Leaders Bullish On Tort Reform, But Not Asbestos Cap

NEW YORK — Prominent insurance leaders were bullish on the prospects for improved industry performance and for tort system reform here earlier this month, but not so with respect to a federal initiative to cap soaring asbestos liabilities.

“The insurance industry has a much better outlook for growth in the next three to four years than most industries,” said Ramani Ayer, CEO of The Hartford Financial Services Group, during a panel discussion at Standard & Poor’s annual insurance conference.

The current property-casualty market correction, which has produced average premium rate increases of 15 percent, on top of other significant increases over the past few years, drew the approval of Maurice R. Greenberg, the CEO of American International Group. “The environment continues to be very strong,” said Greenberg, commenting that customers are now seeing the consequences of the irrational low pricing of the past decade. Today, he said, the only area where the industry needs rate strengthening is workers’ compensation.

“Companies are getting the message there’s a need for higher rates, and the industry is doing a much better job of explaining that,” said Ayer.

At another point, the Hartford executive pointed to what he called the issue of “convergence of risk”—the recent coming together of a drop in the equity market, sizable credit losses, terrorist acts and litigation risks. “So, naturally,” he continued, “over the next five years, I believe, the smarter companies, the better-capitalized companies, the better-rated companies will shine as these risks play out. The companies who are compromised in any of these areas will have a challenge.”

Arthur F. Ryan, CEO of Prudential Financial Inc., was the third of the top industry leaders sitting on the panel which was the conference’s keynote session. Panel moderator Steve Dreyer of Standard & Poor’s dubbed it the insurance industry’s version of “American Idol”, the hit television show.

The group showed little concern over the continued growth of the alternative markets. Drawing a bead on one of his favorite targets, AIG’s Greenberg said traditional insurers have more expertise in grappling with the nation’s legal system, whose excesses contribute so much to industry losses. “Why would a self-insurance group handle the tort system any better than we do?” he asked.

The trio was equally unconcerned over the negative effects on fixed annuities of current interest rates, which are at a 45-year low. “You don’t have to be a victim of low interest rates if you know how to manage your business,” said Greenberg. He said AIG has aggressively cut the guarantees it gives to policyholders and has introduced new products. He praised the 40 or so insurance regulators who lowered the mandatory minimum for these guarantees on fixed annuities.

There was little enthusiasm regarding prospects for federal legislation that would cap asbestos liabilities. “I see no more than a one-in-four chance of getting something done,” said Ayer. Greenberg echoed his sentiments. Sen. Orrin Hatch’s recent measure to create a $108 billion trust fund for claims—consolidated in a federal court and requiring clear medical criteria—has some traction in Congress, said Greenberg, but “there are an awful lot of moving parts” to the problem. “The process in Washington is very, very murky,” he said. “It’s two steps forward and one step back” so whether or not a trust fund will ever come to pass, “it’s hard to say.” According to Ayer, a positive outcome for insurers is uncertain even if legislation is enacted. The industry “will be stretched to meet the demands of funding”. Insurers would have to supply $45 billion to the fund, he said, while current asbestos reserves are only $28 billion.

On the other hand, prospects were deemed promising for tort reform. Greenberg was most optimistic, applauding those states that have passed reform measures and saying “there’s more of a chance right to get tort reform in this country than I’ve ever seen.” The AIG chief continues to aggressively advocate publicized rankings of states according to the fairness of their tort systems, much as his company routinely measures the legal systems of companies overseas in which it would do business.

Topics Leadership AIG