National Newsbriefs

Katrina Churns in $34.4B in Losses:
Hurricane Katrina is expected to cost U.S. property/casualty insurers an estimated $34.4 billion in insured property losses, making it the costliest U.S. catastrophe ever, according to preliminary estimates by ISO’s Property Claim Services unit.

Katrina caused widespread damage to homes and businesses in six states–Louisiana, Mississippi, Alabama, Florida, Tennessee and Georgia. New Orleans bore the brunt of the hurricane’s fury as rising flood waters and wind wreaked havoc on the city.

Policyholders in the affected states are expected to file more than 1.6 million claims for damage to personal and commercial property, automobiles, and boats and yachts. At an inflation-adjusted $20.8 billion, Hurricane Andrew in 1992 was the costliest catastrophe in the U.S. until now.

Following is the breakdown of insured property damage and claims count: Louisiana $22.6 billion, 900,000 claims; Mississippi $9.8 billion, 490,000 claims; Alabama $1.3 billion, 123,000 claims; Florida $468 million, 110,000 claims; Tennessee $46.1 million, 8,400 claims; Georgia $22.2 million, 3,300 claims.

The personal property loss claims include nearly 75,000 boats and yachts in the affected states, with an estimated insured value of slightly under $2 billion.

Insurers are still assessing individual losses and analyzing various scenarios that will affect ultimate claim payments. PCS will resurvey insurers in 60 days as more claims are filed and existing claims are closed.

AIG Seeks Stock from Starr International:
American International Group Inc. has asked a court to force a company led by its former chief executive, Maurice R. Greenberg, to relinquish nearly $18 billion in stock set up to benefit AIG executives, reported The Associated Press.

AIG, in court papers filed in late September in U.S. District Court in Manhattan, accused the company, Starr International Co. Inc., of breach of contract and unjust enrichment. The claim was made in response to a lawsuit in which Starr International demanded the return of $15 million in art it had allowed AIG to display in its offices before Greenberg was forced out as the company’s chief executive officer in March.

AIG said Starr has recently indicated it planned to discontinue a deferred compensation program for about 700 AIG employees.

In 1970, Starr International shareholders decided that the amount that its shares of AIG were worth above book value of about $110 million should be used to compensate AIG employees, AIG said. Starr International now has about 290 million shares or 12 percent ownership of AIG, worth roughly $18 billion, AIG said.

AIG said Greenberg, who is still chairman of Starr International, and its other directors have demonstrated that they plan to discontinue the beneficial relationship between the companies. AIG said Starr International also must continue to use its assets to compensate AIG executives, as it has pledged to do repeatedly over the last three decades.

“There’s absolutely no contract whatsoever that says Starr International must or will continue to provide a long-term compensation program,” said Howard Opinsky, a Starr International spokesman. He said the company has not yet said how it plans to use its assets in the future.

Big ‘I’ Adopts Insurer Disclosure Policy:
The national board of the Independent Insurance Agents and Brokers of America has adopted a new policy on producer compensation disclosure by carriers. The policy seeks to avoid disparate and conflicting company requirements, and to encourage carriers to consult with IIABA, its state associations and independent agents before implementing any producer compensation disclosure.
“Insurance agents, brokers and companies all must make independent decisions about whether and how to disclose the way they are compensated,” said IIABA CEO Robert A. Rusbuldt. “We recognize this fact, and we acknowledge that everyone in the industry must take all necessary steps to comply with their legal obligations. But we also recognize that a wide range of divergent company requirements could create inefficiencies that would disrupt the way insurance agencies and brokerage firms do business, and that is what we hope to avoid.”

The national board policy encourages insurers to have disclosures notify purchasers that the insurance policy was placed by an independent insurance agent or broker, not an employee of the company, and that the company believes it is efficient and effective to distribute its policies through independent insurance agents and brokers. In addition, the agent or broker placing the policy with the company may receive commission for that placement and if applicable, the agent or broker may be eligible to receive additional incentives. Any questions about the nature of the compensation should be directed to the agent or broker.

Mold Proves Yet Another Challenge:
The wake of two hurricanes on the Gulf Coast includes near-universal mold damage, a side effect that, while troublesome to home and business owners, may have its largest consequences on real estate lenders. With insurance coverage for mold damage no longer available, some mortgage lending institutions have reportedly stepped up efforts to avoid future mold risk by including the use of new mold prevention techniques and mold-resistant building materials in their construction lending guidelines.

“The recent hurricanes have brought the financially catastrophic aspect of the mold issue to the forefront, much the same way that 9/11 highlighted terrorism liabilities for financial institutions,” said Charles Perry, principal of Environmental Assurance Group and a mold consultant to mortgage lenders. “As insurers proceeded to exclude terrorism coverage, they simultaneously built in mold exclusions, allowing them to avoid billions of dollars in claims on Katrina and Rita damages down the line. However, those in the lending community that rely on healthy real estate loans and the underlying collateral to do business did not respond quickly enough.”

According to Perry, lenders who sell portfolios of loans in the secondary market are now facing the potential of being downgraded because of increased delinquencies and the moldy condition of the properties.

By including the use of newly developed mold-resistant building materials and building practices in their loan documents, real estate lenders mandate the borrower’s builder to adhere to these protocols. The newest approach reportedly includes on-site inspections for the lenders to ensure that mold prevention building techniques are being followed and the properly prescribed mold-resistant building products have been used during construction or renovation.

Spitzer Issues St. Paul Travelers Subpoena:
N.Y. Attorney General Eliot Spitzer turned his attention to St. Paul Travelers Companies recently, as the company noted last month that it was served with a subpoena from Spitzer’s office. The subpoena was reportedly related to workers’ compensation premiums. The company said that Spitzer’s office asked for documents and other information, and the company was cooperating with the requests.