Foundation for Taxpayer & Consumer Rights Corporateering
  Home | Volunteer | Donate | Subscribe | FTCR Websites | Books | Site Map   
Main Page
Press Releases
In the Media
Factsheets
Reports
 
 OTHER TOPICS
 - Corporate Accountability
 - Healthcare
 - Citizen Advocacy
 - The Justice System
 - Billing Errors
 - Energy
 - About FTCR

home / insurance / in the media

The Los Angeles Times
Oct 15, 2002

by E. Scott Reckard, Times Staff Writer

Stock Losses Boost Premiums, Study Says;

Insurers raise rates to cover shrinking returns, consumer group says. Firms blame large claims.
Far more than they publicly admit, home and auto insurers are raising rates to cover their losses on risky corporate securities, according to a controversial study to be released today by a Santa Monica consumer watchdog group.

The Foundation for Taxpayer and Consumer Rights said that in 1998, with the bull market still roaring ahead, the insurance companies covered in its study held 48% of their investments in stocks and corporate bonds. By 2001, when the market had turned, corporate stocks and bonds had climbed to 57% of the insurers' portfolios, including major stakes in now notorious companies such as Enron Corp. and WorldCom Inc.

Douglas Heller, a senior consumer advocate for the group, said insurers built up their emergency reserves and fought for market share in the 1990s as they enjoyed the fruits of the bull market. But when their investments soured, "they came back and demanded that policyholders make up the difference."

"So the average consumer got hit twice," Heller said. "First as their own 401(k)s shriveled up, and then again to make up for insurance companies' losses."

Industry leaders called that scenario misleading, contending investment returns play only a minor role in setting rates compared with underlying loss trends.

"This is just stunt stuff," said Jeffrey Beyer, a spokesman for Farmers Group in Los Angeles. "It's irresponsibly misleading to the average consumer trying to figure out what's actually going on."

Beyer said Farmers' entire stock holdings -- $500 million of a $12-billion investment portfolio -- equal the company's $500-million loss on operations for the first half of this year in Texas, where it has been hit hard by claims related to mold. A $60-million investment loss cited in the study is "infinitesimal" compared with Farmers' losses on claims, Beyer said.

During the first half of this year, the nation's property and casualty insurers suffered $8.6 billion in paper losses on investments, according to the Insurance Services Office, which tracks the industry's returns. Those still-unrealized losses eclipsed the industry's reported profit of $4.6 billion during the first half of 2001, the ISO said.

Industry leaders say the investment losses are less significant than rising claim expenses, which caused the property-and-casualty business to lose $7.9 billion last year, the ISO said. Those losses, and a projected $40 billion in claims from the Sept. 11 terrorist attacks, are why rates are climbing after remaining stable or declining for most of the 1990s, industry officials said.

The watchdog group is headed by Harvey Rosenfield, author of a successful 1988 voter initiative that sought to rein in insurance prices. The recent spike in premiums -- some homeowner rates have climbed 50% over the last year -- prompted the group to review investment records of 10 major property and casualty insurers, including State Farm Insurance Cos., Allstate Corp. and Farmers.

State Farm, the nation's largest personal property and casualty insurer, lost $60.7 million on WorldCom stock and bonds, the report said.

"That's a cheap shot," said Dan Dunmoyer, president of the Personal Insurance Federation, a trade group that represents State Farm and other major insurers. "Until three years ago, investments in corporate bonds weren't considered radical. They were considered the safest things in the world."

State Farm's loss on WorldCom securities represented a small piece of its investment portfolio. It invests $37 billion to $45 billion annually.
-------------------
Associated Press was used in compiling this report.

back to top

©2000-2004 FTCR. All Rights Reserved. Read our Terms of Use and Privacy Policy | Contact Us