Storm & Security

PROTecT/YOURSELF 2012:The Insurance World Will End! Did the Maya understand the secrets of property insurance? Some scholars say the Maya knew a secret: The Earth's axis wobbles, slightly changing the alignment of the stars every year. Once every 25,800 years the sun lines up with the center of our Milky Way galaxy on the winter solstice, the sun's lowest point on the horizon. That will happen on December 21, 2012, when the sun appears to rise in the same spot where the bright center of the galaxy sets. And, as the alarmists in our society believe, the world will end. In the United States the wobble of insurance premiums has begun, and a major storm impacting the Eastern Seaboard this year will cause the end of the universe for purchasing property insurance from real insurance carriers. There are four issues driving the property insurance market: 1. Insurance carriers are racing to eliminate property policies from their portfolios. 2. Guarantee Associations, the organizations that backstop the insurance industry, have made changes to their reinsurance agreements. 3. Our National Flood Insurance Program is greatly under funded. 4. The Federal Emergency Management Agency (FEMA) budget is targeted for reduction in the 2012 budget, which begins July 1. catastrophic events in the United States and abroad that pushed the industry's combined ratio from 101 percent in 2010 to an estimated 107 percent in 2012. The combined ratio for an insurance provider is calculated by taking the premiums received by the claims paid. Any carrier whose ratio exceeds 100 percent illustrates a business whose income is exceeded by its expenses. In short, the entity is not generating enough revenue to cover the operating expense. As combined ratios climbed, the number of insurance companies that had their bond ratings downgraded outpaced those insurance companies that had their bond ratings raised. This is the first time that has happened since 2005 when five hurricanes ravaged Florida creating $159 billion in insured losses. A lower bond rate increases the cost of debt for a business. The insurance industry's response to adverse losses is to The race by insurance carriers to withdrawal from [hurricane-prone] areas has intensified because no ceO wants to explain to his stockholders that the risk of financial loss has increased while the rate of return on investment has stayed the same. Racing to Withdrawal In 2011, U.S. property insurance companies suffered their largest underwriting losses since 2006. As an industry, property casualty claims payments are expected to exceed $44 billion in 2011 compared with $19.6 billion in 2010. Most domestic insurers were affected by an unprecedented number of natural diminish the amount of coverage in hurricane prone regions. Prior to Hurricane Irene, The New York Times reported that many national insurance companies had "non-renewed" poli- cies not only in hurricane-battered places like Florida and Louisiana, but in New York and other northern states that have not seen hurricanes in years. Since 2009, one major carrier has turned down all new homeowners' insurance business in New Jersey, Connecticut, Rhode Island, Maryland, Massachu- setts and the eight down- state counties of New York. Additionally, an independ- ent insurance agent's group estimated that 50,000 residents of the New York metropolitan area—and about one million homeown- ers in the Mid-Atlantic and New England states—have had their policies canceled since 2004. While most homeown- ers have been able to find coverage with other major insurers, or with smaller companies, in most cases it is at higher rates and with larger deductibles. Besides an additional cost and hassle factor for the insured, the cancellations strain the system in two ways. 1) The 2012 FORECAST / STORM&SecURITy PROTecTION 21 | by Don Leggett |

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