Swiss Re buys insurance unit from Barclays
Swiss Reinsurance, the world’s largest reinsurer, announced an agreement Tuesday to buy the life insurance unit of Barclays for £753 million in cash, even as it wrote down more credit assets.
Swiss Re said it would acquire about 760,000 life insurance and pension policies and annuity contracts, for which Barclays had stopped writing new business since 2001, representing £6.8 billion, or $13.3 billion, in invested assets. The deal bolsters its Admin Re unit, which buys life insurance portfolios after other insurers have stopped writing new business.
It shows that Swiss Re was strong enough to take advantage of tough markets, the chief executive, Jacques Aigrain, said.
“The difficult market environment also creates new opportunities,” he said. “Swiss Re has the execution capability and capital strength to seize these opportunities.”
The strategy of adding top-line growth through the Admin Re unit is one of the reasons why Swiss Re says it will grow faster than other reinsurers as markets stall.
“The acquisition and the price paid fits into the strategy and is good news,” said an analyst at Landsbanki Kepler, Fabrizio Croce.
Swiss Re separately said that its profit fell 53 percent after 362 million Swiss francs, or $343 million, of write-downs related to credit-default swaps.
Net income fell to 564 million francs in the second quarter from 1.19 billion francs a year earlier. Earnings missed the 773 million franc median estimate of 11 analysts as premium income fell 23 percent, to 6.11 billion francs.
The sale of a noncore asset will help Barclays’ balance sheet, which is under strain from the impact of the credit crunch, and will add to the bank’s capital after it raised £4.5 billion last month.
Swiss Re - unlike many other reinsurers, which reinsure risk for other insurance companies - has been hit hard by the credit crisis. It has had total write-downs of about 2.7 billion francs in its financial services unit.
Swiss Re, which had previously expected a further 350 million franc write-down in the second quarter, said it expected 2008 and probably 2009 to be challenging years for the whole insurance industry, but maintained its targets. The reinsurer now has less than 500 million francs in remaining exposure to risky mortgage assets, the chief financial officer, George Quinn, said.
Life insurance may cost more
SAGICOR POLICY HOLDERS may pay more for new life insurance coverage come next year due to the 2008 Budget imposition of a one per cent increase in insurance premium tax.
The good news is the company is likely to absorb that cost in its general insurance line of business.
In a statement to BARBADOS BUSINESS AUTHORITY last Friday evening, Sagicor Life Inc. chief financial officer Anthony Chandler said: “The recent Budget proposal for an increase in premium tax will result in an additional tax burden to life insurance companies writing premiums in Barbados.
“The premium tax increase is likely to result in an increase in insurance premiums to the consumer for new policies sold after the tax comes into effect.”
Prime Minister David Thompson has proposed an increase in insurance premium tax from January 1, 2009, that would raise $6.6 million for the year.
Insurance companies would also pay a $20 000 yearly licence fee, up from $5 000, but Sagicor General Insurance Inc. chief executive officer David Deane said that “increased premium tax and increased licensed fees might not be punitive in themselves. . . .
“I don’t think that will cause companies to automatically say we will increase general insurance premiums.”
“Life insurance policies sell long-term contracts; you contract for a premium which you expect to pay for a lifetime and the opportunity to change premiums does not really exist.
“You have the ability to price new contracts appropriately and they can reflect the additional taxes,” he said.
Chandler emphasised that industry stakeholders needed full interpretation of legislation that would impose insurance-premium tax before they pass on any charges. (SR)
Car-Insurance Rates Climb After Falling for Several Years
Car-insurance rates, after falling for several years, may be heading up again.
A study by Insurance.com, an online insurance agent, found that on average, its lowest quotes increased an average of 3.4% nationally during the second quarter of 2008, compared with the previous quarter. It was the second consecutive period that prices rose.
The average quote was $1,893 per year. The report is based on quotes given to consumers by 15 insurance companies in most states.
States that saw the largest price increases included Indiana, up 6.7%; Arkansas, 6.1%; Texas, 4.3%; Nevada, 4.1%; and Illinois, 3.8%. Pennsylvania saw a boost of 3.6%. The gain in Indiana reflected an average increase of $94, for a total of $1,501 per year.
Until recently, car insurance had been a bright spot for drivers in an otherwise bleak landscape of rising expenses: Premiums had been flat or declining in many areas in the past few years.
Robert Hartwig, president of the Insurance Information Institute, a trade group, said based on federal statistics, auto-insurance prices rose at a 2.6% year-over-year pace in May and June. He said the increase for all of 2007 was 0.4%.
Sam Belden, consumer director of Insurance.com, said higher medical costs and repair expenses are driving the increase. He added that he believes the price jumps mark the beginning of a trend that could last through 2009, but could be reversed if higher oil prices lead to a long-term change in driving habits. “Less miles on the road mean less accidents,” he said.
Insurance premiums weren’t rising everywhere. The Insurance.com numbers showed declines in states including North Carolina, down 8.7%; New Hampshire, 4.1%; Tennessee, 3.7%; Louisiana, 3.6%; and Delaware, 3.3%.
Write to M.P. McQueen at mp.mcqueen@wsj.com
Macq bond insurance will diversify group
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Macquarie Group is wading into the US bond insurance market – a move that is consistent with the company’s international diversification strategy, says Moody’s Investor Services.
Eric Dinallo, New York’s state insurance superintendent, told The New York Times he has been discussing the deal with Macquarie since April and that he welcomes their interest in the bond insurance market. The move is being reported widely in both the US and Australia.
Meanwhile both Australian and US-based Macquarie representatives have refused to comment on the potential deal.
However ratings house Moody’s said the move is consistent with the Macquarie Group’s international diversification strategy.
“The Group’s diversity of earnings is a major rating strength. However it must be said that insurance hasn’t been a meaningful business line for the Group before,” said Moody’s senior vice president, Patrick Winbury.
Moody’s said Macquarie’s rating impact would depend on how the insurance business is financed. Winbury said the $2.5 billion capitalisation for the proposed operation is a substantial sum, and expects to see additional capital raised from external sources for the Group’s rating to remain unaffected.
“Rating stability would also depend …on the Group being able to demonstrate it has that requisite expertise to run this business – and that its risk appetite remains in line with the proposed capitalisation,” said Winbury.
Macquarie’s venture into the US market will see it compete with bond insurers Ambac Financial Group Inc and MBIA Inc among other companies hampered by credit-rating downgrades, reports Bloomberg.
Ruth Liew
Massachusetts health insurance mandate got people at a price
News reports are hailing word from Massachusetts this week that the Bay State’s comprehensive health reform program is a success. Nearly 350,000 uninsured residents obtained coverage under the program, according to an Urban Study report on the reform’s first year. That means more people are seeing doctors outside of emergency rooms and getting preventative care.
But the reports often overlook the down side.
Massachusetts budgeted $860 million for the program this year. That’s nearly $150 million more than was projected. Next year’s costs are expected to go over $1.1 billion.
Which raises the question of how sustainable the program can be. Good intentions are not enough.
The idea behind the program is that low-income people who work but are not covered by employer-supplied insurance could be insured if everyone was mandated to have insurance. If you could afford the insurance, you had to buy it whether you wanted it or not. The mandate would eliminate free riders, people who skip buying insurance on their own and depend on free care in case of serious illness. Usually they are young and healthy, the kind of people who would lower the overall costs of an insurance pool.
The mandate didn’t sit well with some people. The state’s Revenue Department reported that 86,000 residents paid a tax penalty rather than buy insurance. The Massachusetts income tax form required residents to indicate what kind of health insurance they had. If they didn’t have any and the state judged them capable of buying it, they lost their personal tax exemption. That penalty is $219. Soon it will rise to $912.
Will this work if costs keep rising? Or will the Legislature have a rebellion on its hands?
What’s going on in Massachusetts is important because much of the nation is watching. Other states have attempted to imitate it. And candidates in some states, including Delaware, have modeled their own proposals on the Massachusetts plan.
But unless the Legislature can come up with a realistic way of containing costs, this will be just another experiment.
The News Journal
A good case for travel insurance
That policy might just save your next vacation
Travel insurance did not save my life, but it did save me more than $4,000.
Few people plan to get sick, but when I was hospitalized this past spring with an illness, I was set at ease by a decision I made after a chance conversation with an editor a few weeks before.
My family and I were planning a major trip to visit my wife’s family in Europe. You can imagine the cost: Four people, four plane tickets and let me just say, kids do not fly free or get a discount these days.
Throw in train tickets and hotel rooms that were all prepaid. Why prepay a hotel room? Ever try to book a room in Paris? It is 175 euro a night for the cockroach inn, so saving a little cash by prepaying seemed like a reasonable idea. All in all, this was one of those trips you only make every few years because of the cost. Not going would be bad enough, but losing all the cash could be devastating.
A few weeks before, an editor (to whom I owe an expensive bottle of wine) casually mentioned he had just bought a travel insurance policy with TD Meloche Monnex. “That might make an interesting [personal finance] piece,” he said, talking about the plan.
I have life insurance (thanks to my brother, who is a broker), car insurance and home insurance. But travel insurance? Travel agents always offer that up at the end when booking a trip, much the way they sell extended warranties at those big-box electronics shops. I don’t buy either, with the exception of extended warranties on breakable children’s toys.
I called TD Meloche Monnex to inquire about their Wide Horizons Solution plan. For a little more than $100, I got a policy that included $5,000 for trip cancellation and extended out-of-country medical coverage for the family.
TD has been selling travel insurance for about 15 years, according to Henry Blumenthal, vice-president and chief underwriter with TD Meloche Monnex. It is offered as an add-on to customers who already have auto insurance or home insurance.
“The main reason you would buy a travel insurance policy is for medical expenses,” says Mr. Blumenthal.
Some people may think they are covered through their workplace policy, but they should read the fine print. Exclusions can include such things as pre-existing conditions.
Mr. Blumenthal’s plan does provide coverage for preexisting conditions if your condition is stable. He suggests checking first with TD Meloche Monnex to see if your particular situation is covered before you take the trip.
The main competition for companies like TD Meloche Monnex offering travel insurance, which you can buy after you book your trip, comes from policies offered by travel agents at the time of sale.
“Why would you want to take five minutes at the end of planning your trip to negotiate your insurance,” Mr. Blumenthal asks.
“[Travel agent policies] are not all bad but you have to look at the price.”
The basic rate for his company’s policy is $110 for the whole year and covers any trip under 60 days as often as you travel. I was offered insurance by my travel agent for about $75 per person for the one trip.
AAA Insurance 200 results
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Results Friday for the AAA Insurance 200 race for NASCAR’s Craftsman Truck Series at Dover International Speedway, listing starting position in parentheses, driver, truck, laps completed with reason out if not running at the finish, points earned, driver rating and money won:
1. (4) Scott Speed, Toyota, 200 laps, 128.6 driver rating, 190 points, $67,525.
2. (6) Jack Sprague, Chevrolet, 200, 113.3, 170, $34,650.
3. (5) Ron Hornaday Jr., Chevrolet, 200, 123.3, 170, $29,120.
4. (20) Travis Kvapil, Ford, 200, 98.9, 160, $20,285.
5. (16) Matt Crafton, Chevrolet, 200, 104.3, 155, $19,835.
6. (15) David Starr, Toyota, 200, 91.8, 150, $16,985.
7. (1) Mike Skinner, Toyota, 200, 99.8, 146, $16,485.
8. (10) Colin Braun, Ford, 200, 91.5, 142, $16,585.
9. (12) Rick Crawford, Ford, 200, 81.7, 138, $15,885.
10. (2) Johnny Benson, Toyota, 200, 104.1, 134, $16,810.
11. (9) Ted Musgrave, Toyota, 200, 91.8, 130, $15,135.
12. (11) Chad McCumbee, Chevrolet, 200, 83.4, 127, $14,860.
13. (23) Terry Cook, Toyota, 200, 74.9, 129, $14,760.
14. (19) Shane Sieg, Toyota, 200, 78.4, 121, $14,660.
15. (26) Jon Wood, Ford, 200, 64.8, 118, $15,510.
16. (7) Justin Marks, Toyota, 200, 68.9, 115, $14,860.
17. (8) Donny Lia, Chevrolet, 199, 63.7, 112, $14,360.
18. (30) Dennis Setzer, Dodge, 199, 51.4, 109, $14,260.
19. (13) Shelby Howard, Chevrolet, 199, 59.8, 106, $14,160.
20. (27) Brendan Gaughan, Ford, 197, 50.7, 103, $13,510.
21. (17) Chad Chaffin, Chevrolet, 197, 53.9, 100, $12,710.
22. (31) Andy Lally, Chevrolet, 197, 37.8, 97, $11,610.
23. (29) Stacy Compton, Dodge, 197, 44.6, 94, $11,510.
24. (24) Landon Cassill, Chevrolet, 197, 60.6, 91, $11,410.
25. (18) Erik Darnell, Ford, 195, 60.3, 88, $11,310.
26. (28) Scott Lagasse Jr., Ford, 188, 36.4, 85, $11,210.
27. (3) Kyle Busch, Toyota, 183, 125.1, 92, $13,010.
28. (22) Ryan Lawler, Chevrolet, Engine, 179, 48.2, 79, $11,010.
29. (21) Todd Bodine, Toyota, Accident, 170, 70.4, 81, $10,885.
30. (25) Jason White, Dodge, Engine, 129, 38.9, 73, $10,785.
31. (32) J.C. Stout, Chevrolet, Accident, 121, 33.1, 70, $10,685.
32. (14) Brian Scott, Chevrolet, Accident, 47, 48.0, 67, $10,610.
33. (35) Ryan Seaman, Chevrolet, Accident, 13, 30.5, 64, $10,585.
34. (33) Larry Gunselman, Dodge, Handling, 7, 31.6, 0, $10,510.
35. (34) Nick Tucker, Dodge, Vibration, 7, 29.2, 0, $10,485.
36. (36) Butch Miller, Chevrolet, Axle, 6, 28.6, 55, $10,427.
Race Statistics
Average Speed of Race Winner: 100.279 mph.
Time of Race: 1 hour, 59 minutes, 40 seconds.
Margin of Victory: 3.379 seconds.
Caution Flags: 8 for 40 laps.
Lead Changes: 5 among 5 drivers.
Lap Leaders: Busch 1-96, Hornaday Jr. 97-132, Cook 133-134, Bodine 135-149, Speed 150-200.
Leaders Summary: Busch 1 time for 96 laps, Speed 1-51, Hornaday Jr. 1-36, Bodine 1-15, Cook 1-2.
Point Standings: Crawford 1,131, Crafton 1,111, Hornaday Jr. 1,107, Bodine 1,082, Benson 1,077, Sprague 1,066, Skinner 1,064, Starr 1,063, Cook 1,049, McCumbee 1,026.
The Limited Appeal of Limited-Benefit Insurance
Is having some sort of health insurance—even spotty coverage—better than having no protection at all? That’s the conventional wisdom behind initiatives like the bill signed last week by Florida Gov. Charlie Crist that allows insurers to sell inexpensive health insurance policies with limited benefits to uninsured Floridians. The new law is the latest example of a nationwide trend toward offering “limited benefit” or “bare bones” plans that often cover some everyday medical expenses like visits to the doctor and prescription medications but may come up seriously short if a policyholder gets seriously ill.
The governor acknowledges that the new Florida plans won’t offer “Cadillac coverage.” But for $150 a month or less, he says, they’ll include some coverage for preventive services, drugs, surgery, screenings, and durable medical equipment, among other things. And how is that possible, you’re wondering. Some plans won’t provide catastrophic coverage that would pick up the tab for major medical expenses like cancer treatment or heart surgery, for example, nor will they necessarily cover all of the benefits available through comprehensive plans, like podiatry or certain transplants. There could be dollar limits or other restrictions as well.
It’s easy to understand the appeal of these policies to politicians and business owners, who are scrambling to find ways to insure people amid escalating costs. But consumers need to ask hard questions about what they’re really getting for their money and read the fine print of any policy they’re considering. “I could cover everybody for a dollar a head, but the policy wouldn’t cover a toothbrush,” says Karen Pollitz, a research professor at the Health Policy Institute at Georgetown University.
Low premiums can make these plans seem very affordable, but people should focus instead on what they’d pay out of pocket if they got sick. “The whole point of health insurance is what happens if your health gets worse,” says Pollitz. I’ve written about how people with cancer, for example, can be hard hit by coverage shortfalls.
Here are typical areas where low-cost, limited benefit plans cut corners. If you’re thinking about buying one, make sure you understand that you might well be agreeing to these details:
What do you think? Is it worth it to buy a policy that may not provide comprehensive coverage if you get sick?
Concern over RBS insurance sale as Italian giant pulls out
ITALIAN insurer Generali yesterday became the second big-name player to drop out of the £7 billion auction for Royal Bank of Scotland’s insurance arm – prompting analysts to question the timing of the sale.
Generali dropped out of the running just hours ahead of what is believed to have been the first unofficial bid deadline set by RBS, following on from the recent withdrawal of Warren Buffett’s Berkshire Hathaway.
It triggered speculation among CityADVERTISEMENTanalysts that interest in the division, whose best-known brands are Direct Line and Churchill, is fading as RBS tries to bolster its financial base.
The Scottish bank has also launched a £12bn rights issue. One analyst, who preferred not to be named, commented: “Many people have said you don’t sell a business to deal with a capital situation.
“You sell if you can get more selling it than it is worth keeping it. RBS’s problem is that people know that it put the business on the market unsolicited, and so some might see it as a forced seller and be trying to knock down the price.
“If RBS dig their heels in, that could be the reason we are seeing the likes of Generali and Buffett walk away.”
Another analyst said: “The timing of the insurance division sale is odd. It made £900 million in 2007. It is not an insignificant piece of RBS. Whatever the merits, or otherwise, of the sale, these withdrawals show it is not all going smoothly.”
Analysts said Zurich Financial Services remains the front- runner – although Generali, with its deep pockets, was also seen as a strong candidate.
Zurich already has a growing UK presence and hired RBS Insurance’s former head, Annette Court, two years ago. Buying RBS Insurance would propel it to the top of the pile in Europe’s most competitive motor market.
Generali gave no reason for its decision to pull out. But sources close to the situation blamed high price expectations and RBS’s unwillingness to consider breaking off even some of the parts that make up the unit, Britain’s largest motor insurer.
One source said: “The price was full and there wasn’t much flexibility in terms of being able to cherry-pick the assets.” The source said the Italians had been more interested in some of the RBS Insurance assets – its Spanish operation Linea Directa, for example – than in others.
The withdrawal of Generali and Buffett is likely to trigger fresh debate over the price and conditions of the sale.
RBS put the unit on the block last month to rebuild a balance sheet that had been stretched to near minimum levels after its part in the acquisition of ABN Amro and writedowns.
Other possible bidders are Allianz from Europe; Allstate, Travelers and AIG from the United States; and China’s Ping An, according to people familiar with the situation.
By Martin Flanagan
Dangers of exaggerating an insurance claim
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Exaggerating or lying on an insurance claim may seem like a sneaky but harmless way of making some extra cash, but consumers are more likely to get caught than ever before and with increasingly serious consequences.
Insurer RSA’s latest fraud survey assessed how likely people are to lie when making a claim together with general attitudes towards insurance fraud.
The survey revealed that 1.2m Brits don’t view this type of fraud as a serious offence. Nearly half of those (40%) who think it’s not wrong to lie when making a claim, do so because they believe it’s only a little fib.
The consequences of committing insurance fraud were also explored in the research. It revealed that three-quarters (75%) of Welsh people surveyed think committing insurance fraud could result in their policy being voided.
Additionally, almost two-thirds (64%) realise that they may have to pay back previous claim payments and 57% realise that the fraud could result in them having to pay higher premiums.
These minor consequences may not deter the majority of Welsh respondents, but the possibility of a black mark on their financial record would make 79% think twice about committing fraud.
John Beadle, RSA’s counter-fraud manager, said: “The reality is that insurance fraud adds a significant amount to overall claim costs and it’s the honest policyholders who are the true victims. Fraud adds an additional 5% onto their insurance bills.
“Consumers need to be aware that in the near future we will be able to monitor fraud across a spectrum of financial products. So if a person commits fraud on an insurance claim and is detected, other financial services companies, such as mortgage lenders and credit card providers, will know and that will have an impact on the success of their application.”
Fraudulent insurance claims cost the industry more than £1.5bn a year. To counter this, insurers are making major inroads in the detection and prevention of fraud through cross-industry efforts such as the Insurance Fraud Bureau (IFB) and investing in technology that allows data sharing.
In 2006, insurance companies detected and prevented more than £480m of fraudulent general insurance claims – a threefold increase in the amount detected in 2003.
by Aled Blake, Western Mail
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