HANNOVER RE TO BUY CLARENDON TO BOOST SPECIALTY BUSINESSPosted On: Aug. 30, 1998 12:00 AM CST
NEW YORK -- Hannover Re A.G. will acquire New York-based Clarendon Insurance Group in a move to boost the German reinsurer's U.S. program business and strengthen its position as a specialty reinsurer.
Hannover Chief Executive Officer Wilhelm Zeller called the $500 million acquisition "a lucky development," saying Clarendon had positioned itself as a profitable niche insurer.
Both companies will benefit from the deal, which lets Hannover branch into more profitable areas outside property risks, said Hans Rohlf, Hannover's managing director for North America. Clarendon traditionally transfers a great deal of its risk to reinsurers and is a financially sound company, which makes the deal attractive, he said.
Clarendon has a niche in program business -- with strengths in non- standard auto; non-standard trucking; and marine business, including fishing fleets -- which Mr. Zeller sees as particularly profitable. The program business focuses on low-limit, short-tail, high-premium and difficult-to-place risks, mostly conducted through managing general agents.
Clarendon is "one of the most successful entrepreneurial program companies," said Peter Wade, an analyst with Lehman Bros. in New York, which advised Hannover on the deal.
The deal also gives Clarendon capital to continue growing, said its president, Robert D. Ferguson. "There's nothing we can't be shown or be able to write," he said.
Clarendon's management owns 56% of the company, while the rest is owned by Kansa International Group of Finland, Mr. Ferguson said. He noted that Kansa's creditors have been liquidating Kansa's assets over the past few years.
In 1997, Clarendon had $1.1 billion in gross premiums and net income of $32 million.
Mr. Ferguson said Hannover is not planning to change Clarendon's top management and has given a group of top managers incentives to stay. He added that Clarendon chose Hannover from "a handful" of other suitors, which he would not name.
The acquisition is subject to regulatory approval.
No change in pension limits
WASHINGTON -- The maximum benefit employees can fund through salary reduction to their 401(k) plans next year is likely to remain at the current $10,000 level, according to an estimate from consultant William M. Mercer Inc.
Other maximum pension benefit levels also are unlikely to change next year, including the $160,000 limit on employee compensation that can be taken into account when calculating pension benefits and contributions, the $30,000 limit on the maximum contribution to a defined contribution plan, and the $80,000 threshold on who is considered a highly compensated employee for pension non-discrimination testing purposes.
An official Internal Revenue Service announcement on 1999 maximum benefit and contribution limits will be published later this fall.
CIGNA Re invests in Lloyd's
LONDON -- CIGNA Reinsurance has set up a syndicate at Lloyd's of London that starts operations this week.
Syndicate 1607 will cover accident and health risks and will be managed by Creechurch Underwriting Ltd., a Lloyd's managing agent.
CIGNA Re, the Hartford, Conn.-based unit of CIGNA Corp., will be the sole corporate underwriting member of the syndicate.
The syndicate will have a stamp capacity of L16 million ($26.5 million) in 1999 that will be increased to L19 million ($31.4 million) in 2000.
The underwriter for the syndicate will be Jonathan Thomas, who was previously with Brockbank Group.
Creechurch also manages two auto insurance units.
Launch failure a $250 million loss
CAPE CANAVERAL, Fla. -- Last week's Delta III launch failure will cost insurers $250 million but is not expected to increase satellite insurance rates.
The Boeing Co.'s Delta III rocket exploded just over a minute into its maiden voyage, destroying PanAmSat Corp.'s Galaxy X, an HS 601 satellite, and scattering debris for 10 miles. "This was about as total a loss as you can get," commented Alden M. Richards, president and chief executive officer of broker Space Machine Advisors Inc. of Greenwich, Conn.
Space Machine Advisors last year placed a three-year combined launch and orbit program for PanAmSat. The program, valued at $4 billion, was insured with a consortium of underwriters in the United States, Europe and Asia, said Mr. Richards, and it covered 17 existing PanAmSat satellites and "seven or eight" future launches.
The Delta III rocket was the first to carry a commercial payload on its maiden voyage. According to a Boeing spokesman, it started losing control about 55 seconds into the launch, when it started tipping and burst into flames. Safety officers then commanded the rocket to self-destruct, about 10 miles up. Boeing has 18 contracts for Delta III launches and hopes to launch a replacement in about 18 months.
Galaxy X was to provide broadcast and telecommunications services across the United States and Caribbean, but most of its capacity will be filled by other satellites, according to a PanAmSat statement. "(PanAmSat) has a complete risk management plan" for failures, said Mr. Richards.
This latest loss brings the total insured satellite losses this year to more than $850 million, according to figures compiled by Airclaims Ltd. in London, not far off total estimated premiums of between $950 million and $1 billion. But Mr. Richards does not see the explosion stopping the falling premiums and softening terms and conditions. "If there are a couple more failures in the next six to 12 months, we may see capacity moving out and a market correction," he said.
Workers comp costs down
RONKONKOMA, N.Y. -- Workers compensation insurance costs for U.S. manufacturers dropped about 12% to an average of $3.88 per $100 of payroll in the past year, according to a recently published annual actuarial study.
The comparisons, which are based on Jan. 1 numbers, reflect manufacturers' average cost for voluntary market coverage based on a uniform payroll distribution developed by researchers at Actuarial & Technical Solutions Inc., a consulting firm in Ronkonkoma, N.Y.
The cost decrease continues a four-year trend linking average decreases of 4% from 1994 to 1995, 5% from 1995 to 1996, 14% from 1996 to 1997 and the 12% reported for the past year.
The study reported cost decreases in 40 of the 44 states studied by researchers, who excluded only the six states with exclusive state funds. Four states in particular enjoyed deep cuts of 25% or more: Arizona, 25%; New Mexico, 30%; Pennsylvania, 35%; and Utah, 28%.
However, four other states bucked this trend by showing cost increases, though less than 3%: California, Delaware, Rhode Island and Tennessee.
More sign Holocaust document
Progress continues in establishing a framework to resolve Holocaust- era insurance claims, as four additional European insurers last week signed the "memorandum of understanding" to establish an International Commission to resolve unpaid claims.
Those companies are Allianz A.G. of Germany, AXA Group of France, and Winterthur Group and Basler Lebens, both of Switzerland. That brings to six the number of insurers that have agreed to sign the memorandum developed by the National Assn. of Insurance Commissioners and Sen. Alfonse D'Amato, R-N.Y.
Zurich Insurance Group of Switzerland (BI, Aug. 17) and Assicurazioni Generali S.p.A. of Italy agreed to sign earlier this month. Generali's participation in the memorandum is part of its proposed $100 million settlement of a lawsuit against 16 insurers filed by Holocaust victims and their heirs in U.S. District for the Southern District of New York (BI, Aug. 24).
"By signing the MOU, the European companies agree to: cooperate fully with the International Commission to expeditiously resolve all unpaid claims; provide full access to all of their relevant records, books, files and archives; contribute to the establishment of a humanitarian fund; and pay for the investigation and audits by the commission," NAIC President Glenn Pomeroy, the North Dakota insurance commissioner, said in a statement last week.
Crash report faults FAA
WASHINGTON -- A federal safety board has determined that the Federal Aviation Administration's failure to set and implement safety procedures for icy conditions on airplanes was "the probable cause" of a deadly 1997 turboprop crash.
In a report issued last week, the National Transportation Safety Board said that although ice on the plane's wings during descent directly caused the fatal crash, it might have been averted if the FAA had implemented better anti-icing procedures.
In January 1997, a Comair turboprop en route from Cincinnati crashed 18 miles from Detroit Metropolitan Airport. All 26 passengers and three crew members died. Comair operated the plane as the Delta Connection (BI, Jan. 13, 1997).
The board found that a thin, invisible layer of ice on the wings' leading edges disrupted the plane's flying ability, causing it to pitch to the left, nosedive and crash. Neither the FAA's nor Comair's regulations require activation of the plane's anti-icing device until the ice becomes visible, the report stated.
The crash might have been averted, the report further states, had the Comair pilots been aware of an FAA bulletin concerning six previous crashes from ice formation involving the same type of plane and had the pilots activated the anti-icing device.
The report also criticized the FAA for not adequately warning pilots to the dangers of small amounts of wing ice.
The board recommended launching an industrywide effort to educate manufacturers, operators and pilots of the dangers of trace amounts of ice and to install systems and procedures to reduce the risks of flight during icy conditions.
An FAA spokesman said the agency had not formally received the report but that it "will take a hard look at the report and its recommendations."
Five Aetna Inc. operating entities, including three HMOs, were removed from under review and downgraded to "A" (excellent) from "A+" (superior) last week by Oldwick, N.J.-based A.M. Best Co. Two other HMO operating entities also were downgraded to an "A-" from an "A." Best said it believes Aetna will have difficulty significantly improving its operating performance over the near term. Aetna objected to the decision and said it did not share Best's negative view of the market. . . .The California Assembly last week narrowly passed a bill that would repeal Proposition 103's requirement that the state's insurance commissioner be elected. If passed by the state Senate and signed by Gov. Pete Wilson, S.B. 225 would put an initiative on the November 2000 ballot asking voters to return the position to a gubernatorial appointment. . . .Merrill Lynch & Co. will pay $2 million to settle allegations by the Securities and Exchange Commission that it withheld information from investors about Orange County, Calif., municipal securities it underwrote shortly before the county filed for bankruptcy in 1994. . . .The Kroll-O'Gara Co. has acquired claims investigator InPhoto Surveillance for $800,000 in cash and 352,381 shares of Kroll-O'Gara stock, valued at more than $8 million based on Friday's closing price. InPhoto's founder and president, Bill Kizorek, will become vp of worldwide marketing of Kroll-O'Gara.