hermitage subsidiaries also have admitted licenses in 10 states.

The Hermitage transaction will provide access to 150 new retail agents in the Southeast who have no overlap with CastlePoint's or Tower's existing producers and will also further strengthen CastlePoint's and Tower's wholesale distribution in the eastern U.S.

Officials said that Hermitage is expected to produce approximately $100 million in gross written premiums for 2008, and its net loss ratio is 52.3% through the first six months of 2008.

Michael H. Lee, chairman and CEO of both Tower and CastlePoint, explained how the Hermitage and Castlepoint acqusitions are linked.
"The Hermitage acquisition reinforces the post-CastlePoint acquisition strategy that we outlined when we announced the acquisition of CastlePoint by Tower on August 5th. Through this transaction, Tower and CastlePoint will be able to acquire a very profitable business similar to Tower's business by utilizing CastlePoint's capital. In addition, CastlePoint will be able to shift more of CastlePoint Reinsurance Co.'s capital from reinsurance to insurance in response to current market conditions. The transaction further supports Tower's national expansion plans by focusing on underserved market segments through wholesale agents while expanding its retail distribution system in the Southeast," he said.

Tower and CastlePoint also entered into a separate agreement that will occur following CastlePoint's acquisition of Hermitage for $135 million. Tower has agreed to buy Hermitage's operating assets including rights to policy renewals and producer appointments from CastlePoint for $16 million in cash. T

The transactions between Hermitage and CastlePoint and those between Tower and CastlePoint, including any ancillary agreements, are subject to customary regulatory approvals.

Source: Tower and CastlePoint