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                                                Big “I” National News

P-C Trends
Hartford Names McGee as CEO
New leader talks about The Hartford, the economy and the role of agents and brokers.

Earlier this week, The Hartford named Liam McGee chairman of the board of directors and chief executive officer, effective Oct. 1. Until recently, McGee was president of the Consumer and Small Business Bank for Bank of America Corporation, where he operated the national’s largest retail bank, serving more than 50 million consumer households and small businesses. McGee succeeds Ramani Ayer who in June announced his intention to retire.

In an interview on his first day with The Hartford, McGee talked with Independent Agent’s Editor in Chief Katie Butler about what attracted him to The Hartford, his priorities for his first 90 days as CEO and the role of independent agents and brokers in the company’s future.

IA: What attracted you to the company and the position?

McGee: The Hartford is really an American icon and just about to celebrate its 200th anniversary. I think it is a very American company, and that was attractive to me. The brand, as you know, is a great brand, it’s recognized and it’s recognized with positive attributes. The company has good market positions in both the p-c and life businesses. It has enduring partnerships with brokers and agents, which I think are very special and important to The Hartford. They are relationships that I think position us very well relative to our competitors and we will continue to invest in, respect and treasure those relationships. We have a great culture here—a sense of ethics, strong values. And finally, we have a great employee force.

IA: What role do you think your banking background will play in how you approach managing The Hartford?

McGee: I was fortunate to have a broad set of experiences in banking from commercial banking to small business banking and virtually all of the consumer businesses, distribution channels and products, and of course I’m also fortunate to have experience in technology and operations, so I do think I bring a breadth of perspectives and experiences to The Hartford, which is a diversified company. Second, in the last seven to eight years of my career at Bank of America, (I) focused on consumers and small to middle-sized businesses, which are largely the target customer segments for The Hartford. I think the perspectives I have from the banking business in combination with the experiences and perspectives The Hartford has from its suite of businesses ought to be quite compelling.

IA: What specific areas of the company or strategic initiatives do you intend to initially focus on? Would you expect to be spending more time on the life side where The Hartford’s performance hasn’t been as strong recently?

McGee: Well, in the first couple of months…as you might expect, I’ll be intensively reviewing all of the businesses, all of the strategies. Second, I want to be sure that we continue to have the kind of capital position that we enjoy today, which is adequate capital for both the present environment and any changes to that…continuing to be sure that the risk management processes in the company are appropriate for the challenges of the economy and lessons learned of the past couple years. And lastly, I’m going to spend a lot of time with the various constituencies of the company—in particular, the brokers and agents—who are so important to The Hartford. I think they want to meet me, they should meet me and I want to hear what they have to say—what their needs are, concerns are, and be sure that we are attentive, listening and responsive… (Meeting agents) will be one of my higher priorities for my first 90 days at The Hartford.

IA: What effect will Hartford’s participation in the TARP program have in the way you approach leading the company?

McGee: I think the TARP capital gives the company some flexibility around its capital position. I think The Hartford has done an outstanding job of working with the government, particularly the fed and treasury, on some of requirements that come about as a result of TARP. But I don’t see the TARP investment really impacting our continued desire to do a great job for the brokers and agents and for our customers.

IA: From your perspective on the banking side, where do you think we are on the continuum of the economic recession/recovery, and what effect will that have on the insurance industry?

McGee: I do think that we’ve seen some stability in the economy----for lack of a better term, a bit of a bottoming out. We’re starting to see some signs of stability in housing prices, which is important. I don’t think we’re going to see any sustained economic recovery until we have stability in housing prices and there is evidence that is beginning to happen. You are seeing capital markets open up and there is more liquidity in the market. I think there are some encouraging signs that we are returning to some sense of normalcy. I would caution your readers that I’m not sure we’re going to see robust economic growth in short term, but I do think we’re confident we’re going to see stability or bottoming out and growth rates will increase but I think more slowly in the quarters ahead than some would hope. So we’ll have to run our businesses, whether it’s The Hartford or other financial services business, with probably a slower growth environment as opposed to an expectation that we’re going to get back to those historic growth rates we saw two or three years ago.

IA: What message would you like to share with the agent and broker distribution force?

McGee: I would say to our partners—those brokers and agents who have been such important partners and friends to The Hartford—that the new CEO of The Hartford understands and appreciates the relationship we have with them. As The Hartford has done historically, we will continue to respect, invest in and protect those relationships because they are very important to our company. And they will continue to be our most important distribution channel.

Katie Butler (katie.butler@iiaba.net) is IA editor in chief.



Pulse on the Markets
Surety Market Sees Tighter Underwriting
Agents seeking surety coverage for clients should be aware of increased scrutiny.

As a niche insurance sector that requires very specific expertise, surety does not usually represent a large part of the typical property-casualty agent’s book of business. However, when surety needs do arise, agents must prepare their clients for a tight underwriting environment and need to know what to look for in a good surety provider.

 According to Geoff Hathaway, CEO and general counsel at Goldleaf surety in Montevideo, Minn., today’s surety marketplace is defined by tight pricing and underwriting, which has been the case since early in the decade. Surety is traditionally a very stable line of insurance, since its rates are filed with state insurance regulators and most accounts involve contract bonds whose prices fluctuate only minimally. However, because a large number of surety clients are involved in the construction sector, the current economy presents surety writers with some uncertainty.

“In the 1990s and early in this decade, there was a pretty robust private construction industry,” says Hathaway. “When the real estate market tanked, a lot of those contractors were without work, and a lot of them have come into the public sector and have needed bonding.”

Hathaway also says many contractors transitioning to the public sector construction marketplace are badly situated to receive bonding from a financial and credit perspective and struggle to compete for bonds in an increasingly competitive arena. Whereas five or six contractors used to compete for a bonded project, Hathaway is now seeing up to 24 bidders for a single job. Roland Richter, vice president of marketing for surety at Liberty Mutual Surety, says he has seen as many as 60 contractors competing for a bond and has also witnessed a drop in public sector construction projects.

“There has been a significant drop in public sector construction not impacted by the stimulus,” he says. “That has resulted in a drop in premium (for surety), and statistics have shown some drop for three quarters in a row. Premiums are currently 1% of contract price, which is reflective of the fact that there are fewer jobs and fewer projects being put into motion.”

Richter adds that the fallout from the sharp drop in construction projects could affect the surety industry more severely in the future because contractors may still have projects lined up from before the real estate crisis. However, loss ratios have not yet reflected increased claims activity, with below-normal loss ratios continuing into the current quarter. In addition, Richter and Hathaway believe the surety industry is well positioned to handle any additional activity that may arise, largely because it has corrected past mistakes.

“Sloppy underwriting through the 1990s and also some large losses related to financial guaranty and lease guaranty bonds meant that underwriting started to curl back around 2002 and 2003,” says Hathaway. “Companies started to react and tighten underwriting, and I would be surprised if there are a significant number of losses after 2009.”

Through agent focus groups with Liberty Mutual Surety, Richter has learned that agents are primarily seeking underwriting consistency, responsiveness and professionalism in a surety carrier. Richter says a good surety provider should meet with the client and analyze the company’s financial strengths and weaknesses. However, it’s up to the agent to make sure the surety carrier is appropriate for the client’s needs, especially if the account is expected to grow over time.

“Choosing the right market is an important part of what the agent does,” says Richter. “They need to find a market that can handle small and large accounts and evolve with the customer as the customer’s needs evolve.”

Brook Smith, whose agency writes only surety business, says the credit crunch has made it even more important for agents to understand clients’ financial hurdles and work with a surety provider to clear them as soon as possible.

“We try to provide advice to clients to clean up their balance sheets and be proactive,” says Smith, president of Smith-Manus Surety Bonds in Louisville, Ky. “If we see (certain) trends within clients, it makes sense to bring them to a surety underwriter sooner rather than later. Companies that are relying on bank debt need to communicate with their lenders and get through this economic trough without having their credit facilities reduced.”

Editor’s note: This article is third in a series exploring trends in specific coverage areas. Click here for a detailed product listing of surety markets. 

Veronica DeVore (veronica.devore@iiaba.net) is Big “I” writer/editor.



On the Hill
Senate Finance Committee Rejects Public Option Amendments
Health care reform bill continues to make progress.

After a week of often contentious debate, the Senate Finance Committee on Tuesday voted on two amendments that attempted to add a government-run insurance plan or a “public option,” to the Senate Finance Committee’s health care reform bill. The Big “I” strongly opposed both amendments and lobbied extensively against their addition. The two amendments were defeated with all Republicans voting against each amendment and a few conservative Democrats also crossing over to vote in opposition.

The first amendment was offered by Sen. Jay Rockefeller (D-W.V.) and would have instituted a “public option” that would initially base reimbursement on Medicare payment rates. Rockefeller’s amendment was defeated by a vote of 15 nays to eight yeas. In addition to all the Republicans on the Finance Committee, also voting “no” were Democratic Sens. Blanche Lincoln (Ark.), Thomas Carper (Del.), Bill Nelson (Fla.), Kent Conrad (N.D.) and Chairman Max Baucus (Mont.). 

After the Rockefeller amendment’s defeat, Sen. Charles Schumer (D-N.Y.) offered a slightly modified public option amendment. Schumer’s amendment would have instituted a “public option” that would base reimbursements on negotiated rates, which presumably would be significantly higher than Medicare rates. Additionally, Schumer’s amendment would not require doctors who participate in Medicare to also participate in the “public option.” This amendment was seen as a more moderate alternative to Rockefeller’s effort, and it consequently gained the votes of two Democratic senators who had opposed the earlier amendment, Sens. Carper and Nelson. Nonetheless, the amendment was still defeated by a vote of 13 nays to 10 yeas.

The Finance Committee hopes to conclude the markup by week’s end, though due to the sheer number of amendments still outstanding it is possible the markup could continue into next week. After the committee concludes the markup, the Senate Finance Committee bill will be merged with the Senate HELP Committee bill for consideration by the full Senate in mid-October.

Though the defeat of the Rockefeller and Schumer amendments were significant achievement for the Big “I,” there will be further efforts to add a “public option” to the Senate health care reform bill, both during the merging of the Finance and HELP bills and during consideration by the full Senate. While the Big “I” government affairs staff continues to fight these efforts daily, the time may quickly be approaching where we will once again call upon the help of agents across the country to communicate our strong opposition to government-run insurance to senators.

John Prible (john.prible@iiaba.net) is assistant vice president of federal government relations.

On the Hill
Temporary Extension of Flood Insurance Program Signed into Law
Big “I” continues to call for permanent reform of the National Flood Insurance Program.

Just a few hours before the National Flood Insurance Program (NFIP) was set to expire, the U.S. Senate passed legislation to temporarily extend it one month until Oct. 31 and President Barack Obama quickly signed it into law.

Expiration of the NFIP would have resulted in no more new or renewed flood insurance policies and millions of consumers would have been left without flood insurance coverage.

The NFIP extension was passed as a Continuing Resolution (CR) by the Senate as part of the House-Senate Conference Report on H.R. 2918, the “Legislative Branch Appropriations Act, 2010.” This short extension gives Congress another month to work on a more substantial extension during the month of October.

Although the Big “I” appreciates last night’s action by Congress and President Obama for another short-term extension, the association strongly feels that a longer term extension, coupled with reforms of the NFIP are necessary. In particular, the Big “I” strongly supports an increase in maximum coverage limits and the addition of optional business interruption insurance. Homeowners and businesses need both higher coverage limits and business interruption insurance in order to properly insure their homes and businesses.

Another short-term extension was signed by President Obama just hours before the program was set to expire earlier this year. In the 110th Congress, the Flood Insurance Reform and Modernization (FIRM) Act of 2007 made progress in the House and Senate. The legislation would have extended the program for five years and made significant and needed reforms to help put the program on sound financial footing. This summer, similar legislation was introduced in the House of Representatives.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.

On the Hill
Family-Owned Small Businesses Face Estate Tax Uncertainty
Big “I” calls on Congress to enact permanent estate tax relief.

Last week, the Big “I” joined forces with more than 40 business trade associations as part of the Family Business Estate Tax Coalition on a joint letter to Congress urging policymakers to enact permanent estate tax relief this year for small and family-owned businesses. The estate tax currently has a top rate of 45% with a $3.5 million exemption for individual filers and a $7 million exemption for dual filers. The estate tax is scheduled to be repealed in 2010 and return in 2011 with a 55% top rate and a $1 million exemption.

The Big “I” believes now is the time for Congress to significantly reform the estate tax to encourage investment and growth in small business. This reform could come in the form of a decrease in the estate tax rate and/or increase in the exemption amount.

Earlier this year, the Big “I” and its coalition partners voiced their support for a bipartisan amendment sponsored by Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) that was passed by the Senate during consideration of the congressional budget. The Lincoln/Kyl amendment reduced the top rate to 35% and increased the exemption to $5 million for individual filers and $10 million for dual filers. Unfortunately, the amendment was non-binding as are all amendments considered during congressional budget proceedings. The Big “I” hopes Congress will act this year in the spirit of the Lincoln/Kyl amendment and provide relief to family-owned small businesses across the country.

The estate tax disproportionately impacts small and family-owned businesses that serve local communities and fuel the economy. Without permanent relief, family-owned small businesses are unable to plan ahead and make important business decisions. Many of these businesses are asset-rich, yet lack liquidity to pay estate taxes when an owner passes away. There is evidence that the estate tax hinders the perpetuation of family-owned businesses because survivors are often forced to sell the business to pay their tax. 

To view the full text of the letter, click here. 

Joe Wall (joe.wall@iiaba.net) is senior director of federal government relations.