It would be remiss of us to end the week without giving a resounding cheer to the 10 Chubb colleagues who hit the jackpot this week with a $216 million (or $140 million one-time payout) Mega Millions lottery win. Now what are the odds of that? The lucky 10 have been working in Chubb’s IT department in Whitehouse Station, New Jersey from seven to 30 years. We’re happy for their win. And finally a blog update: those of you who read us regularly will be aware that you can now sign up to follow us on Twitter. Just click on the Twitter button on the lower right-hand side to begin tweeting. Another way to follow the blog is via my network on LinkedIn – again click on the button on the right to join my network. 

Yesterday’s widely-anticipated decision by the U.S. Supreme Court in Wyeth v. Levine on the issue of federal preemption has huge significance for product liability litigation. In a 6-3 opinion, the Court decided that federal approval does not preempt consumer complaints in state courts, effectively opening the floodgates to a wave of potential product liability tort suits against pharmaceutical companies at the state level. We’re not lawyers, but a variety of commentaries by others hint at the significance of this decision for the broader business community, including insurers. Among many others, check out: the Wall Street Journal Law Blog, an editorial opinion in the New York Times, SCOTUSBLOG, and the BLT: the blog of Legal Times. Check out our earlier postings on preemption here and here.

Is Gulf of Mexico windstorm risk still an insoluble risk management problem? This is the question posed in the latest annual Energy Market Review from Willis. The report notes that fallout from a major Gulf of Mexico windstorm is once again casting a shadow over the energy insurance market in the wake of Hurricane Ike. A full consensus has yet to emerge as to the best way to offer the product, and in the meantime the market for Gulf of Mexico windstorm risk is more confused, volatile and expensive than ever before. Meanwhile, the energy industry is faced with a changing world, Willis says. The financial market meltdown and global economic recession have led to rapidly cooling commodity prices and left the energy industry now facing a very different challenge of maintaining profitability in the face of plummeting demand. As a result energy insurers must find new ways of making up for income shortfalls and sharp decreases in investment incomes in 2008. An increased focus on underwriting profitability is the inevitable result. However, any drive towards a harder market is being tempered by the fact that with little or no withdrawals from the market in January 2009, capacity levels for energy risks have actually increased by about 5 percent from last year, according to Willis. A big question mark therefore hangs over 2009: will competitive pressures take their toll on market discipline as the year progresses? Check out I.I.I. facts & stats on the 2007 and 2008 Atlantic hurricane seasons.

Directors’ and Officers’ (D&O) liability insurance costs for financial institutions increased 50 percent in the fourth quarter of 2008 compared to that of 2007, according to the Quarterly D&O Pricing Index from Aon Corp’s Financial Services Group. This is the first time year-over-year price increases were found in over five years. Aon said a number of unprecedented events contributed to the significant price increases, including: reports of more than 1 million job losses in Q4 2008; Bernard Madoff’s alleged Ponzi scheme; a substantial decline in major stock indices; and federal securities class action lawsuits activity in 2008. Aon’s D&O Index also shows that the average price for $1 million in coverage limits increased 3.15 percent from Q4 2008, compared to Q4 2007. This is the first time since 2003 that price increases in the financial sector have been significant enough to move the entire index. So will there be more? “In the short term, we expect to see D&O pricing for the financial sector continue to rise,” said Mike Rice, managing director of Aon’s Financial Services Group and author of the Index in a press release. “It is possible, however, that a tough underwriting environment could emerge for all public companies as the economy continues to negatively impact both financial results and stock prices.” 

With a major winter storm barreling out of the Southeast and up into the Northeast United States overnight, it’s a good time to revisit some winter storm facts and stats. According to Insurance Information Institute (I.I.I.) research, winter storms result in about $1 billion in insured losses annually and are the third-largest cause of catastrophe losses, after tropical cyclones and tornadoes. Melting snow can inflict significant damage to property. From 1988-2007, winter storms resulted in more than $24 billion in insured losses. Winter storms also account for a large proportion of homeowners claims each year. In 2006, water damage and freezing accounted for approximately 20 percent of all homeowners insurance claims in the country. For homeowners preoccupied with the economy, the good news is that standard homeowners policies cover property damages caused by burst pipes, ice dams, wind and hail, and damages from weight of ice or snow. However, property damage caused by flooding (water that comes into the home from the ground up) is typically covered by a separate flood insurance policy. Check out I.I.I. flood insurance facts & stats. 

In today’s tumultuous financial climate, words of wisdom can be invaluable. Tomorrow Berkshire Hathaway chairman Warren Buffett’s annual letter to shareholders will be released. For those who follow the annual observations of the Oracle of Omaha, the letter comes at a timely moment. Today a revised Bureau of Economic Analysis (BEA) report indicates the U.S. economy contracted at an annual rate of 6.2 percent in the fourth quarter of 2008 — a much more accelerated rate than expected. And forecasters from the National Association for Business Economics (NABE) earlier this week suggested the U.S. economy will remain in the doldrums for 2009, with a meaningful recovery not expected until 2010. So what about insurers? Latest Insurance Information Institute (I.I.I.) presentations offer key information on the state of the P/C industry amid the financial crisis. The potential impact of the $787 billion stimulus package (the American Recovery and Reinvestment Act) on property/casualty insurers is also the focus of a presentation given by I.I.I. president Dr Robert Hartwig on Wednesday February 25. 

Governments need to overcome silo-thinking and take a coordinated approach to risk, according to a new Organization for Economic Co-Operation and Development (OECD) report. “Innovation in Country Risk Management” produced in conjunction with Swiss Re and Oliver Wyman notes that in today’s interdependent societies, it can be unclear where one risk ends and another begins. While government efforts to assess large scale risks often focus on specific types of event, such as a flood or earthquake this form of governance is far from optimal in today’s interconnected world where risks are more complex. OECD’s Jack Radisch warns: “The current financial turbulence is a telling example of how the management of risks we face in society should be coordinated from A to Z.” The countries covered in OECD’s study include: Canada, Japan, the Netherlands, Singapore, the United Kingdom and the United States. All six are making good progress to establish an all-hazard view of potential sources of risk, from natural disasters to terrorism to pandemics, according to OECD. Check out I.I.I. info on catastrophes and insurance issues. 

Securities class actions are only one of a rapidly multiplying array of securities-related suits that are transforming the D&O insurance market, according to a new report from Advisen. Traditional securities class action suits accounted for less than half of new securities litigation in 2008, while suits alleging common law torts, breach of fiduciary duty and violation of previously rarely-cited securities laws have become more common. Advisen says a competitive and newly energized plaintiffs’ bar is testing the boundaries of securities suits with novel theories of liability and far more complex complaints. As a result defense costs are surging as plaintiffs’ lawyers concoct new strategies to avoid dismissals and to prevent suits from being consolidated. The report examines the legal, economic and political forces at work in securities litigation in 2008 and assesses their impact on the D&O insurance market in 2009 and beyond. 

The insurance industry’s perception of major risks has undergone a near total change amid the volatile financial climate, according to the results of the second Insurance Banana Skins survey from London-based think tank Center for the Study of Financial Innovation (CSFI) and PricewaterhouseCoopers. Investment performance, equity markets and capital availability now head the list of insurance banana skins after not even making the top 10 in the 2007 survey. Just 18 months ago, regulation and natural catastrophes were the top concerns of insurers. The report notes that for life insurers, investment returns are the major threat, while for non-life insurers, capacity and pricing are the big issues along with the problems that tend to come with a macro-economic slowdown – notably a surge in claims and an increase in fraud. This year’s top 10 risks also include: risk management techniques; reinsurance security, complex instruments and interest rates. The updated survey is based on 403 responses from 39 countries. 

A pessimistic outlook on the United States economy has just been offered by forecasters from the National Association for Business Economics (NABE) who expect the recession to continue through mid-year 2009. The NABE panel does not expect a meaningful recovery to take hold until 2010. Notwithstanding the dour U.S. outlook for 2009, the NABE forecasters see the U.S. as the leader in shaking off the recession shroud. When quizzed about the countries that would emerge first from the recession, some 34 percent of responses favored the U.S., followed by China at 28 percent and Canada at 13 percent. Less than 4 percent regarded the United Kingdom and the Eurozone as leaders. Check out latest I.I.I. presentations on the P/C industry strength amid the economic downturn. For more on how insurers support national and state economies, check out the I.I.I. online publication A Firm Foundation.