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Big “I” National News

P&C Trends

It's Official: Liberty Mutual Acquires Ohio Casualty
Gregg outlines transition plans for territory, markets and agent compensation.

Liberty Mutual Group and the Ohio Casualty Corporation are now one.

Liberty Mutual completed its acquisition of Ohio Casualty Aug. 24, finalizing the agreement announced earlier this year that gives Boston-based Liberty Mutual Agency Markets control of The Ohio Casualty Insurance Company and the five other p-c insurance companies under the Ohio Casualty Group brand.

In May, Liberty Mutual announced that it had brokered the agreement with Ohio Casualty to acquire the Ohio-based insurer for $2.7 billion. The board of directors for each company, Ohio Casualty shareholders and the departments of insurance for Ohio and Indiana have since approved the acquisition, which joined Ohio Casualty with Liberty Mutual Group’s Agency Markets business unit.

The addition of Ohio Casualty to Agency Markets brings the company's net written premium to $7.3 billion, making it the largest regional provider of p-c products distributed through independent agents in the United States., according to A.M. Best Company. It also causes some overlap in the two companies coverage areas, which has lead to the redrawing of geographic regions Agency Markets companies cover.

“There is overlap in the geographic sense, but one of the things we pointed out when we agreed to this acquisition in May is that there was little agency overlap. I think the overlap was less than 15%,” says Gary Gregg, president of Liberty Mutual Agency Markets. “We dramatically expanded our agent distribution as well as redefined our agency company.”

Still some restructuring was necessary in order to eliminate the small amount of overlap created in the acquisition.

“We were well aware that they (Ohio Casualty) are extremely strong in the mid-east from Kentucky, Ohio, Pennsylvania, Virginia, D.C. and Maryland— more than half of their $1 billion of business is in those states. Montgomery, Indiana and Peerless (Insurance) also had significant business in those states, but what’s interesting about this acquisition is that it adds to our strength in the mid-east,” Gregg says. “Montgomery, for example, has business in Virginia, D.C. and Maryland; those agency relationships and people and will be reporting into the new Ohio Casualty. Pennsylvania, which was part of Peerless, will also be joining with Ohio Casualty. And a similar thing will happen in Kentucky where Indiana Insurance used to be; those people and relationships will join Ohio Casualty. It’s an acquisition, but it’s also a merger in that the talented people and areas will be forming a new Ohio Casualty.”

The complete list of realigned regions includes the following Agency Markets coverage areas:

America First – Arkansas, Kansas, Louisiana, Missouri, Oklahoma and Texas

Indiana Insurance – Illinois, Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin

Montgomery Insurance – Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee

Ohio Casualty – Delaware, Kentucky, Maryland, Ohio, Pennsylvania, Virginia, Washington, D.C. and West Virginia

Peerless Insurance – Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont

Hawkeye-Security Insurance will be split between America First Insurance and Indiana Insurance.

Colorado Casualty, Golden Eagle Insurance and Liberty Northwest will continue to operate in their current territories, which are:

Colorado Casualty – Arizona, Colorado, Nevada, New Mexico, Utah and Wyoming

Golden Eagle Insurance – California

Liberty Northwest – Alaska, Idaho, Montana, Oregon and Washington

Liberty Mutual has already started the transition process needed to join the two companies and has made several executive appointments including David Lancaster, who will serve as president and CEO of Indiana Insurance; Michael Winner, who will act as president and CEO of Ohio Casualty; and John Busby, who will lead the newly created Specialty Products Group, which combines Agency Markets and Ohio Casualty’s specialty lines operations. Dan Carmichael, former president and CEO of Ohio Casualty, has also agreed to assist Gregg with the transition process.

“We are doing a lot (in the transition process) and we will continue to do a lot,” Gregg says. “We are looking at agent training and licensing appointments…we are looking to bring benefit to our agents immediately. I think sometimes a company goes through an acquisition and it’s ‘be patient, please wait,’ but we’re fired up and bringing new products to agents.”

According to Gregg, agents working with Liberty Mutual and Ohio Casualty shouldn’t expect any major changes in the near future regarding the way it does business.

“In the near term, it is pretty much business as usual. It’s, in some sense, making sure we can capitalize on the Ohio Casualty brand and people and putting together a portfolio of eight companies and strong brands. We don’t plan a significant reduction in agents…when you look at the books we have, we don’t have any significant reduction in personal or commercial lines. The resources are in place and there won’t be much change in the first three or four months,” Gregg says. “We don’t see any significant changes in the agent-facing frontline people, we plan to grow…We plan to move towards common technology in the next 18 to 24 months,” Gregg says. “We’ve taken a close look at our books of business and it’s not so much a narrowing as much as an expansion of products and appetite.”

One aspect of the company that may change slightly as a result of the expansion is compensation. While Gregg doesn’t foresee any immediate or significant changes in producer compensation, he does hope to improve the way producers are compensated for their work.

“We’re going to be rolling out some detailed agent communications on compensation. We don’t expect significant changes on compensation and we will honor all compensation agreements through the end of the year,” he says. “We will be driving toward rolling out a combined compensation plan for 2008, but as we look at line commissions and base commissions and incentive compensation and awards, we are confident that things will be as good or better in ’08. We will also have some additional incentives during the transition period.”

Michelle Payne (michelle.payne@iiaba.net) is Big “I” writer/editor.

In the States

IIABA’s Soto Meets with Southern Governors Group
Catastrophe insurance dominates discussion among governors.



Last weekend, as the second anniversary of Hurricane Katrina approached, governors from the Gulf Coast and throughout the southern region of the United States convened to explore the insurance marketplace in coastal areas, and they asked a small and select group of insurance industry leaders to participate in the high-profile discussion. The session was part of the Southern Governors Association’s annual meeting and the governors invited Big “I” President Alex Soto to present the perspective of the nation’s insurance agents and brokers.

Mississippi Governor Haley Barbour led the two-hour roundtable discussion that explored the insurance availability challenges affecting coastal areas and possible solutions to the current crisis. The session was held in Biloxi, Miss., a setting that continues to bear the physical scars of Hurricane Katrina. Soto and the bipartisan group of governors were joined by: William Berkley, chairman and CEO, W.R. Berkley Corporation, Brian MacLean, executive vice president and chief operating officer, Travelers and Paula Rosput Reynolds, president and CEO, Safeco Corporation.

Soto, a resident of South Florida and an agency principal who has witnessed the effects of the coastal insurance availability crisis firsthand, outlined for the governors the challenges that he and other agents face in hurricane-prone regions. He pointed to population gains and rapid development along the coast, the increased frequency and severity of storms along the Atlantic and Gulf Coasts, and the often erratic and unstable regulatory environment of certain states as reasons why many insurers have opted to substantially reduce their writings or leave markets altogether. The Big “I”’s president observed that the insurance industry is highly competitive in most lines and in most parts of the country --- with literally thousands of insurance mechanisms available nationwide --- and he urged the governors and policymakers across the country to work with the private sector to identify ways to return insurers and much-needed capital to coastal regions. 

Soto made a number of specific suggestions to the governors, and he called on them to take actions to reduce the region’s susceptibility and exposure to major losses. He pointed in particular to the need for effective land use management and to the benefits of strong building codes, and he especially stressed the need to encourage home and business owners to retrofit and update existing properties.

Soto described the tangible and measurable benefits of a properly enforced building code and he referred the officials to a recently released study from the Institute for Business and Home Safety (IBHS). The IBHS study examined the areas hardest hit by Hurricane Charley in August 2004 and found that homes built after 1996 (when certain areas of Florida first saw the implementation of high wind standards) were much stronger and more wind-resistant.  Working with FEMA and University of Florida researchers, IBHS found that the frequency of claims was reduced by 60% in homes built to the newer code and that the claims were 42% less severe when a loss did occur. 

The Southern Governors Association previously endorsed the establishment of a “reasonably priced national reinsurance program supported by actuarially sound premiums to provide relief to American homeowners and lower insurance premiums” and the governors and panel discussed the likelihood of Congress taking action to expand availability and foster renewed competition. Soto expressed the Big “I”’s hope that such federal legislation would pass and noted the increased interest and momentum on Capitol Hill for catastrophe insurance proposals. He also urged the governors to support the creation of a blue ribbon national commission to study and report on these complex issues and to use their public positions to continue to press for meaningful solutions.

The Southern Governors Association, which is comprised of the governors of 18 different states and territories, provides a bipartisan forum for helping to shape and implement policy solutions that address state and regional problems. And, if substantive discussion that occurred last weekend is any indication, the SGA and the governors of the Gulf Coast states and surrounding region will continue to pursue effective solutions to the insurance availability crisis that adversely affects millions of Americans and the nation’s economy. 

Wes Bissett (wes.bissett@iiaba.net) is Big “I” senior counsel, government affairs and state relations.

Producer Compensation Issue Update

What Was Old Is New Again
Ohio attorney general files producer compensation lawsuit.

Over the last several months, insurance agents and brokers may have perceived the producer compensation issue was largely resolved because there had been little news in the trade press on it. That changed last week when Ohio Attorney General Marc Dann filed a new lawsuit against Marsh & McLennan, along with AIG, ACE, Chubb and the Hartford, as well as several of their respective subsidiaries, charging them with “unlawful conspiracy to allocate customers, divide markets and restrain competition in the business of insurance.”

The lawsuit alleges the defendants engaged in violations of Ohio’s antitrust law, the Valentine Act. In short, the defendants are alleged to have “unlawfully conspired secretly, with the guidance, complicity and aid of Mash & McLennan, to corrupt [the] market by allocating customers among themselves without competing, and by using false statements, artificially high price quotes and other artifices to feign competition among themselves while raising premiums above competitive levels and depriving customers of competition’s benefits” in violation of Ohio law. 

The essence of the allegations of the conspiracy is very similar to allegations in prior lawsuits and settlements involving these defendants in other states. The claims focus on the purportedly undisclosed Placement Service Agreements (PSA’s) used to give Marsh incentive to serve as an agent of all the participating carriers in order to allow Marsh to control and implement a self-serving market allocation arrangement through the use of non-competitive B quotes. The complaint concludes that this corruption of the market was to the detriment of policyholders who expected to receive competitive proposals but did not. 

Many of the allegations in the complaint are based on criminal plea agreements of former employees of the defendant insurers. Other factual allegations were based on information from insurance companies such as Zurich, which were not named in the complaint. Dann even cited in a press release that Zurich and other carriers “are cooperating with the state’s efforts to hold all the companies that participated in the alleged conspiracy accountable for their actions.” Zurich settled allegations of illegal conduct by Ohio in October 2006 for $7 million.

The defendants’ prior settlements of similar allegations to those in this lawsuit do not restrict Ohio from pursuing these claims on behalf of its citizens. This is because the defendants’ settlements with other states for violations of the laws of other states are not binding in any way on Ohio.   

For more information about producer compensation issues and to view the complaint and press release, log in as a member to www.independentagent.com, go to Legal Advocacy and select IIABA/Industry Information and News, or contact Kathleen Graber, associate general counsel at 703-706-5432; kathleen.graber@iiaba.net.

Producer Compensation Issue Update

A Change in the (Compensation) Wind
Willis, Aon follow Marsh’s lead on accepting fees.

Like Marsh earlier this month, Willis has negotiated changes to its settlement agreement with New York that will allow it to accept additional compensation from insurers for services it performs. Aon also is reported to be in negotiations to amend its settlements to allow it to accept the same types of fees and expects them to be completed soon.

In its April 7, 2005, settlement, Willis agreed to accept no fees except: “a specific fee to be paid by the client; a specific percentage commission on premium to be paid by the insurer set at the time of purchase, renewal, placement or servicing of the insurance policy; or a combination of both.” The amendment just agreed to recently allows Willis also to accept “a specific fee for service(s) to be paid by the insurer set at the time of purchase, renewal, placement or servicing of the insurance policy; or a combination of fee and commission.”

To accept such fees and commission, Willis must first fully disclose the compensation and the client must consent to it in writing, all prior to the policy being bound. The amendment also relieves Willis of the disclosure requirements previously applicable to MGA compensation. Also, like Marsh’s amendment, Willis’ amendment provides that the New York authorities can limit disclosure requirements if those authorities agree that they present an “unreasonable administrative burden” on Willis.

On April 18, 2005, Willis issued a press release opposing the payment of contingent commissions, stating that they were “inconsistent with the principle of client advocacy and should be abolished throughout the industry.” Joe Plumeri, Willis’ CEO, commented about contingent commissions that: “Carriers shouldn’t pay them. Brokers shouldn’t accept them.”

Willis summarized its view by saying that “brokers should replace the lost revenue from contingents by delivering creative solutions and bringing real value to clients.”

Plumeri, in commenting on the Willis’ recent amendment said, “It is important that we reiterate our absolute commitment to our principles---namely we will always be compensated in a manner that promotes the best interest of our clients.” He added that, “Complete transparency in a conflict-free environment is the minimum standard. So, in our role as broker, we are steadfast in refusing to accept contingents and supplemental compensation. Any enhanced regulatory flexibility that we may be granted will be applied against our unwavering principles.”

Willis has yet to announced how its new “regulatory flexibility” will be implemented what changes it will institute, and how the “fees” permitted by the amendment will differ from compensation not allowed by the original settlement.

For more information about producer compensation issues, log in as a member to www.independentagent.com, go to “Legal Advocacy” and select “IIABA/Industry Information and News,” or contact Kathleen Graber, associate general counsel, at 703-706-5432; kathleen.graber@iiaba.net.




L&H Trends

One Size Does Not Fit All
New rules create marketing opportunity.

Successful salespeople involved with intangible services know that the way they gain new accounts is by solving a potential new customer's problems. Independent insurance agents constantly do this. A common situation facing agents involved in commercial insurance and financial services is the plethora of laws and regulations their customers face that could run afoul of the law and expose their company and their personal assets to litigation. With these rules comes an opportunity for agents to contact businesses to have a face-to-face meeting to discuss how the new rules impact their particular business. One area that is exceeding complicated and creates significant potential liabilities is qualified retirement plans.

The government’s concerns about the safeguarding and adequacy of defined benefit pension plans began with the enactment of the Employee Income Retirement Security Act of 1974 (ERISA) and continued into the 1990s with rules pertaining to 401(k) plans has resulted in a climate where plan sponsors not only have to worry about what they do, but what they don't do. And for independent insurance agents who don't offer retirement plans, there is still an opportunity to introduce the agency's bonding services to existing and new customers due to The Pension Protection Act (PPA), which was signed into law by President Bush Aug. 17, 2006. While the law has a number of provisions related to funding and plan design, one of the provisions, effective Jan. 1, 2008, relates to the bonding requirements for plan sponsors.

Under ERISA a plan sponsor must post a bond is equal to the lesser of 10% of assets or $500,000. However, under the PPA’s requirements, if a retirement plan is invested in employer securities (other than employer securities that are held in a diversified mutual fund or index fund), beginning after Jan. 1, 2008, the bond requirements increase from a maximum of $500,000 to $1 million. Mathematically, this means retirement plans with more than $5 million in plan assets that invest in employer securities will have to increase their bonds to remain in compliance. This creates a perfect opportunity for an agency producer to ask business owners who sponsor retirement plans if they are in compliance with the new bonding requirements of PPA. The agent can then say that if the business owner, CFO or HR manager has 30 minutes, he or she will be glad to drop by and help determine if the company needs to take steps to address this increased limit.

All qualified retirement plans have to file an annual report (the Form 5500), and the plan’s bond limits are indicated on the form, which are available to the public. This creates a good prospecting opportunity. Of course the agency should make sure that the agency’s current customers are in compliance with the revised limits.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and an IA l-h contributing editor.