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September 2006
A firefighter checks an officer
for radiation after the mock
explosion of a “dirty bomb”
in Los Angeles.

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Contents
visit us online at www.bestreview.com
Health/Employee
Benefits
38 A Cloudy Future
A recent New York law extending
the deadline for Sept. 11-related
workers’ comp claims means
insurers of first responders may
experience liability for years to
come.
28
▲
Cover Story
Cover: Photo by Getty Images, design by Ellen Wagner
105
A New Land
62
Keep Up With
The Changes
Agent/Broker
74 Aiming High
Hub International has grown by
giving its employees the freedom to
stretch their entrepreneurial spirit—
and a safety net to help them if
they stumble.
98 Take 5 Steps Closer to Your
Customers
To remain competitive, distributors
must build more profitable client
relationships.
102 Compensation Paying Off
Insight: Agents and brokers are
revising compensation plans to
encourage new sales and growth of
business from both producers and
customer service representatives.
Life
46 Term Life vs. No-Lapse UL
Sales of both product lines are
growing, but universal life with a
guaranteed death benefit threatens
to cut into term sales.
Top U.S. Life Writers by Line . .52
95 Wooing Baby Boomers
Insight: Insurers should try new
products and approaches to reach
baby boomers nearing retirement
age.
96 Boomers and Life
Insight: Improved group life
insurance benefits could entice
boomers to keep contributing at
work.
Property/Casualty
28 On Alert
Wary insurers weigh modeling and
reinsurance options against
elevated terrorism risks.
▲
35 Saying No
A Best’s Review survey reveals
insurers and agents are declining
terrorism coverage in urban, highrisk
areas.
80 Panacea or Boondoggle?
U.S. officials are taking a Coping With Catastrophe
new look at tax-deferred
The Third Article in a Series
reserves for catastrophe
claims, but questions remain about
whether they strengthen or harm
the private insurance market.
4
BEST’S REVIEW • SEPTEMBER 2006

74
Aiming High
Property/Casualty (cont’d)
86 On Dropping the Ball
Insight: Much like baseball,
insurance is a game best played
with professionalism, a team
mentality and a winning spirit.
87 Loss/Risk Management Notes
105 A New Land
Today’s mutuals are blending their
traditional business model into a
changing world.
108 A Different Outlook
Insight: D&O underwriters are
putting companies under more
scrutiny than in the past.
Regulatory/Law
70 The Question of Collateral
Reform of current U.S. collateral
requirements should be one of
many steps the industry takes to
modernize reinsurance regulation
to achieve open global markets on
fair terms.
Relaxing U.S. collateral
requirements is directly at odds
with the regulatory objectives of
adequate capacity, affordable
coverage, market stability, and
most importantly, insurer solvency.
103 On the Hill
Congress faces significant health
insurance and regulatory reform
bills in September.
104 Playing Doctor
Insight: Disability insurers should
leave medical decisions up to the
insureds and their physicians.
Reinsurance/
Capital Markets
57 A Secure Package
Life insurers are becoming more
creative in designing securitization
transactions to fund a variety of
objectives.
88 Singled Out
The hard property market and
improvements in technology have
led to dramatic increases in the
facultative reinsurance market for
catastrophe-exposed commercial
business.
Technology
62 Keep Up with the Changes
A survey of IT executives reveals
how technology is the competitive
sweet spot in the global financial
market.
91 E-Fusion 2006 Agenda
Essentials
Editor’s Prologue . . . . . . . . . 6
Comment . . . . . . . . . . . . . . . . . . 8
Briefing . . . . . . . . . . . . . . . . . 12
People in Insurance . . . . . . 18
Insurance Marketing . . . . . 20
New Products . . . . . . . . . . . 22
80
Panacea
or
Boondoggle?
92 A Strategic Approach
Insight: Dynamic Enterprise
Performance Management is a tool
to help drive profitability.
94 Technology Notes
Ratings . . . . . . . . . . . . . . . . 24
Reader Services . . . . . . . . 109
Companies . . . . . . . . . . . . 110
Advertisers Index . . . . . . . 111
The Last Word. . . . . . . . . . 112
Best’s Review also is available in digital edition. That edition placed 19th out of the 25 digital
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BEST’S REVIEW • SEPTEMBER 2006
5

Editor’s Prologue
The New Face of Risk
The terrorist attacks of Sept. 11, 2001, forced the
insurance industry to acknowledge a new dimension
of extreme risk. In numerous cases, the possibility
of more attacks has caused insurers to decline risks
they gladly would have accepted before. Our cover story,
“On Alert” on page 28, examines how the industry has
changed in the past five years as a result of terrorism and
what’s needed to handle this risk going forward. As one
respondent to our reader survey on terrorism risk (page
35) said,“We are all in this together.”
Honors for Best’s Review
The American Society of Business Publication Editors
has recognized Best’s Review with a National Gold
Award in the Technical Article category for “Hook, Line &
Sinker” by Lori Chordas in the June 2005 issue; a National
Silver Award in the News Section category for the Briefing
section in the October 2005 issue, and a Regional
Bronze Award for “Disaster on the Wing” by David Pilla in
the November 2005 issue.ASBPE is the professional association
for full-time and freelance editors and writers
employed in the business, trade and specialty press.
Trade,Association and Business Publications International
presented a Tabbies Silver Award for Product Section
to Best’s Review for the October and June 2005
New Products pages, edited by Ron Panko. TABPI is a
worldwide organization that encourages editorial ethics
and excellence. The Tabbies awards program is open to
English language B2B publications in 40 countries.
Publications Management Magnum Opus Awards
honored Best’s Review with a Silver Award in the Best
News Story (editorial) category for “Disaster on the
Wing” by David Pilla, an Honorable Mention in the Information
Graphics category for “Back to Basics” by Lori
Chordas in the July issue, and a Gold Award in the Best
Supplement (design) category for The Guide to Understanding
the Insurance Industry, which was sent to all
Best’s Review subscribers with the April 2005 issue.The
awards are presented in conjunction with the Missouri
School of Journalism.
Published Since 1900
BEST’S REVIEW
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EDITOR, Best’s Review Sally Whitney (Sally.Whitney@ambest.com)
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PUBLISHED BY A.M. BEST COMPANY
PRESIDENT AND CHAIRMAN Arthur Snyder
EXECUTIVE VICE PRESIDENTS Arthur Snyder III
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Sally Whitney is editor. You may reach her at (908) 439-
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Best’s Review (ISSN 1527-5914, ISBN 1-933062-59-2) is published monthly by A.M. Best. Co. Inc. Editorial
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6 BEST’S REVIEW • SEPTEMBER 2006

We make our clients No. 1.
And they returned the favor.
The Hartford recently became the No. 1 seller of new group
short- and long-term disability insurance, according to the
2005 market share report issued by LIMRA International.*
It’s the sort of recognition we strive for by offering a full
range of life and disability products, expanded distribution,
fast and accurate claims management and unwavering
customer service. Contact a Hartford representative or log
onto http://groupbenefits.thehartford.com to learn more
about our competitive group benefit solutions.
We deliver on our promises every day.
The Hartford ® is The Hartford Financial Services Group, Inc. and its subsidiaries, including issuing companies Hartford Life and Accident Insurance
Company, Hartford Life Insurance Company, and Hartford Life Group Insurance Company. All benefi ts are subject to the terms and conditions of
the policy. Policies underwritten by the issuing companies listed above detail exclusions, limitations, reduction of benefi ts and terms under which
the policies may be continued in force or discontinued.
*Source: 2005 LIMRA U.S. Group Disability Sales Survey. The Hartford’s No. 1 ranking based on annualized new disability sales premium for full-year 2005.
© 2006 The Hartford Financial Services Group, Inc.

Comment
Is Insurance Industry Crying Wolf?
Once again the insurance industry
is crying “wolf!” Rick Cornejo’s
recent article (“Katrina-Loss Lawsuits
Over Flood Damage Threaten Insurance
Market, Experts Say,”page 16; the
article first appeared in BestWeek, July
10, 2006) bemoans that insurance
companies are in a “no-win situation”
because they might have to pay
claims arising out of Hurricane Katrina
law suits.
This is the same tired old saw
that has been repeated for decades.
We have seen it because we have
been fighting for policyholder rights
the whole time.
Crying wolf over insurance
“crises” is a constant theme of insurance
companies, as a method of
reducing policy obligations. When
the product liability “crisis” hit, insurance
companies cried wolf. The
industry survived and thrived. When
the asbestos “crisis” hit, the industry
cried wolf. They survived and
thrived.When the environmental “crisis”
hit, the insurance industry cried
wolf. They survived and thrived.
When Sept. 11 claims hit, the insurance
industry cried wolf. They survived
and thrived.
Now that insurance companies
are being called upon to deliver upon
the promises they made for claims arising
out of the Katrina disaster, once
again they cry “wolf.” Yet even after
accounting for the claims of Katrina
policyholders and other claims during
2005, the property/casualty insurance
industry made a record $44.8 billion
profit last year. This profit increase, an
18.7% increase over the previous year,
included Hurricane Katrina and other
big storms. In addition to enormous
profits, the insurance industry raised
its surplus by more than 7% to $427
billion, according the National Association
of Insurance Commissioners.
Perhaps policyholders paying
premiums that are too high, and
receiving claim service that is too
miserly, should be the ones crying.
William G. Passannante
Anderson Kill & Olick, P.C.
Guaranty Funds Only Part of Security
(Editor’s Note:The following letter
is in response to A.M.Best’s 2006 Annual
Hurricane Study, highlights of which
appeared in the July 2006 issue of
Best’s Review.)
With the first post-Katrina hurricane
season upon us, all eyes are nervously
focused on the property/casualty
industry’s response to the
mega-storm everyone hopes never
happens. One concern is can the statebased
guaranty funds rise to the challenge
should weather claims spark
new insolvencies? The system of property/casualty
guaranty funds was created
by state legislatures with one purpose
in mind—to pay the outstanding
claims of insurance policyholders if
their insurer becomes insolvent. It was
designed to provide a limited safety
net for personal insurance consumers
who could suffer financial ruin if their
auto or homeowner claims were not
paid. But the funds are only one part
of a comprehensive public policy
framework that impacts the security of
insurance consumers.
Critical to the overall picture is
the solvency monitoring responsibilities
of insurance regulators intended
to spot problems before it’s too late.
Additionally, underwriting restrictions,
rate adequacy, loss mitigation and land
use regulations are public sector
responses that affect an insurer’s ability
to meet contractual obligations to
its customers. We have even seen the
federal government acknowledge that
some losses are too large for private
industry to withstand alone and have
provided a temporary backstop in the
event of terrorism losses.
The record of the funds speaks
for itself; since inception of the system
more than 30 years ago, guaranty
Continued on page 10
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8 BEST’S REVIEW • SEPTEMBER 2006

Comment
Correction
HealthMarkets’ 2005 revenues were
$2.1 billion.The figure was incorrect in
the August 2006 issue of Best’s Review.
Continued from page 8
association managers have administered
more than $17 billion in claims
payments—claims that would otherwise
be unmet—related to 200 different
insolvencies.
For example, insolvencies triggered
by Hurricane Andrew in the
early 1990s resulted in nearly 25,000
unpaid claims totaling $500 million.
That was more than the total amount
of assessments for all lines of business
levied by the Florida Insurance Guaranty
Association over the previous
decade.After paying out the capacity it
had on hand, FIGA worked with the
Florida Legislature to borrow money
through a tax-free municipal bond
issue that brought in $472 million.
Stories of flexibility and resourcefulness
throughout the system abound.
Still, the environment in which guaranty
associations operate is in need of
fine-tuning.
Despite the original intent of the
system to step in to pay “everyday”
insured losses, increased competition
on the commercial side of the property/casualty
industry has given rise to
some large commercial insolvencies
that consume a larger and larger share
of guaranty association capacity.
Such was the case in California
when a flurry of insolvencies involving
workers’compensation insurers,including
the state’s second-largest writer of
workers’ comp, Fremont Indemnity, hit
the California Insurance Guarantee
Association beginning in 2000.
Faced with potential liabilities of
more than $4 billion, CIGA moved
quickly to develop solutions to the crisis.
Ultimately CIGA was given the
authority to issue tax exempt bonds
over a two-year period to raise up to
$1.5 billion to continue to pay the
claims of injured workers.
A similar initiative was undertaken
in Alaska where Fremont wrote more
than a quarter of the market in workers’
compensation insurance and left
behind claims greatly exceeding the
state fund’s $4.2 million assessment
capacity. Emergency legislation was
enacted to allow the state guaranty
association to borrow money from the
Alaska Development Corp. and to temporarily
increase the assessment level.
After $19 million in paid claims, the
financial solutions developed have put
the Alaska Insurance Guaranty Association
back on solid footing.
While guaranty funds adapt to the
shifting marketplace and make
changes to pay claims even more efficiently
to those who need it most, lawmakers
and insurance regulators
should consider thoughtful and sensible
steps to make fulfillment of that
mission more attainable. The paramount
concern of everyone in the
insolvency community should be to
maintain and enhance the integrity of
the statutorily authorized state-based
guaranty fund safety net.
Laws should be modernized to
reduce coverage for high net worth,
Quote/Unquote
sophisticated commercial insureds and
to pay out insolvent estate assets more
quickly. Significant public policy
progress has been made, but much
remains to be done to maximize the
good work of the guaranty fund associations
on behalf of policyholders.
That work is paying off in more
ways than one. Lawmakers in California
are now very aware of the crucial
role guaranty funds play and are willing
to act on ideas put forth by CIGA.
Its retiring executive director, Larry
Mulryan, justifiably beams with pride
when he says that every outstanding
workers’ comp claim in his state has
been covered. But he’s quick to add
that there is no time for complacency.
He’s right.After all, the next megacatastrophe
that turns life upside
down for tens of thousands of Americans
could be right around the corner.
It’s never too early to make a good
safety net even better.
Roger H. Schmelzer, President
The National Conference
Of Insurance Guaranty Funds
Excerpted from BESTWEEK
“
Weekly Insurance Newsletter
“Catastrophe management we are continuing at a
blistering pace. We’re looking for other soft landings
for our policyholders in Florida, but we haven’t executed
any to date.
”
Tom Wilson, President and Chief Operating Officer
Allstate Corp.
“
We’re pretty flexible. As long as there’s a backstop
that works, and makes terrorism risk insurance available
and affordable for our business customers, we
”
would be interested in it and ultimately support it.
Robert A. Rusbuldt, President
Independent Insurance Agents & Brokers of America
“
There is some pricing pressure in other lines, but
”
overall reinsurance is attractive this year.
Brian O’Hara, President and Chief Executive Officer
XL Capital Ltd.
10 BEST’S REVIEW • SEPTEMBER 2006

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©2006 BlackRock, Inc. All rights reserved.

Highlights From BestWeek
Briefing
New Directors and Officers Battle
Looms Over Stock Option Backdating
Policyholder law firms are preparing for a major battle
with insurers over the backdating of stock options.
Anderson Kill & Olick P.C. is warning clients that
insurance companies reflexively will look for ways to deny
coverage, generally referring to a few tried-and-true defenses
such as rescission attempts or denials of coverage based
on exclusions for intentional or dishonest acts.
Stephen Weisbrod of Gilbert,Heintz & Randolph LLP,an
attorney who represents policyholders with respect to
insurance coverage for corporate directors and officers, said
some insurers may try to escape their obligations by asserting
that insurance applications contained misstatements or
incorporated misstatements that were made in SEC filings.
“Those methods of escaping coverage don’t usually work if
the policyholder fights back,”Weisbrod said.
The reactions from at least two major D&O writers
have been subdued. In earnings conferences, they told the
investment community not to panic.
St. Paul Travelers Cos. said its potential losses would
be limited because of its high-layer excess position; management
of limits; and the claims-made nature of the policies
in question.The fact that defense costs must be within
the policy limit would play a major role in reducing the
severity of claims, the company said during an earnings
call with investors.
So far, St. Paul Travelers has received 19 claims related to
the stock-options backdating scandal. Some of these claims
are in suits and others are notices of circumstances, Chief
Operating Officer Brian MacLean said.“We’re primary in only
one of the 19 claims,and for that account we have a $10 million
net limit. For the other 18 where we are excess, our
average attachment point is just shy of $40 million,”he said.
MacLean said the ultimate value of a typical derivative
action is something less than $10 million—well below St.
Paul Travelers’ average attachment point.“We see the problem
as it emerges as being primarily for the primary insurers
and those lower-layer excess players,”he said.
Chubb Corp., also a leading D&O writer, wouldn’t
immediately be exposed to defense costs because of its
consistent underwriting strategy over the past few years “to
shift our program participation from primary to excess layers
for publicly traded companies,” said John Degnan, chief
administration officer at Chubb.
Degnan said he believes the early hype about the
impact of backdated stock options on D&O insurers may
well be overblown and is reminiscent of the early speculation
about mutual fund claims. Also, several factors differentiate
claims over backdating of options from those of
the corporate scandals in 2001 and 2002, he said.
First, the limits on recent D&O policies are far lower
than those in force during the corporate scandals, Degnan
said.“In almost every claim we’ve received, we wrote only
one layer in an insured’s D&O program, unlike the high
12 BEST’S REVIEW • SEPTEMBER 2006
Estimates of Unscheduled*,
At-the-Money** Grants Backdated
About 23% of all at-the-money options before the
Sarbanes-Oxley Act were backdated or manipulated;
10% after SOX.
Panel A: Pre-SOX Grants***
Number Estimated
Of Fraction
Grants Backdated
All grants 13,828 23.0%
Grants by low-tech firms 10,410 20.1%
Grants by high-tech firms 3,418 32.0%
Grants by small firms 4,113 23.1%
Grants by medium-size firms 6,407 27.0%
Grants by large firms 3,308 15.4%
Grants by firms with low stock return volatility 4,493 13.6%
Grants by firms with medium stock return volatility 4,743 26.2%
Grants by firms with high stock return volatility 4,434 29.0%
Panel B: Post-SOX Grants
All grants 6,494 10.0%
Grants filed within two business days 5,002 7.0%
Grants filed more than two business days after grant date 1,492 19.9%
*A grant is scheduled if it is dated within one day of the one-year anniversary
of a prior grant, or followed by a grant that is dated within one day of
the one-year anniversary.
**If the exercise price of the grant equals the price on the grant date.
***On or before Aug. 29, 2002.
Source: Erik Lie, Professor at University of Iowa; Randall A. Heron, Professor
at Indiana University.
aggregate losses that arose in the corporate abuse cases
from our participation then in multiple layers,”Degnan said.
Degnan said most of the options-backdating notices
are derivative actions, and those directors and officers
most susceptible, particularly those that benefited from
backdating, “are likely to trigger coverage defenses and
those directors and officers who were less involved are
not likely to be found culpable.”
Weisbrod said policyholders implicated in the scandal
must file notices with insurers promptly.“If they give that
notice, then coverage is locked in for the current year
even if the claim isn’t made until some later year. It’s an
option that policyholders have to prevent insurance companies
from avoiding covering options-backdating claims
by inserting exclusions into future policies that would bar
coverage for such claims.”
Devin Beresheim, a managing director with the Marsh
FinPro practice, admitted the growing scandal has raised
concerns among underwriters but said it hasn’t yet affected
pricing or coverage.
—David Dankwa

Congress Passes Pensions
Bill, Estate-Tax Cut Fails
For the second time in two
months, an attempt by the U.S.
Senate to enact permanent
changes to the federal estate tax
failed to overcome a procedural challenge.
But the chamber was able to
declare victory on its final vote of the
2006 summer session, moving overwhelmingly
to pass comprehensive
pension-reform legislation.
By a 93-5 margin, the Senate
approved H.R. 4, the Pension Protection
Act, characterized by many as the
most significant overhaul of the U.S.
retirement security system since the
Employee Retirement Income Security
Act of 1974. Designed primarily to
close the $450 billion in funding
shortfalls of the nation’s defined-benefit
pension system, the bill grants a
seven-year window for most plans to
become fully-funded.
The measure, which passed the
House July 28, was moved without
amendment and was signed by President
Bush on Aug.17. Originally slated
for an Aug. 4 vote, the bill was moved
up on the calendar to late Aug. 3 after
Senate Democrats pushed for an
immediate cloture vote on H.R. 5970,
the Estate Tax and Extension of Tax
Relief Act.
Dubbed the “trifecta” bill by the
Republican leadership, H.R. 5970
combined a proposal to permanently
reduce the federal estate tax with
provisions that would raise the minimum
wage to $7.25 an hour and
extend a number of other popular
tax breaks—such as credits for
research and development and state
sales taxes—the leadership hoped
would entice Democrats to vote for
the bill.
The gamble failed, as it garnered
just 56 of the 60 votes needed to
close off debate and move to consideration
of the measure, actually
falling one vote shy of the 57 who
voted in June to repeal the estate tax
altogether. Repeal had been opposed
by the American Council of Life
Insurers, which didn’t take a public
“
By encouraging
Americans
to save for
retirement and
their children’s
education, this
legislation helps
to serve the
greater good.”
—Herb Allison,
CEO, TIAA-CREF
stance on the proposal to permanently
reduce the tax. The Independent
Insurance Agents & Brokers of America
favored repeal and also supported
the effort to enact a permanent
reduction.
Pension providers and life insurers
welcomed the 900-page pension
bill with open arms, as it includes a
host of provisions long sought by the
industries. In an e-mail, TIAA-CREF’s
chief executive officer, Herb Allison,
called the measure “a major victory
for the many Americans trying to
meet long-term savings goals.”
“The bill increases the amount of
money Americans can save for retirement
tax-free, promotes automatic
enrollment in retirement savings
plans and makes permanent the tax
benefits of 529 college savings plans,”
Allison wrote.“By encouraging Americans
to save for retirement and their
children’s education, this legislation
helps to serve the greater good.”
Among its major provisions, the
bill would provide safe harbor from
age-discrimination suits for employers
that transition to so-called
“hybrid” cash balance or DB/k plans,
which combine annuitized definedbenefit
payouts with 401(k) savings
and investment features. Safe harbor
from both discrimination complaints
and state anti-garnishing rules also
would be extended to 401(k) plans
that automatically enroll employees,
provided the plans match at least
50% of contributions and vest in no
more than two years.
100
Y E A R S A G O
in
San Francisco Claims Paid
BEST’S REVIEW
The September 1906 issue of Best’s
Review reported that nearly threefourths
of the insurance losses from
the Great San Francisco Earthquake
and Fire had been adjusted and paid.
An estimation of total losses at the
time was around $150 million, noting
that many of the larger companies had
completed their adjustments and payments.
The magazine commended the
work of the “Committee of Five,” a
group of five people appointed to represent
35 insurance companies. This
committee documented much of the
work done by these insurance companies
in the wake of the earthquake and
fire. Best’s Review also promised its
subscribers “a list classifying the various
companies involved at San Francisco
with reference to the treatment of
claimants,” as soon as final and indisputable
evidence had been filed.
Another provision would allow
insurers and investment firms to provide
investment advice to 401(k) and
Individual Retirement Account participants,
even where their own products
are among the investment options. To
avoid conflicts of interest, the law calls
for using certified computer models
that match 401(k) investment choices
to a participant’s profile.
The final bill also opens the door
to “life care annuities,” hybrid products
that combine the features of long-termcare
insurance with life insurance and
annuities.The provisions would allow
both life insurance and annuity products
to include riders for long-termcare
coverage and would greatly
expand the tax-free exchange of life,
endowment and annuity contracts for
long-term-care contracts.
—R.J. Lehmann
BEST’S REVIEW • SEPTEMBER 2006
13

Briefing
By the Numbers
Risk Retention Groups
Keep Growing
Risk retention groups continued
to show strong results through
fiscal year 2005, according to the
A.M. Best Co. Special Report
Risk Retention Groups Continue
to Sustain Operating Profitability.
The comments in this report refer
only to rated risk retention
groups. A risk retention group is
an association-sponsored company
formed by an affinity group
to provide liability insurance to the
group’s members as provided
under the Liability Risk Retention
Act of 1986.
Domicile Distribution,
Risk Retention Groups
Domicile Percentage Count
Vermont 48% 12
Hawaii 12% 3
Colorado 4% 1
Washington, D.C. 4% 1
Delaware 4% 1
Iowa 4% 1
Illinois 4% 1
Missouri 4% 1
Montana 4% 1
South Carolina 4% 1
Tennessee 4% 1
Texas 4% 1
Total 100% 25
Source: A.M. Best Co.
Risk Retention Groups 2005 Key Financial Results
($ Thousands)
Average
Net Net Combined
Policyholder Total Premiums Underwriting Net Ratio after
Surplus Assets Written Income Income Dividends
$592,556 $1,692,471 $404,510 $16,056 $61,705 96.0
Source: A.M. Best Co.
Risk Retention Groups, Distribution by Line of Business
25%
3%
2% 0%
41%
Medical Malpractice
Claims Made
Medical Malpractice
Occurrence
Other Liability Occurrence
Commercial Auto Liability
Other Liability Claims Made
Meetings
Sept. 13-16
National Association of
Professional Surplus Lines
Offices: Annual Convention,
Hilton Chicago, Chicago.
Phone: (816) 741-3910
Web site: www.napslo.org
Sept. 14-15
Limra International: European
Annual Meeting, Sheraton
Warsaw Hotel & Towers,
Warsaw, Poland.
Phone: (800) 235-4672; (860)
285-7789.
Web site: www.limraeurope
.com
Sept. 17-19
Life Office Management
Association: LOMA Annual
Conference and Conferment,
Westin St. Francis Hotel, San
Francisco.
Phone: (770) 984-3714
Web site: www.loma.org
Sept. 17-20
Canada Risk and Insurance
Management Society: RIMS
Canada Conference, Telus
Convention Center, Calgary,
Alberta, Canada.
Phone: (416) 638-1645
Web site: www.rims.org
Sept. 17-20
National Association of
Mutual Insurance Companies:
Annual convention,
Tampa Marriott Waterside &
Tampa Convention Center,
Tampa, Fla.
Phone: (317) 875-5250
Web site: www.namic.org
Source: A.M. Best Co.
29%
Product Liability
Sept. 17-20
2nd Annual Bermuda Captive
Conference: The Fairmont
Southampton, Bermuda.
Phone: (441) 505-9893
Web site: www.bermuda
captive.bm
14 BEST’S REVIEW • SEPTEMBER 2006

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Katrina-Loss Lawsuits Over Flood Damage
Threaten Insurance Market, Experts Say
Hit by big tax expenses and
adjustments to reserves and acquisition
costs, Scottish Re Group Ltd. posted
a second-quarter loss following the
abrupt resignations
of three key
executives.
The results
were a “sharp departure”
from the
life reinsurer’s
original projections
for the quarter,
Paul Goldean,
the company’s
interim chief executive officer,said in a
conference call.
Scottish Re’s second-quarter net
loss was $123.9 million, or $2.31 a
share, compared with net income of
$1.6 million, or 4 cents a share, a
year earlier.
16 BEST’S REVIEW • SEPTEMBER 2006
Top 5 Most Costly*
Hurricanes in U.S. History
($ Billions, restated into 2005 dollars)
40
$38.1
35
30
25
$23.1
20
15
10 $7.1 $8.4 $9.6
5
0
Great
New
England
(1938)
*Based on Insured Loss
Source: A.M. Best Co., ISO
Andrew Katrina
(1992) (2005)
Hurricane Katrina caused billions
of dollars in insured losses.That
alone has made insurers more
cautious about hurricane-prone markets.But
a slew of lawsuits against insurers
over flood damage coverage threatens
the Gulf Coast markets even more,
insurance experts said.
“The most serious threat to the
insurance market is not another hurricane
but the lawsuits filed by Mr.Hood
and Mr. Scruggs,” said Bob Hartwig,
chief economist for the Insurance
Information Institute.
Mississippi Attorney General Jim
Hood has filed a lawsuit against several
insurers, seeking coverage of flood
damage from Katrina despite long-held
flood exclusions. Meanwhile, noted
plaintiffs attorney Richard “Dickie”
Scruggs has filed several suits seeking
coverage for those whose homes were
destroyed or severely damaged by Katrina’s
storm surge.
Beyond the some $4 billion in
flood damages along the coast,Hartwig
said the suits have “introduced a wild
card that can’t be priced” by trying to
retroactively rewrite approved insurance
contracts. He said those behind
the suits “are willing to wash away
decades worth of precedent.”
Bob Detlefsen, public policy director
for the National Association of Mutual
Insurance Companies, said uncertainty
over whether courts would enforce
approved contracts is “a very serious
problem”and not just for insurers.If the
suits are defended successfully, it
would remove doubts about the legal
system and make it less likely future
suits would be filed,Detlefsen said.
Release of the second-quarter
results came just days after Scottish Re
announced the resignations of several
top executives. Scott E. Willkomm,
president and CEO, resigned July 31,
the same day the company warned it
expected a significant second-quarter
loss. He was succeeded by Goldean,
who had been the company’s
general counsel.
Following Willkomm’s resignation,
Seth Vance, former CEO of the
group’s North American segment, also
resigned. Other resignations included
that of David Huntley, CEO of the
international segment.
Chairman Glenn Schafer said
Scottish Re’s difficulties wouldn’t
involve financial restatements or
“material weaknesses from a Sarbanes-Oxley
perspective.”
At least four separate lawsuits
As it stands, the courts have so far
interpreted the flood exclusions as
binding, which is good news for insurers,
Hartwig said. But the courts have
also ruled in several cases that certain
policy language is unclear, which has
allowed the suits to continue.
“Either you value clear and accessible
language or you put a premium
on language that’s air-tight that could
withstand a legal challenge,” Detlefsen
said.“You can’t have both. Insurers are
being attacked on both sides.”
In both examples, Detlefsen said,
courts have ruled in favor of the policyholders
because of unclear policy
language. He called it a “paradox.”
Detlefsen said insurers alter policy language
in response to court rulings and
also regulatory judgments.
“Insurers are put in the position of
responding to these demands from
both the regulatory environment and
the courts,”Detlefsen said.“The cumulative
effect of this for the insurance company
is to come up with policy language
that is more and more legalistic.
The insurer is in a no-win situation.”
—Rick Cornejo
Scottish Re Posts Second-Quarter Loss, Seeks Options
Scott E.
Willkomm
Charley Wilma
(2004) (2005)
seeking class-action status on behalf
of investors were filed against Scottish
Re in U.S. District Court for the
Southern District of New York since
Aug. 3. The lawsuits claim to represent
investors who bought shares in
Scottish Re between Dec. 16, 2005,
and July 28, 2006.
After Scottish Re’s announcement
that it expected to post a second-quarter
loss and Willkomm’s resignation,
A.M.Best Co.downgraded the financial
strength rating to B++ (Very Good)
from A- (Excellent) and the issuer credit
ratings to “bbb+” from “a-” of the
group’s primary operating insurance
subsidiaries.A.M.Best also downgraded
the ICR of Scottish Re to “bb+” from
“bbb-.”All ratings, which are as of Aug.
17, were placed under review with
negative implications.
—David Pilla

Best’s Insurance Stock Indices
(Dec. 31, 2004 = 1,000.00)
Four Weeks Ended August 10, 2006
Index Month/ Year to Year/
Close Month Date Year
Best’s Insurance Composite Index 1,087.77 0.18 -6.12 1.94
Multi-Line Index (M) 984.78 2.47 -7.66 -2.27
Property/Casualty Index (PC) 1,044.36 0.28 -2.46 2.64
Life/Health & HMO Index 1,223.37 -1.35 -7.24 4.09
Life Index (L) 1,253.70 -1.17 2.62 12.84
Health & HMO Index (H) 1,201.16 -1.55 -15.39 -3.33
Brokers & Agents Index (B&A) 956.67 2.13 -12.48 4.84
NYSE Composite Index 8,209.78 2.73 5.88 8.15
Composite
1,105
Multi-Line
995
Briefing
Month/
Best’s Closing Month
Top 5 Performers Ticker Index Price Change
1. Universal American Financial Corp UHCO H 15.40 19.75
2. Republic Companies Group Inc RUTX PC 19.75 17.63
3. CNA Surety Corp. SUR PC 19.28 16.78
4. Willis Group Holdings Ltd WSH B&A 36.54 15.09
5. Safety Insurance Group Inc SAFT PC 54.91 14.04
Bottom 5 Performers
1. Scottish Re Group Ltd SCT L 6.90 -56.90
2. Citizens Financial Corp. CNFL L 4.90 -21.80
3. KMG America Corp KMA H 6.56 -21.06
4. Direct General Corp. DRCT PC 13.25 -19.40
5. StanCorp Financial Group Inc SFG L 42.16 -16.03
Indices by Segment (See bestreview.com for methodology and further details identifying the companies included in each index.)
Property/Casualty
1,060
Life/Health
1,265
1,101
988
1,056
1,255
1,097
981
1,052
1,245
1,093
974
1,048
1,235
1,089
967
1,044
1,225
1,085
13
Jul
20
27 3
Aug
10
960
13
Jul
20
27
3
Aug
10
1,040
13
Jul
20
27
3
Aug
10
1,215
13
Jul
20
27
3
Aug
10
Life Index
1,280
Health & HMO
1,255
Brokers & Agents
990
NYSE Composite
8,265
1,274
1,241
978
8,210
1,268
1,227
966
8,155
1,262
1,213
954
8,100
1,256
1,199
942
8,045
1,250
13
Jul
20
27
3
Aug
10
1,185
13
Jul
20
27
3
Aug
10
930
13
Jul
20
27
3
Aug
10
7,990
13
Jul
20
27
3
Aug
10
Source: A.M. Best Analytical Services Group.
USDA Proposing Changes to Crop Insurance
The U.S. Department of Agriculture
is proposing to simplify its crop
insurance program by eliminating
five plans of insurance and replacing
them with one.
The USDA’s Federal Crop Insurance
Corp., via a Federal Register
notice, is proposing a newly developed
“combination policy” that
would change how it provides revenue
and yield protection for small
grains, cotton, coarse grains, malting
barley, rice, canola and rapeseed.
The proposed amendments would
offer farmers a choice of revenue protection—that
is, coverage for loss of
revenue caused by low market prices,
low crop yields or a combination of
both—or just yield protection, which
covers only low yields. The changes
would replace five of the plans offered
by the USDA’s Risk Management
Agency, the entity that oversees the
federal crop insurance program: crop
revenue coverage; income protection;
indexed income protection;actual production
history; and revenue assurance
plans of insurance.
According to the RMA’s Federal
Register notice on the proposed rule
changes, the FCIC also wants to drop
revenue protection for one crop: sunflowers.That,
the RMA said, is “due to
the lack of consistent and appropriate
price data.” When determining a
base price upon which farmers are
reimbursed for their crops, the RMA
typically uses commodities prices.
However, there is no sunf lower
futures market, so to reimburse farmers
in the sunflower revenue assurance
plan, the FCIC had been tying
the prices to the soybean oil price on
the Chicago Board of Trade.
—Chris Grier
BEST’S REVIEW • SEPTEMBER 2006
17

People in Insurance
Agent/Broker
❖ INTERNATIONAL SPACE BRO-
KERS has named BENOIT CONDROY-
ER executive vice president. Most
recently, Condroyer was director of
the aerospace department at Willis
Iberia in Madrid. Previously, he was
vice president at Aon Space in Paris.
❖ Insurance broker INTEGRO
has named PAUL LAZAR principal for
the firm’s Atlanta office. Most recently,
Lazar was senior vice president
and Southeast zone finance director
for Marsh Inc.
Health/Employee Benefits
❖ HARTFORD FINANCIAL SER-
VICES GROUP INC. has named HARRY
MONTI senior vice president of benefit
management services
in its group
benefits division.
Monti joined
the group benefits
division in 2000. He
was named assistant
vice president
Harry Monti
in 2001 and vice president of service
operations in 2003, and he assumed
leadership of the claims organization
in 2004.
Life
❖ MASSACHUSETTS MUTUAL
LIFE INSURANCE CO. has named
executive vice president and chief
administrative officer ELAINE
SARSYNSKI head of MassMutual
International.
Sarsynski joined MassMutual in
2005 as senior vice president and
chief administrative officer. Prior to
joining MassMutual, she was managing
director of Babson Capital Management
LLC.
❖ NEW YORK LIFE INSURANCE
CO. elected JOHN CASSAGNE senior
vice president of the group membership
association division.The company
also named DANIEL O’BRIEN vice
president of group membership.
Most recently, Cassagne was
head of sales for group membership
with New York Life. O’Brien was previously
regional director, association
and affinity group marketing relationship
manager for Hartford Life.
Peter Gordon Takes the Reins
At John Hancock Financial
John Hancock
Financial Network
has named
Peter Gordon president,
effective Sept.1.
As president,Gordon
is responsible for
the overall growth,
expansion and profitability
of the company.
“I’m looking forward to
working to bring great
products to consumers
through a network of
knowledgeable agents
and advisers.It is an
exciting time for John
Hancock Financial Network
as the organization has begun to
expand into new markets and is evolving
all of its traditional sales agencies
into client-centered marketing firms.I
hope to use my background and prior
experience running sales organizations
to help accelerate the company’s
growth,”he said in a statement.
Most recently,Gordon was senior
vice president of sales and marketing
for John Hancock Retirement Plan
PETER GORDON
John Hancock Financial
Network is expanding into
new markets.
www.jhnetwork.com
Head Yellow
Services, Band responsible
for the overall sales
and ❖ marketing WILLIS GROUP of
retirement HOLDINGS LTD.has plans.
named “I’m WILLIAM looking E. forward
(RIC) YOCKE to taking senior on a
broader vice president leadership of Willis role
... Risk and Solutions. building upon a
strong As distribution a member of
channel,”said the Willis Risk Gordon. Solutions
“We’ll Group,Yocke look to will focus focus on
the on serving talents the of our needs people—both
Fortune 1000 in the compa-
home
of
office nies and and companies the field, the
strength with sales of of our $1 competitive
or more. products, and
billion
the recognition of our
brand name to continue
to expand our presence across
the U.S.”
John Hancock Financial Network
is the career agency distribution system
of John Hancock Life Insurance
Co.The company offers clients a range
of financial protection products and
wealth management services through
its network of employees,agents and
distribution partners.
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18 BEST’S REVIEW • SEPTEMBER 2006

Life (Continued)
❖ PRUDENTIAL FINANCIAL INC.
has named BERNARD JACOB senior
vice president and treasurer,effective
Aug.1.
He joined Prudential in January
2002. In March 2004 he became
senior financial officer for Prudential’s
domestic individual life and
annuities business.
Property/Casualty
❖ MEDMARC MUTUAL INSUR-
ANCE CO. said its chairman and chief
executive officer,
JAXON WHITE,is to
retire from active service
on Dec.31.The
company’s board has
named Chief Operating
Officer MARY
Jaxon White
TODD PETERSON to
succeed White as
CEO.He will continue
as nonexecutive
chairman.
Peterson will
become president
and CEO in January
Mary Todd
Peterson
2007.She joined
Medmarc in 2001 as vice president
and chief financial officer.In 2004 she
was named senior vice president.
❖ XL CAPITAL LTD. has named
MICHAEL LOBDELL chief executive
CHIEF ACTUARY
Widely-respected health insurer requires a
multi-faceted actuarial business leader to provide
direction on the development, application
& consistent administration of actuarial principles
& statistical techniques. Charged with
ensuring the company's financial security and
contributing to corporate objectives, this FSA
must bring 10+ years of health insurance experience,
new product development & pricing
expertise, and familiarity with M&A analysis.
VP - MARKET EXPANSION & ALLIANCE
Managed care organization seeks an innovative
leader to provide strategy, leadership & coordination
for its expansion effort into new geographic
markets. 10+ years of health plan management
experience; successful physician network
record; and working knowledge of CMS
Policy, Medicare & Medicaid required. Master's
in management or health services preferred.
of global business services, effective
in September.The company also has
named KIRSTIN
ROMANN GOULD
general counsel for
corporate affairs
and CELIA BROWN
head of global
35
years
Michael
Lobdell
Kirstin
Romann Gould
human resources.
Previously, Lobdell
was a managing
director for JPMorgan
Chase. He will
be a member of XL’s
newly formed office
of the chief executive
officer.
Gould will
continue in her
current role as the
company’s corporate
secretary.
Brown has
worked for XL and
its predecessor
companies for near-
Celia Brown
ly 18 years in various capacities.
❖ SAFECO CORP. has named
three executives to senior posts.
MIKE HUGHES was named executive
vice president of insurance operations.
TERRI DALENTA has been
appointed senior vice president of
claims and service,and KIM GARLAND
has been named president of Open
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Seas Insurance,Safeco’s product
research and innovation arm.
Hughes currently is senior vice
president of Safeco Business Insurance.Dalenta
is senior vice president
of business process improvement and
chief risk officer.Garland is vice president
of auto product management.
In part,these appointments stem
from the departure of MICHAEL
LAROCCO,president and chief operating
officer of Safeco’s property/casualty
operations,and the retirement of
DALE LAUER, head of claims and
service.
JOHN AMMENDOLA will move
from his role as head of Safeco Personal
Insurance to become senior
vice president of financial planning
and analysis. TOM TROY has been
named head of Safeco Business Insurance,
and SPENCER DONKIN was
named head of personal and commercial
insurance field underwriting.
LEW AUGUSTINE,vice president
of risk management,has been named
to succeed Dalenta as chief risk officer.
Also,co-leaders of Safeco’s new
regulatory affairs office will be LAURA
MURPHY,chief regulatory and compliance
officer,and EDWARD HEFFER-
NAN,senior vice president of government
relations.
❖ GAB ROBINS GROUP has
named EDWARD TROY chairman and
chief executive officer.
Troy will be responsible for the
company’s overall strategic direction
and management of the company.
He joined GAB Robins as president
and chief executive officer in
November 2005.
Reinsurance/Capital Markets
❖ AON RE GLOBAL has named
RODERICK THALER vice chairman and
member of the company’s operating
board.
Thaler will assume the leadership
responsibilities of the company’s
global accounts initiative and
other business activities.A 30-year
reinsurance veteran,Thaler has
expertise in areas including the
expansion of reinsurance market
capacity for certain technical property
lines of business.
BR
BEST’S REVIEW • SEPTEMBER 2006
19

Life Insurance
Awareness Month
Insurance Marketing
LIFE INSURANCE
Olympic Star
Teams With
Life Campaign
OLYMPIC GOLD MEDALIST SCOTT
HAMILTON is serving as the spokesperson
for the third annual Life Insurance
Awareness Month.Hamilton lost
his mother to cancer
when he was
19 and is also a
cancer survivor.
“Losing my mother
and fighting my
own battle with
cancer have taught
me that unexpected
events can rock
your family at any
time,and you need
to…take necessary precautions in life,”
Hamilton said in a statement.
The Life and Health Insurance
Foundation for Education will spend
millions of dollars in September educating
consumers
about the benefits
of life insurance.
The campaign includes print,radio
and television advertising.
CONFERENCES
A.M. Best, IMA
Present
Ad Summit
A.M. BEST CO. and the INSUR-
ANCE MEDIA
ASSOCIATION
will host the
2006 Insurance
Marketing and
Advertising Summit
on Nov.3,at the University Club
in New York City.Event sessions will
include how to reach independent
agents,brokers,benefits managers,
risk managers,carriers and reinsurers.
For more information and to
register,visit insurancemedia.net
or http://www.ambest.com/
conferences/advconference.html.
Insurance Marketing is compiled
by Managing Editor Lynna Goch.
BRANDING
Taking
A Stand
ALLSTATE CORP. continues its corporate
ads, which debuted in 2005, to inform opinion
leaders about the value of insurance and its vital
importance to Americans.
The second phase of the campaign covers a
range of topics including showing the value of
insurance as the “oxygen of free enterprise;”the
importance of safe teen driving and saving for
retirement.
The ads are targeted at senior business and societal
leaders, legislators, the press and financial analysts and will appear
through mid-December in the Wall Street Journal, Chicago Tribune, and
select periodicals including Business Week and Harvard Business Review,
said Lisa Cochrane, vice president, Integrated Marketing Communications for
Allstate in an e-mail interview.
BRANDING
Megabrand Insurers
Five insurers landed in Advertising Age’s ranking of the top 200
Megabrands for 2005.
Ranking Measured U.S. Ad Spending %
2005 2004 2005 2004 Change
27 48 Geico $403.3 Million $286.2 Million 40.9%
43 54 State Farm $320.1 Million $260.1 Million 23.1%
49 45 Allstate $289.2 Million $298.9 Million 3.2%
57 80 Progressive $252.4 Million $200.5 Million 25.9%
171 191 Blue Cross & Blue Shield $107.7 Million $99.3 Million 8.5%
Source: Advertising Age
Based on spending in 18 media
20 BEST’S REVIEW • SEPTEMBER 2006

WORK WITH AL LS TAT E,
AN D PE OPLE YO U’VE NE VE R ME T
WI LL F EEL LI KE TH EY AL RE AD Y KN OW YO U.
Become an Ex clusive Agent f or one of the most r espected names in the industry.
Everyone know s Al lstate, whethe r they’re a customer or a start- up bonu s, Al lstate provid ed comput er, internet ho me
no t. As an Al lstate Ex clusive Ag ent, you can leverage that page, telephon e syst em, signag e, even pref erred pricing on
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mar k and “Our Stand” is a se rvice mark of Alls tate Insur ance Company . © 2005 Alls tate Insurance Company , Nor thbr ook, IL. Alls tate is an Equal Opportun ity Company .

New Products
SPOTLIGHT
EIAs Surpass
Indexes
During two historic, long
and lackluster stock-market
periods, the right kind of
equity-indexed annuity
would have outperformed
the Dow Jones Industrial
Average, including reinvested
dividends, according to
Pete Winer, a chartered
financial consultant with
Covenant Reliance Producers
LLC, Nashville,
Tenn. A $100,000 deposit in
1966 into an EIA that paid
50% of the index’s growth
during up years without a
cap on earnings would have
grown to $202,905 by 1982
compared with $178,449 in
the DJIA. From 1929 to
1953, it would have grown to
$427,294 as compared with
$147,031. The EIA locked in
gains annually and protected
against annual index losses.
“EIAs have been unfairly
maligned,” Winer said,
adding they are valuable for
mature investors who need
both downside protection
and the possibility of growth.
He back-tested EIA performance
using EIA software
from MCP Premium.
Average Index
Annuity Sale
Premium
$55,000
50,000
45,000
40,000
35,000
30,000
25,000
2Q04 4Q04 2Q05 4Q05
Source: Advantage Compendium
New Products is compiled
by Senior Associate Editor
Ron Panko.
Property/Casualty
New Coverage
For B&B Operators
Smith, Bell and Thompson,
a distributor based in
Vermont, has partnered
with Swiss Re’s Commercial
Insurance to offer a
bed-and-breakfast program
for the innkeeper industry.
Insurance lines offered will
cover property, general liability,
liquor, crime and
inland marine. Hotel/motel
franchises and national or
regional chains are not eligible.The
program marks
the third active program
between SBT and Swiss
Re, formerly GE Insurance
Solutions.
Hartford Offers
Accountants Cover
The Hartford Financial
Services Group has introduced
professional liability
insurance for private
accounting firms with up
to 50 accounting professionals.The
product provides
protection when an
action or a failure to take
action results in injury or
financial damage to a
client.The new coverage
expands Hartford’s range of
products that cater to the
accounting industry, including
business insurance,
workers’ compensation and
commercial auto.
Life
Principal Adds
No-Lapse UL
Principal Financial
Group has added Universal
Life Protector III to its
broad portfolio of universal
life products. It offers a
guaranteed death benefit
to age 121, issue ages to
age 85, premium-payment
options and other features.
Principal intends the products
to be useful for businesses
and individuals.
Own-Occupation
Covers Disability
The Guardian Life Insurance
Company of America
now offers through its subsidiary,Berkshire
Life Insurance
Company of America,
a catastrophic disability
benefit rider to its ProVider
Plus individual disability
income policy,which provides
own-occupation coverage
for total disability.Catastrophic
disability is
triggered by an event that
prevents the insured from
performing two or more
activities of daily living,
causes cognitive impairment
or an irrecoverable
disability.Also available is
a residual disability rider,
which covers a partial
disability limiting,but not
eliminating,the insured’s
ability to work and results
in decreased income.
Illness Product
Has Options
American General Life
Insurance Co.,part of
American International
Group,has introduced
Critical Care Plus,allegedly
the first critical-illness plan
in the industry with term
options and the only standalone
plan to cover loss of
independent living.The
product pays a lump-sum
benefit of up to $500,000
upon initial diagnosis of any
of 12 covered conditions,
including cancer,stroke and
heart attack.Term plans
range from 10 to 30 years.
The product provides
return of premium on death
less any benefits paid.
SNAPSHOT
What Americans
Know About
Retirement Income
Can name safe annual
10%
29%
retirement savings
withdrawal rate of 4%
Incorrectly believe they
can spend 10% or more
of assets each year
Do not know how
40% much to withdraw
Concerned about
69% major cutbacks in
Social Security
Retirees who say managing
assets is as hard
70%
as saving was
Advisers who say their
87% use of annuities for
income will increase
Source: New York Life Insurance Co.,
2006 Retirement Income Survey
Learn More
Principal Life
Insurance Co.
A.M. Best Company # 06150
Distribution: Career agents, independent
agents
Berkshire Life Insurance
Co. of America
A.M. Best Company # 07409
Distribution: Career agents, independent
agents and brokers
American General Life
Insurance Co.
A.M. Best Company # 06058
Distribution: Personal producing
general agents, brokers, independent
marketing organizations
For ratings and other financial strength
information about these companies,
visit www.ambest.com.
22 BEST’S REVIEW • SEPTEMBER 2006

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JUST THE RIGHT ONES.
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Moving at the speed of opportunity.

Ratings
Best’s Rating Changes
This edition of Best’s Rating Changes reflects all rating
changes—assignments,changes or placed under
review—that occurred for life, health and property/casualty
insurers domiciled in North America, as well as
international insurance companies, since this section last
appeared in the August 2006 edition of Best’s Review.
Rating
Current Previous
Action Company Name & Domicile AMB# Rating Rating
Life/Health
Academy Life Insurance Company 06003 NR-5 A-
US: Missouri
+ Allmerica Financial Life Ins & Ann Co 08491 A- B+ u
US: Massachusetts
— Great American Life Assur Co of PR 07631 B++ A-
US: Puerto Rico
Liberty Life Insurance Company 06628 NR-5 A
US: South Carolina
— North Carolina Mutual Life Insurance Co 06835 B B+
US: North Carolina
— Orkney Re Inc 60559 B++ u A-
US: South Carolina
— Scottish Re (U.S.) Inc 08785 B++ u A-
US: Delaware
— Scottish Re Life Corporation 08928 B++ u A-
US: Delaware
Seguros de Vida Triple-S Inc 68131 NR-5 A- u
US: Puerto Rico
Settlers Life Insurance Company 68040 NR-5 B++
US: Virginia
— Triple-S Inc 68130 B++ A- u
US: Puerto Rico
HMO
— Athens Area Health Plan Select Inc 64556 C pd C+ pd
US: Georgia
+ Cape Health Plan Inc 64490 C++ pd C+ pd
US: Michigan
— Central Oregon Independent Health Servcs 64496 C++ pd B- pd
US: Oregon
+ Community Health Choice Inc 64454 C++ pd C+ pd
US: Texas
— CommunityCare HMO Inc 64165 C++ pd B- pd
US: Oklahoma
+ DC Chartered Health Plan Inc 64625 B- pd C++ pd
US: District Of Columbia
Denver Health Medical Plan Inc 64420 C+ pd NR-5
US: Colorado
— Educators Health Care 68603 B- pd B pd
US: Utah
Family Health Plan Inc 68665 NR-5 D pd
US: Ohio
+ Geisinger Health Plan 68588 B- pd C++ pd
US: Pennsylvania
+ HealthPlus of Michigan Inc 68555 B- pd C+ pd
US: Michigan
+ Hometown Health Plan 68576 B pd C++ pd
US: Ohio
+ Managed Health Inc 64346 C++ pd C+ pd
US: New York
24 BEST’S REVIEW • SEPTEMBER 2006
Ratings Changed
Rating Action: (+) or (–) Rating upgraded or downgraded; (New) Assigned initial rating; (u) Rating under review
See page 26 for the current Guide to Best’s Financial
Strength Ratings or visit the A.M. Best Co. Web site at
www.ambest.com/ratings/guide.html for detailed rating
definitions.The A.M.Best rating of any company and basic
company information also are available free of charge at
www.ambest.com/ratings/access.html.
Rating
Current Previous
Action Company Name & Domicile AMB# Rating Rating
HMO (continued)
+ Medical Associates Health Plan Inc 68542 B- pd C++ pd
US: Iowa
+ Medical Health Insuring Corp of Ohio 64217 B+ pd B pd
US: Ohio
+ Mount Carmel Health Plan Inc 64112 B pd B- pd
US: Ohio
+ Neighborhood Health Plans of RI Inc 64293 C++ pd C+ pd
US: Rhode Island
Optima Health Group Inc 68940 NR-5 B+ pd
US: Virginia
+ Parkland Community Health Plan Inc 64461 C+ pd C- pd
US: Texas
+ Preferred Health 64053 B- pd C+ pd
US: Puerto Rico
+ Seton Health Plan Inc 64252 B- pd C++ pd
US: Texas
Superior Dental Care Inc 65724 B- pd NR-5
US: Ohio
+ Tufts Associated Health Maint Org Inc 68684 B pd B- pd
US: Massachusetts
UNICARE Health Plan of Virginia Inc 64725 NR-5 A-
US: Virginia
+ Virginia Premier Health Plan 64251 C++ pd C+ pd
US: Virginia
Willamette Dental of Idaho Inc 64402 NR-5 C+ pd
US: Idaho
Willamette Dental of Washington Inc 64529 NR-5 C++ pd
US: Washington
Property/Casualty
— AIMCO Mutual Insurance Co 12543 B++ A- u
US: North Carolina
New AXIS Insurance Company 13034 A
US: Illinois
Compania de Fianzas de Puerto Rico 11446 NR-4 C
US: Puerto Rico
New CORE Insurance Company 13131 A-
US: Vermont
+ Doctors Company An Interinsurance Exch 03686 A- B++
US: California
+ Doctors Company Insurance Group 18083 A- B++
US: California
— Florida Select Insurance Company 11869 E C++ u
US: Florida
Galway Insurance Company 11765 NR-5 B+
US: California
— Hawaiian Insurance & Guar Co, Ltd 11581 E C++ u
US: Hawaii
New Northwest Physicians Insurance Company10352 A- NR-5
US: Oregon

Rating
Current Previous
Action Company Name & Domicile AMB# Rating Rating
Property/Casualty (continued)
New Park Assurance Company 76069 A-
US: Vermont
+ Prime Insurance Syndicate Inc. 11306 B+ B
US: Illinois
+ Professional Underwriters Liab Ins Co 10763 A- B++
US: Utah
— Shelby Casualty Insurance Company 02277 E C++ u
US: Texas
— Shelby Insurance Company 00832 E C++ u
US: Texas
New Texas Heritage Insurance Company 13135 B++
US: Texas
— Texas Select Lloyds Insurance Company 11082 E C++ u
US: Texas
+ Underwriter for the Professions Ins Co 11091 A- B++
US: Colorado
— Vesta Fire Insurance Corporation 04407 E C++ u
US: Texas
— Vesta Insurance Corporation 01813 E C++ u
US: Texas
Ratings Changed (continued)
Rating
Current Previous
Action Company Name & Domicile AMB# Rating Rating
Property/Casualty (continued)
Vesta Insurance Group 05681 NR-5 C++ u
US: Alabama
International
+ Infrassure Ltd 83983 A- B++
Switzerland
Koelnische Rueckversicherungs 85390 NR-5 A++
Austria
New Lloyd's Syndicate 2020 48341 A s
United Kingdom
New SCOR Global P & C 78344 B++ u
France
— Scottish Annuity & Life Ins Co (Cayman) 86896 B++ u A-
Cayman Islands
— Scottish Re Limited 87677 B++ u A-
United Kingdom
Western General Insurance Ltd 85932 NR-4 B+
Bermuda
Rating
Current Previous
Action Company Name & Domicile AMB# Rating Rating
Life/Health
American Independent Network Ins of NY 60292 B u B
US: New York
American Investors Life Insurance Co 06075 A u A
US: Kansas
American Network Insurance Company 07362 B u B
US: Pennsylvania
AmerUs Life Insurance Company 06199 A u A
US: Iowa
Bankers Life Insurance Co of NY 06467 A u A
US: New York
Indianapolis Life Insurance Company 06552 A u A
US: Indiana
Penn Treaty Network America Insurance Co 06385 B u B
US: Pennsylvania
Revios Reinsurance US Inc 60212 A- u A-
US: California
SCOR Life Insurance Company 06996 B++ u B++
US: Texas
SCOR Life U.S. Re Insurance Company 06555 B++ u B++
US: Texas
Property/Casualty
General Security Indemnity Co of Arizona 02837 B++ u B++
US: Arizona
General Security National Insurance Co 02665 B++ u B++
US: New York
Health Care Indemnity Inc 03701 A- u A-
US: Colorado
Miami Mutual Insurance Company 04694 A- u A-
US: Ohio
Omni Indemnity Company 10831 A- u A-
US: Illinois
Ratings Under Review
Rating
Current Previous
Action Company Name & Domicile AMB# Rating Rating
Property/Casualty (continued)
Omni Insurance Company 10642 A- u A-
US: Illinois
Omni Insurance Group, Inc 18106 A- u A-
US: Georgia
SCOR Canada Reinsurance Company 85445 B++ u B++
Canada: Ontario
SCOR Reinsurance Company 03599 B++ u B++
US: New York
International
Revios Rueckversicherung AG 89004 A- u A-
Germany
Revios Rueckversicherung AG 77336 A- u A-
Germany
SCOR 85027 B++ u B++
France
SCOR DEUTSCHLAND Rueckversicherungs 85312 B++ u B++
Germany
SCOR Group 86155 B++ u B++
France
Scor Italia Riassicurazioni S.p.A. 85232 B++ u B++
Italy
SCOR Reinsurance Asia-Pacific Pte Ltd 86117 B++ u B++
Singapore
SCOR UK Company Ltd 85448 B++ u B++
United Kingdom
SCOR Vie 77365 B++ u B++
France
Wuertt und Badische Versicherungs-AG 84678 B++ u B++
Germany
Rating Action: (+) or (–) Rating upgraded or downgraded; (New) Assigned initial rating; (u) Rating under review
BEST’S REVIEW • SEPTEMBER 2006
25

Ratings
A Best's Rating is an independent opinion, based on a comprehensive quantitative and qualitative evaluation, of a company's balance
sheet strength, operating performance and business profile. Best's Financial Strength Ratings are not a warranty of a company's financial
strength and ability to meet its ongoing obligations to policyholders.
Financial Strength Ratings
GUIDE TO BEST’S FINANCIAL STRENGTH RATINGS
A Best's Financial Strength Rating (FSR) is an opinion as to an insurer’s financial strength and ability to meet its ongoing obligations to policyholders.
Rating Descriptor Definition
A++, A+ Superior Assigned to companies that have, in our opinion, a superior ability to meet their ongoing obligations
to policyholders.
A, A- Excellent Assigned to companies that have, in our opinion, an excellent ability to meet their ongoing obligations
to policyholders.
B++, B+ Very Good Assigned to companies that have, in our opinion, a good ability to meet their ongoing obligations
to policyholders.
B, B- Fair Assigned to companies that have, in our opinion, a fair ability to meet their ongoing obligations
to policyholders, but are financially vulnerable to adverse changes in underwriting and economic
conditions.
C++, C+ Marginal Assigned to companies that have, in our opinion, a marginal ability to meet their ongoing obligations
to policyholders and are financially vulnerable to adverse changes in underwriting and
economic conditions.
C, C- Weak Assigned to companies that have, in our opinion, a weak ability to meet their ongoing obligations
to policyholders and are financially very vulnerable to adverse changes in underwriting
and economic conditions.
D Poor Assigned to companies that have, in our opinion, a poor ability to meet their ongoing obligations
to policyholders and are financially extremely vulnerable to adverse changes in underwriting and
economic conditions.
E Under Assigned to companies (and possibly their subsidiaries/affiliates) that have been placed by an
Regulatory insurance regulatory authority under a significant form of supervision, control or restraint where-
Supervision by they are no longer allowed to conduct normal ongoing insurance operations. This would include
conservatorship or rehabilitation, but does not include liquidation. It may also be assigned to companies
issued cease and desist orders by regulators outside their home state or country.
F In Liquidation Assigned to companies that have been placed under an order of liquidation by a court of law or
whose owners have voluntarily agreed to liquidate the company. Note: Companies that voluntarily
liquidate or dissolve their charters are generally not insolvent.
S Suspended Assigned to companies that have experienced sudden and significant events affecting their balance
sheet strength or operating performance whereby the rating implications cannot be evaluated
due to a lack of timely or adequate information.
Vulnerable Secure
Rating Modifiers and Affiliation Codes
A rating modifier can be assigned to indicate that a Best's Rating may be subject to near-term change (under review), that a company did
not subscribe to Best's interactive rating process (public data) or that the rating is assigned to a syndicate operating at Lloyd's. Affiliation
codes (g, p, and r) are added to Best's Ratings to identify companies whose assigned ratings are based on group, pooling or reinsurance
affiliation with other insurers.
Modifier Descriptor Definition
u Under Review A modifier that generally is event-driven (positive, negative or developing) and is assigned to a
company whose Best's Rating opinion is under review and may be subject to change in the nearterm,
generally defined as six months.
Rating
Modifiers
pd Public Data Assigned to insurers that do not subscribe to Best's interactive rating process. Best's "pd"
Ratings reflect qualitative and quantitative analyses using public data and information.
s Syndicate Assigned to syndicates operating at Lloyd's.
Affiliation Codes g Group p Pooled r Reinsured
Not Rated Categories (NR)
Assigned to companies reported on by A.M. Best, but not assigned a Best's Rating. The five categories are:
NR-1: Insufficient Data. NR-2: Insufficient Size and/or Operating Experience. NR-3: Rating Procedure Inapplicable.
NR-4: Company Request. NR-5: Not Formally Followed.
Rating Outlook
Best's Ratings (A++ to D) are assigned a Rating Outlook that indicates the potential direction of a company's rating for an intermediate period,
generally defined as the next 12 to 36 months. Public Data Ratings are not assigned an Outlook. Rating Outlooks, which appear in the
rating rationale section of the company's Best's Company Report, are as follows:
Positive Indicates a company's financial/market trends are favorable, relative to its current rating level and, if continued, the company
has a good possibility of having its rating upgraded.
Negative Indicates a company is experiencing unfavorable financial/market trends, relative to its current rating level and, if continued,
the company has a good possibility of having its rating downgraded.
Stable Indicates a company is experiencing stable financial/market trends and there is a low likelihood that its rating will change
in the near term.
Best's Ratings are distributed via press release and/or the A.M. Best Web site at www.ambest.com, and are published in the Rating Monitor
section of BestWeek ® . Best's Ratings are proprietary and may not be reproduced without permission.
Copyright © 2006 by A.M. Best Company, Inc. Version 031606
26 BEST’S REVIEW • SEPTEMBER 2006

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Terrorism
Property/Casualty
David McNew/Getty Images
28 BEST’S REVIEW • SEPTEMBER 2006

21 ST CENTURY RISK: A firefighter checks an officer for radiation
after the mock explosion of a “dirty bomb” in Los Angeles.
▼
Key Points
• Insurers fear future terrorist
attacks may include chemical,
neurological, biological or radiological
elements.
• The events of Sept. 11, 2001,
forced insurers to have greater
concern about contract certainty,
concentration of risks and terrorism
insurance availability.
• Terrorism risk modeling, once
based on conjecture, now reflects
the realities of five years of terrorist
events.
• Insurance pros think the industry
should unite behind one plan to
replace the temporary federal backstop
for terrorism with a permanent
backstop, and time is running out.
Wary insurers weigh modeling and reinsurance options against
elevated terrorism risks.
by Bonnie Brewer Cavanaugh
In the five years since the terrorist attacks on the Pentagon
and World Trade Center, the concept of extreme
risk in the United States has gone from a focus on natural
catastrophes to the heretofore unthinkable: chemical,
nuclear, biological and radiological threats. It’s a burgeoning
realization that’s transformed the insurance industry, and is
the reason members of the insurance community are calling
for a united front to save the industry from future terrorism
losses.
Still one of the nation’s costliest insured losses, estimated
as high as $40.2 billion by the Insurance Information
Institute, the Sept. 11, 2001, attacks also significantly altered
the way insurers view their business. Details once among
the minutiae of concerns have been thrust to the forefront:
contract certainty, concentration of risks, terrorism insurance
availability.
Terrorism is a new class of business with respect to the
United States, but as a global class of business, it has been
around a long time, said Aaron Davis, director of the national
terrorism and property resources group for Chicago-based
Aon Corp., the second-largest insurance broker according to
the Best’s Review ranking of Top Global Insurance Brokers.
The original Terrorism Risk Insurance Act of 2002 and its
recent two-year extension, the Terrorism Risk Insurance
Extension Act of 2005, caused a great deal of uncertainty in
the marketplace for complex risk, for Fortune 1,000 companies,
and for risks where there is a high concentration of
terrorism exposure within a portfolio,Davis said.
“Outside the specialty stand-alone terrorism market and
a few select markets that were willing to offer terrorism
coverage prior to TRIA’s inception, it really changed the
landscape of U.S. terrorism risk,” he said.As TRIA was set to
expire at the end of 2005,“it became quite clear that a vast
majority of the P/C marketplace was going to elect to
exclude this type of exposure.” Close to 85% of the market
on capacity is looking to exclude terrorism, he added.“We
were fortunate that it was extended.”
Defining the Details
Major changes in the insurance industry began shortly
after Sept. 11, when lawsuits by the lessee of the Twin Towers,
Larry Silverstein, against his multiple insurers sought to
determine just how many insured events took place that
day: one or two? Additionally, Silverstein had leased the
WTC properties just weeks prior to the attacks, and many
of his insurance policies were not yet finalized.
Language in the policies was examined under the microscope
of the public eye, and although two trials brought
BEST’S REVIEW • SEPTEMBER 2006
29

Terrorism
Property/Casualty
Terrorism Insurance:
What’s Happening Now
Terrorism Take-Up Rates
By Quarter
There has been an almost continuous
increase in the take-up rate—the
percentage of companies buying the
coverage—over the 11 quarters that
Marsh has been tracking the
purchase of property terrorism
insurance by its clients.
2nd 2003 23%
3nd 2003
4th 2003
1st 2004
2nd 2004
3rd 2004
4th 2004
1st 2005
2nd 2005
3rd 2005
26%
33%
44%
46%
44%
48%
47%
54%
59%
4th 2005
64%
0 10 20 30 40 50 60 70 80
Terrorism Take-Up Rates
By Industry
2005 Annual
Real Estate
Financial
Institutions
Health Care
Media
Hospitality
Transportation
Education
Utility
Food &
Beverage
Technology
/Telecom
Public Entity
Retail
Energy
Construction
23%
48%
41%
42%
39%
43%
2004 Annual
60%
79%
79%
65%
76%
60%
74%
58%
69%
66%
65%
54%
65%
64%
61%
56%
42%
51%
48%
45%
36%
43%
43%
Manufacturing
38%
0 20 40 60 80
Source: Marsh & McLennan Cos., Marketwatch:
Terrorism Insurance 2006
30 BEST’S REVIEW • SEPTEMBER 2006
two different results—10 insurers
were held responsible for one event
only; nine were held responsible for
two events—the real outcome was a
major upheaval in contract certainty
for the industry at large.
It’s certainly become a sensitive
area with insurers, said Ernie Csiszar,
president and chief executive officer
for Property Casualty Insurers Association
of America.
“Some of our members have gone to
midyear renewals,” Csiszar said.
“Because of what happened with the
World Trade Center and the uncertainty
in the litigation we’ve seen come out of
that, there is a much greater sensitivity
to see that the contract is in place.”
Davis agreed:“Everyone is pressing
for fast, final policy issuance and uniformity
for temporary contracts or
binders issued at the time of the
acceptance of these policies,” which
proves how “crucial” insurance is to
disaster recovery and the economy.
Concentration of Risk
The biggest peril facing the United
States today is “homegrown” terrorists:
individuals who carry out an attack
within their own country, said Andrew
Coburn, director of terrorism research
for cat modeler Risk Management
Solutions Inc.of Newark,Calif.
Insurers are preparing for this
newest wave of terrorism by controlling
aggregate exposure, Coburn said.
“They’re looking at where they have
concentration of risk in cities or around
targets…and they’re shaping their portfolios
to levels of loss that are acceptable
to them. They’re using the same
analyses to buy reinsurance.It’s the ageold
tradition of diversifying their risk.”
“Concentration of risk is the
$64,000 question for most insurers,”
Davis said.“It gets back to the lack of
confidence that insurers have in terrorism
modeling capabilities.” While terrorism
risk models have improved substantially
since Sept.11,insurers are still
concerned about what the models
can’t yet determine: the frequency and
severity of potential events.
“A lot of the modeling firms have
been providing event scenario analysis
that is literally translating into hundreds
of billions of dollars of either economic
or insured loss from CNBR [chemical,
neurological, biological or radiological]
events,” Davis said.“Events of that magnitude
… you’re talking about events
that are not just capital-raising events,
they’re liquidity-making events for the
insurance community.”
Csiszar also expressed skepticism
that terrorism can be properly modeled
for the insurance industry:“Unless
you can get inside an irrational human
being’s mind,how do you model this?”
The New Models
The main difference between terrorism
peril and other types of peril is
its localized nature, said Frank Fischer,
primary insurance marketplace practice
leader for AIR Worldwide Corp., a
Boston-based modeling firm. AIR has
been upgrading terrorism models each
year since developing its first in 2002.
“Terrorism modeling follows not
the scientific or meteorological rules,
but what’s inside people’s minds: why
do they attack?” Fischer said. AIR
derived its information from a panel of
experts on terrorism and counterterrorism.“The
really different component
is the where,when and how often.”
AIR works on the assumption that
attacks will happen at specific targets:
symbolic targets such as the World
Trade Center, Sears Tower and the
Transamerica Pyramid, or municipal
facilities such as places of worship,
schools,infrastructure and bridges.
Modeler RMS has upgraded its terrorism
risk model annually since 2002
to reflect the evolving terrorism threat
worldwide, Coburn said.The fifth version
of RMS’s terrorism model was
released June 5.“I think the first generation
of our modeling was theoretical,”
Coburn explained. RMS did not have a
lot of data on the Jihadist left when it
began its model, but unfortunately, he
said, there’s been “a huge amount” of
additional data available since.
“The models have evolved from a
theoretical structure to a much more
data-driven model,” Coburn said. Jihadi
terrorists are “achieving bigger impact
with more attack modes…they are
using smaller bombs to achieve a
greater effect.We’ve seen them greatly

increase the number of people they’ve
killed with car bombs.”
The insurance implications of these
less-spectacular types of attacks would
be more frequent, smaller losses that
would mount up over time, according
to RMS’s recent report on Terrorism
Risk:“The biggest impact on the insurance
industry and other businesses
would be a destabilizing of financial
confidence and a period of economic
hard times.”
External influences such as rating
agencies, insurance regulators and the
passage of the original TRIA in 2002
have had a major impact on the path
taken by terrorism risk modeling, Fischer
said. A “key point” in the evolution
of terrorism insurance was an
A.M. Best Co. questionnaire on terrorism:“It
forced a lot of clients that were
not looking at it closely to take a look at
it. A.M. Best was trying to find out what
is the key information that could put
this company in financial jeopardy:‘Do
you keep track of your data?’‘Do you
know what your risks are?’ It forced a
lot of clients who said ‘I’m not going to
think about it, it’s not going to happen
again’to really focus on it,”Fischer said.
Terrorism modeling soon began to
incorporate workers’ compensation
losses and life losses in addition to personal
property losses, Fischer said.
Take-up rates for terrorism insurance,
which fizzled initially, have increased
greatly over the past few years.
According to a Marsh & McLennan
Cos. report published in June, Marketwatch:
Terrorism Insurance 2006,
take-up rates for terrorism insurance
nearly tripled in the fourth quarter of
2005 compared with mid-2003, when
Marsh began tracking the purchase of
terrorism coverage.Marsh is the largest
insurance broker according to the
Best’s Review ranking of Top Global
Insurance Brokers. Real estate firms,
financial institutions and health-care
facilities saw a 75% increase in terrorism
insurance take-up rates, and media
companies saw a 74% hike.
“Despite uncertainties over what terrorism
insurance markets will look like
in the not-too-distant future, businesses
from every industry sector continue to
purchase an ever-increasing amount of
BEST’S REVIEW • SEPTEMBER 2006
31

coverage,” the report stated.
“…Beyond 2007, the situation
is unclear.”
Marjorie Young,vice president
of Wall Street broker
E.G. Bowman, suspects that
terrorism insurance eventually
will be excluded, like
war insurance:“They’ll tack
it on as exclusion. This is
only my guess; it will
become a specialty government
supplement or written
by the government, like
flood is, by specialty insurance
companies. Like kidnap
and ransom currently is.
“There are one or two companies
that do write it right now as a standalone.
I’d hate to see what would happen
to them if this hits again,”Young
said. E.G. Bowman’s Manhattan offices
are about a half-mile east of Ground
Zero. “The impact of it could be so
humongous, especially if they hit New
York again.”
TRIA versus an Alternate Solution
There’s an ongoing “very active,
Comparing TRIA and the TRIA Extension
32 BEST’S REVIEW • SEPTEMBER 2006
The Stand-Alone Terrorism Market:
Market Capacity at Second Quarter 2006*
Max. Capacity
Q2 2006
Insurer (Group) Insurer ($ Millions)
Ace USA Illinois Union $25
American International Group Lexington,WorldSource,AIU $100
Arch Insurance Group Arch Specialty $10
Axis Specialty Ltd. Axis Specialty Ltd. $100 to $150
Berkshire Hathaway National Fire & Marine $500 to $1,000
Hannover Re International Insurance Co. of Hannover $10
Lloyd’s Various syndicates $50 to $600
Montpelier Re Montpelier Re Ltd. $50
QBE QBE $10
Glacier Re Glacier Re $25
Transatlantic Re Transatlantic Re $50
* as of April 20, 2006 Theoretical Maximum: $930 million to $2.0 billion
Source: Marsh & McLennan Cos.
vibrant debate” within the lobbying
community and policyholder groups,
such as the Real Estate Roundtable and
the Coalition to Insure Against Terrorism,
about proposals for a permanent
federal backstop for terrorism insurance,
said Joel Wood, senior vice president
for government affairs for The
Council of Insurance Agents & Brokers.
“What we’re seeing is not so much a
change in the model for terrorism itself
or reinsurance for terrorism,but sort of
Original TRIA (2002) TRIA Extension (2005)
Terminates Dec. 31, 2005 Dec. 31, 2007
Make available Must make available coverage No change
for certified “acts of terrorism”
on same terms and conditions
as for other covered risks
Covered acts Foreign terrorism in United States No change
(including war for workers’ compensation)
Certification level $5 million $5 million
Program trigger $5 million $50 million in 2006
$100 million in 2007
Covered insurance Commercial property and casualty Commercial property and
casualty, excluding auto,
burglary, surety, professional
liability, farmowners multiple peril
Deductibles 15% in 2005 17.5% in 2006
(percent of direct 20% in 2007
earned premium)
Federal reinsurance 90% in 2005 90% in 2006
quota share 85% in 2007
Industry retention for $15 billion in 2005 $25 billion in 2006
mandatory recoupment $27.5 billion in 2007
Cap on liability $100 billion $100 billion
Special advisory bodies None The President’s Working Group
on Financial Markets
Required studies Market conditions study Group life
Nuclear, biological, chemical, and
radiological (NBCR)
Source: Marsh & McLennan Cos., Marketwatch: Terrorism Insurance 2006
an evolution among insurers
of how to construct a
backstop that would work
in the marketplace that
would also fit all the political
parameters,” he said.
That’s due to a heightened
concern today about
CNBRs,he added.
Aon’s Davis noted
there’s the additional question
of insured versus
uninsured losses for CNBR
attacks; the market has to
be able to price against
natural catastrophe losses
as well as terrorism losses.
“It’s important to note that the ground
still shakes and the wind still blows, as
indicated by the 2005 windstorm activity,”
he said.“From a long-term perspective,
Aon feels that there has to be
some form of public-private partnership
for U.S.terrorism risk.
“We view TRIEA or its replacement
as something that’s directly linked to
the economy. It’s not just an insurance
issue; it’s an economic security issue,”
Davis said.
The major difference between the
insurance market today and that prior
to Sept. 11 is that things are “tougher”
today: there’s no reinsurance, Csiszar
said. He suggests a multipronged
approach to a permanent backstop,
“including...market reforms, so this
can be priced appropriately.” That
would include no price suppression
from regulators.
“You need to start a market for
insurance in a capital market instrument—cat
bonds; how viable are terrorism
bonds? We talked about them
and it’s worth a discussion because
10-to-15 years ago there was no such
thing as a cat bond. Today there is a
relatively viable market in these
bonds,”Csiszar said.
“The whole notion of some type of
reserve for terrorism events is a good
one,” he added.“Lastly, you need some
type of a pool with a federal backup to
that pool.”
“A lot of people are saying cat
bonds could be a solution to terrorism
risk,” Davis said. Cat bonds are priced
and placed in the market on the basis

of providing both a frequency and a
severity load to a set of events within
the parameters of a natural catastrophe,
he explained. “Aon’s position in
the short-term is there will never be
an adequate solution.”
Wood suggests a voluntary pooling
arrangement crafted on the premise of
last year’s House bill for the TRIA
extension, which did not mandate coverage.
“TRIEA as it exists will not be
reinstated short of another event
occurring, or short of some traumatic
changes in Congress,”he said.
TRIA proponents in the past
found a roadblock in former Treasury
Secretary John W. Snow, who in a
June 2005 report to Congress said
TRIA had served its function as a
temporary backstop and should not
be renewed in its present form. Yet
insurers could find a sympathetic ear
in Treasury Secretary Henry M. Paulson,
who has publicly supported a
federal backstop.
As chairman and chief executive
officer of global investment bank
Goldman Sachs Group Inc., Paulson
told the House Capital Markets and
Insurance Subcommittee in July 2005
that “reinsurance and, consequently,
insurance participation in the terrorism
insurance market likely will
decline significantly” if Congress didn’t
act to renew TRIA.
A report from the President’s
Working Group on Financial Markets
is due by the end of September.
Under the terms of TRIEA, the group
must submit a report on the longterm
availability and affordability of
terrorism insurance to Congress by
Sept. 30.The group includes the Treasury
Secretary and chairs of the Federal
Reserve, the U.S. Securities and
Exchange Commission and the Commodity
Futures Trading Commission.
And as head of the Treasury, Paulson
is expected to chair the group.
Reinsurance Association of America
President Frank Nutter, speaking at
RMS’s fifth annual Terrorism Risk
Management Seminar May 31 in Manhattan,
said banking groups nationwide
are pushing for a pooling mechanism
similar to London’s Pool Re.
“The industry is doing a better job
this year in pulling together to assess
what strategy to make a case for,” Nutter
said.
Nutter suggests reinsurers fold
CNBR “into a three-layer financing
structure” consisting of private industry
capacity, new private market
financing via a pooling mechanism,
and federal participation. But the
industry has “a poor record” of being
Terrorism
Property/Casualty
able to unite behind one solution, he
said.“There are a lot of creative people,
but the Congress is not very good
at sorting out competing proposals.”
“There is no unanimity on what this
long-term solution might look like,”
Csiszar agreed.“We’re going to have to
come to some consensual agreement. I
can tell you the Congress won’t act the
second time around.”
BR
BEST’S REVIEW • SEPTEMBER 2006
33

Terrorism
Property/Casualty
Saying
No
A Best’s Review survey
reveals insurers and
agents are declining
terrorism coverage in
urban, high-risk areas.
by Bonnie Brewer Cavanaugh
Insurers are apprehensive about
writing terrorism insurance in perceived
target zones such as New
York; Washington, D.C.; Chicago and
Los Angeles as a result of the terrorist
attacks of Sept. 11, 2001, according to
a recent Best’s Review survey.
About 22% of people responding to
a query on how the Sept. 11 attacks
have directly affected their business
said they have declined accounts or
restricted the availability of terrorism
insurance in urban areas or excluded
terrorism altogether. Others expressed
new concerns with concentration of
risk, low client interest in terrorism
insurance, and the added red tape
associated with writing policies that
adhere to the Terrorism Risk Insurance
Act and its extension.
“We have excluded ‘acts of terrorism’
as being covered in our policies,”a
reinsurer stated.“Also, back in 2002 we
implemented risk concentration data
collection policies.” And a primary
casualty underwriter with a heavy
workers’ comp book said because of
concentration issues, “I’ve had to
decline some accounts, primarily hightech
and hospitals.”
Overcoming Obstacles
Respondents said the greatest barriers
to private insurers’ offering terrorism
coverage are the “inadequate historical
data;”“buyers don’t want it;”
“lack of creative thinking;” and “the
extremely high deductibles under
TRIA.”An agency, brokerage or advisory
organization said terrorism, “like
What is the most significant change that the terrorist attacks of
Sept.11, 2001, have brought about in the insurance industry?
“The need for terrorism cover; in the past this was not thought to be that important.
Any lender will want terrorism cover on any asset that is financed by that
lender.”
—Other insurance-related company or organization
“The excessive amount of systems work on very short notice to comply with terrorism
insurance coverage and notification requirements.”
—Insurance company
How have the terrorist attacks of Sept.11, 2001, directly affected
your business? Have they affected your ability to offer any coverages
or have you lost any sales?
“We have increased the importance we place on the ability to recover from a catastrophe.
The recovery system was in place before, but there is heightened
emphasis now.”
—Insurance company
“Clients are more aware of the need to insure to value and for broader coverage.
Sales volume in the property area has thereby increased.”
—Agency, brokerage or adviser organization
Do you or the carriers you represent currently offer terrorism
insurance? If not, why not?
“We were impacted financially by Sept. 11 and upper management believes we
cannot expose ourselves to this risk again.”
—Reinsurance company
“Most of the reinsurers offering security to local insurance companies are excluding
the terrorism risk. On the other hand, although this cover can be bought by
local insurers on a stand-alone cover, clients in Malta are not prepared to pay
high premium for this cover, as Malta is considered to be a low terrorism risk.”
—Insurance company
In general, what’s the greatest barrier to private insurers’ offering
terrorism insurance?
“It is too paper-intensive the way it is set up currently.”
—Insurance company
“If you could offer it up to your self-imposed limit and stop, companies would be
financially more able to share the burden.”
—Other insurance-related company or organization
If TRIA is extended again, what changes should be made in it?
“Index the coverage in the federal program to a specified level of surplus depletion
for each insurance group. That is, insolvency should not be the trigger, but a
major hit to a company’s net worth should be.”
—Regulatory actuary
“Premiums collected should be accounted for and any charges made toward the
fund should be made public so we can see who is benefiting from the funds.”
—Agency, brokerage or adviser organization
“Drastically reduce deductible and retention levels so that reinsurance retentions
are nominal and terrorism is treated as a social condition.”
—Insurance company
BEST’S REVIEW • SEPTEMBER 2006
35

Terrorism
Property/Casualty
What is the most significant change that the
terrorist attacks of Sept. 11, 2001, have brought
about in the insurance industry?
10.9%
10.4%
7.1% Other
10.9% Other
27.4%
44.8%
49.2%
The evolution of terrorism risk modeling
Insurers’ new emphasis on contract certainty
Insurers’ heightened concern
about concentration of risk
The perception of the need for a
national terrorism reinsurance
program, such as the Terrorism
Risk Insurance Act
Do you or the carriers you represent currently
offer terrorism insurance?
17.6% No
In general, what’s the greatest barrier to private
insurers’ offering terrorism insurance?
26.3%
25.7%
83.5%
Yes
56%
Unpredictability of risk
Limited availability of reinsurance capacity
Adequate pricing is too unattractive to
potential buyers
Should the Terrorism Risk Insurance Act be
extended a second time after the first
Extension Act expires at the end of 2007?
17.8% No
If the Act is extended again, what changes
should be made in it?
Add coverage for acts of
50.3%
domestic terrorism
15.4%
14.3%
14.3%
Add group life insurance coverage
None. It should be exactly the same
Other
Yes
Require insurers to offer coverage for nuclear,
chemical, biological and radiological attacks
Retention levels should ensure private sector
capacity is exhausted before public moneys
are used
If the Act is not extended again, what is the
most viable alternative?
A voluntary common pool, based on the
40.2% United Kingdom’s Pool Re, that would
accumulate funds over time to cover terror
losses by participating insurers
39.1% A voluntary common pool that would
cover all property/casualty lines and all
large catastrophes
12.6%
Changes in
taxation of insurance
8%
27.4%
29.1%
82.2%
Increased ease of doing on-shore securitization
of terror risks
13.8% Other
What is your work?
36.4% Agency, brokerage or adviser organization
46.2%
Insurance company
7.1%
Other insurance-related company or organization
FEMA
flood insurance” promotes “adverse
selection against the companies.”
“It’s categorically and definitively a
bad risk, which makes it all the more
amazing that it’s not excluded or that
the premiums are not astronomical,”
said another agency, brokerage or advisory
organization representative.
“The cost needs to be spread over
all of the country, not just placed upon
the high-risk target areas,” an insurance
▼
12%
Other
company offered. “We are all in this
together.”
A majority of survey respondents,
82.2%,said the Terrorism Risk Insurance
Act, which was extended last year
through December 2007, should be
extended a second time when it sunsets
in 14 months.Changes they’d like to see
include making TRIA a permanent backstop,
making coverage on a stand-alone
basis and creating a voluntary pool.
A SOLEMN SPOT: An aerial view of Ground Zero.
“TRIA should be extended permanently
with a provision for sunset when
the federal government makes the
determination that the threat no longer
exists,”wrote an insurance company.
“Credits should be given for policyholder
mitigation strategies. You can’t
stop a plane in the sky, but you can
install ground-level explosion protection,”
said someone from an insurancerelated
company or organization. BR
36 BEST’S REVIEW • SEPTEMBER 2006

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Workers’ Compensation, Health
Health/Employee Benefits
A Cloudy Future
A recent New York law extending the deadline for Sept. 11-related workers’ comp
claims means insurers of first responders may experience liability for years to come.
by Lori Chordas
New York City Police Department detective
James Zadroga was inside 7 World
Trade Center when it began to collapse.
The 34-year-old detective was one of the
first responders to the Sept. 11, 2001, attack,
spending 470 hours searching for victims in the
debris at Ground Zero. Despite wearing a paper
mask during the clean up, Zadroga developed a
chronic cough, shortness of breath, acid reflux
and headaches, forcing him to take medication
and supplemental oxygen to breathe. By the end
of 2004, he had to take a disability leave from his
position and was granted a disability pension
equal to 75% of his salary. Earlier this year, Zadroga
died as a result of black lung disease and mercury
on the brain. He’s said to be the first NYPD
officer to die as a direct result of exposure to
Ground Zero’s toxic chemical aftermath.
FEMA
Joe Picurro of Toms River, N.J., volunteered to assist in
the rescue efforts immediately following Sept. 11. In 2004,
he discovered his nearly 30 days spent at Ground Zero
caused damage to his lungs, and he’s now unable to work
and confined to his home.“The medical bills keep coming
and my medications are costing about $2,000 a month,”
Picurro said. For several years, Picurro was denied benefits
from a federal fund set up for Ground Zero volunteers—a
determination that left him literally penniless. In July, the
New York State Workers’ Compensation Board reversed its
decision and determined his health problems were caused
during his volunteer efforts at Ground Zero.
The cloud of dust, noxious gases and fumes that blanketed
New York City and other areas is taking a toll on thousands
of individuals, including firefighters, police officers,
construction workers and volunteers, who risked their lives
to search for victims and clean up debris at Ground Zero.
Debilitating health problems that are now beginning to
surface are forcing some individuals off the job and creating
controversy about workers’ compensation claims. A twoyear
statute of limitations caused many individuals who
recently had onset of illnesses to be denied workers’ comp
benefits. However, a new law in New York now extends filing
time limits.
A Toxic Soup
In what attorney David Worby calls “the worst toxic
waste spill in the history of the U.S.,” the collapse of the
World Trade Center sent a cloud of debris and toxic materials
into the air with everything from dust and asbestos to
38
BEST’S REVIEW • SEPTEMBER 2006

ON THE SCENE: Workers continue
their efforts at the World Trade Center
in October 2001.
mercury from fluorescent light bulbs
and lead from computers.
About 10,000 Fire Department of
New York personnel and 30,000 other
workers, clean-up crew and volunteers
were exposed to environmental toxins
at Ground Zero, the Fresh Kills landfill
in Staten Island, and city and temporary
morgues. Most worked without
respiratory equipment,Worby said.
About 12,000 individuals are
now sick as a result, said Worby.The
bulk have respiratory problems, but
other conditions such as cancers
also are surfacing.
Worby represents more than 8,000
New York City firefighters, police officers
and private workers who recently
filed a federal lawsuit alleging that they
were exposed to toxic substances at
or near Ground Zero. Of those, 57
workers have died.
Industry Impact
Workers’ comp claims stemming
from Sept.11 could have a big financial
impact on the New York system,
but no one is ready yet to quantify the
effect on claims cost, said Gregory
Krohm, executive director of the
International Association of Industrial
Accident Boards and Commissions, a
not-for-profit trade association representing
government agencies charged
with the administration of workers’
comp systems.
“Published reports estimate that
about 40,000 workers were exposed to
the pollutants around the World Trade
Center in the immediate response and
clean up,” said Krohm.“The Mt. Sinai
Center for Occupational and Environmental
Medicine estimates that half of
those workers they examined may
need medical treatment. From the
descriptions I have seen, many of these
illnesses are pretty serious and could
require expensive ongoing treatment.”
New York City officials believe it
will take more than 20 years to determine
whether environmental exposures
from Sept. 11 will lead to more
health problems and increased cases of
lung disease among survivors.
Dr. Jacqueline Moline, an on-staff
physician at Mt. Sinai Medical Center
in New York, is concerned. “Many of
the cases are treatable, manageable
diseases and some individuals
can go back to work but may
require medications. I don’t
know the percentage of people
who will be affected and
don’t think it’s likely that it
would be as high as those suffering
from respiratory effects,
but the severity of what might
come may be life threatening.”
She’s concerned that even
more diseases of longer latency,
such as cancers and scarring
lung diseases, may occur
Key Points
About 10,000 Fire
Department of New York
personnel and 30,000
other workers, clean-up
crew and volunteers were
exposed to environmental
toxins. About 12,000
individuals are now sick
as a result.
sooner than experts predict.
“If I were an insurer and were
involved in insuring first responders, I
would be concerned about emerging
potential liability—one that’s financially
manageable but potentially affects
pricing of workers’ compensation coverage
because it adds a tail,” said
Robert Hartwig, executive vice president
and chief economist with the
Insurance Information Institute. He
said it may take several years for claims
to emerge, and “then they’ll be for
some kind of permanent or partial disability,
which are very expensive
claims, particularly for younger workers
who might be impaired for the rest
of their lives.”
Some insurers are preparing for
future disasters by helping their policyholders
develop mitigation programs,
said Keith Bateman, vice president
of workers’ compensation for the
Property Casualty Insurers Association
of America. “Mitigation tools, along
with hazards, are relatively straightforward.
The difficult thing is doing the
preplanning and having management
systems and coordination in place.”
Coverage Concerns
The Workers’ Compensation Terrorism
Reinsurance Pool Feasibility
• Thousands of rescue, recovery
and clean-up workers at Ground
Zero are now experiencing health
problems.
• A two-year statute of limitations
barred many individuals from filing
workers’ compensation claims.
• The overall financial impact on the
workers’ compensation system is
yet to be seen, but some industry
experts believe the effects could
be significant.
BEST’S REVIEW • SEPTEMBER 2006
39

Workers’ Compensation, Health
Health/Employee Benefits
“As of this time, the vast majority of
people have elected not to seek workers’
comp benefits.”
Study, conducted by the Tillinghast
and Reinsurance businesses of Towers
Perrin, estimated that total workers’
compensation losses total between
$2 billion and $4 billion.
By mid-2004,the state Workers’Compensation
Board said it received more
than 10,000 claims related to the attack
and recovery. In mid-June, the numbers
rose to 10,743 claims—the majority of
which include lost-time claims and
medical-only claims—and 2,123 death
benefits, of which 97% have been
resolved. The Board said of the 8,620
injury/exposure claims it has received,
92% have been fully resolved to date.
In the aftermath of Sept. 11, Congress
appropriated $175 million for
the Workers’ Compensation Board to
assist with the resulting workers’
comp claims filed by workers, volunteers
or survivors who were injured,
—John Sweeney,
NYC Law Dept.Workers’ Comp Division
became ill or died as a result of the
attacks and recovery efforts. Specifically,
Congress provided federal funds
to the U.S. Department of Labor for
the Board in three earmarked portions:
$125 million for processing of
claims, and $25 million each to reimburse
the state Uninsured Employers
Fund for benefits paid for workers
associated with uninsured employers
and for volunteers.
After the attacks, the Board created
a system to deal with the influx of
claims.“We realized a lot of the claims
were going to be similar in nature, so
we created an adjudication team that
at least for the first year or so were
handling these cases as a team. It also
enabled us to use some resources
from across the state. We had judges
assigned to teams that would periodically
come to Manhattan from other
areas to hear cases,” said Jon Sullivan, a
spokesperson with the Board. “Over
time, we’ve been able to discontinue
that process as we manage to resolve
the majority of claims.”
Many of the first responders and
rescue and recovery workers at
Ground Zero were city workers and
fall under the city’s self-insurance program.
For instance, a police officer
who’s injured or becomes ill in the
line of duty and is unable to work is
generally retired and receives a nontaxable
pension equivalent to threequarters
of his or her salary.
The city’s workers’ compensation
system has fared better than expected,
said John Sweeney, chief of the New
York City Law Department Worker’s
Compensation Division. Since Sept. 11,
the division,which excludes firefighters
and uniformed police officers, received
about 1,200 claims relating to Sept. 11.
“In perspective, we get about 18,000
claims a year,so that doesn’t represent a
very large percentage of our claims at
this point,” said Sweeney. He said about
three-quarters of the 1,200 individuals
who filed initial claims did not pursue
them, and therefore, the City did not
make any payments on these cases for
National Health Registry
Soon after Sept. 11, 2001, the New York City Department
of Health and Mental Hygiene proposed the
development of a registry of individuals exposed to
the World Trade Center disaster to trace the health impact
that resulted. In 2002, the Agency for Toxic Substances and
Disease Registry received funding from the Federal Emergency
Management Agency to collaborate with the city
department in the creation of the World Trade Center
Health Registry.
The registry, designed to track the physical and mental
health status of a large group of highly exposed persons
for up to 20 years through regular health surveys, studies
and matching with cancer registries and vital records,
found that the majority of survivors of collapsed or damaged
buildings have had one or more new or worsening
respiratory symptoms following Sept. 11. These include
symptoms of sinus problems, nose irritation and postnasal
irritation; shortness of breath; wheezing; throat irritation
and persistent cough.
About 2% of those surveyed reported newly diagnosed
asthma, while two cases of new or worsening nonrespiratory
symptoms, including heartburn, indigestion or reflux
and severe headaches, were reported having a prevalence
that exceeded 20%. Hypertension was the most frequently
reported new diagnosis followed by cancer or malignancy
of any kind and diabetes.
More than 5,300 people reported experiencing new
onset of depression, anxiety or emotional problems after
Sept. 11, according to a self-reported assessment of mental
health.Nearly 11% were determined to have probable serious
psychological distress at the time of the interview.
First responders fared the worst. Firefighters and police
officers who arrived before the first building collapsed or
soon afterward had the most serious health problems.The
registry reported that 8% of firefighters who arrived at the
scene became ill with the “WTC cough”—a debilitating,
persistent cough that forced many individuals to take at
least four weeks of medical leave.About 2% of firefighters
who arrived later reported having “WTC cough.” Also, a
higher percentage of police officers who arrived before
the first building collapsed had an abnormal spirometry
examination, which measures lung health, compared with
those who arrived during the time between the two collapses
or in following days.
40 BEST’S REVIEW • SEPTEMBER 2006

Co-sponsored by
THE AHIP SOLUTIONS PROGRAM
November 6–8, 2006
Sheraton New York Hotel & Towers
New York, New York
Putting the Pieces Together
Business Forum Keynote Speakers Address how Consumerism, Financial
Services, and Technology Fit into the Consumer-choice Model
Consumer-choice health care products continue to take center stage as the health
insurance industry discusses and debates ways to provide affordable and accessible
health care for all Americans. Join us at AHIP’s Business Forum 2006 – New Products
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From marketplace adoption, including the financial, technological, and consumer
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industry.
Featured Keynote Speakers:
Registration
To provide attendees with the highest
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opportunities, registration for Business
Forum 2006 is limited to professionals
working in AHIP Member Organizations*,
health insurance plans, financial
institutions, and Business Forum sponsors.
Clayton M. Christensen
Robert and Jane Cizik
Professor of Business
Administration,
Harvard Business
School
Jim Guest
President and CEO,
Consumers Union
David Josephs
Vice President, Head,
Consumer Directed
Healthcare, JPMorgan
Chase
Jeffrey Margolis
Chairman & CEO,
The TriZetto ® Group, Inc.
Patricia O’Brien, MD
Managing Partner,
Health Care Practice,
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& Technology
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Barry Schwartz, PhD
Author, The Paradox of
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Workers’ Compensation, Health
Health/Employee Benefits
wage replacement or medical treatment.“As
of this time, the vast majority
of people have elected not to seek
workers’ comp benefits,” he said. The
division paid slightly more than $4 million
in Sept. 11 claims thus far, $3 million
for wage replacement and $1 million
for medical treatment. Four death
benefits claims to surviving spouses or
children have been paid,he said.
“To the extent that cities may be
self-insuring or for private insurers that
provide workers’ compensation protection
for first responders, they’re
going to want to make sure that the
loss is in fact connected to an occupational
event and nothing else,” said the
III”s Hartwig.“This is along the lines of
lessons we learned from asbestos.
Without careful monitoring and objective
medical opinions being rendered,
you wind up with abuses in the system—not
necessarily by those filing
claims, but sometimes by providers
rendering treatments in excess of the
numbers that should be rendered and
abuses by attorneys that get involved
in the issue,”he said.
“While everyone is focused on the
billion dollars or so in World Trade
Center costs that were directly a result
of Sept. 11, in some cases hundreds of
millions of dollars of additional costs
could come years later,”said Hartwig.“I
think this was something that wasn’t
expected to the extent that is now
emerging.” He also said it doesn’t
appear that many individuals are eligible
for compensation through the federal
Victims Compensation Fund.
Many volunteers that assisted in
the rescue and recovery at Ground
Zero were also affected.The Workers’
Compensation Board administers a
benefits program for first responders
who voluntarily assisted in Ground
Zero and/or the Staten Island landfill
in the weeks and months following
Sept. 11. Funding for the benefits is
derived from a federal grant provided
to the State of New York for volunteer
benefits. In 2005, the Board reported
receiving 691 cases, and more than
$3.3 million was paid out that year.
Reactions in Action
A two-year statute of limitations
barred individuals from filing claims
after Sept. 11, 2003.“As a result, hundreds
of worker claims were barred,
despite the fact that many didn’t know
they were injured until after that date,”
said Krohm.
A May New York Times article
reported that 290 people filed claims
after the deadline, and as further illnesses
arise, the number is expected
to increase.
“Many of those diagnosed post-two
years after Sept. 11 had no remedy
through the workers’ compensation
system,” said Troy Rosasco, an attorney
with the law firm Turley, Redmond
and Rosasco who has been
involved in World Trade Center-related
workers’ compensation litigation.
However, he said new legislation is
about to change that.
The so-called “9/11 Bill” allows
workers who later become ill with
conditions such as asthma, chronic
obstructive lung disease, asbestosis (a
respiratory disease caused by inhaling
asbestos fibers), mesothelioma (a form
The Impact on Health Insurance
Post-Sept. 11 health problems’ effects on
the health insurance industry are difficult
to gauge. “There’s no means to
determine whether a member may have an illness
related to Sept. 11, although we haven’t
seen anything that would suggest a trend in
respiratory or other conditions in our region
since then,” said Maria Gordon-Shydlo, a
spokeswoman for Oxford Health Plans, a subsidiary of
UnitedHealthcare.
While Group Health Inc., doesn’t specifically track Sept.
Learn More
Oxford Health Insurance Inc.
A.M. Best Company # 60022
Distribution: Independent agents and brokers,
direct sales force
Group Health Inc.
A.M. Best Company # 20436
Distribution: Brokers, consultants, respond
to government RFPS
For ratings and other financial strength information
about these companies, visit www.ambest.com.
of cancer usually caused by previous
exposure to asbestos), or cancer to file
claims as “occupational diseases.”The
bill extends workers’ time to file a
claim to two years from the “date of
disablement,” rather than two years
from the date of exposure that resulted
in the denial of many claims. Claimants
who had Sept. 11 disease cases disallowed
for late claim filing problems
can re-open the denials. In mid-August,
New York Governor George Pataki
signed the bill.
“Many people now out of work
because of their Sept. 11-related disabilities,
who no longer have health
insurance through their employers
and couldn’t seek treatment, now
will be assured that they’ll get any
and all treatment they need for the
rest of their lives if they file a claim,”
said Rosasco. “But it’s all dependent
upon them knowing they now have
these rights.”
BR
11 claims, it’s seen some patterns that may suggest
a rise in such claims. Ilene Margolin, a
spokeswoman for the company, said that in 2005
the company saw a 77% rise in cough-related
claims, compared with a 11% rise in 2002 over
2001. In addition, the increase in upper respiratory
claims grew from 2% in 2002 to 21% in 2005,
reflux claims rose from 19% to 131%, asthma
rose from 6% to 62%, and mental depression claims rose
from 4% to 28%.“There are increases that were substantial
that aren’t explained by normal changes,”she said.
42 BEST’S REVIEW • SEPTEMBER 2006

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Advertisement
Speed to Market
Takes More Than
Just Technology
Life and Annuity Carriers Advised to Seek Roadmap,
Not Silver Bullet for Policy Admin Systems
The life insurance industry has emerged from a
cost-cutting agenda to a new era that promises
growth. Innovative insurance and annuity products
will be key to helping drive that growth, but few
carriers can predict the future. Most can only hope to
position themselves as fast followers of emerging
trends. Unfortunately, many are continually losing market
share in the innovation race.Their systems, processes
and organizational culture simply can’t react quickly
enough to design and introduce new products.
IT industry analysts and software vendors have been
heralding the value of service-oriented architectures.
Yet, some carriers are looking for a quick fix and are
considering installing a new administration system to
improve speed to market. This is a difficult proposition
for life and annuity providers, which must keep policies
on the books for decades. Therefore, a cautious and
structured approach is critical in this new era in which
applications are components that must work in complete
harmony across the enterprise.
“It’s important to understand your discipline and prioritize
your investments accordingly,” said Terry Meenehan,
vice president of CSC’s Life and Annuity Division.“A
strategy for resolving service issues related to a legacy
environment is going to differ from a strategy for faster
product introduction. What’s your long-term mission,
and what’s your roadmap for getting there?”
Meenehan, who has worked with numerous U.S. carriers
on business transformation, advises that before IT
and business managers invest in a new system, they
should consider a few guiding principles of enterprise
planning.
Process management is the first step.
Emphasize the process, not just transactions. New
“Most life and annuity IT executives have been cautious
about taking a knee-jerk approach to gaining
speed to market — and with good reason,” said Mike Risley,
president of the Life and Annuity Division of CSC,
one of the world’s leading IT companies.
“Implementing a new policy administration system is
something they haven’t done in years. These engagements
can cost several million dollars and frequently
invite board-level visibility. Their systems environment
could even end up harder to manage than it was
before.”
Few if any carriers can afford wholesale modernization
of their systems. So where should they focus their
investment — product innovation, customer service or
operational efficiency?
Policy administration systems are at the heart of an
insurer’s applications landscape but they don’t work
independently of other systems and processes.

Advertisement
“One single technology solution can’t solve all of an organization’s problems.Instead, evaluate your
entire organization and put together a strategy to achieve an environment of interrelated, interlocking
components that communicate across your enterprise.”
— Michael W. Risley, CSC
product development is a process that involves much
more than IT application systems. In addition to technology,
quick cycle time requires a focus on business
process, performance measurement, organization
design and shared practices. One large carrier cut more
than 10 weeks off its development cycle through
process improvements alone. This focus on process
extends well beyond product development to new
business, policy service and claims. Human-centric
business process management (BPM) tools and calculation
and rules engines enable carriers to orchestrate
entire processes involving sequences of system transactions
and manual steps. BPM tools and rules engines
are separate applications that are essential to an insurer’s
entire IT portfolio — not just the policy administration
system.
Rationalize your infrastructure based upon a pragmatic
strategy and ROI goals.
Streamline and retire systems using a systematic
approach. Some carriers adopt overly aggressive consolidation
plans, only to find that the true cost of retiring
an older system exceeds the expected life of the
policies being administered. In many cases, the most
effective solution is to surround legacy systems with
process management applications that can provide
ongoing policy service without requiring a conversion.
Plan for market and regulatory change.
M&A activity is growing. A net acquirer’s IT infrastructure
must be positioned to assume new policy
blocks or entire systems — and manage the additional
complexity. Regulatory reform is likely to change the
compliance landscape once again, which in turn will
impact IT systems. To optimize the overall cost of compliance,
it’s crucial that insurers avoid reactive, point-topoint
approaches to regulatory requirements and
instead adopt reusable approaches that focus on core
information, reporting and security.
Avoid the single-system silver bullet.
The era of monolithic applications is waning and an
interoperable component-based architecture has
emerged in its place. Systems must offer more than transaction
processing and data maintenance. They need to
support process management, business rules, calculations,
pre-built interconnectivity, imaging, telephony integration
and rich, role-specific user interfaces. The sheer
scope suggests that a single system conforming to all the
requirements is largely unattainable in the real world.
“CSC’s own new generation of components are
built on a service-oriented architecture and J2EE platform,”
Meenehan added. “Business components are
built on a common architecture that supports seamless
business processes. And, most importantly, the
components are largely compatible with existing legacy
infrastructures.”
Start with a blueprint and a roadmap.
An important step is to create a reference architecture
that provides a point of arrival for the IT infrastructure.
CSC’s own reference architecture, CSC e4 SM ,
encompasses legacy applications, data, security,
process management, externalized rules and many other
components.
The transition is as important as the end state.
Consideration must be given to hundreds of thousands
of in-force policies and major investments in integration,
which are common in a large carrier’s application
portfolio.
Look into the outsourcing option.
Many carriers wouldn’t consider outsourcing their
legacy applications as a strategic option.Yet in many cases
the outsourcing vendor brings economies of scale in
operating — and enhancing — legacy administration
systems, allowing carriers to move faster, lower costs
and streamline infrastructure.
Before seeking a silver bullet in hopes of solving
legacy issues, life and annuity carriers are advised to
take the time to create a roadmap. “Insurers need to
take a holistic view of their current technology challenges.
One single technology solution can’t solve all of
an organization’s problems,” Risley advised. “Instead,
evaluate your entire organization and put together a
strategy to achieve an environment of interrelated,
interlocking components that communicate across
your enterprise.”
For more information about CSC’s solutions for life
insurance and annuity companies, call 800.345.7672 or
visit www.csc.com/insurance

Term, Universal
Life
Sales of both product lines are growing, but universal life with a guaranteed death
benefit threatens to cut into term sales.
by Ron Panko
Term life insurance is always less
expensive at the time of purchase
than permanent insurance,right?
Well, not anymore.As of July, online
broker Insure.com showed that its
lowest-priced 30-year level-premium
term policy for a 57-year-old prospect
had higher annual premiums than a
universal life insurance policy with a
secondary no-lapse guarantee.
Granted, this is an exception to the
rule, and term policies with terms
shorter than 30 years will probably
always cost less than a no-lapse UL.But
Growth Rates by Product, Life Insurance
it is an indication that these UL
policies, which have proliferated
in the past few years, are
becoming so inexpensive that
they have emerged as an alternative
to term. Does that mean
they are actually eroding the
term life market? Not according
to several direct writers
with strong businesses in those
product lines, although some
admitted there has been a slight overlap
in what they can accomplish.
Term insurance has traditionally
filled a temporary need, usually
Key Points
• The term and universal life markets
have been the strongest in recent
years.
• No-lapse universal life has become
so inexpensive that it is making
inroads into what are traditionally
term markets.
• To take advantage of the trends,
some insurers have strengthened
their term and no-lapse UL lines.
• Scale and brand give long-time players
in these markets an advantage.
income replacement. Only a small percentage
of term policies actually pay a
death benefit because insureds tend
Continued on page 48
Percentage change, First Quarter 2005-2006
Universal life, helped markedly by sales of no-lapse UL, grew the most in all categories, while term life was the
only other product to grow in all three areas. Interestingly, the statistics for variable universal life show fewer
buyers, but that those buying the policies are heavily funding them.
Annualized Premiums
Face Amount
Number of Policies
30%
25
20
15
10
5
0
-5
-10
-15
-20
15%
10
5
0
-5
-10
10%
5
0
-5
-10
-15
0%
Universal Life
Variable Life
Variable
Universal Life
Term Life
Whole Life
Total
Universal Life
Variable Life
Variable
Universal Life
Term Life
Whole Life
Total
Universal Life
Variable Life
Variable
Universal Life
Term Life
Whole Life
Total
Source: Limra International
46
BEST’S REVIEW • SEPTEMBER 2006

Sizing Up the Competition
The illustrations provide evidence of why term life and universal life (helped by the emergence of no-lapse
guarantees) have become so popular. Producers find them easier to sell than other life products, and buyers
find they meet their needs at lower costs. Return-of-premium term policies have boosted sales of 30-
year level-premium term, and many direct writers are offering the product to prospects older than 50, even
up to age 70.
Producer Perspective:
Level of Difficulty Selling
Level Term
Yearly Renewable
Term
Return-of-
Premium Term
Universal Life
Variable
Universal Life
Whole Life
Term Shoppers - Major Motivations
Income Replacement
Final Expense
Mortgage Protection
Estate Planning
Children's Education
Business Protection
Easy
0% 20% 40% 60% 80% 100%
Neutral
Difficult
0% 10% 20% 30% 40% 50% 60%
Term Vs. Permanent
As Reported by Producers
Term Sales by Level-Premium Period
Percent of Premium
Yearly
RenewableTerm
51% of 2005 life insurance sales were individual
term products
30% of clients who purchase term convert to
permanent insurance later
5-year
10-year
15-year
20-year
30-year
Other
2004
2001
0% 10% 20% 30% 40% 50%
Maximum and Minimum Issue Ages
Level Premium Term (Return-of-premium not included)
Return-of-Premium Term Sales
By Level-Premium Period
15-year
20-year
25-year
30-year
Maximum Issue Age
Median / Range
Minimum Issue Age
Median / Range
10-Year 75/60-85 17/0-21
15-Year 70/59-75 17/0-20
20-Year 65/54-80 17/0-20
25-Year 50/45-60 17/15-18
30-Year 50/45-70 17/0-20
Percent of Premium
Percent of Policies
0% 10% 20% 30% 40% 50%
Source: Limra International
BEST’S REVIEW • SEPTEMBER 2006
47

Term sales tend to come from buyers in
their 30s and 40s, while no-lapse UL
products are favored by older and more
affluent buyers.
—Eric Miller,
Protective Life Insurance Co.
Continued from page 46
not to die while the policies are in
effect. Permanent insurance has been
for people who know they will need
a death benefit for estate planning,
liquidity or wealth transfer. But now
some no-lapse UL policies give term
buyers a better chance to actually collect
death benefits.
No-lapse UL is certainly the hotter
product, both in annualized premiums
and number of policies sold, according
to a recent Limra International report
(See “Growth Rates by Product, Life
Insurance” on page 46). The report
showed that in this year’s first quarter,
UL annualized premiums grew 26%
over premiums in last year’s first quarter,
and the number of policies sold
rose 6%. Term life was the only other
major product line to show increases
in both categories with 5% in premiums
and 2% in number of policies. So
it is not surprising that direct writers
continue to find ways to lower prices
in these lines or to beef up their offerings
in term or UL.
Lower Premiums
Protective Life Insurance Co., one
of the top competitors in both lines,
bolstered its position in May by introducing
products with lower premiums.
Its MultiTerm product reduces
term premiums by 35% at some ages
and face amounts, and Select UL VI
also offers prices lower than previous
products. No-lapse UL products, however,
have had very little impact on
Protective’s overall term insurance
sales, said Eric Miller, vice president of
marketing in the Life and Annuity Division.“While
there’s no doubt that the
popularity of secondary-guarantee UL
plans has increased, most of our customers
still make life insurance decisions
based on whether they consider
their coverage needs to be temporary
or permanent, and buy term or UL
accordingly,”he said.
While term insurance sales have
grown consistently and steadily, Protective
has seen volatility in its nolapse
UL sales, both upward and
downward.“That’s been fueled by an
increasingly competitive market as
well as some regulatory factors, like
changes in the reserve requirements
associated with these products,” said
Miller. “Together, that’s resulted in a
plethora of product rollouts, changes
and enhancements throughout the
industry that have made it a little difficult
to clearly identify sales trends.”
Term sales tend to come from buyers
in their 30s and 40s, while no-lapse
UL products are favored by older and
more affluent buyers generally associated
with estate planning and wealthpreservation
applications, Miller said.
In some cases, these older buyers are
upgrading their coverage from term
insurance or older permanent plans to
newer no-lapse products,he said.
American General Life Insurance
Co., a member of American International
Group, has not seen the emergence
of no-lapse UL affect its term
business, said Doug Israel, senior vice
president of product development and
advertising.“The only thing that is an
effect is that no-lapse UL puts further
pressure on methods to provide
reserves because no-lapse UL and term
require big reserves,” he said.“We are
beginning to see companies securitizing
their term block of business so
they can put up the required reserves.”
Also, American General does not
write 30-year term on anyone older
than 50. From a premium perspective,
70% of the company’s no-lapse UL is
issued on lives age 50 and above, while
70% of term is on people under age 50.
“So it’s a whole different demographic,
and the premium and face amounts on
the UL tend to be much higher,” said
Israel.“We believe the average no-lapse
face amount is certainly in seven figures,and
maybe in eight.”
American General’s term sales also
are being helped by a relatively new
product, return-of-premium term,
although the company sells much
more regular term. Israel said that if
ROP term were all the company sold,
American General would be in the top
20 companies in overall term sales.
Israel said that the ROP term
receives a lot of press. That might
explain why the many direct marketers
with which American General
does business, including Matrix
Direct, AccuQuote, SelectQuote and
Family Direct Insurance Services,
report that clients have been asking
about the product.“It appeals to people,
the notion of getting your money
back if you outlive the level-term
period,” Israel said.“It’s an emotionally
appealing aspect to a traditional
term product.”
Conversion Appeal
Genworth Financial, which sells
both term life and no-lapse UL, reported
that the emergence of the UL product
has not had a substantial effect on
its term sales.“We’re doing very well in
both,”said Eugene S. Koster, senior vice
president, life insurance sales with
Genworth Life Insurance Co. “We’ve
been able to show very good increases.”
But in the future, the no-lapse UL
could displace some term business if
term policyholders choose to exercise
their right to convert from the term
policy.“Our no-lapse product is quite
competitive, and it’s a great product to
convert to,” he said.“It’s really quite a
change in the market to have that
combination, of going to a UL on a
conversion that is relatively less expensive
than it was five or 10 years ago.”
Koster said Genworth’s “sweet
spot” is 20-year term. It also has
introduced a ROP product that has
seen a very nice upward sales trend.
“It’s another choice consumers can
make based on what they can
afford,” he said.
Genworth’s term buyers usually
average 35 to 40 years old, while its
48 BEST’S REVIEW • SEPTEMBER 2006

Term, Universal
Life
UL buyers are closer to 50. A distinguishing
feature about the company’s
UL business is that it is one of
the few carriers to offer a UL product
with a face amount as low as
only $25,000, which can appeal to
the middle-income market.
According to Koster, the “short
answer” about no-lapse UL affecting
the term business is that the products
“can be and should be different markets.”
First Colony Life Insurance Co., a
Genworth member company, has long
been one of the nation’s major term
life writers, and Genworth’s predecessor
companies have sold UL as far
back as 1981. But its UL secondary
guarantee, Flex Plus, which is growing
rapidly, has been on the market only
since early last year.
New Focus on Term
In June, ING U.S. Financial Services
ramped up its term life products by
means of an instant-issue policy to be
sold through banks and a revamp of its
core term product. The revamp of its
The “short answer”about no-lapse UL
affecting the term business is that the
products “can be and should be different
markets.”
—Eugene S. Koster,
Genworth Life Insurance Co.
TermSmart line lowered prices, eased
underwriting requirements and
enhanced product features.Alan S. Lurty,
senior vice president of commodity
markets for the Life Business Group,
characterized the effort as “our reentrance
into the term market.”
ING has had an affluent market
strategy, focusing on sales of high-end
UL, variable universal life and variable
annuities. “We need to complement
that strategy because we see some real
opportunities in the U.S. market for
growth, with large segments of the
population underinsured or uninsured,”
he said.“We see an opportunity
to sell a lot of term life to those folks
and make it easy for them to obtain
the insurance.”
A 35-year-old buying term insurance
to protect his or her family might
become ING’s future affluent buyer,
Lurty added.“So our strategy is to build
more volume in our business and to
start to capture the customer at an earlier
point in their life cycle,”he said.
ING expects its brokerage general
agency distribution channel, where it
has a big position, to sell the new term
products, Lurty said. The alternative
distribution channel, including quote
services and bank insert programs,also
should contribute to reaching the middle-income
market. “We are working
diligently in bringing on a lot of the
quote services,” he said. The insert
BEST’S REVIEW • SEPTEMBER 2006
49

Term, Universal
Life
program reaches the public through
banks’ monthly statements, a program
in which ING already is finding success,said
Lurty.
The June revamp brought to market
TermSmart 2006, the new version
of the TermSmart line.“In most of the
pricing cells, we are ranked number
one in terms of lowest premium,” Lurty
said. The company is able to issue
the policy in about 20 days, nearly
twice as fast as the competition,
according to Donald “Butch” Britton,
president of ING Life.“That’s contingent
upon a clean case,” he said.“If the
distributor can give us the right parameters,
we’ve built a process called
Orange Express that gets a fairly quick
delivery of the policy to the customer.”
Britton said ING also was revamping
its no-lapse UL product, which it
introduced in early 2004, and was
planning to come out with a repriced,
more competitive product in August. It
also is planning to introduce a ROP
term product in the fall. “From our
standpoint, it’s the very nature of the
product that provides some antiadverse
selection for us,” said Lurty.
That’s because buyers of ROP term are
betting they still will be alive when
the term expires.
Lurty said no-lapse UL has had a
limited effect on the industry’s termlife
business, and perhaps a modest
effect on the 30-year level-premium
term.“If anything, it’s hit the accumulation
UL more than the term business,
and it has also displaced some
VUL sales for people who did not
want the volatility.”
Producers See Effects
John Spoelker, a broker with McGohan
Brabender Financial in Dayton,
Ohio, said his experience has been
that no-lapse UL has slightly reduced
term-life sales because there are more
cases now in which permanent insurance
is “not out of reach” due to price.
“In some cases where you might have
had to sell term insurance because a
client couldn’t afford UL, now ... you
can sell UL with a guaranteed death
benefit,”he said.
Larry Young, owner of the life,
50 BEST’S REVIEW • SEPTEMBER 2006
employee-benefit and equity area of
Insurance Planning Services,Anniston,
Ala.,said the emergence of no-lapse UL
has probably affected UL sales more
than term life and has “tremendously”
affected whole life sales. Before nolapse
UL, a person who wanted lifeinsurance
protection for a lifetime
had to choose between whole life or
UL, which was 30% to 40% less
expensive, but which did not guarantee
the death benefit.“So when guaranteed
UL came out, suddenly people
had the option to buy insurance that
would last a lifetime but with substantially
less cash value than whole
life,” he said. “So my thinking was to
define a client’s objective and fit it to
his budget. If he just wanted insurance
and was not interested in the
cash value, I could help him invest
outside the life product.”
Young said that since guaranteed
UL came onto the scene, people are
more aware that a standard UL policy
could lapse. Interestingly, however,
Young said he has found that if
clients buy a standard UL without the
guarantees, and if they fund it with
the same premium as would be
required in a no-lapse product, the
nonguaranteed product would have
better cash values 20 to 40 years in
the future based on current assumptions.“Basically,
people are swapping
the cash value for the guaranteed
benefit,” he said.
ROP term has never been a product
that Young has sold. “It certainly has
some sizzle,”he said,“but if you instead
took the price difference and invested
it, where would you be 20 or 30 years
down the road?”
Exploiting Scale, Brand
Despite the steady growth of the
term life industry, it is a business that
is currently dominated by “five or six
big players,” according to Israel.“After
that, the sales numbers drop off precipitously,”
he said. “It is my observation
that if a carrier isn’t doing $40
million or $50 million in sales, it’s
really hard to get to the required unit
cost and gain enough experience
with the product.”
Israel said that the importance of
scale is such that it is becoming harder
for companies to get into the business
and compete profitably.“You need to
get the process correct, the distribution
correct, and you need to have a
reasonably competitive product,” he
said, although he pointed out that
American General’s does not always
have the lowest rate on the street.
“Term is easy to buy,” he said.“And
consumers tend to buy the product
from a name they recognize. That
probably helps us.”
Then there is the matter of reinsurance.
Israel said reinsurers have “tightened
up”on their standards and terms.
American General believes this favors
the company because it can retain
higher levels of business.Alternatively,
Israel said that insurers wanting to
reduce dependence on reinsurance
may look to raise needed reserves
through securitization, but in order to
do that, they need “millions and millions
of dollars in in-force premiums
and hundreds of thousands of lives.
“If you don’t securitize, you’re
going to pay a premium price in
today’s market for a reinsurer to provide
the needed reserves. Reinsurance
can provide the needed reserve credit,
but in today’s market, it is a costly
expense,”he said.
BR
Learn More
Protective Life Insurance Co.
A.M. Best Company # 06962
Distribution: Independent agents, broker/dealers,
direct marketing
American General
Life Insurance Co.
A.M. Best Company # 06058
Distribution: Personal producing general
agents, brokers, independent marketing organizations,
agency system
Genworth Life Insurance Co.
A.M. Best Company # 07183
Distribution: Financial intermediaries, independent
producers, dedicated sales specialists
ING Life Insurance
And Annuity Co.
A.M. Best Company # 06895
Distribution: Independent and career insurance
agents, banks, broker/dealers
For ratings and other financial strength information
about these companies, visit www.ambest.com.

TALENT EXPANDS POSSIBILITIES
www.maxre.bm
In life reinsurance, two things matter most: the terms and the
talent. To offer the most advantageous terms possible,
Max Re has assembled a life and annuity team of exceptional
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P R O P E R T Y & C A S U A LT Y I N S U R A N C E / R E I N S U R A N C E L I F E & A N N U I T Y
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Life & Annuity Team
Chris Rutten Art Palmer Marco Gervais

Term Life in Force — 2005
($ Thousands)
Metropolitan Life & Affiliated Cos $1,684,308,370
Swiss Reins Group
Aegon USA Inc
ING USA Life Group
Lincoln Natl Corp
$1,387,336,700
$997,056,489
$792,650,683
$686,496,324
Term Life in Force, Top Life Writers,
United States—2005
Term life insurance provides protection for a specified
period of time. It pays a benefit only if the insured’s death
occurs during the coverage period.
($ Thousands)
%
Rank Group Name AMB# In Force Change
1 Metropolitan Life & Affiliated Cos 70192 $1,684,308,370 10.5
2 Swiss Reins Group 70176 1,387,336,700 -1.3
3 Aegon USA Inc 69707 997,056,489 18.2
4 ING USA Life Group 70153 792,650,683 0.0
5 Lincoln Natl Corp 70351 686,496,324 -3.2
6 Scottish Re Group 70418 664,522,053 79.1
7 Munich Amer Reassurance Co 06746 632,682,258 10.5
8 Genworth Finl Group 69555 556,377,765 19.1
9 AIG Life Group 70342 554,692,833 19.6
10 Primerica Group 70183 543,199,763 5.0
11 Northwestern Mutual Group 69515 499,692,412 9.3
12 Prudential of America Group 70189 465,644,466 19.8
13 Employers Reassurance Corp 06976 415,381,160 -3.5
14 State Farm Life Group 70126 386,721,840 8.1
15 Allstate Finl 70106 354,277,619 10.6
16 Protective Life Corp 69728 293,963,462 19.7
17 Manulife Finl 69542 280,240,559 -5.9
18 Legal & Gen America, Inc 69539 261,071,056 11.3
19 NY Life Group 69714 250,664,938 9.1
20 Axa Finl Group 70194 230,464,019 9.9
21 Chase Ins Group 70424 223,326,691 4.2
22 Great-West Life Group 70366 216,161,376 28.6
23 Berkshire Hathaway Group 70158 207,712,054 -7.0
24 Oneamerica Group 70399 180,307,866 0.5
25 USAA Life Group 70364 180,266,848 13.4
Top 25 Life Writers $12,945,219,604 9.9
Total U.S. Life Industry $15,837,367,846 8.6
Source: A.M. Best Co.
Ordinary Life Average Policy Size and Lapse Ratio, Top Life Writers, United States—2005
Rank is based on the amount of total ordinary life issued in 2005.
Issued in 2005
Rank Group Name AMB# ($ Thousands) 2005 2004 2003 2002 2001
1 AIG Life Group 70342 $174,564,279 $179,655 $164,662 $119,565 $93,151 $88,739
2 Northwestern Mutual Group 69515 97,819,361 401,434 371,309 357,947 359,966 349,674
3 Genworth Finl Group 69555 85,427,158 427,102 371,866 361,584 387,725 330,873
4 Metropolitan Life & Affiliated Cos 70192 84,486,163 317,978 291,755 284,165 257,267 221,540
5 State Farm Life Group 70126 83,598,588 133,923 122,362 110,118 98,646 98,335
6 Primerica Group 70183 76,420,824 262,204 257,850 237,956 220,941 210,431
7 NY Life Group 69714 73,437,515 271,114 254,016 247,731 223,225 193,495
8 Aegon USA Inc 69707 64,081,579 166,697 174,735 160,821 150,782 135,773
9 Prudential of America Group 70189 63,519,650 494,613 401,029 336,827 269,567 197,575
10 Protective Life Corp 69728 60,172,898 409,206 402,121 422,036 343,618 254,872
11 Allstate Finl 70106 60,082,767 286,042 256,864 209,010 185,802 188,184
12 Axa Finl Group 70194 49,386,292 567,926 480,267 431,082 412,381 381,142
13 Manulife Finl 69542 44,300,372 1,130,573 695,813 643,040 591,992 600,132
14 Legal & Gen America, Inc 69539 38,982,001 576,981 544,584 531,163 567,644 513,773
15 Lincoln Natl Corp 70351 36,048,982 562,141 522,882 512,701 516,297 499,108
16 Old Mutual US Life Hldgs Inc 70403 34,927,063 197,163 190,694 148,262 153,460 141,016
17 USAA Life Group 70364 30,641,692 409,189 387,169 378,346 336,186 278,405
18 Farmers New World Life Ins Co 06373 30,477,130 169,538 169,901 168,441 172,936 174,630
19 MassMutual Finl Group 69702 28,440,044 513,943 479,291 510,340 497,318 449,705
20 ING USA Life Group 70153 26,056,094 83,983 99,567 85,299 30,102 64,571
21 Torchmark Corp 70265 25,233,002 19,782 20,852 19,879 20,075 22,375
22 Guardian Life 69685 24,471,624 550,072 528,332 494,085 470,355 433,470
23 Chase Ins Group 70424 23,024,308 267,113 293,373 266,574 268,943 257,366
24 Ameriprise Finl Group 69689 21,088,956 434,322 398,692 256,493 268,761 319,698
25 Hartford Life Group 70116 20,610,479 377,800 362,280 375,557 378,239 401,006
Total U.S. L/H Stock Cos $1,513,095,392 $155,821 $143,582 $123,246 $113,280 $109,000
Total U.S. L/H Mutual Cos $257,044,124 $206,271 $195,249 $184,172 $177,373 $160,232
Total U.S. L/H Industry $1,770,139,516 $161,559 $149,512 $129,826 $119,708 $114,255
Total U.S. L/H Fraternal Cos $24,308,929 $93,048 $84,618 $80,798 $71,506 $68,463
Total U.S. L/H & Fraternal $1,794,448,445 $159,963 $148,000 $128,813 $118,705 $113,151
Source: A.M. Best Co.
52 BEST’S REVIEW • SEPTEMBER 2006

Term Life Issued, Top Life Writers,
United States—2005
Term life insurance provides protection for a specified
period of time. It pays a benefit only if the insured’s death
occurs during the coverage period.
($ Thousands)
%
Rank Group Name AMB# Issued Change
1 AIG Life Group 70342 $151,893,644 8.8
2 Genworth Finl Group 69555 81,270,991 52.9
3 Primerica Group 70183 75,925,446 -6.4
4 Northwestern Mutual Group 69515 70,757,571 2.8
5 State Farm Life Group 70126 66,188,174 12.1
6 Prudential of America Group 70189 53,730,230 13.8
7 Metropolitan Life & Affiliated Cos 70192 48,606,983 9.3
8 NY Life Group 69714 46,318,853 -3.1
9 Allstate Finl 70106 45,565,971 6.3
10 Protective Life Corp 69728 39,961,810 -30.9
11 Legal & Gen America, Inc 69539 38,500,725 -22.0
12 Aegon USA Inc 69707 37,482,389 -31.5
13 Axa Finl Group 70194 34,578,917 3.4
14 Old Mutual US Life Hldgs Inc 70403 31,371,886 14.8
15 USAA Life Group 70364 29,609,953 -3.3
16 Farmers New World Life Ins Co 06373 24,688,749 -1.3
17 Lincoln Natl Corp 70351 23,503,961 -19.6
18 Chase Ins Group 70424 22,574,000 -14.8
19 Manulife Finl 69542 18,835,227 -28.8
20 Aflac Inc Group 69824 14,997,655 -10.2
21 OH Natl Life Group 69717 13,991,341 -4.4
22 MassMutual Finl Group 69702 13,496,296 -12.4
23 Phoenix Life Group 70171 10,391,150 6.6
24 Southern Farm Bureau Group 70169 9,713,774 1.8
25 Savings Bank Life Ins Co of MA 06696 9,426,740 14.5
Top 25 Life Writers $1,013,382,436 -0.6
Total U.S. Life Industry $1,265,929,142 -3.0
Source: A.M. Best Co.
Term Life Issued — 2005
($ Thousands)
$327,018,270
AIG Life Group $151,893,644
Genworth Finl Group $81,270,991
Primerica Group $75,925,446
Northwestern Mutual Group $70,757,571
State Farm Life Group $66,188,174
Leading Writers
Life
2005 2004 2003 2002 2001 2005 2004 2003 2002 2001 2005 2004 2003 2002 2001
$72,964 $64,896 $54,059 $35,388 $29,462 5.9 6.6 7.2 7.7 7.6 85.6 89.7 87.7 81.8 82.3
191,600 181,301 171,513 161,667 151,218 3.7 4.0 4.1 4.3 4.3 95.4 95.6 94.7 94.0 93.5
275,970 258,706 248,617 260,245 255,048 4.2 5.4 12.4 4.4 4.5 92.9 89.9 89.6 89.7 87.0
54,264 54,533 54,328 45,497 46,321 7.9 0.0 6.9 8.0 8.8 84.4 88.8 85.8 76.1 95.4
83,636 79,564 76,337 73,838 71,362 6.4 7.0 7.2 7.1 7.2 91.5 91.5 92.4 92.5 91.4
128,580 118,281 104,958 97,933 129,596 7.9 8.3 8.6 9.5 9.3 91.0 90.7 90.6 91.3 88.5
132,819 125,434 119,592 112,261 100,608 5.0 5.5 5.8 6.1 6.3 81.0 88.1 76.8 78.6 87.2
72,258 69,868 47,111 48,640 59,753 6.6 5.6 8.9 6.1 8.0 76.8 77.1 79.6 80.9 78.0
74,176 65,233 45,059 40,554 37,756 4.5 6.3 5.6 7.3 6.8 94.0 90.1 85.4 86.6 87.3
230,271 211,015 196,768 159,065 139,790 4.1 4.6 5.6 5.5 5.8 81.3 82.1 75.4 79.3 76.8
153,480 144,905 133,025 128,389 124,195 6.4 7.1 8.0 10.0 8.1 88.3 89.4 88.2 86.7 84.8
58,576 56,191 56,842 54,551 46,758 5.9 6.5 6.5 7.1 6.6 84.4 86.2 87.5 81.0 81.6
64,936 55,032 52,694 48,537 43,899 5.3 7.3 7.4 9.8 6.7 74.4 81.9 84.1 79.9 82.0
413,633 395,446 371,507 347,390 305,871 4.1 4.7 5.3 5.5 4.9 92.8 91.8 92.2 91.0 81.1
112,158 106,801 102,669 93,172 82,748 6.3 7.4 3.0 7.8 15.8 59.2 58.2 55.4 53.1 53.5
133,585 121,483 95,887 91,108 98,247 10.9 8.9 9.9 14.5 15.0 81.0 104.5 73.5 77.3 91.8
258,832 242,170 224,060 205,977 191,302 2.4 2.5 2.5 2.2 2.2 95.0 94.2 95.6 97.2 93.4
134,273 128,406 121,823 115,450 108,188 6.9 7.3 7.4 7.7 8.3 92.5 91.1 90.4 91.5 90.5
182,005 174,511 165,378 153,580 139,427 5.4 5.0 5.1 6.3 5.0 86.9 86.0 85.1 85.5 86.6
75,000 75,266 67,597 65,606 55,621 3.4 2.3 3.4 3.7 3.3 73.0 80.0 79.7 80.9 75.8
17,112 16,959 16,539 16,186 15,960 14.8 16.7 15.5 15.6 15.8 88.9 87.2 87.4 87.3 86.7
65,292 57,486 50,242 44,540 40,797 6.3 6.5 6.8 6.4 6.1 94.7 93.5 89.0 99.0 92.4
239,126 236,186 230,586 225,881 220,077 5.2 5.1 5.1 6.1 7.3 93.7 93.1 91.6 91.9 106.1
247,732 231,290 210,112 197,167 185,248 4.3 4.0 7.6 3.6 3.5 82.6 88.7 84.1 81.4 75.9
240,639 277,158 267,563 247,238 232,977 21.7 2.7 7.7 7.9 7.2 63.4 64.9 44.8 82.9 31.8
$67,403 $62,894 $58,572 $53,862 $50,643 7.0 7.4 7.0 7.8 8.7 82.6 84.6 82.0 82.0 80.8
$99,528 $92,400 $94,380 $87,482 $80,592 5.0 5.2 5.4 5.8 5.4 86.1 87.4 86.3 86.9 86.7
$69,744 $65,067 $61,019 $56,188 $52,766 6.8 7.2 6.9 7.6 8.4 83.3 85.1 82.9 82.9 81.9
$41,796 $39,957 $38,472 $36,669 $34,557 4.3 4.5 4.4 4.6 4.9 85.5 86.3 87.7 89.3 90.3
$69,130 $64,507 $60,506 $55,729 $52,318 6.8 7.2 6.8 7.6 8.3 83.3 85.1 83.0 83.1 82.1
BEST’S REVIEW • SEPTEMBER 2006
53

Top Life Writers
Group Life in Force — 2005
($ Thousands) ($ Thousands)
Group Life Issued — 2005
Metropolitan Life & Affiliated Cos $2,161,919,465
Metropolitan Life & Affiliated Cos $150,781,564
Prudential of America Group
$1,228,312,165
Prudential of America Group
$127,992,710
Hartford Life Group
$596,449,388
Hartford Life Group
$92,541,114
Aetna Inc
$559,570,575
ING USA Life Group
$64,435,684
UnumProvident Group
$557,402,068
UnumProvident Group
$61,289,023
Credit Life in Force — 2005
Credit Life Issued — 2005
($ Thousands) ($ Thousands)
Cuna Mutual Group $37,730,995
Assurant $26,236,570
AIG Life Group
$37,192,788
Cuna Mutual Group
$19,694,303
Assurant
$30,990,689
Protective Life Corp
$19,188,379
HSBC Ins Group
$16,893,114
Amer Natl Group
$8,352,845
Citi Assur Svcs Group
$9,832,212
Citi Assur Svcs Group
$7,755,194
Ordinary Life in Force — 2005
($ Thousands)
Metropolitan Life & Affiliated Cos $2,226,859,840
Ordinary Life Issued — 2005
($ Thousands)
AIG Life Group $174,564,279
Swiss Reins Group
$1,460,394,703
Northwestern Mutual Group
$97,819,361
Aegon USA Inc
$1,251,302,046
Genworth Finl Group
$85,427,158
ING USA Life Group
$1,044,086,254
Metropolitan Life & Affiliated Cos
$84,486,163
Northwestern Mutual Group
$930,467,635
State Farm Life Group
$83,598,588
Total Life in Force — 2005
($ Thousands)
Metropolitan Life & Affiliated Cos $4,399,077,611
Total Life Issued — 2005
($ Thousands)
Metropolitan Life & Affiliated Cos $235,267,727
Prudential of America Group
Swiss Reins Group
ING USA Life Group
Aegon USA Inc
$2,033,232,905
$1,505,531,932
$1,423,651,471
$1,313,890,676
AIG Life Group $207,594,796
Prudential of America Group $191,543,359
Hartford Life Group $113,151,593
Northwestern Mutual Group $97,819,361
54 BEST’S REVIEW • SEPTEMBER 2006

Group Life in Force, Top Life
Writers, United States—2005
Group life insurance most often is issued to a group of
employees, but it may be issued to any group, provided
that it is not formed for the purpose of buying insurance.
($ Thousands)
%
Rank Group Name AMB# In Force Change
1 Metropolitan Life & Affiliated Cos 70192 $2,161,919,465 12.8
2 Prudential of America Group 70189 1,228,312,165 13.1
3 Hartford Life Group 70116 596,449,388 3.0
4 Aetna Inc 70202 559,570,575 9.1
5 UnumProvident Group 69743 557,402,068 -12.2
6 Securian Finl Group 69763 405,952,883 17.1
7 ING USA Life Group 70153 379,326,544 18.8
8 Cigna Group 70173 337,794,948 0.2
9 AIG Life Group 70342 249,027,194 -19.7
10 NY Life Group 69714 240,822,034 26.1
11 Standard Ins Group 70398 239,383,513 15.7
12 Sun Life Finl Group 69740 204,340,918 0.3
13 Jefferson-Pilot Corp 70156 155,772,335 2.4
14 Reliance Standard Life Group 69825 132,110,673 11.2
15 Health Care Service Corp 69584 125,863,635 1.9
16 Guardian Life 69685 105,718,411 6.6
17 WellPoint Health Networks Inc 70064 96,681,918 6.0
18 Principal Life Ins Co 06150 93,627,843 16.2
19 Assurant 70135 90,631,318 -4.8
20 Mutual of Omaha Group 70203 80,539,567 5.5
21 Kemper Investors Life Ins Co 06225 75,725,788 -9.2
22 MassMutual Finl Group 69702 58,524,978 4.0
23 UnitedHealth Group 69973 56,645,388 98.3
24 Aegon USA Inc 69707 54,474,965 -1.0
25 Genworth Finl Group 69555 51,521,907 -24.1
Top 25 Life Writers $8,338,140,421 7.3
Total U.S. Life Industry $9,247,840,018 6.1
Source: A.M. Best Co.
Credit Life in Force, Top Life Writers,
United States—2005
Credit life insurance is a group or individual life insurance
contract whereby a creditor is protected if the
insured dies before the indebtedness is paid in full.
($ Thousands)
%
Rank Group Name AMB# In Force Change
1 Cuna Mutual Group 70262 $37,730,995 -0.3
2 AIG Life Group 70342 37,192,788 0.7
3 Assurant 70135 30,990,689 6.9
4 HSBC Ins Group 69620 16,893,114 10.7
5 Citi Assur Svcs Group 70434 9,832,212 -11.5
6 Securian Finl Group 69763 7,488,702 -5.1
7 Metropolitan Life & Affiliated Cos 70192 7,402,021 -16.0
8 Aegon USA Inc 69707 7,181,640 -6.8
9 Combined A&H Group 70178 5,755,693 -17.5
10 Protective Life Corp 69728 5,392,046 -19.3
11 Amer Natl Group 70166 5,371,546 -4.4
12 Central States H & L Group 70363 3,996,165 -6.6
13 Lincoln Natl Corp 70351 3,669,894 -41.7
14 JMIC Life Group 69852 3,396,465 -6.3
15 Universal Underwriters Life Ins Co 07204 3,108,530 -9.4
16 Service Life & Cas Ins Co 07992 3,058,235 -10.0
17 Centurion Life Ins Co 06276 3,016,963 30.0
18 Life of the South Group 69913 2,893,043 5.9
19 Allstate Finl 70106 2,603,626 -15.1
20 Oneamerica Group 70399 2,500,696 -3.4
21 Amer Modern Ins Group 70206 2,304,477 155.4
22 USAA Life Group 70364 1,930,240 55.0
23 Munich Amer Reassurance Co 06746 1,604,856 -11.1
24 Southern Pioneer Group 70023 1,567,847 -12.9
25 Enterprise Life Ins Co 08919 1,513,074 -9.6
Top 25 Life Writers $208,395,557 -2.2
Total U.S. Life Industry $234,131,533 -3.5
Source: A.M. Best Co.
Leading Writers
Life
Group Life Issued, Top Life Writers,
United States—2005
Group life insurance most often is issued to a group of
employees, but it may be issued to any group, provided
that it is not formed for the purpose of buying insurance.
($ Thousands)
%
Rank Group Name AMB# Issued Change
1 Metropolitan Life & Affiliated Cos 70192 $150,781,564 1.1
2 Prudential of America Group 70189 127,992,710 67.7
3 Hartford Life Group 70116 92,541,114 -31.2
4 ING USA Life Group 70153 64,435,684 17.4
5 UnumProvident Group 69743 61,289,023 -17.1
6 Aetna Inc 70202 52,355,095 -30.2
7 Cigna Group 70173 44,148,443 -8.6
8 Standard Ins Group 70398 38,281,870 -17.1
9 UnitedHealth Group 69973 34,315,732 179.6
10 Sun Life Finl Group 69740 34,188,398 11.6
11 Reliance Standard Life Group 69825 33,139,145 33.1
12 Jefferson-Pilot Corp 70156 29,345,413 -60.2
13 Securian Finl Group 69763 27,634,381 0.8
14 AIG Life Group 70342 25,316,177 -29.4
15 Guardian Life 69685 21,818,925 -7.6
16 Assurant 70135 19,804,272 0.6
17 NY Life Group 69714 17,474,846 20.1
18 Principal Life Ins Co 06150 16,675,752 53.3
19 Mutual of Omaha Group 70203 14,917,851 26.7
20 Nationwide Life Group 70350 14,031,120 721.8
21 WellPoint Health Networks Inc 70064 11,818,250 1.4
22 Genworth Finl Group 69555 11,534,796 -23.0
23 Torchmark Corp 70265 10,143,309 25.3
24 Health Care Service Corp 69584 8,651,100 -50.9
25 HM Ins Group 70359 5,330,955 -25.3
Top 25 Life Writers $967,965,925 -3.7
Total U.S. Life Industry $1,038,917,659 -5.6
Source: A.M. Best Co.
Credit Life Issued, Top Life Writers,
United States—2005
Credit life insurance is a group or individual life insurance
contract whereby a creditor is protected if the
insured dies before the indebtedness is paid in full.
($ Thousands)
%
Rank Group Name AMB# Issued Change
1 Assurant 70135 $26,236,570 2.1
2 Cuna Mutual Group 70262 19,694,303 -6.3
3 Protective Life Corp 69728 19,188,379 -20.2
4 Amer Natl Group 70166 8,352,845 51.8
5 Citi Assur Svcs Group 70434 7,755,194 47.9
6 AIG Life Group 70342 7,714,340 -10.8
7 Aegon USA Inc 69707 6,136,546 -0.2
8 HSBC Ins Group 69620 5,759,169 26.6
9 Life of the South Group 69913 3,721,694 7.2
10 Securian Finl Group 69763 3,259,826 -15.8
11 Amer Modern Ins Group 70206 2,242,704 -86.4
12 Central States H & L Group 70363 1,739,360 0.3
13 Oneamerica Group 70399 1,710,436 0.6
14 Guarantee Trust Group 69541 1,618,132 -20.9
15 Combined A&H Group 70178 1,368,432 -2.4
16 Service Life & Cas Ins Co 07992 1,336,380 -12.4
17 JMIC Life Group 69852 1,332,379 -0.4
18 Universal Underwriters Life Ins Co 07204 1,257,445 -15.7
19 Centurion Life Ins Co 06276 1,218,660 8.7
20 Allstate Finl 70106 1,166,454 -11.5
21 Southern Pioneer Group 70023 938,033 4.0
22 Enterprise Life Ins Co 08919 914,932 33.4
23 Individual Assur Group 69964 812,883 1.1
24 State Farm Life Group 70126 629,337 6.7
25 Plateau Group Inc 70039 585,027 1.1
Top 25 Life Writers $126,689,460 -10.7
Total Life U.S. Industry $133,182,274 -10.8
Source: A.M. Best Co.
BEST’S REVIEW • SEPTEMBER 2006
55

Leading Writers
Life
Ordinary Life in Force, Top Life
Writers—2005
Ordinary life insurance may be kept in force for a person’s
whole life and pays a benefit upon the person’s death.
Premiums for the policy are paid continuously as long as
the insured lives.
($ Thousands)
%
Rank Group Name AMB# In Force Change
1 Metropolitan Life & Affiliated Cos 70192 $2,226,859,840 9.1
2 Swiss Reins Group 70176 1,460,394,703 -3.5
3 Aegon USA Inc 69707 1,251,302,046 14.7
4 ING USA Life Group 70153 1,044,086,254 -1.1
5 Northwestern Mutual Group 69515 930,467,635 7.0
6 Lincoln Natl Corp 70351 822,990,858 -1.9
7 AIG Life Group 70342 820,610,395 11.6
8 Prudential of America Group 70189 801,607,759 10.9
9 Genworth Finl Group 69555 706,658,727 12.5
10 Scottish Re Group 70418 678,311,798 74.8
11 Munich Amer Reassurance Co 06746 660,378,429 9.5
12 NY Life Group 69714 637,816,208 5.7
13 State Farm Life Group 70126 594,652,917 6.7
14 Primerica Group 70183 545,656,698 5.0
15 Manulife Finl 69542 544,138,397 -1.0
16 Allstate Finl 70106 541,283,780 10.0
17 Axa Finl Group 70194 476,991,364 4.3
18 Protective Life Corp 69728 459,830,050 15.0
19 Employers Reassurance Corp 06976 450,107,987 -7.3
20 Great-West Life Group 70366 367,713,599 18.6
21 MassMutual Finl Group 69702 340,912,255 1.8
22 Legal & Gen America, Inc 69539 272,961,153 10.6
23 Generali USA Life Reassurance Co 09189 269,714,772 17.4
24 Hartford Life Group 70116 266,452,733 -17.3
25 Chase Ins Group 70424 241,824,268 3.4
Top 25 Life Writers $17,413,724,625 7.3
Total U.S. Life Industry $23,206,242,342 5.9
Source: A.M. Best Co.
Total Life in Force, Top Life Writers,
United States—2005
Total life insurance includes ordinary life, group life, credit
life and industrial life.
($ Thousands)
%
Rank Group Name AMB# In Force Change
1 Metropolitan Life & Affiliated Cos 70192 $4,399,077,611 10.8
2 Prudential of America Group 70189 2,033,232,905 12.2
3 Swiss Reins Group 70176 1,505,531,932 -3.3
4 ING USA Life Group 70153 1,423,651,471 3.5
5 Aegon USA Inc 69707 1,313,890,676 13.8
6 AIG Life Group 70342 1,108,405,871 2.3
7 Northwestern Mutual Group 69515 931,350,474 7.0
8 NY Life Group 69714 878,638,242 10.6
9 Hartford Life Group 70116 862,902,121 -4.3
10 Lincoln Natl Corp 70351 828,647,178 -2.4
11 Genworth Finl Group 69555 758,265,458 8.9
12 Scottish Re Group 70418 679,538,128 74.2
13 Munich Amer Reassurance Co 06746 677,391,400 9.4
14 UnumProvident Group 69743 623,074,626 -10.8
15 State Farm Life Group 70126 609,240,287 6.7
16 Manulife Finl 69542 594,395,389 -1.9
17 Aetna Inc 70202 562,488,135 9.0
18 Allstate Finl 70106 559,729,067 9.3
19 Primerica Group 70183 546,898,471 4.9
20 Securian Finl Group 69763 497,477,176 14.8
21 Axa Finl Group 70194 488,963,417 4.7
22 Protective Life Corp 69728 467,789,259 14.4
23 Employers Reassurance Corp 06976 451,783,393 -7.7
24 Great-West Life Group 70366 413,537,248 13.9
25 MassMutual Finl Group 69702 399,437,233 2.2
Top 25 Total $23,615,337,168 7.1
Total U.S. Life Industry $32,702,595,236 5.9
Source: A.M. Best Co.
Ordinary Life Issued, Top Life
Writers, United States—2005
Ordinary life insurance may be kept in force for a person’s
whole life and pays a benefit upon the person’s
death. Premiums for the policy are paid continuously
as long as the insured lives.
($ Thousands)
%
Rank Group Name AMB# Issued Change
1 AIG Life Group 70342 $174,564,279 5.4
2 Northwestern Mutual Group 69515 97,819,361 1.3
3 Genworth Finl Group 69555 85,427,158 50.3
4 Metropolitan Life & Affiliated Cos 70192 84,486,163 0.4
5 State Farm Life Group 70126 83,598,588 9.6
6 Primerica Group 70183 76,420,824 -6.3
7 NY Life Group 69714 73,437,515 -3.6
8 Aegon USA Inc 69707 64,081,579 -17.9
9 Prudential of America Group 70189 63,519,650 10.9
10 Protective Life Corp 69728 60,172,898 -22.7
11 Allstate Finl 70106 60,082,767 5.5
12 Axa Finl Group 70194 49,386,292 3.1
13 Manulife Finl 69542 44,300,372 -8.7
14 Legal & Gen America, Inc 69539 38,982,001 -22.3
15 Lincoln Natl Corp 70351 36,048,982 -11.1
16 Old Mutual US Life Hldgs Inc 70403 34,927,063 16.8
17 USAA Life Group 70364 30,641,692 -2.7
18 Farmers New World Life Ins Co 06373 30,477,130 -2.2
19 MassMutual Finl Group 69702 28,440,044 -7.3
20 ING USA Life Group 70153 26,056,094 -27.6
21 Torchmark Corp 70265 25,233,002 -14.6
22 Guardian Life 69685 24,471,624 -6.4
23 Chase Ins Group 70424 23,024,308 -14.8
24 Ameriprise Finl Group 69689 21,088,956 -1.6
25 Hartford Life Group 70116 20,610,479 3.6
Top 25 Life Writers $1,357,298,821 -1.5
Total U.S. Life Industry $1,794,448,445 -2.7
Source: A.M. Best Co.
Total Life Issued, Top Life Writers,
United States—2005
Total life insurance includes ordinary life, group life,
credit life and industrial life.
($ Thousands)
%
Rank Group Name AMB# Issued Change
1 Metropolitan Life & Affiliated Cos 70192 $235,267,727 0.8
2 AIG Life Group 70342 207,594,796 -1.2
3 Prudential of America Group 70189 191,543,359 43.3
4 Hartford Life Group 70116 113,151,593 -26.7
5 Northwestern Mutual Group 69515 97,819,361 1.3
6 Genworth Finl Group 69555 96,961,954 35.0
7 NY Life Group 69714 90,912,361 0.2
8 ING USA Life Group 70153 90,491,778 -0.4
9 State Farm Life Group 70126 84,285,910 9.6
10 Protective Life Corp 69728 79,655,741 -22.0
11 Primerica Group 70183 76,488,939 -6.3
12 Aegon USA Inc 69707 75,434,405 -17.3
13 UnumProvident Group 69743 74,969,555 -14.5
14 Allstate Finl 70106 62,092,170 5.2
15 Aetna Inc 70202 52,404,443 -30.2
16 Axa Finl Group 70194 49,690,583 3.0
17 Assurant 70135 46,429,307 1.4
18 Guardian Life 69685 46,290,549 -7.0
19 Cigna Group 70173 44,910,922 -13.8
20 Jefferson-Pilot Corp 70156 44,463,503 -48.6
21 Manulife Finl 69542 44,300,372 -8.7
22 Securian Finl Group 69763 42,989,801 -0.9
23 Sun Life Finl Group 69740 39,394,487 9.2
24 Legal & Gen America, Inc 69539 38,993,480 -22.3
25 Standard Ins Group 70398 38,291,459 -17.1
Top 25 Total $2,064,828,555 -4.5
Total U.S. Life Industry $2,966,576,853 -4.1
Source: A.M. Best Co.
56 BEST’S REVIEW • SEPTEMBER 2006

Life Securitization
Reinsurance/Capital Markets
Life insurers are becoming more creative
in designing securitization transactions
to fund a variety of objectives.
by Steven Schreiber and Stuart Silverman
Illustration by Ellen Wagner
Since 2001, more than $12 billion
has been raised from capital
market investors on transactions
involving life insurance risks.
These “life securitizations” can be
grouped into three categories:
redundant-reserve transactions,
embedded-value or value-in-force
transactions, and mortality-catastrophe
transactions.
“Life Securitizations 2001-2006”
on page 60 shows the issuing companies,
the type of transaction, the
year of the transaction and the
amount of funds raised. Companies
can execute different types of
transactions depending on their
objectives.
The objective of the redundantreserve
securitizations has been to
replace equity funding of excessive
(or redundant) statutory reserves
with debt funding. By definition,
statutory reserves under the U.S. regulatory
system for life insurance
companies are meant to be conservative.
However, because of very conservative
statutory valuation mortality
rates, reserves on level-premium
term life insurance have been
viewed as extremely conservative,
creating the need for companies to
find a less expensive way than the
Contributors: Steven Schreiber and
Stuart Silverman are consulting
actuaries in the New York office of
Milliman and have been involved in
many of the transactions described
in the article.They can be reached at
Steven.Schreiber@milliman.com and
Stuart.Silverman@milliman.com.
Key Points
• Life securitizations can be
grouped into three categories:
redundant-reserve transactions,
embedded-value or value-in-force
transactions, and mortality-catastrophe
transactions.
• Significant growth is expected in
life securitizations over the next
several years.
• Areas for possible growth include
bank balance sheet, synthetic
transactions, AXXX and longevity
transactions.
use of equity to fund such
reserves. Companies have
turned to the capital markets
to help fund these excessive
reserves. These transactions
are known as XXX securitizations
after the letters assigned
to the model reserve
regulation for term and universal
life insurance business
when it was still in the drafting
stage.
Embedded-value transactions
are a broader category
than redundant-reserve transactions.
The Forethought
transaction involved the
issuance of notes to help
finance the acquisition of the
Forethought Life Insurance
Co. Similarly, the two recent
Swiss Re embedded-value
transactions helped Swiss Re
with its goal of “accelerating the balance
sheet.” In effect, Swiss Re was
able to replace the equity financing
associated with various acquisitions
under its “Admin Re” business with
debt financing. The closed-block
transactions done by Prudential and
MONY involved the issuance of
notes to help those companies
release excess required surplus used
to support the regulatory closed
blocks.At the end of 2005, Hannover
Re securitized future profits related
to unit-linked life policies issued in
Germany and Austria. Wolf S. Becke,
chief executive officer of Hannover
Life Re, said that this transaction
enabled the company “to optimize its
capital efficiency, improve its exposure
profile and provide internal
funding to support growth.”
Broadly speaking, under both the
redundant-reserve transactions and
the embedded-value transactions, the
company is able to “securitize” projected
cash flows from its insurance
operations in order to raise money
from the capital markets. While a
true sale of the cash flows cannot
happen (as the relationship between
the insurance company and the policyholder
whose policy cash flows
are securitized does not change),
what essentially happens is that life
insurance cash flows are aggregated
into an underlying pool and then
sold as an investment package to the
capital markets.
BEST’S REVIEW • SEPTEMBER 2006
57

Life Securitization
Reinsurance/Capital Markets
The objective of the mortalitycatastrophe
transactions is to reimburse
the issuer (the insurance company
arranging the transaction) if an
extreme mortality event occurs.
Structurally, these transactions are
very similar to natural catastrophe
bonds, which have been issued for
many years now. Under these transactions,
investors provide funds,
which go into a collateral account,
and they receive interest on their
monies during the life of the transaction.At
the end of the transaction,
if no extreme mortality event has
occurred, then the investors receive
their principal back. If an extreme
mortality event has occurred, then
investors may lose some or all of
their principal.Two reasons to issue
such a bond, as opposed to purchasing
such coverage in the reinsurance
marketplace, include 1) such
coverage is not readily available, and
Parties to the Transaction
Many parties participate in a life insurance securitization,
with the two most important being the
insurance companies structuring the transactions
and the investors buying the securities. Other parties
include the bankers, financial guarantors, rating
agencies, lawyers, actuaries and other advisers.
ISSUERS (INSURANCE COMPANIES)—Any securitization
needs to start with an insurance company defining
the objective it wants to achieve with the transaction.
While the company will likely need to retain external
advisers, it will not be able to complete the transaction
unless it’s willing to commit a significant amount of
internal resources (corporate, actuarial, investment, legal,
others) to focus on these complex transactions.
INVESTORS—A wide range of investors have invested
in life securitizations, ranging from hedge funds to pension
plans to corporate treasurers looking for some additional
spread to insurance companies. Many of the transactions
have been wrapped by a financial guarantor,
allowing the investors to rely on the due diligence performed
by the financial guarantor. But such wrapped
transactions then carry a very high rating, which appeals
to some investors but does not provide enough yield for
other investors. Several of the transactions have been
issued with different tranches, which appeal to investors
with different risk appetites.And in late 2005, the industry
saw the first issuance of a XXX transaction with both
wrapped and unwrapped tranches.
BANKERS—The role of the banker is to help the
issuer structure the transaction and to help manage the
discussions of the transaction with the regulators, rating
agencies, financial guarantors, and, ultimately, the
investors. While the banker’s structuring role is clearly
critical to the process, the banker’s most important role
is to identify investors who are interested in purchasing
the offered securities.
FINANCIAL GUARANTORS—A financial guarantor lends
its rating to a security for a fee. In effect, the financial
guarantor issues an insurance policy, which requires it to
cover interest payments and principal payments to
investors (under the terms defined in the policy) if such
amounts cannot be paid from the cash flows underlying
the transaction. In transactions which are wrapped by a
financial guarantor, the investors know that the financial
guarantor has performed significant due diligence, which
reduces the amount of due diligence the investor needs
to perform. Even for transactions in which only part of
the transaction is wrapped, investors in the unwrapped
tranche can often piggyback on the due diligence effort
performed by the financial guarantor for the wrapped
tranche.
REGULATORS—The regulators for the insurance company
structuring the transaction typically will need to
review and approve the transaction. But, because most of
these transactions are issued through a captive insurance
entity, much of the regulatory discussion is with the captive
regulator.The concerns of both the home regulator
and the captive regulator need to be addressed as part of
the structuring of the transaction.
RATING AGENCIES—Investors will look to the rating
agencies for their view on the riskiness of the securities
to be offered under life securitizations.To obtain a rating,
transaction documents, along with a transaction deal
model (which projects the transaction cash flows under
various sets of assumptions) need to be provided to the
rating agencies. Even for fully wrapped transactions (in
which the securities will carry the rating of the financial
guarantor) the rating agencies still need to review the
transaction so they can provide a shadow rating, which
is used by the rating agencies in determining the capital
requirements for the financial guarantors.
ACTUARIES—The role of the actuaries in life securitizations
is to analyze the subject book of business and to
project insurance cash flows and balance sheet items
into the future so that the interested parties in the transaction
can analyze the risk associated with the transaction.
Such projections involve the development of models
and, based on a review of the company’s experience
data, development of assumptions appropriate for projecting
the business into the future.The output from the
actuarial projections is typically input into a deal model
developed by the insurance company or the banker,
which applies the terms of the transaction to the projected
actuarial cash flows.
LAWYERS—Life securitizations are complex transactions
that require a significant amount of legal documentation.
Lawyers are also involved in the discussions with
the different regulators.
58 BEST’S REVIEW • SEPTEMBER 2006

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whenever you need us.
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© 2006 GMAC. All Rights Reserved. “GMAC” is a registered trademark of GMAC.

Life Securitization
Reinsurance/Capital Markets
2) the counterparty risk
(the ability of the reinsurer
to pay claims) increases at
the same time that the
benefit is most needed.
Ideally, (from the issuer’s
perspective) to minimize
basis risk these mortality
catastrophe bonds would be
structured so the trigger
event would be defined
based on the company’s
actual mortality experience.
Such mortality “indemnity”
bonds have not been issued
to date, but instead, these
transactions have defined
the trigger event based on
certain percentage increases
in a population mortality
index. While the transactions
to date have used
weighted population indices
(to reflect age, gender
and geographic weightings
of the underlying issuer’s
exposure), the use of an
index approach does lead to
a potential basis risk.
60 BEST’S REVIEW • SEPTEMBER 2006
Life Securitizations 2001-2006
Amount Raised
Company Type Year (Millions)
RGA XXX 2006 $850
Scottish Re Catastrophe 2006 $155
Scottish Re XXX 2006 $1,700
First Colony XXX 2006 $750
Hannover Re Embedded Value 2005 €100
Swiss Re Embedded Value 2005 $370
Scottish Re XXX 2005 $457
Swiss Re Catastrophe 2005 $362
Scottish Re XXX 2005 $850
Swiss Re Embedded Value 2005 $245
First Colony XXX 2004 $300*
Banner Life XXX 2004 $550
Swiss Re Catastrophe 2004 $400
Forethought Embedded Value 2004 $150
Friends Provident Embedded Value 2004 £380
First Colony XXX 2003 $300**
Barclays Life Embedded Value 2003 £400
MONY Embedded Value 2002 $300
Prudential Embedded Value 2001 $1,900
* Initially. One subsequent offering totaling $300 million
** Initially. Two subsequent offerings totaling $500 million
Source: Milliman Inc.
Transactions to Come
We expect to see more XXX
transactions along with more mortality-catastrophe
transactions. We
also expect to see continued
growth in embedded-value transactions.
Possible areas for growth are
discussed below.
Bank Balance Sheet—Aside from
the capital market XXX transactions
listed in “Life Securitizations
2001-2006,” there have been a
growing number of transactions in
which banks use their own balance
sheets to provide redundantreserve
relief to XXX reserves.
These transactions may be short
term in nature (to be replaced by a
capital markets offering) or may
provide long-term relief.
Synthetic Transactions—Parties
are considering many creative structures
to meet different objectives.We
have seen some structures in which
companies form their own captives
and use Letter of Credit arrangements
to provide relief to redundantreserve
situations. Evolving rating
agency views on the use of LOCs to
fund redundant reserves may necessitate
changes to such structures.
Warehouse Facilities—We are
seeing more situations in which an
insurance company enters into a
transaction with a bank to provide
relief from redundant reserves.
Insurance companies use these
warehouses as an interim solution
until the book of business is large
enough to do a securitization. These
warehouses can also be established
using the synthetic structure
described above.
AXXX—Similar to the redundant
statutory reserves generated by level-premium
term insurance under
U.S. statutory reserving requirements,
the statutory reserving
requirements for universal life policies
(commonly known as “AXXX”)
also have the potential to generate
redundant reserves. Because of the
complexity and multiplicity of
options embedded in these products,
it has taken longer to bring an
AXXX securitization to the
market than it has for the
simpler level term products.
But several companies
are working on trying
to develop a securitization
structure for redundant
AXXX reserves, and we
expect that one or more
transactions may close this
year. Companies are also
looking at bank balance
sheet structures, synthetic
transactions and warehouse
facilities for AXXX
business.
Embedded Value Transactions—There
continues
to be a lot of discussion in
both Europe and in the
United States about embedded-value
transactions.
Hannover Re has publicly
indicated that it intends to
do more embedded-value
transactions by the end of
2007. Several U.S. companies
are currently investigating
possible embeddedvalue
transactions.
Longevity Transactions—An area
generating a significant amount of
interest, especially in the United
Kingdom and in Continental Europe,
is longevity risk. This risk relates to
people living longer than expected in
the pricing of payout annuity (retirement)
products. Credit Suisse has
launched a longevity index, under
which parties can trade or swap mortality
risk for longevity risk. We are
also aware of other companies looking
into the possible issuance of
longevity bonds.We expect to see significant
developments in this area
over the next several years.
The evolution in the packaging of
life insurance cash flows to help
insurance companies meet various
objectives is still in its early stages.
We expect to see more parties investigate
various kinds of securitizations,
leading to significant growth
over the next several years in the
use of life securitizations to help
companies meet different objectives
and goals.
BR

Hallig Langeness, North Frisian Wadden Sea, Germany.
Jens Mehlhorn, Flood Expert, Swiss Re
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tools to model catastrophic floods, estimate potential losses and structure insurance and reinsurance programs
to finance the associated costs. Swiss Re combines expertise in anticipating and managing risk with financial strength –
offering tailored solutions to mitigate your exposure and protect your balance sheet. For real peace of mind, it pays to have
a partner whose protection concepts hold water. www.swissre.com
Expertise you can build on.

Business Strategy
Technology
Keep Up With
The Changes
A survey of IT executives reveals how technology is the competitive sweet spot
in the global financial market.
by Paul McDonnell
Illustration by Angel M. Negron
In many ways, insurance executives
must feel like kids in a candy
shop. Aging populations in Western
nations, deregulation of key markets,
spectacular growth of the middle
class in Asia and consumers embracing
the use of new technologies are
among the trends creating growth
opportunities for insurance companies—at
least for those that can scale
to take advantage.
Therein lies the problem. For some
insurers, these opportunities—these
shelves of sweet goodies—may be just
beyond reach. Many insurance executives
believe that technology infrastructure—especially
legacy systems—is
a significant impediment to
progress as they attempt to take
advantage of an increasingly global
insurance industry. It is for this reason
that insurance companies, especially
many in Europe and North America,
are investing in new systems.
Which types of systems are leading
insurers investing in and for what purpose?
What is their vision for leveraging
technology in the first decades of the
21st century as the industry landscape
rapidly changes? To find out, Bearing-
Point contracted with Datamonitor to
interview technology executives at
leading global insurance companies.
The goals were to find out how
these insurers are transforming
their operations
for the new
century and to
articulate a
vision of
how
they
can
Contributor Paul McDonnell is
senior vice president, managing
director and insurance segment
leader for BearingPoint.
62 BEST’S REVIEW • SEPTEMBER 2006

succeed in the new century’s challenging
environment.
To capitalize on the opportunities in
this changing marketplace, leading
insurers are lining up to realize all the
advantages—new markets, scale
economies, open computing, automation
and multisource operations—
while avoiding the downside—
increased risk, commoditization, and
more demanding and disloyal customers.“Industry
Vision” on page 64
highlights the changing characteristics
of the global industry.
Although regional and niche insurers
will remain viable in the 21st century,
economies of scale will concentrate
premiums, assets and global market
share among a smaller group of very
large insurers.Technology will help the
large companies develop and distribute
products on a mass scale. Partnerships
and strategic agreements, rather
than mergers and acquisitions,will support
the “one-stop shop”model.
Independent channels increasingly
will be the source for life products.
In the next 10 years, captive
agents largely will disappear in
the West, while, in developing
economies, they gradually
will be overtaken by
banks, in alliance with
both domestic and foreign
carriers. Novel
partnerships between
insurers also
may emerge, particularly
in a rapidly
changing China.
The Internet
and wireless communications
likely
will emerge as serious
sales channels;
they are beginning
to make inroads in
nonlife sales today
and, in 10 years, will
begin to take market
share from independent
channels. Insurers in Japan
and China, where use of
wireless transactions is ahead
of that in the West, have begun
to offer travel insurance via wireless
accounts, allowing for impulse
purchases on the fly. Furthermore,
the notion of distribution
itself will change, as it
becomes less about transferring
and selling products and
more about sharing information,
whether in a business-tobusiness
or business-to-business-to-consumer
context.
Key Points
IT’s Evolution
The insurance industry is poised to
benefit from a number of new technologies,
as well as the novel application
of existing techniques, to realize
greater customer-centricity, improve
information-technology flexibility and
remain competitive in a rapidly changing
industry.“Strategic Vision” on page
66 highlights how these key technologies
can change in the next five to 10
years.
The interviews with insurers
repeatedly illustrate the importance of
IT and business alignment in establishing
effective long-term technology
strategy. Moreover, while the centralization
of business and IT strategy has
fostered more effective strategic thinking,
the development of the Internet,
Web services and middleware is supporting
the execution. Business and IT
executives can now realistically envision
the day when it will be possible
to remove the management, maintenance
and even development of technology
applications from an organization,
leaving the insurer to concentrate
on customer service, product innovation,
sales and marketing, branding,
and corporate strategy.
Who Is Leading the Way?
With the vision of the next five to
10 years taking form, the question
remains, how do we get there from
here? Or, as some in the industry
might lament, can we get there from
here? Leading companies are making
progress toward the 21st century
vision by establishing new techniques
to address the most pressing
business concerns.
Customer Management
In the next 10 years, insurers likely
will establish a uniform channel
• IT executives believe legacy systems
are roadblocks to inroads
into the global insurance industry.
• In 10 years, Internet and wireless
communications will pull market
share from independent channels.
• Insurers’ greatest distribution challenge
will be providing competitively
differentiated access to
information.
Outside Influences
The global insurance industry is
evolving in reaction to forces
reshaping global supply and
demand, market competition and
technology. Major trends affecting
insurers in the 21st century are:
Socioeconomic change.
The aging of populations
in Western nations will
create vast new opportunities
for life insurance in
the United States and
Europe. Meanwhile, the
modernization of the
large Asian economies
will create a new, multibillion-member middle
class. According to China Pacific Insurance Co.
Group Chief Information Officer Richard Cheng,
the “Chinese government benefit program will
not be sufficient to this middle class,” leaving
the door open for domestic and foreign insurers.
(De)regulation. The convergence
of financial services
set in motion by
industry deregulation has
resulted in consolidation,
new markets, new competitors
and the creation
of interrelated, crossindustry
value chains. To
establish operations in high-growth geographies,
insurers are increasingly entering into
novel strategic alliances that position them in
new markets according to the strengths of both
or all parties.
Technological evolution.
The most important
advance for information
technology may be the
development of networking
technology that is
poised to deliver greater
economies of scale and
efficiency and reduce some operating costs to
the vanishing point. Meanwhile, wireline and
wireless communications based on Internet
Protocol will offer much greater flexibility in
connecting the insurers with clients, sellers
and each other.
BEST’S REVIEW • SEPTEMBER 2006
63

Business Strategy
Technology
ING’s U.S. life insurance division is actively
planning its Web strategy around “the
changing needs of customers.”
strategy in which consumers can
buy insurance through an agent, a
bank, the Internet or a wireless/PDA
device. Attention will begin to shift
to more advanced customer analytics
that record, analyze and manage all
aspects of the customer/insurer relationship,
thus improving cross-sell
opportunities and fraud detection.
However, insurers must first make
sure channels are well established.
The failure of customer relationship
management several years ago to
deliver the expected return on investment
has left some insurers dubious
of expectations laid out by vendors.
The use of CRM does, in fact, hold significant
promise for establishing a
—Catherine Smith,
ING U.S.
deeper customer relationship, but it is
clear that insurers must establish the
framework before they can use the
tools. According to a leading Italian
nonlife insurer, the only expectation
insurers should have, “is that the
channel between the insurer and the
client will not always be the same.”
Therefore, supporting as much interaction
as possible between the various
channels is of utmost importance.
Placing the customer, rather
than the channel, at the center of an
insurer’s customer service strategy
will be achieved by establishing other
priorities for technology initiatives,
such as architecture, automation and
data integration, that provide “a
greater global view of the customer.”
The need for a global view will be
essential in the 21st century. Insurers
will increasingly need a full understanding
of their customers’ buying
patterns and evolving needs and provide
more consultation on a growing
product portfolio. According to Genworth
Chief Information Officer
Scott McKay, there is “an entirely
new operating environment being
created for insurers, with many not
having the capabilities to service this
new landscape.”
ING’s U.S. life insurance division is
actively planning its Web strategy
around the changing needs of these
customers—“certainly, servicing targets
in the upper-middle/upper class
who are saving for retirement is a
priority,” said Chief Operating Officer
Catherine Smith. The key for ING is
to establish the direct channel not
for sales, but for more streamlined
access to account information on an
increasingly diverse and complex
product portfolio.
Industry Vision
How the insurance industry is changing.
20th Century
Visionaries
21st Century
Customer
Management
Process
Enterprise
Architecture
Information
Channels
• Imperative: channel provision
• Price-led
• Acquisition
• Largely manual
• Workflow/digital documents
• Point-to-point networking
• Back-office functionality
resides in legacy
• Centralized computing
• Siloed
• Product-defined
• Structured vs. unstructured
• External fraud detections/claims
• Manual interaction
• Disconnected operations
• Limited partner interaction
• Imperative: analytics
• Price- and service-led
• Retention
• Largely automated
• Business process management
engines/straight-through processing
• Service-oriented architecture
• Reference/event driven
(portfolio management, underwriting)
• Distributed/grid computing
• Integrated
• Customer-defined
• Automated and dynamic taxonomy
• Internal/auto fraud/claims, identity theft
• Portal front end (B2B2C)
• Shared back office
• Partner network (claims, underwriting)
Communications • PBX
• Phone/fax
• Manual transactions
• Voice over Internet Protocol
• Wireless LAN, field agents, claims settlement
• Electronic transactions
Sourcing
Source: Datamonitor
• Internal dominant—tactical
• Long-term outsourcing contracts
• Best sourcing-strategic
• Centralized procurement
• Standardized
64
BEST’S REVIEW • SEPTEMBER 2006

Business Strategy
Technology
ING’s U.S. life insurance division is actively
planning its Web strategy around “the
changing needs of customers.”
strategy in which consumers can
buy insurance through an agent, a
bank, the Internet or a wireless/PDA
device. Attention will begin to shift
to more advanced customer analytics
that record, analyze and manage all
aspects of the customer/insurer relationship,
thus improving cross-sell
opportunities and fraud detection.
However, insurers must first make
sure channels are well established.
The failure of customer relationship
management several years ago to
deliver the expected return on investment
has left some insurers dubious
of expectations laid out by vendors.
The use of CRM does, in fact, hold significant
promise for establishing a
—Catherine Smith,
ING U.S.
deeper customer relationship, but it is
clear that insurers must establish the
framework before they can use the
tools. According to a leading Italian
nonlife insurer, the only expectation
insurers should have, “is that the
channel between the insurer and the
client will not always be the same.”
Therefore, supporting as much interaction
as possible between the various
channels is of utmost importance.
Placing the customer, rather
than the channel, at the center of an
insurer’s customer service strategy
will be achieved by establishing other
priorities for technology initiatives,
such as architecture, automation and
data integration, that provide “a
greater global view of the customer.”
The need for a global view will be
essential in the 21st century. Insurers
will increasingly need a full understanding
of their customers’ buying
patterns and evolving needs and provide
more consultation on a growing
product portfolio. According to Genworth
Chief Information Officer
Scott McKay, there is “an entirely
new operating environment being
created for insurers, with many not
having the capabilities to service this
new landscape.”
ING’s U.S. life insurance division is
actively planning its Web strategy
around the changing needs of these
customers—“certainly, servicing targets
in the upper-middle/upper class
who are saving for retirement is a
priority,” said Chief Operating Officer
Catherine Smith. The key for ING is
to establish the direct channel not
for sales, but for more streamlined
access to account information on an
increasingly diverse and complex
product portfolio.
Industry Vision
How the insurance industry is changing.
20th Century
Visionaries
21st Century
Customer
Management
Process
Enterprise
Architecture
Information
Channels
• Imperative: channel provision
• Price-led
• Acquisition
• Largely manual
• Workflow/digital documents
• Point-to-point networking
• Back-office functionality
resides in legacy
• Centralized computing
• Siloed
• Product-defined
• Structured vs. unstructured
• External fraud detections/claims
• Manual interaction
• Disconnected operations
• Limited partner interaction
• Imperative: analytics
• Price- and service-led
• Retention
• Largely automated
• Business process management
engines/straight-through processing
• Service-oriented architecture
• Reference/event driven
(portfolio management, underwriting)
• Distributed/grid computing
• Integrated
• Customer-defined
• Automated and dynamic taxonomy
• Internal/auto fraud/claims, identity theft
• Portal front end (B2B2C)
• Shared back office
• Partner network (claims, underwriting)
Communications • PBX
• Phone/fax
• Manual transactions
• Voice over Internet Protocol
• Wireless LAN, field agents, claims settlement
• Electronic transactions
Sourcing
Source: Datamonitor
• Internal dominant—tactical
• Long-term outsourcing contracts
• Best sourcing-strategic
• Centralized procurement
• Standardized
64
BEST’S REVIEW • SEPTEMBER 2006

Business Strategy
Technology
McKay also is keen on these
automation technologies, citing
voice recognition as supporting significant
efficiency and security in
Genworth’s long-term-care applications.“This
is an industry known for
telling people, ‘Let me send you the
form.’ With voice recognition software,
I record that voice on the
phone and I attach it to the file, so
that conversation is an even better
authentication than a signature.”
Voice recognition will support efficiency
and security in Genworth’s long-term-care
applications.
—Scott McKay,
Genworth
Process Automation
Insurers are introducing automation
into routine tasks, but the next
phase will be to establish true straightthrough
processing in most insurance
activities, at both the processing and
analytical levels.
The advent of business processmanagement
technology already is
having an impact on many areas of
both manual and electronic work
flow. The multicontact-point and
labor-intensive claims-processing function
is the primary target of automation
in nonlife operations.
Automation was cited as a breakthrough
technology idea by several
respondents.According to several participants,
the underwriting process
stands to reap early benefits from
automation. However, participants
cautioned that process must not be
confused with enablement.
In order for automation to finally
replace manual processes, the industry
will have to move beyond simple
enabling technologies, such as imaging,
that perform some necessary
functions but are not true automation.“When
I use imaging,” said Genworth’s
McKay, “I am in essence
locked in to using electronic paper.
Contrast that with getting 100% of
my data into a system. Now I can
turn loose and use all kinds of digital
decision engines and process
simulation tools and unlock layer
upon layer of additional productivity
and service levels by being able
to automate things.”
Enterprise Architecture
The 21st-century insurer needs to
establish a far more predictable IT
environment. Because the establishment
of enterprise architecture supports
the very notion of IT/business
Strategic Vision
How key technologies will be used to address business concerns.
Markets
20th Century
• National concentration
• Growth in developed markets
• Insurance/some FS integration
Visionaries
21st Century
• Global concentration
• Growth in developing markets
• Cross FS global alliances
Competition
Distribution
Products
• Polarized: life and non-life
• Insurer vs. insurer
• Mutual model
• Channel segregation
• Direct/Independent
on unique platforms
• Distributing products
• Internal strategic/
internal development
• Complex
• Insurer-driven
• Dynamic: life vs. non-life
• Insurer vs ???
• Total demutualization
• Channel integration
• Direct/Independent on common platforms
• Distributing information
• Internal strategic/external development
• Simple/standardized
• Customer-driven
Risk Management/
Underwriting • Affinity groups/some
tiered underwriting
• Reactive modeling
• Actuarial risk focus
• Fully-tiered underwriting/automated
• Predictive modeling
• Operational risk focus
Technology
Strategy
Source: Datamonitor
• Group: decentralized
• Business: Isolated/
some integration
• Geography-defined
• IT as “client”
• Group: centralized
• Business line federation/mainly integrated
• Geography-agnostic
• IT as “partner”
66 BEST’S REVIEW • SEPTEMBER 2006

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Business Strategy
Technology
strategy alignment, it may be the most
important long-term technology
investment an organization can
make. Executives see enterprise
architecture as synonymous with
service-oriented architecture.
The development of enterprise
architecture, however, is only one piece
of the technology puzzle for insurers.
High-impact risk exposure and other
underwriting data will need to be
stored, classified and callable for use in
risk profiling operations.The key at this
stage is moving data to a warehouse,
essentially a component, or service,
within an architecture, from which it
can be organized and extracted to meet
business objectives.
Channels
According to survey respondents,
the greatest distribution challenge for
insurers over the next five to 10 years
will be to provide competitively differentiated
access to information.A large
European insurer believes that
because of the B2B2C nature of insurance
sales, it will be imperative for
insurers to open their back office to
agents and policyholders alike. An
insurance company will essentially act
as an information network hub, with
agents, banks and policyholders as the
spokes, able to initiate or respond to
requests independently. Third parties
on both the sales (agents and financial
advisers) and service (fulfillment and
settlement operations) sides also will
have access, as claims increasingly
become automated.
IMSA?
Ken Kalis!
www.kkalis.com 386-462-1074
68 BEST’S REVIEW • SEPTEMBER 2006
Key IT Issues to Address
With the global financial services
industry at the leading edge of a
once-in-a-generation growth
opportunity, leading insurers are
showing how technology may
become a competitive sweet spot
for true transformational change.
However, to seize the opportunity,
insurance companies must
address several key issues:
Establish a clear, achievable vision that
includes measurable steps. Increasingly,
corporate boards and senior executives are
requiring detailed business cases for new
information technology initiatives, including
the ability to show that projects will generate
a healthy return on investment within very
tight time frames. The transformation plan
cannot be a “big bang” approach.
Be realistic about what capabilities and
resources need to be in place. Management
needs to understand what types of competencies,
skills and resources are necessary to
execute toward the vision. A company’s planning
processes must encompass the IT initiatives
to make sure the organization is
equipped to carry them out.
Develop a culture of follow-through on a
long-term basis. It is critical that senior management
understand the full price of failing to
see projects to their conclusion.
Overcome organizational inertia. If transformational
projects are to survive, senior executives
must provide strong, unwavering support.
Learn to cut losses when necessary. Chief
information officers and senior executives need
to re-evaluate their portfolio of projects continually
to make sure they are on track and that
both near-term and long-term objectives are
being met.
Many of the leading insurers that
participated in the interviews have had
agent portals up and running for several
years as part of their acquisition integration
or captive agent replacement
strategies.A large U.S.property/casualty
company recently completed such a
project for its agents in all 50 states and
is now updating Web access for customer
information that will allow customers
to obtain information on everything
from new products, to policy
changes,to claims status.
Communications
Advances in communications technology
are giving insurers the ability
to realize a host of new applications
for internal communications, Voice
over Internet Protocol and wireless
systems. According to a large European
nonlife carrier that has implemented
a VoIP initiative to strengthen
the link with its agents,“VoIP will happen.
Having voice and data on the
same network enables more flexible
communication between employees
and cost reduction.”
The Asian market is at the forefront
of wireless business communications,
both for information sharing and for
transactions.According to China Pacific
Insurance Co. Group CIO Richard
Cheng,“Mobile is part of the Chinese
culture, plus the infrastructure is here.
Everyone has cell phones and PDAs,
which will be the key information
contact points with the consumer.”
Sourcing
Recently, insurers have begun viewing
outsourcing as more than a foundational
cost-cutting measure. The separation
of IT management from IT
strategy is allowing carriers much
greater flexibility in moving other
operations and processing functions
outside of the organization. The interviews
with insurers indicate that while
faith in outsourcing agreements will
increase, outsourcing itself will remain
an option, determined by strategic factors
unique to each organization.
Long-term, comprehensive IT strategies
that include enterprise architecture,
process automation and customer
analytics will be essential to insurance
companies as they bridge the gap
between the 20th and 21st centuries.
Still,to realize the benefits of these projects,
industry leaders first must recognize
their limitations and properly
understand their potential impact on
meeting business objectives.
Encouragingly, technologies such
as open source computing and SOA
are reaching the stage of maturity at
which they can contribute to project
success. By leveraging these
technologies and staying the course
once momentum is gained, leading
insurance companies can perhaps
be first in line to enjoy the sweet
taste of success as the new global
opportunities unfold.
BR

Advertisement

Question? ?
The
Of Collateral
Collateral Reform
Regulatory/Law
Reform of current U.S. collateral
requirements should be one of many
steps the industry takes to modernize
reinsurance regulation to achieve open
global markets on fair terms.
by Sandra G. Blundetto, Kelly Cruz-Brown and
Beth Vecchioli
Pressure for reform of the U.S. regulatory system for
credit for reinsurance led the Reinsurance Task Force
of the National Association of Insurance Commissioners
recently to take a much needed step forward at the
Summer NAIC meeting by voting to advance a proposal to
ease collateral requirements for non-U.S. reinsurers. The
proposal, which would apply to all reinsurers, would
replace collateral requirements with a ratings-based system
predicated on the financial strength of reinsurers. It is commendable
that the NAIC has acknowledged that credit for
reinsurance and collateral provisions need revision. However,
further modernization and reform regarding U.S. reinsurance
regulation is necessary to reflect the global nature of
the reinsurance industry and to achieve open markets on
fair terms.
Current U.S. credit-for-reinsurance rules require unauthorized
reinsurers to provide funds in trust or other collateral
equal to 100% of their gross actuarially estimated liabilities to
U.S. cedants, even if they have significant retrocessional protection
and a history of meeting their obligations. However,
the rules demand no such collateral from domestic companies—even
those with lower financial security ratings.These
requirements dictate that non-U.S. reinsurers essentially pay
twice—once to secure the same liabilities when they purchase
retrocessional cover and again to post collateral.
Continued on page 71
Contributors:Sandra G.Blundetto is senior vice president
and general counsel of U.S.RE.Kelly Cruz-Brown is a shareholder
in the Tallahassee, Fla., offices of Carlton Fields and
practices insurance regulatory and administrative law.Beth
Vecchioli is a senior government consultant in the Tallahassee
office of Carlton Fields and provides government consulting
services to insurers and reinsurers operating in Florida.
Relaxing U.S. collateral requirements is
directly at odds with the regulatory
objectives of adequate capacity,
affordable coverage, market stability,
and most importantly, insurer solvency.
by Karen Horvath
Property/casualty insurers, with the exception of
perhaps a handful of the very largest companies,
require reinsurance to provide appropriate policy
limits to their customers.Accordingly, the security provided
by reinsurers is paramount to the ongoing success and
solvency of the primary carriers who cede business to
them, and any threat to these reinsurance recoveries
would have lasting repercussions on the individuals and
businesses the primary companies insure. Insurance companies
rely on reinsurance for a variety of purposes,
including expanding capacity, stabilizing underwriting
results, financing growth, securing against shock losses
such as those arising from catastrophes, and shortening
the time to run off certain businesses, but primarily sharing
exposure to large risks.
The National Association of Insurance Commissioners
has proposed a relaxation of the collateral requirements
for alien reinsurers—those that are formed according to
the legal requirements of another country and not subject
to U.S. regulatory requirements. However, such a
move is directly at odds with the regulatory objectives of
adequate capacity, affordable coverage, market stability,
and most importantly, insurer solvency.
At the heart of the issue is alien reinsurers’ alleged concern
over the liquidity and capacity constraints generated
by requirements to post collateral on losses ceded to
them by their clients, particularly immediately following a
significant insured event. In the wakes of events such as
the Sept. 11, 2001, disaster and Hurricane Katrina, alien
reinsurers found themselves in a position where they had
Continued on page 71
Contributor Karen Horvath is vice president of external
financial communications for W.R. Berkley Corp.
70
BEST’S REVIEW • SEPTEMBER 2006

Continued from page 70 Continued from page 70
Opponents of change contend that collateral is
required to protect U.S. ceding companies from insolvent
reinsurers that can’t pay claims in the event of major catastrophes.
They argue that U.S. insurers are incapable of
evaluating alien reinsurers because of differing regulatory
and accounting regimes and national barriers to the
exchange of information. Requiring collateral for American
ceding companies to get credit for reinsurance on
their balance sheets may have been justified years ago
when reliable information about the financial security of
foreign reinsurers was not widely available. However,
with the formation of the International
?
Association of
Insurance Supervisors, the integration of financial services
worldwide, the development of credible international
accounting standards, increased
reliability of rating agencies, and advances
in technology allowing for the rapid
exchange and communication of information,
this argument is not persuasive.
Reinsurance is a global, international
business. The major reinsurers that
underwrite the majority of reinsurance
business ceded by U.S. companies operate internationally,
and there is a growing international consensus that
many non-U.S. major reinsurance jurisdictions are
sophisticated and implement and maintain effective
regulatory systems.
The requirement that unauthorized insurers provide
funds in trust or other collateral equal to 100%
of their gross actuarially estimated liabilities to U.S.
cedants, and simultaneously liquidate assets to pay
claims being settled, forces reinsurers to shift their
investment strategies and portfolios to highly liquid
assets that could reduce investment returns for
reinsurers and therefore could arguably affect
the amount of offshore capacity available to
U.S. insurers. The transaction costs involved in
securing collateral, which are passed on to ceding
companies, exacerbate the inefficiencies in the
marketplace and increase insurance costs for U.S. insurers
and policyholders.
• Current U.S. collateral requirements, coupled with
the responsibility to pay claims, force reinsurers to
shift their investment strategies and portfolios to
highly liquid assets.
• These liquid assets could reduce investment
returns for reinsurers and therefore could affect the
amount of offshore capacity available to U.S.
insurers.
• The most efficient regulatory structure would
involve harmonization among regulatory systems
to address international reinsurance transactions.
to dramatically increase their collateral as losses ceded
to them spiked, constricting their ability to grow their
business as the market hardened. However, these collateral
requirements are generally no less constraining than
capital requirements for licensed reinsurers, which
effectively post collateral by setting up reserves on their
financial statements that regulators require to be supported
by liquid assets.
A Matter of Choice
All reinsurers doing business in the United States have
the option to become licensed, and consequently become
subject to U.S. tax and regulation in their state of domicile
and the states in which they operate, or alternatively
post collateral. Collateral provides
regulators with a tool for protecting
reinsurance recoveries and thus
securing policyholders’ interests,
while at the same time providing
f lexibility for reinsurers that
ensures a viable market. Most
choose the collateral option, as it
takes a significant amount of time
and energy to become individually
licensed in all 50 states and the various
U.S. territories, and they can maintain
their tax advantage—in other words, avoid
U.S. taxation.
Most other countries, including most European
Union and Asian countries, require local licensing and
provide no option for collateralization, creating greater
barriers to entry in those markets. Licensing requirements
necessitate that insurers in those territories
hold assets locally and pay taxes in that country,
and also often restrict the expatriation of funds.
Proponents of relaxing the collateral requirements
for alien reinsurers in the United States cite
financial services modernization and the globalization
of the business as basic reasons for their position.
However, no common set of accounting rules, global
regulator nor court system exists to protect the interests
Continued on page 72 Continued on page 73
Both Sides of the Question
• Current U.S. collateral requirements are generally no
less constraining than capital requirements for
licensed reinsurers.
• One of the greatest consequences of relaxing collateral
requirements would be the relative weakening of
small players relative to their large competitors.
• Ratings cannot substitute for collateral because ratings
agencies have no legal authority to enforce
capital requirements, restrict transactions that could
diminish capital or otherwise cause alien reinsurers
to maintain financial strength.
BEST’S REVIEW • SEPTEMBER 2006
71

Continued from page 71
Examining Other Models
The events of September 11, 2001,
and the 2004 and 2005 hurricane seasons
underscore the unacceptable burden
and unintended consequences of
these requirements. The NAIC has
begun to listen seriously to the concern
of the world’s leading reinsurers
and regulators in the European Union
that national boundaries should not be
a barrier to providing needed capacity.
The European Union has taken steps to
eliminate collateral requirements and
create a system of regulation equivalence
across the 25 countries of the
Union.The United Kingdom, Germany
(non-life), Switzerland, Bermuda and
Japan are among the major reinsurance
jurisdictions in the world that do not
have collateral requirements, and many
have represented in comment letters
to the NAIC that they do not have
major problems with uncollectible
reinsurance recoverables. Why can’t
we do the same?
U.S regulators should consider the
non-collateral safeguards of these leading
reinsurance jurisdictions.The E.U.
Reinsurance Directive regulates and
supervises European reinsurers
through a harmonized system based on
a “home country” passport. It requires
reinsurers to be authorized by the
member state in which the reinsurer
NAIC Proposal
The National Association of Insurance Commissioners is
has its head office and imposes certain
capital requirements to ensure that
assets are prudently invested, properly
diversified and sufficiently liquid, having
due regard to the amount and duration
of the expected claims payments.
Furthermore, the European Union is
reviewing its current solvency regime
through its Solvency II project,which is
intended to create more efficient and
secure markets and a level playing field
among reinsurers in Europe and a
stronger position for European insurers
generally.
International comity demands
mutual recognition of other jurisdictions
whose regulations are as secure
and strong as—if not better than, as
some argue—those maintained in the
United States. Furthermore, given the
fact that most reinsurance is ceded to
non-U.S. reinsurance companies, it
makes sense that the most efficient
regulatory structure would involve
harmonization among regulatory systems
to address international or crossborder
reinsurance transactions. Mutual
recognition and harmonization of
reinsurance supervision likely would
result in a more efficient reinsurance
marketplace by removing unduly burdensome
requirements for reinsurers.
Those in favor of maintaining the
100% collateralization status quo cite,
among other reasons, the uncertainty in
NAIC
closer than ever to ending the long held practice of mandating non-admitted
reinsurers to post 100% collateral for their U.S. liabilities. With the goal of
changing the old approach in favor of a ratings system that bases reinsurance
agreements upon a company’s financial strength, the NAIC’s Reinsurance Task
Force hopes to have a comprehensive draft in place by year’s end. From there,
the item would advance through senior NAIC committees, with the hope of
coming to a final vote by early 2007.
Currently no final draft exists and no consensus has been reached. But regulators
continue to keep in mind guiding principles contained within a September
2005 task force report:
1. The current rules on collateralization need to be changed. Among the alternatives
to the 100% collateralization rule to be considered are those that would
facilitate:
• Enhanced reporting from reinsurers to regulators consistent with
U.S. reporting requirements
• Better matching of a ceding insurer’s credit and the assuming reinsurer’s reserves
• A reduction in coverage disputes between ceding companies and reinsurers
• A pass-through of the savings achieved in the reinsurance costs to the ceding
company and ultimately to the primary policyholder
2. New rules are to apply uniformly regardless of the reinsurer’s state or country of
domicile.
foreign enforcement of U.S. judgments
against foreign reinsurers. However, as
noted in the NAIC Reinsurance Task
Force of the Financial Condition (E)
Committee U.S. Reinsurance Collateral
White Paper: 1) key European countries
consistently recognize U.S. judgments,
which will be simplified and enhanced
upon ratification of the Hague Convention
on Choice of Court Agreements; 2)
most reinsurance contracts contain arbitration
clauses, and arbitration awards
are enforceable though the Hague’s
1958 New York Convention on the
Recognition and Enforcement of Foreign
Arbitral Awards; and 3) regulators
can require preferred jurisdiction and
law clauses in reinsurance contracts.
Federal Standards
In addition to considering the noncollateral
requirements of other foreign
reinsurance jurisdictions, U.S. insurance
regulators should explore adoption of
federal standards to provide a comprehensive
and uniform system of reinsurance
regulation. Our current multistate
system of reinsurance regulation fosters
inefficiencies and significant differences
among jurisdictions that are
unnecessary and inappropriate for the
reinsurance business and a global marketplace.The
costs associated with satisfying
regulatory requirements for 51
different systems is an expense that is
borne by the industry and ultimately
paid by consumers.
Federal regulation of insurance is
not a new concept to the insurance
industry and is currently being considered
as an alternative to our current
state -based regulatory system.
Reinsurance is critical to the financial
services markets by contributing to
the efficient functioning of risk management.
Reform of our current collateral
requirements should be one of
many steps our industry takes to
reform our overall regulation of reinsurance
so that reinsurers operate within a
common regulatory framework that
balances the need for insurers to transfer
risk and reinsurers to optimize the
use of their capital to fund claims. Our
system of reinsurance regulation is
archaic and woefully out of step with
the global nature of our business. BR
72 BEST’S REVIEW • SEPTEMBER 2006

Continued from page 71
of cedants and provide a level playing
field around the world. Without
local capital that is subject to regulatory
oversight, the deposit of funds in
trust or the provision of letters of
credit, cedants have no direct access
to funds recoverable under their reinsurance
contracts, and their chances
of recovery are lowered by their
inability to pursue them through the
U.S. court system.
Importantly, however, this is not
an issue of global regulation. It is an
issue of the legal capability of collecting
on contractual liabilities in a
timely fashion.Access is restricted to
premiums on deposit or funds held.
In addition, changing conditions in
the political and legal environments
have lengthened the tail on reinsurance
recoverables, and collateral is
necessary to protect recoveries from
long ago. Small companies have the
potential to be hurt more than large
companies by the absence of collateral,
as the very largest companies
can exert greater leverage in negotiations.
One of the greatest consequences
of relaxing collateral
requirements will be the relative
weakening of small players relative
to their large competitors.
The collateral option provides alien
reinsurers the opportunity they desire
to participate in the U.S.market,as well
as the flexibility to move capital freely
and choose the most favorable venue
for taxes and regulation. Why should
the United States, which already provides
the most flexibility to alien reinsurers
and which has one of the most
financially sound insurance regulatory
regimes in the world and what could
be one of the most efficient if Optional
Federal Charter legislation is enacted,
relinquish its rights to protect the solvency
of its domestic players?
Other arguments in favor of relaxing
the collateral requirements play
on the fears of cedants and regulators,
suggesting that current rules
restrict capacity, particularly for
property reinsurance in catastropheprone
areas. According to a recent
study by Reinsurance Association of
America, nearly 50% of the U.S. reinsurance
premium is ceded to non-
U.S. reinsurers—a figure that suggests
there is no barrier to entry. The
reason capacity has constricted in
coastal property is that rates for
underlying insurance do not reflect
risk due to political posturing and
the volatility associated with the
business generates high capital
requirements, causing risk-adjusted
returns to remain inadequate despite
increasing pricing. Relaxing collateral/licensing
requirements may
indeed bring additional capacity to
such areas, but that kind of impetus
risks the entry of naïve capital
and/or financially suspect players,
which are likely to exit quickly following
a severe event—either voluntarily
or through insolvency. Ultimately,
that kind of capacity will hurt
the market and cause serious disruptions.
In fact, it is just such new
capacity that should be required to
provide collateral.
Why should
the United States
... relinquish its
rights to protect
the solvency
of its domestic
players?
The Role of Ratings
In its proposal, the NAIC suggested
an option whereby ratings could substitute
for regulation or collateral. Rating
agencies and regulators both play
very important roles in promoting
insurer solvency, but they are very different
roles. Although some are fond
of referring to rating agencies as de
facto regulators, ratings are opinions
that provide important information
for credit decisions and comparisons
of relative financial strength, but are
no substitute for regulation. These
organizations have no legal authority
to enforce capital requirements, limit
dividends, restrict transactions that
could diminish cash and/or capital, or
Collateral Reform
Regulatory/Law
otherwise cause alien reinsurers to
maintain financial strength. Rating
agencies can, and do, exert significant
influence over a company’s financial
condition as companies strive to
maintain or improve their ratings, but
once the rating falls below a level that
is acceptable to the market, rating
agencies lose power and only the regulators
can protect policyholders. In
addition, a rating downgrade can
cause a run on the bank and without
collateral, the reinsurer may have
insufficient liquid resources to pay
claims.
Finally, ratings provide an opinion
as to a reinsurer’s ability to meet its
ongoing obligations to policyholders,
but not its willingness. Collateral
takes that issue off the table to a certain
degree. In recent years, losses in
the reinsurance sector resulted in
downgrades to ratings below a level
that is acceptable to the market for
several reinsurers—including Gerling,
Converium, and most recently
PXRE—causing them to cease writing
new and renewal business and
focus on the run-off of existing liabilities.
While coverage disputes were
reported to be minimal, slow pay
was a significant concern for
cedants, and collateral accounts
became of paramount importance.
Even Lloyd’s was able to limit its liability
through the Reconstruction
and Renewal plan that ultimately
gave birth to Equitas, but those that
held collateral have continued to collect
on outstanding liabilities. Consequently,
it would not be prudent for
the NAIC and its members to relinquish
their role and effectively
endorse one or more rating agencies.
In fact, it may be rather awkward.
While the proposal suggested creating
a new rating structure through
the NAIC, regulators are not equipped
to perform this function, in particular
due to their lack of prospective
evaluation focus.
All in all, at a time when reinsurer
financial strength has declined and
slow-pay/dispute issues have been on
the rise, it seems that relaxing collateral
and licensing requirements for alien
reinsurers is ill advised.
BR
BEST’S REVIEW • SEPTEMBER 2006
73

Commercial, Personal, Life and Health
Agent/Broker
H
I
G
Tim Klein for Best’s Review
Aiming
H
Hub International has
grown by giving its
employees the freedom
to stretch their
entrepreneurial spirit—
and a safety net to help
them if they stumble.
by Meg Green
74
BEST’S REVIEW • SEPTEMBER 2006

LEARNING THE ROPES: (top photo)
Larry Lineker, chief sales officer, Hub
International, tiptoes across a ropes
course 20 feet off the ground at the Indian
Lakes Resort, Bloomingdale, Ill., as part
of a team-building practice for Hub. Various
Hub employees tried out the course,
which helps to show how working together
can help a team reach its goals. (Lower
photos) From the ground, Hub leaders
Dennis Pauls, chief financial officer, left,
and Larry Lineker, chief sales officer, right,
cheer and offer encouragement to colleagues
on the ropes above.
▼
Hub International once hired
marketing experts to come up
with a new name for the insurance
brokerage and consulting firm.
Their suggestion? “Insurniverse.”
“‘Hub’ started to look pretty good
after that,” said Marty Hughes, chief
executive officer of the company.
“The Hub name means a lot to us. It
describes who we are and what
we’re about.”
Hub gets its name from having 16
regional offices, called hubs, that oversee
more than 200 local offices.
Eleven of the hubs are in the United
States and five are in Canada.
Hub also can mean a center of
activity, and Hub International certainly
has been busy.
It was formed in 1998 when 11
Canadian insurance brokers joined
forces with an aggressive plan to grow
both organically and through acquisitions.
The company has held true to
that original vision, growing to
become the 12th-largest global insurance
broker, with $442.6 million in
revenue in 2005, according to the
Best’s Review ranking of Top Global
Insurance Brokers.
Hughes says he “fell in love” with
the Hub International story while at
Mack and Parker Inc., the Chicagobased
insurance brokerage, which
became the company’s first foothold
in the United States.
“I always had a dream of a public
company. But it’s tough to bring entrepreneurial
people together. They are
used to running their own business,”
Hughes said.The key to Hub’s success
is just that: it allows the brokerages it
acquires to maintain that entrepreneurial
spirit and a sense of ownership
in the company,he said.
“We want to empower our
people to make decisions as if
it’s their own business,” said
Bruce Guthart, chief operating
officer of Hub.
Hub focuses on middle-market
commercial clients and
personal lines, and has completed
more than 120 acquisitions,
about half of which were
completed in the company’s
first 24 months.
The company said it’s organized
with an emphasis on local,
personalized service to clients, but has
the resources of a much larger organization
to offer expertise to its smaller
outposts. Each hub is responsible for
its own regional or specialty market
and operates with its own management
team. Hubs usually generate $10
million in annual revenue, although
those that focus on a niche market
may have a smaller revenue volume.
Those early U.S. acquisitions were a
tough sell, Hughes said during an interview
in his Chicago office, overlooking
the El train tracks. Hub leaders had to
explain what Hub was and what it
meant to work for Hub. At that time,
they also had to convince the leaders
of would-be acquisitions that it’s a wise
move to take up to 70% of the purchase
price in a Canadian stock that
they had to hold for up to 10 years.
Key Points
Facts and Figures
About Hub
Hub (hub) n. 1. the center
part of a wheel; 2. a center of activity;
3. the 12th-largest global insurance brokerage
Headquarters: Chicago
Business Mix:
United States: 86% of 2005 commission
income was generated from sale of commercial
lines; 14% from personal lines
Canada: 61% of 2005 commission income
from commercial lines; 39% from personal
lines
Commission Income: usually ranges from
5% to 20% of the premium charged by insurers;
accounts for 88% of Hub’s revenue base,
excluding contingent commissions.
HBG: Hub International’s stock ticker. The
stock is traded on the New York and Toronto
stock exchanges.
Source: Hub International’s Annual Report; Hub
International
• Between the beginning of 1999
and the end of 2005, Hub International
acquired 116 brokerages,
which accounted for 79% of its
revenue gains.
• The company has more than 200
offices in the United States and
Canada.
• The company sells commercial
and personal property and casualty
insurance, life and health insurance,
employee benefits and risk
management services.
“We had to be sure people were
committed.We wanted people to have
skin in the game,” Hughes said. “We
were paranoid at first. We did not
want to make a mistake.”
As the company grew—generating
42% compound annual revenue
growth since 1998—Hub lessened the
percentage of stock that acquired
agencies had to accept as the purchase
price.
While Hub says that growing
organically is its top priority, it hasn’t
shown that it can do that yet, said
Frank Cacchione of TNC Management
Group, a Morristown, N.J.-based
consultant.
“So far, a big share of their organic
growth has come from exchange
rate differences [between Canada
and the United States].They are barely
growing organically from new
accounts being sold or significant
increases in premium on those
accounts. Just about all of their
growth has come from acquisitions,”
Cacchione said. “So far, their most
effective sales team isn’t the sellers
on the risk side, but an effective marketing
team driving an effective
engine of acquisitions.
“I am not saying they aren’t doing
a good job. The school is still out on
the ultimate financial success of Hub,”
Cacchione said. “They’ve been growing
really fast through multiple acquisitions
that they have to absorb at
some point. They have to do something
that’s very difficult: build efficiencies
in a highly decentralized
business. If they bought the assets
well, if their interest assumptions are
BEST’S REVIEW • SEPTEMBER 2006
75

correct, and they can ultimately add
organic growth...then they are doing
an exciting thing.”
Measuring Success
An important component of Hub’s sales structure is
the development of the Pipeline, an intranet that
allows the company to track its daily performance.
It tracks the sales activity of its agents through
five steps of selling: prospecting, first meeting with client,
second meeting with client, proposal and writing of
insurance policy.
“In their own region, managers can see the top 10
account opportunities and see the number of producers
above or below target,” Larry Lineker, chief sales officer,
said.
The system also reminds producers not to focus only
on taking care of immediate opportunities, but to keep
the pipeline filled, Lineker said.
“We know we need X amount of business in the
pipeline to produce Y amount of revenue,” Lineker said.
“When you have a full pipeline, you automatically feel
more relaxed and confident of the opportunities you are
working on, because it’s not like if you can’t land this
account, there’s nothing.”
One major benefit of the Pipeline is it recognizes
agents for closing a deal.A ticker runs continuously, showing
new sales by agent, premium and type of business
(see below). It also lists the top performers for each
office and the entire organization. Salespeople, who tend
to be an outgoing, competitive bunch, can see how their
peers are performing and are often encouraged to do better,
Lineker said.
“Our agents love the recognition,” Lineker said.“People
think salespeople are motivated by money. That’s a mistake.They
are motivated by recognition.”
The company often celebrates the success of its brokers.Top
performers are honored annually at a resort trip.
The company also puts together a monthly newsletter,
called “Boast and Brag,” to tout the work of its top salespeople
that month. And each month, senior managers
send hand-written personal notes to the top 25 brokers
to congratulate them on a job well done.
“It’s a lonely job being a salesperson,” Lineker said.
“You can’t be really successful if you’re not having fun at
A Culture of Sales
The entire company runs on a culture
of sales, Hughes said. Backing up
that claim is the company’s emphasis
on training its salespeople, measuring
their results and rewarding them for a
job well done.
Larry Lineker headed up the company’s
Vancouver, Canada, office, the
company’s strongest sales unit,
when he was tapped to take the
new position of chief sales officer
two years ago.
“Too often, we expect through
osmosis that our salespeople will be
successful,” Lineker said. “But you
need to have a plan. Education is the
key.The top 20% know how to do it
intuitively; we need to teach the bottom
80% how to be better.”
Lineker said there’s no magic to
selling insurance.
“If you want to be really successful,
you get in earlier and stay a little later.
If we know that for every five calls the
producer makes, they’ll secure one
appointment, then if the salesperson
made one more call before they left
every day, that would be another 240
calls in a year,another 50 new appointments.
Depending on the close rate,
Continued on page 78
it. We need to help create that atmosphere. We’re having
fun with our rewards programs, publications we send
out, and little contests.”
Hub sponsors Hub Academy, a two-week training and
teambuilding program that has included about 100 newer
producers over the past few years, and the Quadrant4
leadership development program for emerging leaders
from all functions in the company. Corporate officers participate
in both programs, giving participants expanded
access to senior management.
As part of the Hub Academy, participants are challenged
in team-building exercises, including a rope
course.The academy has been held on various rope courses,
but in July, the chief sales officers of the company participated
in a course in Illinois.The group was divided, and
then various members were chosen to thread their way
across a rope obstacle course about 20 feet in the air to
collect envelopes which contained puzzle pieces. Partipants
are protected by a harness connected at the top,
and were able to use the harness and safety line to
improve their mobility over the course.At one point, participants
were challenged by crossing the ropes course
while blindfolded and had to rely on a colleague for guidance.
Despite being assigned to different teams, participants
quickly discovered by helping each other, regardless
of which team they were on,they'd all benefit.
“It’s very much like selling insurance. You have to be
focused. You feel like you are alone,” said Julie Zimmer,
vice president of sales. “But you are not. People are on
the ground cheering you on, and when you need help
selling in the field, they are there for you, too.”
Lineker said one of the key aspects of the Pipeline is it
allows agents to communicate with their colleagues from
around the country. If a broker in California has a question
on a type of errors and omissions policy, he or she
can ask for help, and often receive responses from other
brokers in other hubs.
“We look for folks to wear two hats—one in their area
of expertise and the other to help us become a better
company,”Lineker said.
76 BEST’S REVIEW • SEPTEMBER 2006

Entrepreneurial Spirit
While Hub has grown
through an aggressive
merger strategy, the
heart of the company is sales. Last
year, the company boasted revenue
growth of 25%, which
included acquisitions and 6%
organic growth.
Hub runs on an unusual management
structure. A seven-member
senior corporate executivemanagement
team divides up
different aspects of running the
company, with each one responsible
for one of seven key areas:
corporate leadership (Marty
Hughes, chief executive officer);
operations (Bruce Guthart, chief
operating officer); financial
reporting (Dennis Pauls, chief
financial officer); sales (Larry Lineker, chief sales officer);
legal (Marianne Paine, chief legal officer); human capital
(Kirk James, chief corporate development officer); and
mergers (Rick Gulliver,president).
Senior managers spend a lot of time traveling. Hughes
estimates he travels about 25 weeks out of the year visiting
field offices; while Gulliver spends more than half of his
time on the road looking at would-be acquisitions.
“The personal interaction piece is huge for me,” Lineker
said.“We need to get out into the field and spend time with
our sales leaders and sales strategy. We’re not managing
from 20,000 feet.”
Dividing the leadership of the company into those seven
areas helps streamline the company’s operations, Hughes
TEAM HUB: Hub’s leadership team is clockwise, from
far left, standing: Dennis Pauls, CFO; Rick Gulliver,
president; Marianne Paine, chief legal officer; Kirk
James, chief corporate development officer, and seated
are Marty Hughes, CEO, Larry Lineker, chief sales
officer, and Bruce Guthart, chief operating officer.
Commercial, Personal, Life and Health
Agent/Broker
said. For instance, if there’s a question
in response to a hub’s quarterly
or weekly report, just one of the
seven—the one responsible for the
area in question—contacts the hub
to get the answer, then reports to
the full management team.
The team meets weekly to discuss
ongoing issues, and hosts
quarterly meetings with the chiefs
of the hub offices.
“The big difference in our model
is we’ve chosen people that are
very entrepreneurial and profit
driven,”Pauls said. Before Hub was
formed, several of its senior managers
ran their own businesses
and took out second or even third
mortgages on their homes to
expand their businesses.
“If you look at the executive management team, every
one of the seven of us has run a business where we had to
make payroll Friday afternoon. That changes you. The
thought of losing doesn’t cross your mind.You do not think
of not making a profit,”Pauls said.
Pauls said many companies have great people who are
engaged in their work running offices.“But until you’ve put
your house and your whole life on the line... that makes a
difference. We have a tremendous amount of people
who’ve done that, and it’s one reason our regions drive
hard for their results,”Pauls said.
After six years as CFO, Pauls will take over as president
and CEO of Hub’s Ontario hub. He’ll continue as CFO until
a replacement is found.
Hub International’s Growth Spurt
(U.S. $ Thousands; results given by Canadian GAAP)
Total Revenue
Hub has nearly tripled its
revenue from 2001 to 2005.
500,000
400,000
300,000
219,960
200,000 153,993
100,000
286,359
355,081
442,556
Net Earnings
The company’s net earnings have
also grown by 2.5 times from 2001
to 2005.
60,000
50,000
40,000
30,000
20,000
10,005
10,000
29,401
36,509
26,244 25,718
Adjusted Net Earnings
Not including the $14.4 million and
$28.7 million in earnout compensation
paid out in 2004 and 2005,
respectively, related to the 2004
Talbot Financial Corp. acquisition,
Hub had 64% compound annual
growth in adjusted net earnings.
60,000
50,000
40,000
30,000
20,000
10,005
10,000
29,401
36,509 40,171 54,463
0
2001 2002 2003 2004 2005
Source: Hub International 2005 Annual Report
0
2001
2002
2003
2004
2005
0
2001
2002
2003
2004
2005
BEST’S REVIEW • SEPTEMBER 2006
77

Commercial, Personal, Life and Health
Agent/Broker
Hub by the Numbers
3,700
Number of employees
200
Number of offices
$38.7 million
Revenue in 1998
$442.6 million
Revenue in 2005
Continued from page 76
you might end up with 20 new pieces
of business that they wouldn’t have
had otherwise,”Lineker said.
One Company, One Vision
Kirk James, chief corporate development
officer, oversees uniting the
company’s employees into one single
culture, a tough job considering the
number of acquisitions Hub has
undertaken.
“Most of our challenges have been
cultural challenges,” James said. “Not
every acquisition has been perfect.
And we’ve walked away from some
24
Number of brokerages acquired in the United
States in 2003-2005
7
Number of brokerages acquired in Canada in
2003-2005.
70%
Percentage of 2005 revenue stemming from
U.S. operations.
56%
Percentage of total expenses spent on cash
compensation and personnel costs, the largest
single component of total expenses, in 2005.
15%
Percentage of company stock owned by company
employees.
Source: Hub International’s Annual Report; Hub
International
deals that in hindsight we were glad
we did.”
To build the company’s culture,
James said the company needed to
articulate what its common values
and visions for the company were,
and reinforce that message through
regular meetings with employees and
through publications.
The company refers to these values
as EBITA, which stands for Entrepreneurship,
Balance, Integrity,Teamwork,
Discipline and Accountability. (EBITA
also happens to be an accounting
term for Earnings Before Interest,Taxes
and Amortization, a financial measure
used by Wall Street analysts.)
For instance, when it comes to
balance, James said it’s important
that employees are allowed to make
time for life outside of work. “People
with balance tend to make the
best reasoned decisions. It comes
from a better grounded perspective,”
he said.
When it comes to integrity, James
said that means more than being ethical
and honest.
“That captures everything about
what our responsibility is, to our customers
and our shareholders.We score
people on ethics,”James said. BR
Looking for Acquisitions
“We have become a buyer of choice,” said Rick Gulliver,
president of Hub’s merger division, adding his
phone rings three or four times a week with someone
with an agency they’d like to sell to Hub.
Marianne Paine, the company’s chief legal officer, said
the company follows a protocol when acquiring another
company, including having a team evaluate the target
acquisition.“No two deals are the same,” she said.
And Hub does not take all comers.“With any acquisition
the key to the return on investment is the execution
after you close. There are always challenges when
there’s a change in control with any organization, and if
I don’t see a good culture fit when we’re meeting with
people, that can be one of the biggest hurdles. They
have got to be excited to do a deal with us. They have
to believe that 1 plus 1 equals 3. Otherwise, we’re just
buying someone out and taking on their problems,” Gulliver
said.
Gulliver said the company looks for people with
personalities similar to Hub’s executive team. On larger
acquisitions, “we request that they take a form of payment
in Hub stock in escrow, so they can’t trade it
immediately. We need people in the field that are
watching the till with as much interest as the rest of us
Effective Implementation:
Expanding the U.S. Footprint
BRITISH COLUMBIA
HUB
Major
Location
ALBERTA
SASKATCHEWAN
MANITOBA
in the company,” he said.
And there’s plenty of opportunity to acquire new
agencies, both future hubs and “fold-in” operations, which
are smaller acquisitions that report to a larger hub.
“There are 6,000 independent agencies with $1.25 million
to $10 million in annual revenue in the United States,
generating a combined $18 million in revenue,” Gulliver
said.“We have no plans to stop acquiring companies.”
ONTARIO
QUEBEC
2006
16 Hubs
Approx. 3,700
Employees
Approx. 200
Offices
2
78 BEST’S REVIEW • SEPTEMBER 2006

Catastrophe Reserves
Property/Casualty
Panacea
U.S. officials are
taking a new look
at tax-deferred reserves
for catastrophe claims,
but questions remain
about whether they
strengthen or harm the
private insurance market.
by Ron Panko
ALL GOOD: John Oxendine, Georgia insurance
commissioner and chairman of the National
Association of Insurance Commissioners’ Tax
Policy Working Group, said there is “no downside”
to tax-deferred catastrophe reserves.
Frank Mullen for Best’s Review
Key Points
• Support for allowing tax-deferred
catastrophe reserves in the United
States is tepid at best among
insurers, reinsurers, regulators and
legislators.
• Major issues revolve around keeping
the private insurance market
healthy.
• Government is reluctant to take
action that might put it more into
the insurance business than it
already is.
• European countries have allowed
or required tax-deductible
reserves, but future international
accounting standards may curtail
or eliminate them.
80 BEST’S REVIEW • SEPTEMBER 2006

or Boondoggle?
Tax-deferred catastrophe reserves
for insurers in the
United States is an idea that
has been around for more than a
decade. But with the perceived
risks of more Katrina-like mega-disasters,
many parties are giving the
old idea another look. One report is
that a working group of insurance
commissioners has initiated “highlevel”
talks with the U.S. Treasury
Department.
The reserves would work somewhat
like an Individual Retirement
Account, except that companies
would be saving for natural catastrophes
rather than retirement. Under
such a plan, the federal government
would allow insurance companies
to stash away tax-deductible money
up to established limits. The contribution
would be an expense on the
company’s income statement, thus
reducing net income and taxable
income. Should a catastrophe occur,
the company would liquidate the
reserve, and the amount would
count as taxable income. The benefit?
Insurers would be better capitalized
to cope with mega-disasters.
The idea is only part of a public
policy debate that has intensified
following record insured catastrophe
losses in 2004 and 2005. Other
ideas include state or regional catastrophe
pools that provide reinsurance,
a national fund amounting to a
federal backstop, and even tax-free
individual homeowner accounts to
cover catastrophic losses. Bills that
would amend the tax code to establish
tax-deferred catastrophe reserves
for insurers are H.R. 2668,
sponsored by Rep. Mark Foley, R-
Fla., and S. 3116, sponsored by Sen.
Bill Nelson, D-Fla.
Caution Abounds
Despite the tax advantages, many
Coping With Catastrophe
The Third Article in a Series
in the insurance industry are cautious.
So are federal and state officials.
Insurers worry how the details
might affect their businesses. Reinsurers
generally favor private-market
insurance solutions, but might not
oppose the legislation. Regulators,
for whom insurer solvency is a top
concern, have struggled to reach a
consensus. Lawmakers and the Treasury
Department, meanwhile, worry
about a loss of tax revenue in a period
of annual budget deficits. Many
elected officials are reluctant to be
perceived as handing out tax favors
to the insurance industry.
The report about “high-level discussions”
with the Treasury Department
came from John Oxendine,
Georgia insurance commissioner
and chairman of the National Association
of Insurance Commissioners’
Tax Policy Working Group. Oxendine
said there is “no downside” to
tax-deferred catastrophe reserves
and argues that the pending bills
wouldn’t exempt reserves from taxation,
but rather change the timing.
Oxendine said in late July that talks
between his working group and the
Treasury slowed during the transition
from former Treasury Secretary
John Snow to new secretary Henry
M. Paulson.
Oxendine stopped short of saying
the department is interested in
tax-deferred reserves, but added
that its willingness to discuss the
concept “is something very different
and radical for them.” He said the
Treasury might have the power to
allow for such reserves, but a Congressional
law would require the
Treasury to do it.
Under the tax code and Generally
Accepted Accounting Principles
(GAAP), insurers do not have
reserves set aside specifically for
catastrophes. When disaster occurs,
they pay claims from surplus, and
they book losses, which they are
Insurance Industry Capital Levels, 1990 to 2005
Despite major insured losses in 2004 and 2005, industry capital levels are
higher than ever.
($ Billions)
$500
400
300
200
100
0
1990 1992 1994 1996 1998 2000 2002 2004
1991 1993 1995 1997 1999 2001 2003 2005
Source: U.S. Government Accountability Office and Insurance Information Institute
BEST’S REVIEW • SEPTEMBER 2006
81

Reserving in Europe
European countries have a history of permitting
insurers to establish tax-deductible reserves for
potential losses in catastrophic events. The U.S.
Government Accountability Office in 2004 studied six
such countries. Each differs in how it allows reserves to
be set up and used. Germany and the United Kingdom
have standards that govern contributions and withdrawals,
while France, Italy, Spain and Switzerland do
not. Catastrophe reserves are intended for catastrophic
losses. Equalization reserves are for random fluctuations
of claim expenses for some types of insurance contracts
such as hail insurance, according to the GAO’s February
2005 report.
In Germany, Italy and the United Kingdom, reserves
are mandatory.
Action by the International Accounting Standards
Board, which is trying to establish a single set of global
accounting standards, may by next year prohibit catastrophe
and equalization reserves. In March 2004, the board
issued International Financial Reporting Standard 4
Insurance Contracts, Phase I, which includes guidance
that effectively prohibits the reserves, according to the
then allowed to carry over against
future profits. They can usually
charge higher rates after big losses,
which helps them to recapitalize.
“But if you start having a couple
of years of losses, you start really
jeopardizing the financial solvency
of the company,” said Oxendine.
“Then it comes back to the taxpayers.
If a company goes under, it’s
going to be that everyone else is
going to pay, whether it’s through a
guaranty fund or FEMA [Federal
Emergency Management Agency]
coming in and bailing people out.”
To Oxendine, the logical solution
is to let the insurance industr y
“save money in advance” without
Reserve Policies in Selected European Countries
Overview of reserve
having to pay tax until the triggering
event. “Should there be a limit?
Yes. You should not allow a company
to put unlimited resources into a
cat fund because you run the risk
of a company excessively retaining
earnings for tax avoidance, and
that’s wrong,” he said. His proposal
would be that state regulators work
GAO report.The second phase, to be in effect by 2007,
will address broader conceptual and practical issues.
Under the new international standards, insurers can
accrue loss reserves only if the event has occurred and
the related losses are estimable. The board is independent
and privately funded; it works with national
accounting standard setters.
One of the board’s arguments against tax-deferred
reserves is that they do not necessarily qualify as liabilities
because the losses have not yet occurred, and treating
them as if they had “could diminish the relevance
and reliability of an insurer’s financial statements,” said
the GAO report. In November 2004, the European
Union endorsed the board’s standards. However, the
Union specified that only companies listed on their
respective national stock exchanges and those with listed
debt be required to prepare financial statements in
accordance with the standards. The European Union
gives member states the option of permitting or requiring
affiliates or subsidiaries to follow those requirements
in preparing their financial statements, the GAO
report said.
Standards governing
contributions and
withdrawals from reserve
France Catastrophe and equalization reserves can be used for storms, hail, nuclear, pollution, No
aviation and terrorism.
Germany Catastrophe reserve is required for nuclear, pharmaceutical liability, and terrorism risks. Yes
Equalization reserve is required for other natural catastrophes.
Italy Catastrophe reserve is required for nuclear risk and natural catastrophes, such as No
earthquakes and volcanic eruptions.
Equalization reserve is required for hail and other climate risks.
Spain Catastrophe reserve can be used for natural catastrophes and terrorism risks. No
Equalization reserve can be used for other liability risk such as automobile risk.
Switzerland Catastrophe reserve is allowed in Switzerland for all types of catastrophes provided No
the Swiss insurance supervisory authority approves a justification of the reserve.
United Kingdom Equalization reserve is required for property and other types of insurance. Yes
Source: U.S. Government Accountability Office
82 BEST’S REVIEW • SEPTEMBER 2006

Catastrophe Reserves
Property/Casualty
with the Treasury Department to
develop a risk-based-capital type of
formula uniform across all states
that would depend on the size of
the company and the nature of its
risks. “Once companies reach that
threshold, they stop, and they can’t
reserve more than that. Down the
road, if they never have a catastrophe
and want to use the money for
anything [else], the money then becomes
ordinary income.”
Tax-Revenue Effects
Lawrence Mirel, formerly insurance
commissioner in the District
of Columbia, argues that tax-deferred
reserves would not only
improve the industry’s capacity, but
would actually bring more tax revenues
into the United States. Mirel
currently heads a unit on regulatory
activities—primarily insurance—at
the D.C.-based law firm of Wiley
Rein & Fielding LLP. He said he has
no client in this area, does not speak
on behalf of any company and bases
“Surplus is an unfortunate term.It should be
called contingent reserves or net worth or
something that indicates what it really is.”
his comments on his experience as
a regulator.
The reason tax-deferred reserves
could generate tax revenues is that
most of the reinsurance that backs
up risk in the United States is provided
by companies that are offshore,
Mirel said. And they are offshore,
in places such as Bermuda,
the Cayman Islands and Guernsey,
because they don’t have to pay taxes
on accumulated surplus on a
year-by-year basis. Mirel argued that
offshore reinsurance provides
“much of the financial underpinning
of the insurance business.”
At least some of these reinsurers
would reportedly like to relocate to
—Lawrence Mirel,
Wiley Rein & Fielding LLP
the United States, and they would
bring with them a lot of business
now performed outside the country,
Mirel said. These companies would
create jobs with payroll taxes, real
estate taxes, building taxes, and taxes
on activities that are ancillary to
any financial institution.
Mirel admitted that the insurance
industry ably handled the 2005 catastrophes,
which generated $57.7 billion
in insured losses, according to
the Insurance Information Institute.
But he argued that the nation will
need to encourage the growth of
capacity to cover the rare but devastating
event that could overwhelm
the entire system.
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BEST’S REVIEW • SEPTEMBER 2006
83

Top 10 U.S. Insured Property Losses
Ranked by Losses Restated into 2006 Dollars*
Hurricane Hugo (1989)
0 5 10 15 20 25 30 35 40
($ Billions in 2006 dollars)
U.S. Insured Catastrophe Losses
($ Billions)
$60
50
40
30
20
10
0
Hurricane Katrina (2005)
San Francisco Earthquake and Fire (1906)
Sept. 11 Terrorist Attack (2001)
Hurricane Andrew (1992)
Northridge Earthquake (1994)
Great New England Hurricane (1938)
Chicago Fire (1871)
Hurricane Wilma (2005)
Hurricane Charley (2004)
*Inflation adjustment 1908 to 2006 made using the Construction Cost Index (McGraw Hill) (2006 based
on June), 1870 to 1907 based on CCI and overlapping CPI and McCusker inflation index (1860 to 1912).
Insured losses estimates are from A.M. Best news archives and ISO.
Source. A.M. Best Co.
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005*
*Excludes $4 billion to $6 billion offshore energy losses from hurricanes Katrina and Rita.
Note: 2001 figure includes $20.3 billion for Sept. 11 losses reported through 12/31/01. Includes
only business and personal property claims, business interruption and auto claims.
Source: Insurance Information Institute
“
“What if we have three Katrinas
in one year, or a Katrina and a couple
of big terrorist attacks?” he asked.
“The well might go dry, and you’d
have companies going belly-up. That
used to be almost inconceivable.”
Securitizations could be an alternative,
but they have been modest
so far in their impact. “If you want
to take care of the problem in the
short run, and do it through the
existing system, tax-deferred reserves
would be much quicker and
more effective,” said Mirel.
An industry concern is that the
Treasury Department might have an
income target in tax revenue from
the insurance industry and that the
department would try to make up
We’re concerned
that more
public fixes to the
private market are
going to create more
problems.”
—Joseph Sieverling,
Reinsurance Association of America
any revenue loss in some other way,
said Mirel. “That leaves the industry
very nervous about coming out
four-square for this,” he said.
Also hampering the industry is
“lack of a champion at the federal
level,” said Mirel. “The NAIC doesn’t
fit the bill for that; it just doesn’t
have the clout with Congress that
the Federal Reserve Board does.” In
fact, the NAIC has had a contentious
relationship with Congress, and
more contentious times may be
ahead over state regulation, he said.
First, Do No Harm
Joseph Sieverling, a senior vice
president at the Reinsurance Association
of America, said his group’s
chief concern is that enactment of a
tax-deferred reserve law would
cause the federal government to
eliminate the net operating carryback
rule, which he said performs
the same function as would the catastrophe
reserve. “In many individual
instances, and Sept. 11, 2001,
was the most recent, Congress
extended the rule to five years,
which allowed companies to go
back to taxes they had paid in profitable
years,” he said. “So you could
essentially smooth out your taxable
earnings over time by using the carry-back
or carry-forward rules that
were extended or liberalized for a
period of time.”
The RAA has no specific position
on the current bills or taxdeductible
reserves in general, and
it has not opposed the concept at
the NAIC or federal levels, Sieverling
said. But the association has some
guiding principles.
One is that the trigger point
should be high enough to allow the
private reinsurance market to develop
and operate underneath. An
NAIC model regulation a few years
ago, for example, had a very high
trigger: “Suffice it to say that insurers
could add to their reserves, but
could only take them down in the
event of a major cat event,” said
Sieverling. “That encourages companies
to use the private reinsurance
market and other mechanisms, such
as securitizations, for its everyday
catastrophe risks.”
Congress, however, scores bills
on how they might affect tax revenues,
and catastrophe reserves left
84 BEST’S REVIEW • SEPTEMBER 2006

untapped for long periods could be
expected to reduce tax collections.
Another principle is that setting a
reserve ought to be voluntary. Insurers
that don’t have a lot of coastal
or earthquake exposure should not
be required to put money into a catastrophe
reserve, Sieverling said.
Sieverling pointed out that even
last year, the worst year
the industry ever had, it
still made money. “Yes,
the rates have gone higher,
and that poses a hardship
for a lot of people,
and I don’t want to minimize
that at all, but the
private market works,” he
said. “And we’re concerned
that more public
fixes to the private market
are going to create
more problems in the
way we view that they
have with respect to the
state cat funds, for example,
in Florida. They’ve
essentially artificially
kept down the price of
insurance, but ultimately,
you have to pay the
piper, and depending on
how this cat reserve
could be structured, if it’s
too low, and encroaches
on the private market,
then you have the same
thing. It’s essentially,
ultimately, subsidizing
catastrophe risk. And
when you start messing
with the private market,
there can be unintended
consequences.”
A tax-deferred reserve
would not change anything
about the actual
risks in today’s world,
Sieverling said, and he rejected the
idea that reinsurance is the cause of
higher insurance rates. “It’s a fact
that there’s a recognition in the
market by the rating agencies, by
the insurers and by the reinsurers
that there’s more risk now than
there was,” he said.
That’s part of how the market
works. Another part involves supply
and demand, and demand for reinsurance
is currently high. But the
good news is that there’s a lot more
insurance and reinsurance capacity
coming on line, Sieverling said.
“These unfortunate dislocations
over time have a tendency of balancing
out. It the price is too high,
When Ordinary
Won't Do.
Extraordinary solutions
for select markets.
P: 678.597.4500
www.mxmsig.com
© 2004 Maxim Specialty Insurance Group
there’s going to be a lot of money
from the capital markets and elsewhere
as they look to participate in
those profits. That’s how the free
market works, and we think that’s a
good thing.”
In theory, tax-deferred reserves
might sound like a great thing for
direct writers. “You can see in the
Catastrophe Reserves
Property/Casualty
public literature that CEOs have
attraction to this,” said Debra
Ballen, executive vice president,
public policy management, at the
American Insurance Association.
“But when you talk to technical
people, they realize this is a much
more complex issue. It may not be
as good as it sounds.”
Ballen said the association,
which represents
400 property/casualty
insurers writing $120
billion a year in premiums,
recently began a
“rigorous internal analysis”
to determine whether
its member companies
would be better off
economically. “The difficulty
is that it is one
thing to talk about this
in theory, but in practice,
it can get more difficult,”
said Ballen. The House
and Senate bills lack
enough specificity to
determine whether they
propose a workable way
to establish a reserve or
not, she said.
What are the chances
a tax-deferred catastrophe
reserve would become
a reality in the
United States? Not much,
according to the RAA.
“This type of bill has
been introduced almost
every year almost since
Hurricane Andrew,” said
Sieverling. “The NAIC
finalized its model in
2002; that was the second
revision of the model.
We’re not expecting
any immediate action by
Congress to adopt this.”
Mirel said the idea has “always
been fought vigorously by the Treasury.”
He added that Congress might
be more open to a reserve for terrorism
risks than natural catastrophes
because of the difficulty of
being able to predict them and
because there is no certainty about
where terrorists would strike. BR
BEST’S REVIEW • SEPTEMBER 2006
85

untapped for long periods could be
expected to reduce tax collections.
Another principle is that setting a
reserve ought to be voluntary. Insurers
that don’t have a lot of coastal
or earthquake exposure should not
be required to put money into a catastrophe
reserve, Sieverling said.
Sieverling pointed out that even
last year, the worst year
the industry ever had, it
still made money. “Yes,
the rates have gone higher,
and that poses a hardship
for a lot of people,
and I don’t want to minimize
that at all, but the
private market works,” he
said. “And we’re concerned
that more public
fixes to the private market
are going to create
more problems in the
way we view that they
have with respect to the
state cat funds, for example,
in Florida. They’ve
essentially artificially
kept down the price of
insurance, but ultimately,
you have to pay the
piper, and depending on
how this cat reserve
could be structured, if it’s
too low, and encroaches
on the private market,
then you have the same
thing. It’s essentially,
ultimately, subsidizing
catastrophe risk. And
when you start messing
with the private market,
there can be unintended
consequences.”
A tax-deferred reserve
would not change anything
about the actual
risks in today’s world,
Sieverling said, and he rejected the
idea that reinsurance is the cause of
higher insurance rates. “It’s a fact
that there’s a recognition in the
market by the rating agencies, by
the insurers and by the reinsurers
that there’s more risk now than
there was,” he said.
That’s part of how the market
works. Another part involves supply
and demand, and demand for reinsurance
is currently high. But the
good news is that there’s a lot more
insurance and reinsurance capacity
coming on line, Sieverling said.
“These unfortunate dislocations
over time have a tendency of balancing
out. It the price is too high,
When Ordinary
Won't Do.
Extraordinary solutions
for select markets.
P: 678.597.4500
www.mxmsig.com
© 2004 Maxim Specialty Insurance Group
there’s going to be a lot of money
from the capital markets and elsewhere
as they look to participate in
those profits. That’s how the free
market works, and we think that’s a
good thing.”
In theory, tax-deferred reserves
might sound like a great thing for
direct writers. “You can see in the
Catastrophe Reserves
Property/Casualty
public literature that CEOs have
attraction to this,” said Debra
Ballen, executive vice president,
public policy management, at the
American Insurance Association.
“But when you talk to technical
people, they realize this is a much
more complex issue. It may not be
as good as it sounds.”
Ballen said the association,
which represents
400 property/casualty
insurers writing $120
billion a year in premiums,
recently began a
“rigorous internal analysis”
to determine whether
its member companies
would be better off
economically. “The difficulty
is that it is one
thing to talk about this
in theory, but in practice,
it can get more difficult,”
said Ballen. The House
and Senate bills lack
enough specificity to
determine whether they
propose a workable way
to establish a reserve or
not, she said.
What are the chances
a tax-deferred catastrophe
reserve would become
a reality in the
United States? Not much,
according to the RAA.
“This type of bill has
been introduced almost
every year almost since
Hurricane Andrew,” said
Sieverling. “The NAIC
finalized its model in
2002; that was the second
revision of the model.
We’re not expecting
any immediate action by
Congress to adopt this.”
Mirel said the idea has “always
been fought vigorously by the Treasury.”
He added that Congress might
be more open to a reserve for terrorism
risks than natural catastrophes
because of the difficulty of
being able to predict them and
because there is no certainty about
where terrorists would strike. BR
BEST’S REVIEW • SEPTEMBER 2006
85

Loss/Risk Management Notes
Property/Casualty
Study: Theft Is No. 1 Loss for Inland Marine
Theft and disappearance
continue to be the two
largest causes of loss in
inland marine insurance,
according to the latest
update of the Inland Marine
Cause of Loss Report published
by the American Association
of Insurance Services.
The report, updated
annually, provides premium
and loss data reported to
AAIS for nearly 50 classes of
inland marine insurance.
Theft and disappearance
have commonly been
the causes of the largest percentage
of inland marine losses reported
to AAIS, a reflection of the fact that
inland marine insurance is often written
to cover high-value property subject
to theft, said Robert Guevara, vice
president of AAIS.
In the construction industry, it’s
equipment and building materials
that often are stolen. Guevara suggested
the risk managers look to
secure construction sites with fencing
and security staffs.
One clever way construction
Even as the heart of the hurricane
season approaches, coastal homeowners
from Texas to Maine are only half
prepared to recover from a major
storm, according to a hurricane readiness
index.
The survey asks homeowners
whether they have taken eight key
preparedness steps. The surveywide
index average was 48%. Respondents
in coastal Louisiana topped the chart,
having taken 60% of the steps. Those
in Connecticut, Maryland, New York,
Massachusetts and Maine have only
taken about one-third of the steps.
“Those who’ve been through hurricanes
are naturally more ready than
those who have not,” Bob Sheets, former
director of the National Hurricane
Center,said in a statement.
The poll was sponsored by Allstate,
Hartford, Liberty Mutual, Nationwide,
State Farm,Travelers and USAA.
Inland Marine Losses, 2000-2004
(%)
All Construction Transit
Cause of Loss Classes Classes 1 Classes 2
Fire 9.60% 24.80% 7.80%
Extended Perils 7.50% 11.00% 5.00%
Collision 6.70% 7.90% 31.90%
Burglary & Robbery 7.30% 1.40% 1.50%
Theft & Disappearance 29.90% 31.50% 31.60%
Breakage, Collapse & Landslide 4.60% 1.60% 0.40%
Water Damage & Flood 3.40% 3.10% 1.20%
Marine Perils 2.10% 0.10% 1.30%
All Other 3 28.70% 18.50% 19.40%
1 Builders Risk, Contractors Equipment, Installation Floater, and Tools and
Equipment - Personal
2 Motor Truck Cargo, Trailer and Trailer Contents, Transportation Floater,
and Trip Transit
3 Includes losses not classified.
workers have been able to fend off
would-be thieves is to take generators,
that can be worth up to $50,000, and
hoist them into the air with a crane,
locking the crane in place overnight or
over the weekend.
About 30% of losses from all classes
are related to theft and disappearance.
For construction related classes,
about 32% were theft-or disappearance-related,
compared to about 31.6%
of all transit or cargo-related classes.
In the case of cargo theft, thieves
The Insurance Information Institute
recommends that homeowners
make an inventory of their possessions;
update insurance coverage to
reflect hurricane-related threats and
any improvements to the home’s
structure; update or add federal flood
insurance coverage; secure the home
against storms by taking steps to prevent
flood damage; protect the roof
and strengthen doors and windows;
take important documents—such as
insurance policy, inventory list, and
insurance contact information with
often bring their own tractors
and make off with a
whole trailer to off-load it in
another location, Guevara
said. To help cut down on
such thefts, Guevara said
trucking companies need
to screen both drivers and
office staff, who might be
able to tip off thieves to a
valuable load of goods.Also,
drivers need to take steps
to protect their trailers by
parking them in secure lots.
About a quarter of all
losses related to construction
classes were due to fire.
For transit classes, collision caused the
most losses,at 31.9%.
Sources of loss vary from class to
class, however, as indicated in the
table above, which compares percentages
of losses for all classes with those
in two major categories: construction
classes and transit (cargo) classes.
The report draws on more than
$1.8 billion in written premium and
$700 million in paid losses reported to
AAIS for the years 2000-04, the most
recent five-year period available.
Many Coastal Homeowners Aren’t Prepared for a Hurricane
How Americans in Coastal Areas Prepare for a Hurricane
Have a personal disaster evacuation plan or kit 44%
Reviewed homeowners insurance policies within the past 12 months 69%
Updated homeowners insurance policy in the past five years 69%
Made an inventory of their personal possessions 37%
Made improvements to their home to prepare for a hurricane 27%
Homeowners with insurance who have a separate flood policy 23%
Feel they have the “right amount” of insurance coverage 48%
Stored important documents in safe place 38%
you if forced to evacuate. Keep the
papers in a zippered plastic bag, and
send copies to family or friends who
live elsewhere.
The Glover Park Group designed
the survey, which was administered
online by Stratalys Research from June
12 to 26, 2006. A sample of 4,200
adults in coastal counties in hurricaneprone
states participated.
BR
Loss/Risk Management Notes is
compiled by Senior Associate Editor
Meg Green.
BEST’S REVIEW • SEPTEMBER 2006
87

Facultative Reinsurance
Reinsurance/Capital Markets
The hard property market and
improvements in technology have led
to dramatic increases in the facultative
reinsurance market for catastropheexposed
commercial business.
FEMA
by Meg Green
Hurricane Katrina’s destructive
winds and rains may have faded
away a year ago, but they
continue to send ripples through the
reinsurance market.
One side effect is the blooming of
the facultative reinsurance market for
catastrophe-exposed commercial
buildings.
The growth stems from a number of
factors. As the industry scrambled to
pay losses and come to terms with the
damage wrought by hurricanes Katrina,
Rita and Wilma in 2005—and by
hurricanes Charley, Frances, Ivan and
Jeanne in 2004—industry foundations
have shifted. Property catastrophe
prices went up and demands for
improved data and modeling increased.
At the same time, rating agencies,
including A.M. Best Co., raised riskbased
capital requirements. Insurers
looking to limit their aggregate exposures
have become more savvy about
buying reinsurance and are increasingly
employing facultative reinsurance.
In addition, reinsurers have harnessed
new technologies to
improve the underwriting
process—a once laborious
manual process has been
turned into a quicker response
that allows facultative reinsurers
to consider more business,
and in turn,to write more of it.
“In terms of volume, our
markets in the U.S. are seeing
a 30% to 40% increase,” said
John Threlfall, head of the facultative
unit for broker John B. Collins Associates
Inc.
Elliott Richardson, global team
leader of broker Benfield’s facultative
office in London said his team’s revenue
doubled in 2005.
Swiss Re estimates a 25% increase in
demand from the facultative market,
said Gerry Anaszewicz, senior vice
president and head of U.S. facultative
reinsurance for Swiss Re. “It’s catexposed
properties driving that
increase,”he said.
“Companies are definitely looking at
using the market as effectively as they
Key Points
• The facultative reinsurance market,
especially for such risks as
U.S. wind, is growing quickly.
• Some credit the hard market for
the growth in the facultative market,
while others say it’s a result of
improved technology that allows
underwriters to evaluate more
business and write more business.
• Technology has improved the
quality of data and made communication
between insurers and
reinsurers more effective.
can. With the tightening in the treaty
market, the facultative market is one of
the solutions they are exploring,” said
Dan Bilot, head of Collins’ analytical service
area.“There’s a larger interest in
exploring the facultative market, but
they are not willing to buy at any price.”
Fine Tuning
As the treaty market hardened and
primary writers were forced to carry
higher retentions, some companies
began to look more closely at removing
some business from the treaty to
be covered by the facultative market.
The business isn’t necessarily riskier,
88
BEST’S REVIEW • SEPTEMBER 2006

TOP TARGET: The facultative reinsurance
market is growing for catastrophe-exposed
commercial buildings,
such as this one destroyed by Hurricane
Rita in Galveston, Texas, in 2005.
▼
but doesn’t mesh with other risks in
the portfolio.
In general, reinsurance treaties cover
a group or block of the primary insurers’
policies or business, whereas facultative
reinsurance covers a specific risk
or policy. Facultative coverage is issued
as a certificate to the original insured’s
policy. It can be written for a single
building, or a single risk, such as a commercial
interest which has dozens of
locations around the United States.
Brokers such as Collins look at primary
insurers’ portfolios and identify
which policies are driving a larger percentage
of risk versus gross premiums,
and then remove those risks from a
treaty and seek to cover it with facultative
reinsurance instead,Bilot said.
“[Primary insurers] have been stepping
down in aggregate per risk that
they are willing to write. Instead of
offering $50 million on a policy, they
might only want a gross position of $15
million or a net position with facultative
insurance of $15 million,” Bilot said.“It’s
a subset of risks that the facultative market
has an appetite for that improves
[the primary writers’] results.”
Commercial property risk, especially
in hurricane-prone areas, has
become a prime candidate for the facultative
market.
Companies have become more conservative
and are increasing their loss
expectations.“The larger expected loss
scenarios mean more demand for
capacity,”Anaszewicz of Swiss Re said.
If a company used to be comfortable
with a bucket of risk that was
three-quarters full, now, due to
changes in models and risk-based
capital requirements, that bucket is
overflowing with risk, said Threlfall
of Collins. “It’s not necessarily good
business or bad business [moving to
the facultative market]. It’s companies
looking to get coverage for this
business because they haven’t got
enough premium income to offset
potential claims,”Threlfall said.
Treaty cover for property business
has tightened the limits for risks on a
per-occurence and aggregate basis.
“There’s a lack of capacity in the
treaty marketplace and as a result, facultative
reinsurance has become a vehicle
for some companies to place some
of their exposures and off-load some of
their risk,” said Tom Stone, who specializes
in catastrophe risk management
for Ernst & Young’s Insurance and Actuarial
Services.
Typically, the facultative market
comes into play before primary writers
place their treaty coverage.
“Now, post-Katrina, because the market
has shifted so much in the last 60 to
90 days, companies are going back out
and looking at policies that they already
have on the books.They’ve optimized
the use of the treaty market, and now
are going in and improving their net
positions by looking at the facultative
market retroactively to see if we can
shave some of the aggregate risk off,”
Bilot said in late June.
Treaties also are becoming more
FEMA
aggressive in terms of placing aggregate
limits, higher retentions, more sublimits
and carve-outs within treaties,
Stone said.“It’s a trend of a hard market
where prices are going up,” Stone said.
“Reinsurance companies are a little less
willing to accept risks, so they are
restricting some of the coverage.”
Threlfall said the commercial property
market for facultative reinsurance
used to be primarily driven by fire risk.
Now wind risk, and earthquake exposure,are
driving growth.
“Definitely hurricane exposure is
the hot peril of the moment, because
of the unexpected increase in severity
and frequency,”Stone said.
But the business isn’t limited to U.S.
locations.
Other areas also are seeing an
increased need for cover, said Richardson
of Benfield.“People are looking for
catastrophe cover in just about every
area of the world. Japan, Mexico and
the Caribbean... European winter wind
storms are a concern. It’s very much a
What’s the Difference?
■ Facultative Reinsurance—Reinsurance of individual risks by offer
and acceptance wherein the reinsurer retains the “faculty” to accept
or reject each risk offered by the ceding company.
■ Treaty—A reinsurance contract under which the reinsured company
agrees to cede and the reinsurer agrees to assume risks of a particular
class or classes of business.
Source: Reinsurance Association of America
Swiss Re estimates a 25% increase in demand
from the facultative market.“It’s cat-exposed
properties driving that increase.”
—Gerry Anaszewicz,
Swiss Re
AFTER KATRINA: This shop
in Biloxi, Miss., was one of
many commercial casualties
caused by Hurricane
Katrina in 2005.
BEST’S REVIEW • SEPTEMBER 2006
89

Facultative Reinsurance
Reinsurance/Capital Markets
“With the tightening in the treaty market,the
facultative market is one of the solutions they
are exploring.”
global market,”Richardson said.
Most reinsurers write facultative
business in addition to treaty business.
Tom Davies, FM Global’s corporate
reinsurance manager, said FM Global
still has the same capacity available
today as it did prior to hurricanes Katrina,
Rita and Wilma.“However, the market
has changed and the cost of capacity
has increased.As a result, the cost of
catastrophe-exposed facultative reinsurance
has increased tremendously, if
it’s even available,”Davies said.
Improved Tools
Richardson disagreed that Katrina
or the resulting hard market is driving
the growth in facultative reinsurance.
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BESTWEEK
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Visit www.ambest.com/sales/bestweek for more information, or call
Corporate Sales at (908) 439-2200, ext. 5311.
A.M. Best Company
Ambest Road • Oldwick, NJ 08858 • (908) 439-2200
Fax (908) 439-3385 • www.ambest.com
4340
“Facultative reinsurance isn’t linked
to a soft or hard market,” Richardson
said.“That’s sort of a misconception.”
He credited the growth in the market
to improved technology that
allowed facultative reinsurers to consider
more business, and write more
business.
“It’s become much more efficient in
its process,” Richardson said.“I wouldn’t
put it down to Katrina or Rita.
We’ve had a cultural shift in the market
globally in the last three to five years.
We wouldn’t have been able to give
this quality of advice three or four
years ago.”
The quality of data has improved dramatically,
Richardson said.Also, technology
has improved data quality and transparency.“Modeling,
if anything, has given
insurers and reinsurers a means of
communicating exposures,”said Bilot.
It’s also speeded up the process.
Stone, of Ernst & Young, said,“Technology
has increased so reinsurers can
evaluate deals more quickly. It’s led to
an increase of business.The more business
you can evaluate, the more deals
you can strike.”
In addition to helping insurers and
reinsurers communicate, improvements
in models and technology have
given reinsurers a means to crosscheck
information.
“It’s no longer the case that [reinsurance]
companies will take the evaluations
given to them [by primary insurers]
and run with them. They are
evaluating this data, sometimes using
external sources,”Stone said.
Also, while companies still use catastrophe
models, they’re more thoughtful
about the process,he said.
“Companies are looking at several
models and what’s inside those models,
what’s under the hood,” Stone said.
“There’s much more of an emphasis on
quality of data and transparency.”
Bilot said modeling is a practice, not
an exact science.“There’s much more
of an awareness of what has been
included in the modeling and what has
not been. Probably, there were some
reinsurers that were using a single cat
model as their only tool. Now they are
using it as one of their tools,”Bilot said.
Stone of Ernst & Young said while
facultative is a small part of the market,
compared to the premium that treaties
protect,it will continue to grow.
“As long as there’s a hard market
and insurance companies look for
ways to off-load risk,facultative reinsurance
will be a tool that insurers continue
to use,”Stone said.
BR
Learn More
Swiss Re Group
A.M. Best Company # 85010
Distribution: Reinsurance brokers
FM Global
A.M. Best Company # 18502
Distribution: Direct and brokers
For ratings and other financial strength information
about these companies, visit www.ambest.com.
90 BEST’S REVIEW • SEPTEMBER 2006

E-Fusion 2006
Technology
Beyond E-Commerce—Online
Selling in the Web 2.0 World
Online insurers have moved well
beyond click-and-buy. Where are they
finding success in the land of multiinsurer
offerings, and where are the
newest venues opening?
David Johnson—Director of Market
Development, Availity L.L.C.
Jaimie Pickles—Executive Vice
President,InsWeb Corp.
Best Practices in Product
Development
A look at how insurers are using
technology, externalization and new
approaches to quickly develop new
products, get them approved and
ensure they’re on target.
Matthew Josefowicz—Manager, Insurance
Group,Celent Communications
Paul H. McDonnell—Senior Vice
President, Managing Director, Insurance
Segment Leader,BearingPoint
Reinventing Claims
Some insurers are building knowledge-based
systems that bring files up
to speed in weeks, not years, and keep
tabs on the shifting mass of claims
data. Also, how insurers can use insurance-to-value
ratios to head off claims
issues down the road.
George Davis—Vice President, AIR
Worldwide
John Ryan—Senior Vice President,
ESIS
Building the Service-
Oriented Architecture
Insurers are organizing around
Web services, reuse of functions and
centralization of data. A look at best
practices and areas to avoid.
Peter B. Settel—Vice President,
Operations,Homesite Insurance
Riccardo La Rosa—Principal Consultant,Molecular
The View From
A.M. Best Analysts
How A.M. Best analysts view insurers’use
of technology,and how it plays
into company assessments.
E-Fusion Awards Judging
Harnessing the New Media
Cool examples of how companies
are using cutting-edge tools—blogs,
online video, podcasts, community
building, interactive content—to make
customers’ online experiences more
compelling.
Larry Cowles—Second Vice President,MassMutual
Financial Group
Rick Gilman—Vice President, Communications,
ACORD
Cutting the Wires—How Insurers
Are Really Using Wireless
Best practices and real-life lessons
from companies that are harnessing
PDAs, wireless and other mobile technology
for producers and field force,
with a look at where it’s working and
where you’d better think twice.
Rod Travers—Senior Vice President
of Technology,Robert Nolan Co.
Plus Others
Building Tomorrow’s Results
On Today’s Information
As information and opportunities
REAL-LIFE LESSONS: E-Fusion
is loaded with industry experts
sharing their insights on how to
solve insurers’ hardest technology
problems.
increase, so does confusion. But new
approaches are emerging that are
pointed to breakthroughs in two
areas: how to better anticipate financial
performance by focusing on
today’s metrics, and how to use what
we know today to build tomorrow’s
profitable sales channel.
Barry Rabkin—Senior Research Analyst,
Insurance, Financial Insights, an
IDC Co.
Patricia L. Saporito—Director,
Insurance Solutions, Business Objects
Americas
Electronic Exchanges
Find Their Legs
The London market finally begins
trading online, as RI3K and Aon U.K.
announce an electronic relationship.
Meanwhile, the market for facultative
risk online is expanding in the
United States, led by eReinsure and
others.
Alex Letts—Chief Executive, RI3K
Ltd.
Igor Best-Devereux—Chairman and
CEO,eReinsure
What’s Ahead for Insurance Tech
Tomorrow’s insurance technology
today—what’s showing promise?
Paul C. Tinnirello—Executive Vice
President,CIO, A.M.Best Co.
E-Fusion Awards Announcement
Register now at
www.efusion2006.com
BEST’S REVIEW • SEPTEMBER 2006
91

E-Fusion 2006
Technology
Beyond E-Commerce—Online
Selling in the Web 2.0 World
Online insurers have moved well
beyond click-and-buy. Where are they
finding success in the land of multiinsurer
offerings, and where are the
newest venues opening?
David Johnson—Director of Market
Development, Availity L.L.C.
Jaimie Pickles—Executive Vice
President,InsWeb Corp.
Best Practices in Product
Development
A look at how insurers are using
technology, externalization and new
approaches to quickly develop new
products, get them approved and
ensure they’re on target.
Matthew Josefowicz—Manager, Insurance
Group,Celent Communications
Paul H. McDonnell—Senior Vice
President, Managing Director, Insurance
Segment Leader,BearingPoint
Reinventing Claims
Some insurers are building knowledge-based
systems that bring files up
to speed in weeks, not years, and keep
tabs on the shifting mass of claims
data. Also, how insurers can use insurance-to-value
ratios to head off claims
issues down the road.
George Davis—Vice President, AIR
Worldwide
John Ryan—Senior Vice President,
ESIS
Building the Service-
Oriented Architecture
Insurers are organizing around
Web services, reuse of functions and
centralization of data. A look at best
practices and areas to avoid.
Peter B. Settel—Vice President,
Operations,Homesite Insurance
Riccardo La Rosa—Principal Consultant,Molecular
The View From
A.M. Best Analysts
How A.M. Best analysts view insurers’use
of technology,and how it plays
into company assessments.
E-Fusion Awards Judging
Harnessing the New Media
Cool examples of how companies
are using cutting-edge tools—blogs,
online video, podcasts, community
building, interactive content—to make
customers’ online experiences more
compelling.
Larry Cowles—Second Vice President,MassMutual
Financial Group
Rick Gilman—Vice President, Communications,
ACORD
Cutting the Wires—How Insurers
Are Really Using Wireless
Best practices and real-life lessons
from companies that are harnessing
PDAs, wireless and other mobile technology
for producers and field force,
with a look at where it’s working and
where you’d better think twice.
Rod Travers—Senior Vice President
of Technology,Robert Nolan Co.
Plus Others
Building Tomorrow’s Results
On Today’s Information
As information and opportunities
REAL-LIFE LESSONS: E-Fusion
is loaded with industry experts
sharing their insights on how to
solve insurers’ hardest technology
problems.
increase, so does confusion. But new
approaches are emerging that are
pointed to breakthroughs in two
areas: how to better anticipate financial
performance by focusing on
today’s metrics, and how to use what
we know today to build tomorrow’s
profitable sales channel.
Barry Rabkin—Senior Research Analyst,
Insurance, Financial Insights, an
IDC Co.
Patricia L. Saporito—Director,
Insurance Solutions, Business Objects
Americas
Electronic Exchanges
Find Their Legs
The London market finally begins
trading online, as RI3K and Aon U.K.
announce an electronic relationship.
Meanwhile, the market for facultative
risk online is expanding in the
United States, led by eReinsure and
others.
Alex Letts—Chief Executive, RI3K
Ltd.
Igor Best-Devereux—Chairman and
CEO,eReinsure
What’s Ahead for Insurance Tech
Tomorrow’s insurance technology
today—what’s showing promise?
Paul C. Tinnirello—Executive Vice
President,CIO, A.M.Best Co.
E-Fusion Awards Announcement
Register now at
www.efusion2006.com
BEST’S REVIEW • SEPTEMBER 2006
91

Don’t Miss
2006
Technology Leveraging Business Value
October 23 – 24
E-Fusion 2006 is your opportunity to meet the industry’s top technologists
and explore the technology issues you need to understand.
E-Fusion 2006 Speakers Include:*
• Larry Cowles, Second Vice President, MassMutual
Financial Group
• George Davis, Vice President, AIR Worldwide
• Igor Best-Devereux, Chairman, Chief Executive
Officer, eReinsure
• Rick Gilman, Vice President of Communications, Acord
• David Johnson, Director of Market Development,
Availity, L.L.C.
• Matthew Josefowicz, Manager, Insurance Group, Celent
Communications
• Riccardo La Rosa, Principal Consultant, Molecular
• Alex Letts, Chief Executive, RI3K, Ltd.
• Paul H. McDonnell, Senior Vice President, Managing
Director, Insurance Segment Leader, BearingPoint
• Gates Ouimette, Verizon Business
• Jaimie Pickles, Executive Vice President, InsWeb Corp.
• Barry Rabkin, Senior Research Analyst, Insurance,
Financial Insights, an IDC Co.
• John Ryan, Senior Vice President, ESIS
• Patricia L. Saporito, CPCU, Director, Insurance Solutions,
Business Objects Americas
• Peter B. Settel, Vice President of Operations, Homesite
Insurance
• Paul C. Tinnirello, Executive Vice President, Chief
Information Officer, A.M. Best Co.
• Rod Travers, Senior Vice President of Technology,
Robert Nolan Co.
*Speakers are subject to change.
Don’t be left out!
Set for October 23-24 at the Fairmont Copley Plaza Hotel in Boston, E-Fusion 2006 promises a multitude of
knowledgeable speakers and cutting-edge sessions!
Visit www.efusion2006.com for a conference brochure and to register.
A.M. Best Company • Ambest Road • Oldwick, NJ 08858
(908) 439-2200, ext. 5458 • Fax (908) 439-4619 • www.ambest.com
1934

Technology Notes
Technology
Tech Bytes
The National Association of
Insurance Commissioners has
assembled useful information about
health insurance—all organized by
life-stage needs—on a new consumer
education Web site called Insure U
(www.InsureUonline.org). The site
explains the different types of health
insurance and gives focused tips to
consumers based on their likely
needs in different life stages.
RXHealthQuotes.com, which
provides online resources for
health and life insurance, expanded
its network to offer additional consumer
options. Visitors to the site can
research and purchase individual,
family and small-group insurance
from a broadened selection of leading
insurers and plans. Consumers can
customize their plan options, easily
compare the various benefits of each
plan and learn if their doctors are
included in a particular health insurance
plan’s provider network.
The Society of Financial Service
Professionals is offering a
free 60-day trial membership, during
which qualified professionals can
access a wealth of online resources
and tools designed to build business
and advance professional growth.
During the trial period, qualified professionals
have free access to all the
online benefits, resources and tools of
membership in the society.
(www.financialpro.org)
Total Travel Insurance introduced
new health products to its Web
site (www.totaltravelinsurance.com). It
developed a new medical insurance
quoting system that allows for easy
navigation to help consumers find
unique insurance products. New products
can be found under topics such as
international major medical, student
health insurance, visa insurance, travel
medical insurance, and cheap medical
insurance.
Compiled by Senior Associate Editor
Lori Chordas.
N.J. Electronic Medical Records
Program Gets Federal Funding
New Jersey’s pilot program to
study the implementation of secure
electronic medical records statewide
has received a federal grant of
$349,000.
The study, which should be completed
by March 2007, began last May. It
is headed by the state’s
Department of Banking
and Insurance and task
force, which aided the
state in implementing
an electronic health
claims system, according
to the department.
The task force will research
how best to
implement electronic
medical records, as
well as address security, privacy and
ownership concerns during its longterm
project, the department said. Electronic
medical records reduce medical
errors and unnecessary tests by allowing
physicians to easily and efficiently
share patients’medical records.
It also would reduce health-care
costs. A report in the journal Health
Affairs said that if the United States
were to use an electronic medical
record system, the savings could be
nearly $78 billion a year.The U.S. government
anticipates savings of about
$140 billion a year.
The announcement by U.K. reinsurance
broker Benfield Group Ltd. of
its readiness to deliver live risk messages
to a group of Lloyd’s underwriters
raises the profile of “peer-to-peer” communications
within the Lloyd’s market.
Benfield has improved its messaging
system, allowing for better control
of its underwriting workflows to the
Group of Six Lloyd’s underwriters
that have joined together to improve
electronic processing, according to
Rupert Swallow, Benfield’s head of
Insurance Commissioner Steven
Goldman said in a statement that New
Jersey Gov. Jon Corzine is committed to
“the increased use of technology in
streamlining government and delivering
services to the public.”
In April 2004, President George
W. Bush called for a
national electronic
health record system
to replace a “19th century
paperwork system”
by 2014.The following
month, Dr.
David J. Brailer, who
has since left the position,
was appointed as
the first national
health information
technology coordinator to oversee the
project. Doctors are resistant to investing
in electronic health records because
of the upfront cost. On average, it costs
about $35,000 per doctor to set up e-
health records in a small medical practice.That’s
almost one quarter the average
annual income of physicians in
specialties such as pediatrics or internal
medicine.
The U.S. Department of Health
and Human Services awarded the
grants to 34 states studying the implementation
of electronic medical
records.
U.K.’s Benfield Group Moves
To Bring Peer-to-Peer Links Closer
global operations.
The G6 has stated that its goal is
to improve data transfer and the overall
performance of the market.
The next stage, Swallow said, is to
move the system into accounting and
settlement and to maximize “the business
opportunities and benefits of
these links as we move forward.”
The G6 consists of Amlin plc, Beazley
Group plc, Catlin Group Ltd., Hiscox
plc, Kiln plc and Wellington
Underwriting plc.
BR
..E-FUSION 2006 COMING OCT. 23-24 IN BOSTON..
94 BEST’S REVIEW • SEPTEMBER 2006

Technology Notes
Technology
Tech Bytes
The National Association of
Insurance Commissioners has
assembled useful information about
health insurance—all organized by
life-stage needs—on a new consumer
education Web site called Insure U
(www.InsureUonline.org). The site
explains the different types of health
insurance and gives focused tips to
consumers based on their likely
needs in different life stages.
RXHealthQuotes.com, which
provides online resources for
health and life insurance, expanded
its network to offer additional consumer
options. Visitors to the site can
research and purchase individual,
family and small-group insurance
from a broadened selection of leading
insurers and plans. Consumers can
customize their plan options, easily
compare the various benefits of each
plan and learn if their doctors are
included in a particular health insurance
plan’s provider network.
The Society of Financial Service
Professionals is offering a
free 60-day trial membership, during
which qualified professionals can
access a wealth of online resources
and tools designed to build business
and advance professional growth.
During the trial period, qualified professionals
have free access to all the
online benefits, resources and tools of
membership in the society.
(www.financialpro.org)
Total Travel Insurance introduced
new health products to its Web
site (www.totaltravelinsurance.com). It
developed a new medical insurance
quoting system that allows for easy
navigation to help consumers find
unique insurance products. New products
can be found under topics such as
international major medical, student
health insurance, visa insurance, travel
medical insurance, and cheap medical
insurance.
Compiled by Senior Associate Editor
Lori Chordas.
N.J. Electronic Medical Records
Program Gets Federal Funding
New Jersey’s pilot program to
study the implementation of secure
electronic medical records statewide
has received a federal grant of
$349,000.
The study, which should be completed
by March 2007, began last May. It
is headed by the state’s
Department of Banking
and Insurance and task
force, which aided the
state in implementing
an electronic health
claims system, according
to the department.
The task force will research
how best to
implement electronic
medical records, as
well as address security, privacy and
ownership concerns during its longterm
project, the department said. Electronic
medical records reduce medical
errors and unnecessary tests by allowing
physicians to easily and efficiently
share patients’medical records.
It also would reduce health-care
costs. A report in the journal Health
Affairs said that if the United States
were to use an electronic medical
record system, the savings could be
nearly $78 billion a year.The U.S. government
anticipates savings of about
$140 billion a year.
The announcement by U.K. reinsurance
broker Benfield Group Ltd. of
its readiness to deliver live risk messages
to a group of Lloyd’s underwriters
raises the profile of “peer-to-peer” communications
within the Lloyd’s market.
Benfield has improved its messaging
system, allowing for better control
of its underwriting workflows to the
Group of Six Lloyd’s underwriters
that have joined together to improve
electronic processing, according to
Rupert Swallow, Benfield’s head of
Insurance Commissioner Steven
Goldman said in a statement that New
Jersey Gov. Jon Corzine is committed to
“the increased use of technology in
streamlining government and delivering
services to the public.”
In April 2004, President George
W. Bush called for a
national electronic
health record system
to replace a “19th century
paperwork system”
by 2014.The following
month, Dr.
David J. Brailer, who
has since left the position,
was appointed as
the first national
health information
technology coordinator to oversee the
project. Doctors are resistant to investing
in electronic health records because
of the upfront cost. On average, it costs
about $35,000 per doctor to set up e-
health records in a small medical practice.That’s
almost one quarter the average
annual income of physicians in
specialties such as pediatrics or internal
medicine.
The U.S. Department of Health
and Human Services awarded the
grants to 34 states studying the implementation
of electronic medical
records.
U.K.’s Benfield Group Moves
To Bring Peer-to-Peer Links Closer
global operations.
The G6 has stated that its goal is
to improve data transfer and the overall
performance of the market.
The next stage, Swallow said, is to
move the system into accounting and
settlement and to maximize “the business
opportunities and benefits of
these links as we move forward.”
The G6 consists of Amlin plc, Beazley
Group plc, Catlin Group Ltd., Hiscox
plc, Kiln plc and Wellington
Underwriting plc.
BR
..E-FUSION 2006 COMING OCT. 23-24 IN BOSTON..
94 BEST’S REVIEW • SEPTEMBER 2006

Technology Notes
Technology
Tech Bytes
The National Association of
Insurance Commissioners has
assembled useful information about
health insurance—all organized by
life-stage needs—on a new consumer
education Web site called Insure U
(www.InsureUonline.org). The site
explains the different types of health
insurance and gives focused tips to
consumers based on their likely
needs in different life stages.
RXHealthQuotes.com, which
provides online resources for
health and life insurance, expanded
its network to offer additional consumer
options. Visitors to the site can
research and purchase individual,
family and small-group insurance
from a broadened selection of leading
insurers and plans. Consumers can
customize their plan options, easily
compare the various benefits of each
plan and learn if their doctors are
included in a particular health insurance
plan’s provider network.
The Society of Financial Service
Professionals is offering a
free 60-day trial membership, during
which qualified professionals can
access a wealth of online resources
and tools designed to build business
and advance professional growth.
During the trial period, qualified professionals
have free access to all the
online benefits, resources and tools of
membership in the society.
(www.financialpro.org)
Total Travel Insurance introduced
new health products to its Web
site (www.totaltravelinsurance.com). It
developed a new medical insurance
quoting system that allows for easy
navigation to help consumers find
unique insurance products. New products
can be found under topics such as
international major medical, student
health insurance, visa insurance, travel
medical insurance, and cheap medical
insurance.
Compiled by Senior Associate Editor
Lori Chordas.
N.J. Electronic Medical Records
Program Gets Federal Funding
New Jersey’s pilot program to
study the implementation of secure
electronic medical records statewide
has received a federal grant of
$349,000.
The study, which should be completed
by March 2007, began last May. It
is headed by the state’s
Department of Banking
and Insurance and task
force, which aided the
state in implementing
an electronic health
claims system, according
to the department.
The task force will research
how best to
implement electronic
medical records, as
well as address security, privacy and
ownership concerns during its longterm
project, the department said. Electronic
medical records reduce medical
errors and unnecessary tests by allowing
physicians to easily and efficiently
share patients’medical records.
It also would reduce health-care
costs. A report in the journal Health
Affairs said that if the United States
were to use an electronic medical
record system, the savings could be
nearly $78 billion a year.The U.S. government
anticipates savings of about
$140 billion a year.
The announcement by U.K. reinsurance
broker Benfield Group Ltd. of
its readiness to deliver live risk messages
to a group of Lloyd’s underwriters
raises the profile of “peer-to-peer” communications
within the Lloyd’s market.
Benfield has improved its messaging
system, allowing for better control
of its underwriting workflows to the
Group of Six Lloyd’s underwriters
that have joined together to improve
electronic processing, according to
Rupert Swallow, Benfield’s head of
Insurance Commissioner Steven
Goldman said in a statement that New
Jersey Gov. Jon Corzine is committed to
“the increased use of technology in
streamlining government and delivering
services to the public.”
In April 2004, President George
W. Bush called for a
national electronic
health record system
to replace a “19th century
paperwork system”
by 2014.The following
month, Dr.
David J. Brailer, who
has since left the position,
was appointed as
the first national
health information
technology coordinator to oversee the
project. Doctors are resistant to investing
in electronic health records because
of the upfront cost. On average, it costs
about $35,000 per doctor to set up e-
health records in a small medical practice.That’s
almost one quarter the average
annual income of physicians in
specialties such as pediatrics or internal
medicine.
The U.S. Department of Health
and Human Services awarded the
grants to 34 states studying the implementation
of electronic medical
records.
U.K.’s Benfield Group Moves
To Bring Peer-to-Peer Links Closer
global operations.
The G6 has stated that its goal is
to improve data transfer and the overall
performance of the market.
The next stage, Swallow said, is to
move the system into accounting and
settlement and to maximize “the business
opportunities and benefits of
these links as we move forward.”
The G6 consists of Amlin plc, Beazley
Group plc, Catlin Group Ltd., Hiscox
plc, Kiln plc and Wellington
Underwriting plc.
BR
..E-FUSION 2006 COMING OCT. 23-24 IN BOSTON..
94 BEST’S REVIEW • SEPTEMBER 2006

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4332
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Marketing
Agent/Broker
Take
by Kathy Klingler
Steps
Closer
To Your
Customers
To remain competitive,
distributors must build more
profitable client relationships.
Building and managing a successful
and profitable distribution
channel is never easy.Today, the
many challenges to growing financial
services firms include product complexity
and commoditization as well as
increased regulatory and compliance
scrutiny. Perhaps the biggest challenge
facing our industry, however, is recruiting,
developing and keeping new talent.
During the next five to 10 years,
many of the best and most experienced
leaders, producers and managers in our
industry will be retiring.Yet, we need
these human resources to expand the
distribution of our products and services
and to achieve long-term profitability.
At the same time, a career in
financial product sales or financial planning
can be perceived as complex and
difficult. As a result, the key to the
industry’s future success is delivering
the business model, career opportunity
and infrastructure that attract new, talented
advisers and help them build
strong,client-centered practices.
The best way to determine the right
business model is to identify the
biggest challenges facing producers in
Contributor Kathy Klingler is the
senior vice president, marketing
and business development, for John
Hancock Financial Network.
terms of building profitable,
sustainable practices.According
to the 2005 Broker Sentiment
Index by National Financial, the
two driving factors for broker/producer
job satisfaction
are competitive compensation
and marketing.A 2003 study by
CEG Worldwide LLC, Winning
the Allegiance of Top Advisers,
reminds us that advisers want
high quality products and help from
financial institutions. Since the major
industry players continually monitor
and improve compensation packages
and product lines, it’s clear that the
opportunity for a company to stand
out in the hearts and minds of producers
is in marketing support and practice
development.
How can we help producers learn
advanced techniques that will help
them to use strategic marketing to analyze
and segment “high potential”clientele
and develop a more targeted
approach to growing their practice
through these clients? How can we
develop more meaningful relationships
with key clients? The answer lies in a
systematic business development
process based on targeting,segmenting
and building more profitable client
relationships.Implementing the process
requires a long-term commitment and
Key Points
• The biggest challenge facing the
insurance industry is recruiting
and training new talent.
• The key to the insurance industry’s
future success is to deliver a
business model, career opportunities
and infrastructure that will
attract talented advisers.
• Agencies must change from a
cold-call culture to delivering a
personalized experience to clients.
investment to change traditional sales
agencies that have transaction-based,
cold-calling cultures into client-centered
marketing firms where the culture
is based on understanding the
client and providing a highly personalized
experience that can’t easily be
replicated.
The Road Map
While producers will tell you that
distinguishing themselves among current
clients and new prospects is
vital to their success, building a local
firm to support them must go
beyond offering strong marketing
support.The firm must build an infrastructure
around clients, their values,
motivations and aspirations, while it
addresses producers’ requirements to
meet their clients’ financial needs
within an effective return-on-investment
model. The organization must
98
BEST’S REVIEW • SEPTEMBER 2006

offer all the products, resources, technology,
research, branding, training
and development in addition to targeted,
creative marketing support so
coveted by producers. The point is
that this model is not simply about
finding top clients. It’s about finding
and keeping those that bring the
most lifetime value and profitability
to a producer.
John Hancock Financial Network
has developed a road map that is effective
in transitioning traditional sales
agencies into client-centered marketing
firms. This road map consists of five
stages that build upon themselves over
time: benchmark assessment, infrastructure,
strategic positioning, tactical
alignment and firm of choice. When a
firm reaches the fifth stage, it has created
a distinct firm culture based on the
way it wants to do business with
clients and producers. Everyone associated
with the firm knows and accepts
its values, processes, positioning in the
marketplace and its capabilities for
continued growth and success.
Step
Benchmark Assessment
The first step is to compare your
company’s strengths and weaknesses
to the five-stage business model in an
honest and strategic way.The management
team must score themselves on
the major attributes within each stage
that will help them develop the appropriate
infrastructure. These elements
include:
• Business and financial management
• Management infrastructure and
accountability
• Strategic thinking and planning
• Productivity and standards
• Recruiting and selection
• Marketing, including the firm’s
identity or brand, target markets and
prospecting strategies
• Training and professional development
programs
• Management training and leadership
development
• Compliance
A variety of assessment tools, surveys,
consulting and scoring can help
in this process, but it is vital to have
both quantitative measurements of
BEST’S REVIEW • SEPTEMBER 2006
99

where the firm is today as well as qualitative
measures achieved through open
conversations on what works well and
what doesn’t without attaching credit
or blame. It is only by identifying the
struggles, the fortes and the weak links
of the organization that building blocks
for success can be put into place.
Step
Building the Infrastructure
When the management team knows
what they’re good at and what they
need help with, solutions and
resources can be tailored to get the
firm where they want it to go. Once
the benchmark assessment is completed,
the client-centered marketing-firm
road map begins with building your
infrastructure, a critical step in the
business evolution. Each firm must
have solid systems in place for management,recruiting,selection,training,productivity
and profitability to institute
and sustain advanced business-development
tactics.
In this step, the management team
develops the actions and improvements
outlined in the assessment exercise
to align the firm toward the same
goals and vision.The proper infrastructure
leverages systems and processes
with stated goals and accountability,
which allows a firm to take the next
step in the client-centered marketingfirm
continuum.
Step
Strategic Positioning
In Step 3, the firm’s infrastructure is
in place and the management team is
ready to focus on more strategic positioning.The
firm’s client base, its market
development research and branding
are important here as the
management team analyzes the best
business opportunities for growth.
Who are its clients? Where do they
come from? Which ones are most profitable?
Why? What are the cross-selling
opportunities?
In addition to analyzing this data
from the firm level, it is valuable to
help individual producers uncover
what their clients look like from the
same perspective. Once producers
understand who their top-tier clients
100 BEST’S REVIEW • SEPTEMBER 2006
are, it becomes easier to help them
think about where to get similar clients
and how to approach current clients to
meet additional needs and garner referrals.
Producers quickly see the potential
for building their business faster
and in a more productive and profitable
way. At this stage, the producer
analysis is also leveraged to identify
firm-level markets that can help multiple
producers within the organization.
The best way to use this analysis
and create a brand identity around the
firm and its value is to hire a full-time
marketing director. The marketing
director is responsible for integrating
local marketing strategies with firmlevel
business development initiatives
and client cultivation through effective
top-tier market penetration.
By working one-on-one with producers,
the marketing director can
show the value of the firm’s new
approach through enhanced marketing
support, targeting techniques within
the producers’best and most profitable
markets, and creating personalized
marketing plans to boost their productivity.The
marketing director also can
help new producers to identify and
penetrate target markets through an
interactive process that begins on the
first day of the recruiting process.This
ensures that a new representative has a
market to work on which helps to
jump-start the effort to build a successful
business more quickly.
During Step 3, the marketing director
and the management team continue
to incorporate target marketing
training as another resource for both
new and veteran producers.The training
gives producers practical, highly
effective tools to get in front of qualified
prospects on a favorable basis.To
coincide with the training, the firm
starts to recruit to the markets it excels
in, attracting career changers and new
talent because the firm can deliver
markets—not just prospects—to financial-services
professionals who want to
quickly build their practices.
Step
Tactical Alignment
The fourth stage involves aligning
the management, producers, clients
and resources for firmwide execution.This
step focuses the firm on its
brand and target markets as well as
top-tier client cultivation through 90-
day plans on both a firm level and a
producer level.
Further, teams are being developed
around markets and client segments.
These teams of producers and specialists
will capture and service the
firm’s target markets. More experienced
advisers work with new
recruits, taking them on client calls
and service appointments, which
allows the new producer to learn the
business faster and gain confidence
more quickly. A client segmentation
strategy is best used to leverage the
talent and expertise of both experienced
and new producers with the
appropriate clients.The technique is a
win for both kinds of producers,
often leading to succession planning
strategies as talent can be assessed
through this relationship. This is an
important process that takes patience
and continuous fine tuning, as its success
is predicated on the right combination
of talent and commitment.
The marketing director continues to
act as a catalyst, coach and tracker of
how the producers, the teams and the
entire firm are progressing toward
their goals. In addition, the marketing
director promotes the brand, organizes
client-appreciation events and advisory
boards within firm-level markets.
Training is moving up another level
as well. Advanced sales, business and
estate planning, marketing techniques
and practice management are being
aligned with the markets to support
producers and specialists in increasing
their productivity and profitability
while adding to their professional designations.
Firms also have been using
a leadership development program
throughout the stages. Leadership
development builds a bench of highpotential
sales managers and other
management opportunities focused
on execution of the client-centered
marketing-firm business model. The
goal is to provide the training and
career paths that best meet the individual’s
vision of success, which
strengthens an organization and leads

to higher satisfaction among producers,
managers and associates firmwide.
It’s also critical to have a leadership
development program that clearly
articulates and demonstrates how to
build an innovative firm in today’s
environment.
Lastly, the firm is continuing to step
up its recruiting activities, but in a
more targeted, efficient manner.With a
solid infrastructure in place, sophisticated
marketing strategies and
resources, teams and specialists aligned
together, the buzz about the firm is
highly attractive to new talent. As a
result, the firm receives more recruits
from producer referrals, clients and
other centers of influence, which typically
translates into long-term successful
producers coming to the firm.
Step
Firm of Choice
Step 5 occurs when a firm’s operations,
recruiting, training, marketing,
brand, values and culture are fully
incorporated into how it does business.Teams
work together to meet the
needs of their target markets and toptier
clients, and the firm is well-known
in its markets—considered the “firm of
choice” for advisers, clients, prospects
and recruits. The firm continues to
identify and build upon strategic
alliances and partners through related
businesses, accounting practices, law
offices, and property-casualty firms to
grow business and broaden its top-tier
client base.
The firm will face challenges that
may include competitive, economic
or regulatory changes pushing their
way into the industry and the local,
regional or national business environment.
The management team intensifies
its efforts toward leadership
development as well as performing
ongoing self-assessments to determine
what is working today and what
needs to be improved.The marketing
director and the firm focus more on
strategic planning and teaching sound
business and marketing practice and
on helping producers to stay on track
with 90-day plans to build a client
base concentrated on their visions of
success. Continuing education about
advanced markets, financial concepts
and consumer concerns such as retirement
income planning are considered
priorities for specialists and producers.The
entire firm is enveloped in an
approach that never loses sight of the
clients and the personal, unique experience
the firm and the producers
deliver to them.
Ongoing Journey
While the steps to a client-centered
marketing firm are supported by distinct
stages, assessments, and 90-day
planning—the journey is ongoing.
Reaching Step 5 doesn’t mean the end
of the road. By continually returning to
the proven tools and tactics as well as
exploring the innovative, cutting-edge
strategies to come, the firm ensures its
future success as it invests in and
employs the resources it needs to be
dominant in its chosen markets.At the
same time, the firms and the financial
institution backing them are delivering
to top producers what they need to
win in this competitive and complex
Marketing
Agent/Broker
business: product, compensation, marketing
and help in building successful
practices.
National financial services companies
and local marketing firms have
many opportunities to expand and
prosper in the years to come…if they
take the steps today to position
themselves. In March, Fast Company
magazine listed “financial adviser” as
its #2 top job of 2006. Plus, the
demand for our industry’s expertise,
products, and services is growing,
especially as we help develop strategies
for baby boomers to plan a “paycheck”
for 20 or even 30 years in
retirement. As a result, we need to
recruit new, best-of-the-best talent
over the coming years. But, we must
put the infrastructure, business development
and marketing model in
place to attract this talent to our
career opportunities. A client-centered
marketing firm and its road
map will result in an exciting, creative,
and highly successful way to
get there.
BR
BEST’S REVIEW • SEPTEMBER 2006
101

to higher satisfaction among producers,
managers and associates firmwide.
It’s also critical to have a leadership
development program that clearly
articulates and demonstrates how to
build an innovative firm in today’s
environment.
Lastly, the firm is continuing to step
up its recruiting activities, but in a
more targeted, efficient manner.With a
solid infrastructure in place, sophisticated
marketing strategies and
resources, teams and specialists aligned
together, the buzz about the firm is
highly attractive to new talent. As a
result, the firm receives more recruits
from producer referrals, clients and
other centers of influence, which typically
translates into long-term successful
producers coming to the firm.
Step
Firm of Choice
Step 5 occurs when a firm’s operations,
recruiting, training, marketing,
brand, values and culture are fully
incorporated into how it does business.Teams
work together to meet the
needs of their target markets and toptier
clients, and the firm is well-known
in its markets—considered the “firm of
choice” for advisers, clients, prospects
and recruits. The firm continues to
identify and build upon strategic
alliances and partners through related
businesses, accounting practices, law
offices, and property-casualty firms to
grow business and broaden its top-tier
client base.
The firm will face challenges that
may include competitive, economic
or regulatory changes pushing their
way into the industry and the local,
regional or national business environment.
The management team intensifies
its efforts toward leadership
development as well as performing
ongoing self-assessments to determine
what is working today and what
needs to be improved.The marketing
director and the firm focus more on
strategic planning and teaching sound
business and marketing practice and
on helping producers to stay on track
with 90-day plans to build a client
base concentrated on their visions of
success. Continuing education about
advanced markets, financial concepts
and consumer concerns such as retirement
income planning are considered
priorities for specialists and producers.The
entire firm is enveloped in an
approach that never loses sight of the
clients and the personal, unique experience
the firm and the producers
deliver to them.
Ongoing Journey
While the steps to a client-centered
marketing firm are supported by distinct
stages, assessments, and 90-day
planning—the journey is ongoing.
Reaching Step 5 doesn’t mean the end
of the road. By continually returning to
the proven tools and tactics as well as
exploring the innovative, cutting-edge
strategies to come, the firm ensures its
future success as it invests in and
employs the resources it needs to be
dominant in its chosen markets.At the
same time, the firms and the financial
institution backing them are delivering
to top producers what they need to
win in this competitive and complex
Marketing
Agent/Broker
business: product, compensation, marketing
and help in building successful
practices.
National financial services companies
and local marketing firms have
many opportunities to expand and
prosper in the years to come…if they
take the steps today to position
themselves. In March, Fast Company
magazine listed “financial adviser” as
its #2 top job of 2006. Plus, the
demand for our industry’s expertise,
products, and services is growing,
especially as we help develop strategies
for baby boomers to plan a “paycheck”
for 20 or even 30 years in
retirement. As a result, we need to
recruit new, best-of-the-best talent
over the coming years. But, we must
put the infrastructure, business development
and marketing model in
place to attract this talent to our
career opportunities. A client-centered
marketing firm and its road
map will result in an exciting, creative,
and highly successful way to
get there.
BR
BEST’S REVIEW • SEPTEMBER 2006
101

Federal Legislation
Regulatory/Law
On the Hill
Congress faces significant health insurance and regulatory reform bills in September.
The outcome of several major
bills of interest to insurers was
uncertain when Congress
headed into its August recess. Health
insurance and regulatory reform measures
are all close to passage—yet
there are only 22 days left on Congress’s
legislative calendar when it
returns Sept.6.
The bill with the broadest effect on
the property/casualty industry, the
Nonadmitted and Reinsurance Reform
Act, was approved by the House
Financial Services Committee, but will
not see action by the full House until
this month.
Health insurers are none too
pleased with a provision within a mammoth
health-care information technology
bill, H.R. 4157, that calls for implementation
of a new health-care coding
system by 2010,rather than by 2012,as
they have called for.
The Pension Protection Act, H.R.
2830/S. 1783, was passed in a lastminute
vote shortly before the
break. The legislation makes sweeping
changes to many aspects of the
insurance industry.
—Chris Grier
Photo courtesy of Stock.xchng
HEALTH
Health Information Technology Promotion
Act (H.R. 4157)
Summary: Would mandate a massive upgrade of
health-care billing and coding.
What Happened: Passed full House by 270-148
margin. (07/27)
What’s Ahead:Health insurers demand amendments
before Senate takes up bill, arguing that
2010 deadline for switching to new health codes
in all health-care diagnosis and billing should be
pushed back two years.
Medicare Health Savings Accounts Act
(S. 3697)
Summary: Would create tax-advantaged HSA
option for all Medicare participants.
What Happened: Introduced by Sen. James
Inhofe, R-Okla. (07/20)
What’s Ahead: Referred to Senate Finance
Committee.
AmeriCare Health Care Act (H.R. 5886)
Summary: Would mandate all Americans receive
health insurance coverage either through work or
through AmeriCare, a new government program
that would be modeled on Medicare.
What Happened: Introduced by Rep. Pete Stark,
D-Calif. (07/25)
What’s Ahead: Referred to House Energy and
Commerce Committee, House Ways and Means
Committee and House Education and the Workforce
Committee.
LIFE
Pension Protection Act (H.R. 4)
Summary: Calls for comprehensive overhaul of
funding system for defined-benefit plans.Also
would allow firms to provide investment advice to
401(k) participants; encourage automatic employee
enrollment in 401(k) plans; give safe harbor to
hybrid “cash balance” and DB/k plans; clear the
way for long-term-care insurance to be combined
with life and annuity products; and affirm the subrogation
rights of large employee health plans.
What Happened: Passed the Senate by a 93-5
vote. (08/03)
What’s Ahead: President Bush signed the bill into
law; provisions will begin to take effect.
Estate Tax and Extension of Tax Relief Act
(H.R. 5970)
Summary: Would exempt the first $5 million of
an individual’s estate or the first $10 million of a
couple’s estate, and would tax estate values in
excess of $25 million at 30% and those less than
$25 million at prevailing capital-gains rates. Also
would raise federal minimum wage to $7.25 an
hour and extend a variety of tax cuts.
What Happened: Senate voted 56-42 to invoke
cloture and consider the bill, falling four votes shy
of the 60 needed. (08/03)
What’s Ahead: Senate Majority Leader Bill Frist
switched his cloture vote to “no,” leaving himself
the option to reintroduce the measure later in
the session.
PROPERTY/CASUALTY
Passenger Vehicle Loss Disclosure Act
(S. 3707)
Summary: Would require auto insurers to disclose
to the National Highway Traffic Safety Administration
information pertaining to total-loss vehicles.
What Happened: Introduced by Sen. Trent Lott, R-
Miss. (07/20)
What’s Ahead: Referred to the Senate Commerce
Committee.
Nonadmitted and Reinsurance Reform Act
Summary: Would grant regulatory authority over
nonadmitted market to home state of the insured.
Bill also provides that surplus lines premium taxes
would be paid to an insured’s home state, while
reinsurers’ home states would have solvency
oversight authority.
What Happened: Approved by House Financial
Services Committee. (07/26)
What’s Ahead: House floor vote expected after
August recess.
Workplace Goods Job Growth and
Competitiveness Act (H.R. 3509)
Summary: Would exempt manufacturers and
sellers of durable goods from workplace products-liability
claims arising more than 12 years
after an item’s delivery.
What Happened: Cleared the House Judiciary
Committee in a 21-12 vote. (07/19)
What’s Ahead: Floor vote must wait until after
House returns from five-week August recess.
Catastrophic Disaster Risk and Insurance
Commission Act (H.R. 5891)
Summary: Would create a 17-member bipartisan
commission to recommend ways to assure
the availability of adequate private insurance
coverage in light of growing concerns about
natural disasters.
What Happened: Introduced by Rep. Debbie
Wasserman-Schultz, D-Fla. (07/26)
What’s Ahead: Referred to House Financial
Services Committee.
Farm Risk Management Act (H.R. 5932)
Summary: Would let farmers create tax-free,
interest-bearing “risk management accounts,”
with the U.S. Department of Agriculture matching
farmers’ contributions.
What Happened: Introduced by Rep. Terry
Everett, R-Ala. (07/27)
What’s Ahead: Referred to the House Ways and
Means Committee and the House Agriculture
Committee.
BEST’S REVIEW • SEPTEMBER 2006
103

Federal Legislation
Regulatory/Law
On the Hill
Congress faces significant health insurance and regulatory reform bills in September.
The outcome of several major
bills of interest to insurers was
uncertain when Congress
headed into its August recess. Health
insurance and regulatory reform measures
are all close to passage—yet
there are only 22 days left on Congress’s
legislative calendar when it
returns Sept.6.
The bill with the broadest effect on
the property/casualty industry, the
Nonadmitted and Reinsurance Reform
Act, was approved by the House
Financial Services Committee, but will
not see action by the full House until
this month.
Health insurers are none too
pleased with a provision within a mammoth
health-care information technology
bill, H.R. 4157, that calls for implementation
of a new health-care coding
system by 2010,rather than by 2012,as
they have called for.
The Pension Protection Act, H.R.
2830/S. 1783, was passed in a lastminute
vote shortly before the
break. The legislation makes sweeping
changes to many aspects of the
insurance industry.
—Chris Grier
Photo courtesy of Stock.xchng
HEALTH
Health Information Technology Promotion
Act (H.R. 4157)
Summary: Would mandate a massive upgrade of
health-care billing and coding.
What Happened: Passed full House by 270-148
margin. (07/27)
What’s Ahead:Health insurers demand amendments
before Senate takes up bill, arguing that
2010 deadline for switching to new health codes
in all health-care diagnosis and billing should be
pushed back two years.
Medicare Health Savings Accounts Act
(S. 3697)
Summary: Would create tax-advantaged HSA
option for all Medicare participants.
What Happened: Introduced by Sen. James
Inhofe, R-Okla. (07/20)
What’s Ahead: Referred to Senate Finance
Committee.
AmeriCare Health Care Act (H.R. 5886)
Summary: Would mandate all Americans receive
health insurance coverage either through work or
through AmeriCare, a new government program
that would be modeled on Medicare.
What Happened: Introduced by Rep. Pete Stark,
D-Calif. (07/25)
What’s Ahead: Referred to House Energy and
Commerce Committee, House Ways and Means
Committee and House Education and the Workforce
Committee.
LIFE
Pension Protection Act (H.R. 4)
Summary: Calls for comprehensive overhaul of
funding system for defined-benefit plans.Also
would allow firms to provide investment advice to
401(k) participants; encourage automatic employee
enrollment in 401(k) plans; give safe harbor to
hybrid “cash balance” and DB/k plans; clear the
way for long-term-care insurance to be combined
with life and annuity products; and affirm the subrogation
rights of large employee health plans.
What Happened: Passed the Senate by a 93-5
vote. (08/03)
What’s Ahead: President Bush signed the bill into
law; provisions will begin to take effect.
Estate Tax and Extension of Tax Relief Act
(H.R. 5970)
Summary: Would exempt the first $5 million of
an individual’s estate or the first $10 million of a
couple’s estate, and would tax estate values in
excess of $25 million at 30% and those less than
$25 million at prevailing capital-gains rates. Also
would raise federal minimum wage to $7.25 an
hour and extend a variety of tax cuts.
What Happened: Senate voted 56-42 to invoke
cloture and consider the bill, falling four votes shy
of the 60 needed. (08/03)
What’s Ahead: Senate Majority Leader Bill Frist
switched his cloture vote to “no,” leaving himself
the option to reintroduce the measure later in
the session.
PROPERTY/CASUALTY
Passenger Vehicle Loss Disclosure Act
(S. 3707)
Summary: Would require auto insurers to disclose
to the National Highway Traffic Safety Administration
information pertaining to total-loss vehicles.
What Happened: Introduced by Sen. Trent Lott, R-
Miss. (07/20)
What’s Ahead: Referred to the Senate Commerce
Committee.
Nonadmitted and Reinsurance Reform Act
Summary: Would grant regulatory authority over
nonadmitted market to home state of the insured.
Bill also provides that surplus lines premium taxes
would be paid to an insured’s home state, while
reinsurers’ home states would have solvency
oversight authority.
What Happened: Approved by House Financial
Services Committee. (07/26)
What’s Ahead: House floor vote expected after
August recess.
Workplace Goods Job Growth and
Competitiveness Act (H.R. 3509)
Summary: Would exempt manufacturers and
sellers of durable goods from workplace products-liability
claims arising more than 12 years
after an item’s delivery.
What Happened: Cleared the House Judiciary
Committee in a 21-12 vote. (07/19)
What’s Ahead: Floor vote must wait until after
House returns from five-week August recess.
Catastrophic Disaster Risk and Insurance
Commission Act (H.R. 5891)
Summary: Would create a 17-member bipartisan
commission to recommend ways to assure
the availability of adequate private insurance
coverage in light of growing concerns about
natural disasters.
What Happened: Introduced by Rep. Debbie
Wasserman-Schultz, D-Fla. (07/26)
What’s Ahead: Referred to House Financial
Services Committee.
Farm Risk Management Act (H.R. 5932)
Summary: Would let farmers create tax-free,
interest-bearing “risk management accounts,”
with the U.S. Department of Agriculture matching
farmers’ contributions.
What Happened: Introduced by Rep. Terry
Everett, R-Ala. (07/27)
What’s Ahead: Referred to the House Ways and
Means Committee and the House Agriculture
Committee.
BEST’S REVIEW • SEPTEMBER 2006
103

Mutual Companies
Property/Casualty
LASTING
TRADITION: Chief
Executive Officer
Cameron Ross
says Algoma
Mutual’s key to
success is its tight
bond with brokers.
A New Land
Today’s mutuals are blending their traditional
business model into a changing world.
Paul Norbo for Best’s Review
by Lori Chordas
Mutual insurance companies
date back to the 1700s, but
as times have changed, so
have mutuals. In many ways, they’re
still carrying on the theme of common
need on which their foundation
was built. However, changes including
the urbanization of farming communities
are having an impact on the 21st
century mutual, particularly small,
regional farm companies.
21st Century Models
The National Association of Mutual
Insurance Companies sees growth in
both membership and share of the
property/casualty market written by
its members. “NAMIC’s membership
growth is a direct result of the people
who work for our member companies
and our effectiveness on the issues
that affect our member companies,
like SOX and TRIA,”said Charles Chamness,
president and chief executive
officer of the national trade association
of more than 1,400 members that represent
all types of insurers and underwrite
more than 40% of the U.S. property/casualty
insurance premium.
Chamness said many of its
members serve specific niches
within the industry.“They bring
specialization and expertise to
markets and policyholder
groups.” He said all of its members—not
just mutuals—bring
consumer choice to the marketplace.
While the majority of mutuals
have been around for many years, a
few have more recent roots. Last year,
Brickstreet Mutual Insurance Co.—a
new NAMIC member—was formed as
the result of a bill passed by the West
Virginia Legislature and signed by
Gov. Joe Manchin to privatize the
workers’ compensation system in the
state.As a result, Brickstreet is the only
carrier allowed to issue workers’ compensation
until July 1, 2008, when the
market opens up to all private carriers.The
company is an offshoot of an
old monopolistic state-run system,
said Greg Burton, president and CEO.
“The company was created as an
avenue for employers in the state to
have a carrier in the marketplace.”As a
result of the unique structure, the
Key Points
• Farming changes and a retreat to
urban areas are changing the
business strategies of some small,
regional farm mutuals.
• A few new mutuals are forming.
• Some small mutuals operate on a
part-time basis.
• Mutuals believe in their mission to
serve specific niches and aren't
looking to change their models
anytime soon.
company is able to take advantage of
some tax benefits until 2008.“As long
as we’re the insurer of last resort and
the governor appoints our board,
we’re able to be tax exempt through
legislation in the tax code,” he said.
Today, with about $550 million in premium,
Brickstreet Mutual is among
the 20 largest workers’ comp carriers
in the United States, according to the
company.
Creating a new mutual is “not significantly
different than creating any type
of new insurance company,” said
Chamness.“Mutuals have capitalization
and admittance requirements as do
stock companies.” The difference, he
said, lies in a mutual’s foundation—a
group of individuals or businesses that
BEST’S REVIEW • SEPTEMBER 2006
105

“For companies that are chartered ...as farm
or township mutuals,modernization of the
state farm-mutual regulatory environment is
important.”
—Charles Chamness,
NAMIC
share a common risk or need and
band together—something not unlike
Benjamin Franklin’s foundation of the
first successful mutual more than 250
years ago.
Mutuals come in various shapes
and sizes. For smaller mutuals, such as
Tennessee Valley Mutual, their size
may cause them to operate on a parttime
basis.As the third-smallest mutual
in Tennessee, the niche carrier primarily
writes properties valued under
$75,000.“However, as a mutual, most
of the time we have a lot of flexibility
and are able to do things that other
companies won’t do because it’s not
in their books of business,” said President
Charles Gardner.
However, a company with a parttime
manager is the exception rather
than the norm, said Chamness. “For
some very small mutual companies, a
full-time staff isn’t required.Their business
models do not require the same
type of management or operations
infrastructures as do their larger
cousins. The primary reason is that
their mission is to serve only their policyholders,
which in some cases can be
a very small defined niche.As a result,
these mutual companies can effectively
serve their policyholders without
full-time associates.”The major advantage,
he said, is lower operating costs
that allow more of the collected premiums
to be devoted to paying claims,
not staff.
A Changing World
While farms were historically the
backbones to most mutuals, the operation
of farming has changed over the
years.
That’s having some effects on mutuals,
said Patrick Bradley, general manager
of Georgia Farm Bureau Insurance
Cos. In addition to being a personallines
writer, the single-state operator
writes about 75% of the Georgia farm
market.“The challenge we’re now facing
is focusing on our niche market in
an ever-increasing urbanizing state.We
need to move toward how to deal
with urbanization with a commodity
that’s focused on the farming aspect.”
In addition, he said farming as a whole
is changing.“A number of our farmers,
for instance poultry farmers, now farm
in the mornings and evenings and
work in banks and other places at day.
They’re doing multiple tasks.”
A new movement may present new
challenges to some mutuals, he said.
“Agritourism,” which involves landbased
farms or businesses that are
open to the public, is becoming a
growing part of many communities.
“It’s a retreat back to rural life,” said
Bradley. Examples of agritourism
include tourists picking fruits and vegetables,
riding horses, wine tasting and
shopping at local farm stands for produce
or handmade crafts.
Gardner of Tennessee Valley Mutual
also is feeling the effects of farming
changes. “In our area now, if I wrote
every farmer here I would starve to
death because there just aren’t many
left today. Mutuals started out serving
the farm market and they pretty much
stayed in that situation until recently.
Now it’s a matter of survival and it’s
forced some companies to make some
changes.”
But NAMIC thinks farming changes
have little impact on mutuals. “The
changing face of the farm industry in
the United States is not a mutual-specific
issue as many different types of
insurance companies write farm coverages,”said
Chamness.“For companies
that are chartered in their respective
states as farm or township mutuals,
modernization of the state farm-mutual
regulatory environment is important
to allow these companies to offer
The First
Mutual
In 1736, Benjamin
Franklin created
the Union Fire Company
as an organized
volunteer fire company. Several
years later, in an attempt to save
Philadelphia from the threat of fire,
Franklin gathered citizens to
address the need of protection
against fire for homeowners—thus
creating the Philadelphia Contributionship,
the first mutual insurance
company to insure members’
property. The company
continues to operate today.
products to meet the needs of their
changing customer base.”
A Model That Works
Despite changes, most mutuals are
comfortable with their structure and
don’t plan on shedding their models
to become publicly-owned companies
anytime soon.
“We determined in 1899 that we
would be a preferable alternative to
stock companies in Toronto and we’ve
stuck by that vision for the past 107
years,” said Cameron Ross, CEO and
manager of Canada-based Algoma
Mutual. He said mutuals’ tight bond
with brokers is a key to success.“Sales
are equivalent to trust. If [brokers]
trust us,they’ll place business with us.”
That trust, he said, also involves companies
sticking with brokers through
difficult times.
Personal relationships with members
are another advantage to the
mutual model. Because mutuals have
no shareholders, there’s no conflict of
interest between shareholders and
policyholders. Financial demands are
also less stringent because mutuals
don’t have to satisfy demands of outside
investors.
Tennessee Valley Mutual said its
close relationship with constituents
has been a draw for remaining a mutual.
Unlike many of its mutual counterparts,
the company markets strictly
through independent agents, as
opposed to captive agents.“You don’t
have to train independent agents, they
106 BEST’S REVIEW • SEPTEMBER 2006

Mutual Companies
Property/Casualty
Learn More
Algoma Mutual Insurance Co.
A.M. Best Company # 87771
Distribution: Brokers
Georgia Farm Bureau Mutual
Insurance Cos.
A.M. Best Company # 00412
Distribution: Captive agents
MutualAid eXchange
A.M. Best Company # 03165
Distribution: Direct, captive agents, brokers
and independent agents
For ratings and other financial strength information
about these companies, visit www.ambest.com.
usually own their own agencies and
are established in the community and
have customers, in addition to cutting
down advertising costs. I think that’s
one reason we’re able to grow so
much,” said Gardner. He said in the
past two years, the company has
tripled its size.
Some companies have taken a different
approach from the traditional
mutual model. Overland Park, Kansasbased
MutualAid eXchange operates as
a reciprocal.The difference between a
reciprocal and a mutual, said President
and CEO David Wine, is that a reciprocal
can define membership without
any discriminatory issues assigned to
the company. “It allows us to keep
alive the historical context of serving a
niche market and strengthen the
church community in the process.”
The company’s predecessor began in
the 1800s when the Amish and Mennonite
communities, rather than wanting
to belong to public farm mutuals,
felt the need to create a mutual that
stayed with the church family and had
a defined membership with the group.
“It was the best of both worlds—the
company provided an insurance mechanism
and a way to strengthen the
church community at the same time,”
said Wine.“Reciprocals are owned and
managed by the members they serve
and operate on a grassroots, participatory
level.” He said reciprocals allow
profits to be passed down to members
in the form of subscriber accounts,
such as patronage dividends. MutualAid
eXchange was formed in 2001
by merging several small mutual aid
programs. It began converting business
in 2002, and the conversion will
be completed this year.
While mutuals enjoy many advantages
in their structures, there
are a few downsides. “If you need
cash infusion, the only way to do
that is by assessing all your policyholders,”
said Burton of Brickstreet
Mutual. “They may then have the
option to pick up and leave and go
elsewhere.”
What if we could
show you how
money really does
grow on trees...
w o o d i s a l l w e d o .
Over their more than 250-year history,
mutuals continue to prosper.
That’s something NAMIC’s Chamness
doesn’t see changing anytime
soon.“[Mutuals’] growth strategies and
financial goals are generally long-term
focused,” he said.“Otherwise, mutual
companies are affected by the market,
legislators, regulators, reinsurance markets
and the risk environment as are
other companies.”
BR
PENNSYLVANIA LUMBERMENS MUTUAL
I N S U R A N C E C O M P A N Y
Let us show you how PLM’s advantages
can make your business grow:
• Open Brokerage – no appointment required
• No Premium Commitments or Contracts
• Standard Acord TM Applications
• A Excellent A.M. Best Rating
• Commitment to the wood niche
We have been providing Property and Casualty Insurance
services to the lumber, woodworking and building material
industries since 1895.
For a broker kit or to submit a risk, please contact the
PLM marketing department at 800.752.1895 or
visit us online:
Pennsylvania Lumbermens Mutual Insurance Company
170 South Independence Mall West
Philadelphia, PA 19106
8 0 0 . 7 5 2 . 1 8 9 5
...a lot of trees.
www.palumbermens.com
BEST’S REVIEW • SEPTEMBER 2006
107

Mutual Companies
Property/Casualty
Learn More
Algoma Mutual Insurance Co.
A.M. Best Company # 87771
Distribution: Brokers
Georgia Farm Bureau Mutual
Insurance Cos.
A.M. Best Company # 00412
Distribution: Captive agents
MutualAid eXchange
A.M. Best Company # 03165
Distribution: Direct, captive agents, brokers
and independent agents
For ratings and other financial strength information
about these companies, visit www.ambest.com.
usually own their own agencies and
are established in the community and
have customers, in addition to cutting
down advertising costs. I think that’s
one reason we’re able to grow so
much,” said Gardner. He said in the
past two years, the company has
tripled its size.
Some companies have taken a different
approach from the traditional
mutual model. Overland Park, Kansasbased
MutualAid eXchange operates as
a reciprocal.The difference between a
reciprocal and a mutual, said President
and CEO David Wine, is that a reciprocal
can define membership without
any discriminatory issues assigned to
the company. “It allows us to keep
alive the historical context of serving a
niche market and strengthen the
church community in the process.”
The company’s predecessor began in
the 1800s when the Amish and Mennonite
communities, rather than wanting
to belong to public farm mutuals,
felt the need to create a mutual that
stayed with the church family and had
a defined membership with the group.
“It was the best of both worlds—the
company provided an insurance mechanism
and a way to strengthen the
church community at the same time,”
said Wine.“Reciprocals are owned and
managed by the members they serve
and operate on a grassroots, participatory
level.” He said reciprocals allow
profits to be passed down to members
in the form of subscriber accounts,
such as patronage dividends. MutualAid
eXchange was formed in 2001
by merging several small mutual aid
programs. It began converting business
in 2002, and the conversion will
be completed this year.
While mutuals enjoy many advantages
in their structures, there
are a few downsides. “If you need
cash infusion, the only way to do
that is by assessing all your policyholders,”
said Burton of Brickstreet
Mutual. “They may then have the
option to pick up and leave and go
elsewhere.”
What if we could
show you how
money really does
grow on trees...
w o o d i s a l l w e d o .
Over their more than 250-year history,
mutuals continue to prosper.
That’s something NAMIC’s Chamness
doesn’t see changing anytime
soon.“[Mutuals’] growth strategies and
financial goals are generally long-term
focused,” he said.“Otherwise, mutual
companies are affected by the market,
legislators, regulators, reinsurance markets
and the risk environment as are
other companies.”
BR
PENNSYLVANIA LUMBERMENS MUTUAL
I N S U R A N C E C O M P A N Y
Let us show you how PLM’s advantages
can make your business grow:
• Open Brokerage – no appointment required
• No Premium Commitments or Contracts
• Standard Acord TM Applications
• A Excellent A.M. Best Rating
• Commitment to the wood niche
We have been providing Property and Casualty Insurance
services to the lumber, woodworking and building material
industries since 1895.
For a broker kit or to submit a risk, please contact the
PLM marketing department at 800.752.1895 or
visit us online:
Pennsylvania Lumbermens Mutual Insurance Company
170 South Independence Mall West
Philadelphia, PA 19106
8 0 0 . 7 5 2 . 1 8 9 5
...a lot of trees.
www.palumbermens.com
BEST’S REVIEW • SEPTEMBER 2006
107

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BEST’S REVIEW • SEPTEMBER 2006
109

Companies
Commercial
❖ AIG terminated its long-standing
relationship with C.V. STARR’s
marine managing agency, just days
after Starr announced an arrangement
with BERKSHIRE HATHAWAY insurer
NATIONAL LIABILITY & FIRE.
Starr’s American International Marine
Agency has been doing business with
AIG for more than 50 years. C.V. Starr
is headed by Chairman Maurice R.
Greenberg, AIG’s ex- CEO.
Lloyd’s
❖ Lloyd’s broker RFIB is underlining
its ambitions in the United
Kingdom with the purchase of BRI-
DLE INSURANCE BROKERS, which
sells to small and midsize businesses.
Bridle is based near Southampton in
southern England. It will retain its
brand within the RFIB Group.
Homeowners
❖ ALLSTATE said it agreed to
work with Louisiana Insurance Commissioner
Jim Donelon on coastal
homeowners insurance issues.This
came after the company’s president
met with Donelon and Gov. Kathleen
Blanco. Allstate will not be withdrawing
from the state.
❖ Following an emergency
meeting, the board of last-resort
insurer CITIZENS PROPERTY
INSURANCE CORP. voted to continue
offering builders’ risk coverage in
Florida—at least until the end of the
year. Coverage will continue through
Dec. 31, 2006, but at the board’s
scheduled November meeting, the
issue of builders’ risk will be revisited,
according to spokesman Rocky
Scott. Meanwhile, PRAETORIAN
FINANCIAL GROUP, a member of
the Hannover Re Group, said it is
partnering with the Georgia-based
Britt Paulk agency to launch a
builders’ risk program in Florida and
other Gulf states.
This column is compiled monthly
from BestWire reports.
New Life Product Reflects
TIAA-CREF’s New Approach
TIAA-CREF Life Insurance Co.
has launched a new variable
universal life product
reflecting its revamped
approach to designing and
selling life insurance. But
without a commissionbased
agency sales force,
getting people to buy the
product, particularly those
unfamiliar with the parent
organization’s investment
experience,may be a challenge.
About 95% of all life insurance
premium is sold through commissionbased
agents, said Bret L. Benham,
appointed president and chief executive
officer of TIAA-CREF Life in June.
TIAA-CREF Life is part of the
Teachers Insurance & Annuity Association-College
Retirement Equities
Fund,a U.S.retirement system for people
working in the academic, research,
medical and cultural fields.
With more than $380 billion in assets,
TIAA-CREF serves 3.2 million people
at more than 15,000 institutions.
But the 87-year-old TIAA-CREF’s
share of its market—once close to
100%—is now an estimated 70%.
In June,Benham,46,took the title
of president and CEO of the life company
from Bertram L.Scott,now TIAA-
CREF’s executive vice president for
Mergers & Acquisitions
❖ The U.K.’s ROYAL & SUN
ALLIANCE has bought specialist
Irish underwriter EGI HOLDINGS
for $32.3 million. EGI is active in
personal lines, commercial auto and
liability.
Bret L. Benham
strategy, implementation and policy.
Best’s Review met with Benham, visiting
from Charlotte, N.C., at
TIAA-CREF’s corporate
headquarters in New York.
Among the projects
he’s focused on is the
company’s new variable
universal life insurance
product, dubbed “Intelligent
Life,” launched in
June.The new variable universal
life product offers more investment
choices, easy-to-understand
product design and greater flexibility,
according to a press release.“You
understand what’s in there—where
the charges are and where the
charges aren’t,”Benham said.
The company is targeting its core
market—educators,said Benham,who
also serves as senior vice president for
insurance and financial protection
products for TIAA-CREF.The company
can take advantage of the parent organization’s
strengths—a loyal retirement
plan participant base and its hallmark
investment capabilities,he said.
But it also is expanding more
aggressively to the general public
through financial intermediaries.“It’s
certainly something that’s not going
to happen out of the box,”he said.
—Fran Matso Lysiak
United Kingdom
❖ Bermuda-based insurer and
reinsurer LANCASHIRE HOLDINGS
plans to open a London-based insurance
company.The new entity, which
will be known as Lancashire Insurance
Co. (UK) Ltd., will be capitalized
at $37 million.This is to be increased
to $111 million by Jan. 1, 2007.
❖ U.K.-based insurers AVIVA
and PRUDENTIAL PLC have won
permission to expand their operations
in China. AVIVA-COFCO,
Aviva’s joint venture in China, has
won a license to open a branch in
the south-central Chinese city of
Changsha. Prudential announced
that CITIC PRUDENTIAL, its Chinese
joint venture, also has won a life
license for the city of Hangzhou. BR
110 BEST’S REVIEW • SEPTEMBER 2006

Advertisers Index
Editorial Calendar: Looking Ahead
November
Health/Employee Benefits: Trends in group disability
Property/Casualty: Homeowners Market Report
Regulatory/Law: Details of the proposed 2007 NAIC budget
Reinsurance/Capital Markets: Catastrophe update and
loss estimates
December
Agent/Broker: Selling retirement products; insurance meetings and
conventions
Property/Casualty: Inland Marine Market Report;
Ocean Marine Market Report
Regulatory/Law: Update on new regulatory compliance requirements
for insurers
Technology: Cutting-edge technology solutions
January 2007
Reinsurance/Capital Markets: Economic trends that will alter
capital markets this year
Technology: Agent automation
Every Month
• Agent/Broker
• Health/Employee Benefits
• Life
• Property/Casualty
• Regulatory/Law
• Reinsurance/Capital Markets
• Technology
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ACSTAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . BC
Allstate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
America’s Health Insurance Plans . . . . . . . 41
American Institute for CPCU. . . . . . . . . . 31
Benfield . . . . . . . . . . . . . . . . . . . . . . . . . . . IBC
Best’s E-Fusion . . . . . . . . . . . . . . . . . . . . . . 93
Best’s Underwriter & Loss Control Center . 97
BlackRock. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Brooke Credit Corp. . . . . . . . . . . . . . . . . . . 79
CM&F Group Inc. . . . . . . . . . . . . . . . . . . . . . 83
Colemont Insurance Brokers . . . . . . . . . . . . 34
CSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44-45
FCCI Insurance Group . . . . . . . . . . . . . . . . . 33
GMAC Re . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Hannover Re . . . . . . . . . . . . . . . . . . . . . . . . 37
Hartford, The . . . . . . . . . . . . . . . . . . . . . . . . . 7
IMSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Injured Workers’ Insurance Fund. . . . 16 a-b*
ISO. . . . . . . . . . . . . . . . . . . . . . . . . . . IFC-1, 67
Insureware Pty Ltd.. . . . . . . . . . . . . . . 2-3, 69
Jacobson Group, The . . . . . . . . . . . . . . . 18,19
Ken Kalis . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
LOMA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Max Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Maxum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
MFX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Milliman . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
National Alliance for Insurance Education &
Research, The . . . . . . . . . . . . . . . . . . . . 101
Pennsylvania Lumbermens Mutual
Insurance Co. . . . . . . . . . . . . . . . . . . . . 107
State Farm Insurance . . . . . . . . . . . . . . . . . 15
Strategic Independent Agents Alliance . . . 99
Swiss Re . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Verint/Opus Solutions. . . . . . . . . . . . . . . . . 65
* This advertisement appears only in certain states.
Notice: While A.M. Best Co. confirms the accuracy of Best’s Ratings of
insurers referenced in advertisements published in this magazine, these
ratings are subject to change after publication. The current ratings of
insurance companies can be confirmed by calling BestLine® at 900-555-
2378 or free ratings are available on the Web at www3.ambest.com/ratings/search.html.
Further, we can’t warrant the Best’s Ratings claimed
by brokers advertising coverages from unrated insurers. In addition,
some of the insurance policies, products and services advertised may
not be available, licensed or legal in all jurisdictions.
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Page
BEST’S REVIEW • SEPTEMBER 2006
111

The Last Word
Photo Courtesy of Horizon Blue Cross Blue Shield of New Jersey
Horizon Blue Cross Blue Shield of New Jersey’s blimp
is soaring across the state to market the company and
the importance of health care.
Advertising in the Sky
It’s the ShopRite Ladies Professional
Golf Association
Classic in Absecon, N.J., and
the Horizon Blue Cross Blue
Shield of New Jersey blimp is at it
again. Soaring above the crowd,
the distinctive powder blue and
white blimp that has become a familiar
and popular staple in the sky for New
Jerseyans is marketing itself and the importance
of health care across the Garden State.
Horizon’s unusual marketing tool, which
spokesman Thomas Rubino calls a “slow-moving billboard
in the sky,”has been a great boon for the health plan. Horizon
says it’s the only health insurer to operate a blimp and
its blimp is one of only 20 in operation today worldwide.
In its ninth consecutive year of touring, the blimp’s current
22-week tour of New Jersey includes flights above a
host of venues—everything from a Sammy Hagar concert
to local air shows and the National Marble Tournament in
Wildwood, N.J.The blimp also is used for TV coverage of
sporting events across the state, including a New York
Giants preseason game with the New England Patriots, a
Rutgers University football game and a professional beach
volleyball tournament.
Horizon began marketing with the blimp in 1998 when
the company added Horizon to its then Blue Cross Blue
Shield of New Jersey name.“Since then, it’s become a big
draw for the company. People like it and get excited when
they see it, and it’s been a cost-effective way for us to market
during the summer months,”said Rubino. He said the
$1.2 million spent for this year’s tour pales in comparison
with the millions the company would spend to advertise
on television in two of the nation’s top media markets—
New York and Philadelphia.
“Health insurance is a very competitive market and
we’re competing with national for-profit companies as a
not-for-profit health service corporation in New Jersey.
We have to find unique ways to compete against daily
full-page ads and TV campaigns on major media outlets,”
said Rubino.
The company measures the blimp’s advertising effectiveness
by number of impressions—the number of people
who see the blimp. Last year, the blimp had more than
107 million impressions, and Rubino said the company is
on target to beat that number this year.
But the blimp is more than just an advertising tool.“It’s
become an icon in the summer in New Jersey and it also
112 BEST’S REVIEW • SEPTEMBER 2006
allows us to maintain relationships with our community
partners,”said Rubino.“So while we’re boosting our brand,
we’re also helping our partners and getting people to
think about health care over the summer—something
individuals often aren’t thinking about.”
Over the years, the blimp has supported many of the
company’s foundation partners, including the American
Cancer Society,Women’s Heart Foundation and Boys &
Girls Clubs of New Jersey. Community partners get exposure
by placing banners on the blimp’s underbelly for several
weeks during the summer. For instance, during
National Breast Cancer Awareness Month in October, the
blimp advertises messages from The Susan G. Komen
Breast Cancer Foundation New Jersey, and during the past
two years Horizon lit the blimp pink—a color symbolic
with breast cancer awareness—for evening flights to draw
attention to the cause.
The airship is a 2,770-pound Lightship A60+ blimp
that measures 132 feet long, 44 feet wide and stands 37
feet high. It can climb up to 1,600 feet per minute and
holds 68,000 cubic feet of helium.The blimp is under
constant watch with at least one of its 13-member crew
charged with checking its pressure hourly to ensure there
are no leaks.The blimp’s passenger capacity is one pilot
and three adults or one pilot plus two adults and two
small children.
Rubino said blimps have some advantages over other
aircraft, such as relatively low maintenance and fuel costs
and the ability to stay aloft for several hours without
refueling.
—Lori Chordas

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