Our Combined Suffolk County and Tri-County Luncheon Meeting with guest speaker Dr. Robert Hartwig, PHD, CPCU entitled “Why 2008 will be a make or break year for the P/C Insurance Industry” was held on March 6, 2008. This luncheon meeting had over 100 people in attendance. We want to especially thank the following meeting sponsors for their support; America’s Internet Brokers, Branch Restoration, Commercial Mutual Insurance Co., Duraclean Disaster Cleanup, EVENSONBEST, Great American Restoration Services, IIABNY Trusted Premium Funding, Maxons Restorations, NIF Group, The Premins Company, VANE Excess & Surplus and Zurich Small Business. At the close of the meeting Dr. Hartwig drew the 50/50 and the winner of the $285 was George Montana.

For over a year, we had been trying to get Dr. Robert Hartwig, President of the Insurance Information Institute to speak at one of our meetings. With the help of Kathy Weinheimer and others, we were able to have him speak at our joint Suffolk County/Tri-County March meeting which was held at the Melville Marriott. Dr. Hartwig is a dynamic speaker with a PHD in Economics as well as having his CPCU designation. He is currently the President of the Insurance Information Institute and before joining that organization, was Senior Economist with the National Council of Compensation Insurance (NCCI) and was also Senior Economist with Swiss Re-Insurance in New York.

He has testified before numerous regulatory committees including the U.S. Senate and the U.S. House of Representatives and serves as our spokesperson for the P & C Industry. Dr. Hartwig is quoted frequently in newspapers, trade publications and he appears regularly on television.

His fast paced talk to us that afternoon started with his discussing the stormy economic forecast with a weakening economy and how the sub-prime mortgage and lenders tightening borrowing standards have affected the insurance industry and particularly the Bond Insurers.

He then went on to explain how real GDP growth is slowing and the unemployment rate is increasing. This could negatively impact Workers Compensation experience and could also signal a temporary claim frequency surge. Dr. Hartwig went on to say that this credit crunch and sub-prime issue will ultimately cost hundreds of billions of dollars globally and will have a heavy toll on the capital base of some very large financial institutions worldwide.

This will be the most significant economic event in a generation, but he feels that the US economy will recover in the next 18 to 24 months. He added that there will be a D&O /E&O exposure for some insurers and Bond insurer problems. The housing slump will cause reduced exposure growth as well as deteriorating loss performance on neglected and foreclosed properties. Lower interest rates will decrease insurers investment income and the stock market slump will diminish capital gains for insurers.

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The general economic slowdown and/or recession will reduce Commercial Lines growth and there will be a Surety slump along with the potential for increased Workers Compensation claims frequency.

The P&C Industry’s net income after taxes peaked in the year 2006 at approximately $63,695,000,000. This was a ROE of 12.2% which had not been equaled in any of the years he highlighted from 1991 through 2008. According to Dr. Hartwig it looks like these profits have peaked and are now going down with an estimated industry profit for the year 2008 of about $46,300,000,000. The P&C Industry’s profitability is very cyclical, volatile and vulnerable due in part to Catastrophies. Even without major CATS for the years 2006 through 2008 forecasted ROE for Personal/Commercial lines and Reinsurance are all declining as underwriting results deteriorate. He then showed another graph with the ten lowest P&C industry combined ratio years from 1920 through 2007 (E). This showed that the best 10 years of industry combined ratios are associated with years with low interest rates.

He showed that for the first time since 1999 Personal Auto rates are declining nationwide overall while Homeowners Insurance has been trending higher since 1995 due to record Catastrophic losses. As for the upcoming 2008 Hurricane season, Dr. William Gray of Colorado State University forecasted in December 2007 that the 2008 forecast is for seven hurricanes. Three of these hurricanes will be intense and the 2008 season is estimated to be 25% worse than average.

Since the year 1900, New York has been affected by 23 Hurricanes. Nine of these were direct Hurricane hits and the other 14 were indirect. If a category 3/4 storm were to hit the New York area directly they predict $110 billion in insured losses and $200 billion of total economic loss for New York and the surrounding states. When Hurricane Gloria hit us on September 27, 1998 it caused 8 deaths and $900 million in damage to the New York and New England areas. The somewhat good news in CAT Reinsurance is that the market is past its peak and is becoming more competitive.

As for Tort reform, the tort system total costs versus percent of GDP has been dropping since it peaked in 2003, when it was 2.24% of GDP. For the year 2008 it is estimated that total tort system costs will be at 1.83% of GDP.

This is a rather lengthy recap of Dr. Robert Hartwig’s meeting, but if you were there you know that this was not even half of the items he talked in great detail about. We thank Dr. Hartwig for speaking to our group and hope that we can have him talk with us again. He encouraged all of us to check out the resources available at the Insurance Information Institute’s web site: www.iii.org .

Rich DeLasota, Brian Grossane (NIF), Steve Rodriquez (NIF), Tom Lucie, Ed Lucie and Dick Richtberg	Joel Blitzer, Larry Trapani, Ed Weidler, Jennifer Savnik (Branch) & Melanie Accardi (Branch)
Jim Stipp Nancy Reiersen (Commercial Mutual) & Stan Landberg (Commercial Mutual)	Steve Spiro. Peter Meehan (AIB), Michael Romeo Jr. (AIB), Evan Portnoy
Lane Rubin, Joe Ogno (EVENSONBEST), Evan Portnoy, Ken Hehir	Steve Spiro, Jessica Schwinn (IIABNY Trusted Premium Funding) Lane Rubin
(left to right) John Mulvey, Jamie Deapo (IIABNY), Robert Hartwig (speaker)  Brian Bixby (IIABNY) and Brian Bergman (TriCounty president)	Michael Levine, David Pinto (Great American Restoration) Brian Bergman, Justin Fries, Sam Pinto (Great American Restoration)
Heidi Fox, Anthony Cacioppo (VANE Excess & Surplus) Jeff Browne