A LOOK BACK: 1992-1996

Workers compensation losses continue to rise. The National Council on Compensation Insurance reports that workers comp insurers' aggregate combined ratio hit a record 123% in 1991, compared with an average of 118% over the previous five years.

While health care costs continue to rise several times faster than inflation, increases are smaller compared with previous years. The 1991 increase, 12.1%, was the lowest in four years.

Included in a new law expanding unemployment compensation benefits to the jobless are provisions that require employers, at a terminated employee's request, to directly transfer pension distributions to the employee's individual retirement account or to a defined contribution plan offered by the individual's new employer.

During his presidential campaign, Bill Clinton promises to unveil a plan to cure the major ills of the health care delivery system within 100 days of taking office.

In August, Hurricane Andrew devastates southern Florida and rakes parts of the Louisiana coast, leaving insurers with losses A.M. Best Co. projects at $16.5 billion, making Andrew the most expensive catastrophe the insurance industry has ever faced.

The Florida Supreme Court joins the highest courts of Colorado, Georgia and Wisconsin in ruling that a standard pollution exclusion clause in many CGL policies does not preclude coverage for gradual pollution that was neither intended nor expected by the policyholder.

For the first time ever, more employees are enrolled in managed care plans than in traditional plans, a KPMG Peat Marwick study shows. More than 55% of employees covered by employer-sponsored health plans are enrolled in health maintenance organizations, preferred provider organizations or point-of-service plans, according to the study.

Employers face an end-of-the-year deadline to comply with Financial Accounting Standards Board rules in recognizing retiree health care plan obligations. As the mid-December deadline for FAS 106 approached, many employers recognize their accumulated retiree health care obligations under the new rules in one-time charges. Others, though, decide to amortize the liabilities over the permitted 20-year period.

Many employers face problems stemming from the Americans with Disabilities Act of 1990. While public and private employers generally support the law, many are concerned about its vague wording, which may be destined for clarification through the courts.

The flow of red ink continues at Lloyd's of London, despite the market's decision to implement radical changes, such as establishing a system to help cap members' liabilities, changes in the governing structure and considering the possibility that corporate capital be allowed in the market for the first time.

President Clinton names First Lady Hillary Rodham Clinton to spearhead the administration's effort to overhaul the nation's health care system. The administration unveils a reform package that promises universal coverage. The package calls for state-established health care cooperatives, which would negotiate rates with insurers and offer employees many different plans. But employers blast the proposal as unworkable and for giving government too much control over the health care system.

On Feb. 5, President Clinton signs into law the Family and Medical Leave Act and ends a long deadlock on the issue of federally mandated family-leave benefits. The FMLA, which allows employees to take job-protected unpaid leaves for the birth or adoption of a child, for their own illness, or to care for an ill family member, became the first major piece of legislation signed by the new president.

Having caused an estimated $510 million in insured losses, the Feb. 26 bombing of New York's World Trade Center ranks as the largest U.S. man-made insurance loss of the year and the second-largest of all time. Only the 1992 Los Angeles riots, which caused an estimated $775 million in insured property losses, were bigger.

After several years of staggering underwriting losses -- most recently a $4.42 billion loss for the 1990 underwriting year -- Lloyd's of London produces a business plan that contains radical reforms, including introducing corporate capital.

A provision tucked into a tax bill reduces to $150,000 from $235,840 -- beginning in 1994 -- the maximum amount of an employee's wages that employers can use in computing pension benefits and contributions. Benefits provided through defined benefit plans to employees considered "highly compensated" under the tax code could be reduced by more than 40%.

Reform efforts aim at containing spiraling workers compensation costs. In California, for example, comprehensive legislation passed in July is designed to cut $1.5 billion from an $11 billion system while increasing benefits to injured workers.

A potentially expensive new benefit mandate would require employers that offer group health care plans to file information, like employees' and dependents' Social Security numbers, with the Health Care Financing Administration. HCFA would transfer the information to a new data bank intended to help HCFA make sure the Medicare program isn't paying the medical bills of people covered by private plans.

The final changes to the "Fronting Disclosure and Regulation Act," made in a closed executive session during the National Assn. of Insurance Commissioners' winter meeting, broadens the exemption for single-parent captives to include those located in non-accredited U.S. jurisdictions, not just accredited ones.

The six-year-long soft market is not expected to change anytime soon. Although brokers and risk managers reported higher property rates at year-end 1992, as catastrophe reinsurance prices climbed dramatically after Hurricane Andrew, casualty rates remained flat, or even a little lower, during the same renewal period.

A massive earthquake tears through Los Angeles on Jan. 17. The Northridge earthquake leads to the collapse of thousands of buildings, kills at least 55 people and injures about 7,000. people. Insured losses from the Northridge quake, the second-costliest catastrophe in U.S. history, are expected to exceed $10 billion.

The U.S. Labor Department denies CSX Corp.'s bid to reinsure its group term life insurance program through its Vermont-domiciled captive. The CSX case attracts widespread attention in employee benefit and risk management circles because of potential tax implications.

A federal judge approves potentially the largest product liability settlement in history, the $4.75 billion global settlement proposed by the three leading manufacturers of silicone breast implants. Dow Corning Corp., Bristol-Myers Squibb Co. and Baxter Healthcare Corp. are still wrestling with their insurers for coverage to pay for the deal.

One of the longest-running legal battles comes to an end in October, when a massive antitrust lawsuit that pitted state attorneys general against nearly three dozen insurance industry defendants is settled. Under terms of the settlement, the defendants agree to relinquish control of the Insurance Services Office Inc.

Despite an unprecedented presidential and congressional effort, health care reform legislation goes down in flames. One business group after another denounces the Clinton package. In the wake of the debacle, President Clinton, who once said he would settle for nothing less than universal coverage, says he will pursue a more gradual approach to expanding coverage.

The Republican electoral sweep on Nov. 8 sends the congressional risk management and insurance agenda spinning. Perhaps the most dramatic change is the defeat of House Judiciary Chairman Jack Brooks, D-Texas, who repeatedly introduced legislation that would have greatly circumscribed the protections granted to insurance companies under the McCarran-Ferguson Act.

Unlike two previous drug company buyouts of pharmaceutical benefit management firms, Eli Lilly & Co.'s move to buy PCS Health Systems Inc. for $4 billion is scrutinized by the Federal Trade Commission, which looks for potential anti-competitive practices that could be spawned by the alliance. In November, the FTC and Indianapolis-based Lilly finally reach a consent agreement that PCS will accept all discounts and rebates offered by other drug manufacturers.

The consolidation of the property/casualty insurance industry continues with CNA Financial Corp.'s proposed $1.1 billion buyout of Continental Corp. The acquisition would make CNA the nation's third-largest property/casualty insurance company and the largest commercial property/casualty insurer.

President Clinton signs a legislative package that includes the most significant changes in pension funding rules since ERISA was enacted 20 years ago. Key provisions of the legislation, known as the Retirement Protection Act of 1994, include tighter funding requirements, higher annual premiums that employers with underfunded plans pay the PBGC and more conservative mortality and interest rate assumptions in calculating plan liabilities. Federal regulators say the law could wipe out the PBGC's deficit in a decade.

HMO consolidation reaches new heights in 1994 when FHP International Corp. announces it will purchase TakeCare Inc., while Travelers Corp. and Metropolitan Life Insurance Co. agree to convert their predominantly indemnity-based business into a single managed care plan.

Benefit plan sponsors dodge a judicial bullet that could have killed all benefit plan changes made in recent years when the U.S. Supreme Court overturns two lower court decisions against Curtiss-Wright Corp. The court rules that Curtiss-Wright's reservation of its right to modify its health plan satisfied the plan amendment requirements in the Employee Retirement Income Security Act of 1974.

The U.S. Supreme Court narrows the focus of the ERISA's pre-emption of state laws and increases the cost of some benefits in April when it upholds New York's ability to impose a state surcharge on hospital bills paid by commercial insurers and HMOs.

In May, Lloyd's of London reports a 1992 global loss of L1.19 billion ($1.87 billion) for the three years ended Dec. 31, 1994. It is Lloyd's fifth straight loss, bringing total losses between 1988 and 1992 to L8 billion ($12.56 billion).

CIGNA Corp.'s plan to fully recognize and wall off its long-tail liabilities in a separately capitalized runoff operation faces new criticisms from regulators in addition to continuing criticism from a group of policyholders and competing insurers.

For the workers comp insurers, the combined ratio after policyholder dividends improves by 8.1 percentage points to 101% in 1994 from 109.1% a year earlier, according to estimates by the National Council on Compensation Insurance. The dramatic improvement is a sharp contrast to the 1984-1992 period, when the annual combined ratio each year exceeded 117%.

After Dow Corning Corp. files for bankruptcy protection, Dow Chemical Co., one of the parents of the joint venture company, is drawn into the fray of the silicone gel breast implant litigation. And the landmark $4.25 billion class-action settlement proposal all but crumbles after a determination that it didn't contain enough money to cover all the implant recipients seeking compensation.

In November, President Clinton vetoes a tax bill that includes a slew of pension simplification and other benefit reform provisions that employers support. The chief reason he vetoes the tax bill is because of his concern that the cuts it made in future Medicare spending were too great.

Risk managers get a double dose of good news in 1994 when they learn the cost of risk for U.S. companies fell for the first time in a decade in 1993 and continued to decline in 1994. A 1994 study shows falling workers compensation costs led the decline in 1993.

For the first time in more than a decade, various government and private industry sources report that average group health care costs dipped in 1994. Employee benefit consultant A. Foster Higgins & Co. Inc. finds that total costs for all health care plans fell 1.1% to an average of $3,741 per employee in 1994 from $3,781 in 1993. The switch to managed care gets much of the credit for the decline in costs.

In 1995, states retreat on many reform initiatives launched several years ago. Washington state, for example, guts a 1993 law that would have required employers to offer and pay for group health care coverage.

A wave of mergers and acquisitions occurs in the health maintenance organization industry. The largest of these financial transactions is Aetna Life & Casualty Co.'s $8.9 billion purchase of U.S. Healthcare Inc., which catapults Aetna into the ranks of one of the nation's largest HMO operators.

In May, President Clinton vetoes the Common Sense Product Liability Legal Reform Act, dashing product liability reform advocates' hopes that they had at last crafted a reform bill that could pass Congress and win the president's approval.

The Health Insurance Portability and Accountability Act of 1996 is signed into law in August. It curbs the ability of health care plans to deny coverage for new employees' pre-existing medical conditions, making it easier for employees to move from job to job without fearing they will lose benefits. The law also allows small employers to set up tax-favored medical savings accounts.

Pension simplification legislation is passed that begins to peel away the layers of complex rules legislators and regulators have added over the years. The Small Business Job Protection Act eliminates non-discrimination testing for employers with generous matching provisions in their 401(k) plans. It also offers an optional, easier way of running the 401(k) plan non-discrimination test.

President Clinton is re-elected. During his first four years in office, the president either initiated or strongly supported a mass of benefits legislation that became law. The Clinton impact on employee benefit programs, already significant, is expected to continue during his next four years.

Lloyd's of London posts its first profitable underwriting year in five years, signaling the end of the market's darkest hour and providing impetus to its efforts to reorganize. Lloyd's clears a final legal hurdle to its reconstruction and renewal plan when the 4th U.S. Circuit Court of Appeals rejects a lower court decision allowing U.S. members to sue.

The world of reinsurance is made up of larger but fewer companies after a startling number of mergers and acquisitions. Among the transactions, General Re buys rival National Reinsurance Corp. in a $940 million deal, while Munich Reinsurance Co. steps in and buys American Reinsurance Corp. for $3.3 billion.

Nearly 15 months after CIGNA Corp. unveils its plan to wall off most of its long-tail liabilities in a separately capitalized runoff facility, CIGNA continues its battle to protect its self-described financially vital reorganization effort. Critics argue that CIGNA reorganized through a novation -- moving policyholders to a new insurance company -- without first obtaining policyholder consent.

Aon Group Inc.'s $1.23 billion acquisition of rival Alexander & Alexander Services Inc. is the largest brokerage deal on record and is enough to leapfrog Aon past Marsh & McLennan Cos. Inc. into the top spot among retail brokers. It also catapults Aon into the No. 1 spot among the world's largest reinsurance intermediaries.

New employee benefit mandates, taking effect Jan. 1, 1998, are signed into law by President Clinton. Group health care plans, including self-funded plans, will be required to offer at least 48 hours of hospitalization after a vaginal delivery and 96 hours after a Caesarean section. Plans also will have to offer the same annual and lifetime limits for mental disorders as they do for physical problems.