April 23 (Bloomberg) -- Hartford Financial Services Group Inc. is seeking bids from rivals including Travelers Cos. for its flagship property insurance business, said people familiar with the matter, in a sign that damage from the financial crisis may lead to a wholesale breakup of the 199-year-old insurer.
Hartford, pummeled by credit downgrades after losses in its life division, solicited offers for the profitable property and casualty unit in recent weeks, said the people, who declined to be identified because the talks are private. Travelers and Ace Ltd. may show interest, the people said, and Allianz SE already has a $2.5 billion stake in Hartford. Citigroup Inc. estimates the unit is worth $4 billion to $8 billion.
Chief Executive Officer Ramani Ayer, 61, is weighing more drastic options after Munich-based Allianz’s October cash infusion failed to stave off rating downgrades. The firm had a market capitalization of about $3.1 billion on the New York Stock Exchange yesterday, implying a negative value for the money-losing life insurance and retirement operations.
Talks earlier this year to sell parts of the life operations to Canada’s Sun Life Financial Inc. ended without a deal, the people said. Hartford, based in the Connecticut city of the same name, continues to seek other buyers for the parts of its life division that sell group benefits, the people said.
Shannon Lapierre, a Hartford spokeswoman, declined to comment, as did Shane Boyd of New York-based Travelers, Sabia Schwarzer of Allianz and Stephen Wasdick of Zurich-based Ace. Allianz’s investment in Hartford is “purely financial,” Schwarzer said.
Hartford dropped 3 cents to $9.65 at 1:19 p.m. in New York. The shares had lost 85 percent in the past 12 months through yesterday. Travelers fell 28 cents to $39.65.
TARP Aid
Efforts to find buyers for the Hartford businesses may prove unnecessary if the U.S. Treasury provides enough support. Ayer has said his firm stands to get as much as $3.4 billion under the Troubled Asset Relief Program. The Treasury has used the program to shore up banks and has yet to extend it to insurers other than American International Group Inc.
Ayer, who ran the property division before assuming Hartford’s top post in 1997, has been pressured by investors and analysts to consider a breakup. The property business had $6 billion of statutory surplus and $36.7 billion of assets as of Dec. 31. Joshua Shanker, a Citigroup analyst, said in February that a sale of the property unit would bolster capital.
A combination of the division with Travelers would create the second-largest U.S. property and casualty company behind State Farm Mutual Automobile Insurance Co., according to data from the National Association of Insurance Commissioners. Travelers was 6th in 2008 by policies sold. Hartford was 10th.
Job Losses
Merging the businesses could portend job losses in Connecticut’s capital city. Hartford Financial was formed there in 1810 and more than a third of its 31,000 employees are based in the state, the company said last year. Travelers began there in 1864 and has about 7,000 employees in the city, the Hartford Courant reported today.
Jay Fishman, the Travelers CEO, is a protégé of Sandy Weill, the Wall Street dealmaker who combined Travelers with Citicorp in 1998 to create Citigroup Inc. before spinning off the Travelers property and casualty business as an independent company. Fishman left Citigroup in 2001 to run St. Paul Cos., where he engineered the $17.9 billion acquisition of Travelers in 2004.
Ace, founded in Bermuda in 1985, is run by Evan Greenberg, the son of former AIG CEO Maurice ‘Hank’ Greenberg. He bought the Combined Insurance business from Aon Corp. in 2008 for $2.4 billion, his biggest purchase as CEO.
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
Thursday, April 23, 2009
Going Green Brings Insurance Discounts
Your insurance company may give you a break if you go green.
After years of inertia, the $16 trillion industry has begun to address climate change with mandatory risk disclosures and more products to help businesses and individuals reduce energy use. Insurers have begun to offer lower premiums on car, homeowner and property insurance for people who drive less, own hybrid cars or build green homes.
"Climate change represents an opportunity for insurance companies to reduce risk and to build revenue," said Andrew Logan, director of insurance programs for Ceres, a coalition of investors, environmental groups and other organizations.
After a slow start - particularly in the U.S. - insurance companies are tackling the issue. In March, insurance regulators adopted mandatory climate-risk disclosure standards for insurance companies with annual premiums of $500 million or more. These standards require the firms to report to regulators and investors the types of payout risks they may face due to climate change.
"We are concerned about how climate change will impact the financial health of the insurance sector and the availability and affordability of insurance for consumers. This disclosure standard will give regulators the information we need to better understand these risks," said Joel Ario, Pennsylvania Insurance commissioner and chairman of the National Association of Insurance Commissioners' Climate Change and Global Warming task force.
In the last year, there has also been a large uptick in insurance products offered to climate-friendly consumers, according a report Ceres released in April. The number of new products doubled in 2008. They include coverage for wind and solar production shortfalls, premium discounts for energy efficient buildings and discounts for hybrid vehicle ownership and reduced driving. Early estimates show people with pay-as-you-drive, or PAYD, policies, drive 5% to 15% less than average drivers. Fewer cars on the road mean lower accident rates and reduced fuel emissions.
"What insurers are finding out is that there is a strong correlation between reduced driving and risk," said Logan.
Opting to drive less can reduce premiums by more than 50%, said Wayne Bontrager, senior vice president at GMAC Insurance, a unit of GMAC Financial Services. Two dozen companies offer PAYD insurance products, Ceres estimates, including GMAC, Corp. and Corp.
Insurers believe drivers of hybrid or fuel-efficient vehicles can be more responsible, lower-risk customers, said Bontrager. Among companies offering a 5% to 10% discount on premiums for hybrid drivers are Cos. and Farmers Insurance, which is owned by AG.
Almost two dozen insurers offer premium credits and discounts for owners of "green" commercial and residential buildings, according to Ceres. In the U.S., that typically means buildings with Leadership in Energy and Environmental Design (LEED) or Energy Star certifications.
Green buildings are more resilient, Logan says. The idea is that green buildings are safer than conventional homes, reduce energy use and perform better in the long run, leading to a decrease in losses and greenhouse gas emissions. For instance, air conditioners and furnaces that don't run often are less likely to have mechanical breakdowns, said Janet Ruiz, a spokeswoman for the Fireman's Fund, which offers a 10% discount on yearly premiums for owners of LEED-certified homes. Fireman's Fund is a unit of SE.
Farmer's and Fireman's are also among companies offering eco-friendly homeowners insurance coverage following a total or partial loss. For an additional premium starting around $20 to $25 a year, policy holders can rebuild, say, a kitchen damaged by fire with upgraded Energy-Star appliances, lighting, electronic equipment and roofing.
Write to Jilian Mincer at jilian.mincer@dowjones.com and Shelly Banjo at shelly.banjo@wsj.com
After years of inertia, the $16 trillion industry has begun to address climate change with mandatory risk disclosures and more products to help businesses and individuals reduce energy use. Insurers have begun to offer lower premiums on car, homeowner and property insurance for people who drive less, own hybrid cars or build green homes.
"Climate change represents an opportunity for insurance companies to reduce risk and to build revenue," said Andrew Logan, director of insurance programs for Ceres, a coalition of investors, environmental groups and other organizations.
After a slow start - particularly in the U.S. - insurance companies are tackling the issue. In March, insurance regulators adopted mandatory climate-risk disclosure standards for insurance companies with annual premiums of $500 million or more. These standards require the firms to report to regulators and investors the types of payout risks they may face due to climate change.
"We are concerned about how climate change will impact the financial health of the insurance sector and the availability and affordability of insurance for consumers. This disclosure standard will give regulators the information we need to better understand these risks," said Joel Ario, Pennsylvania Insurance commissioner and chairman of the National Association of Insurance Commissioners' Climate Change and Global Warming task force.
In the last year, there has also been a large uptick in insurance products offered to climate-friendly consumers, according a report Ceres released in April. The number of new products doubled in 2008. They include coverage for wind and solar production shortfalls, premium discounts for energy efficient buildings and discounts for hybrid vehicle ownership and reduced driving. Early estimates show people with pay-as-you-drive, or PAYD, policies, drive 5% to 15% less than average drivers. Fewer cars on the road mean lower accident rates and reduced fuel emissions.
"What insurers are finding out is that there is a strong correlation between reduced driving and risk," said Logan.
Opting to drive less can reduce premiums by more than 50%, said Wayne Bontrager, senior vice president at GMAC Insurance, a unit of GMAC Financial Services. Two dozen companies offer PAYD insurance products, Ceres estimates, including GMAC, Corp. and Corp.
Insurers believe drivers of hybrid or fuel-efficient vehicles can be more responsible, lower-risk customers, said Bontrager. Among companies offering a 5% to 10% discount on premiums for hybrid drivers are Cos. and Farmers Insurance, which is owned by AG.
Almost two dozen insurers offer premium credits and discounts for owners of "green" commercial and residential buildings, according to Ceres. In the U.S., that typically means buildings with Leadership in Energy and Environmental Design (LEED) or Energy Star certifications.
Green buildings are more resilient, Logan says. The idea is that green buildings are safer than conventional homes, reduce energy use and perform better in the long run, leading to a decrease in losses and greenhouse gas emissions. For instance, air conditioners and furnaces that don't run often are less likely to have mechanical breakdowns, said Janet Ruiz, a spokeswoman for the Fireman's Fund, which offers a 10% discount on yearly premiums for owners of LEED-certified homes. Fireman's Fund is a unit of SE.
Farmer's and Fireman's are also among companies offering eco-friendly homeowners insurance coverage following a total or partial loss. For an additional premium starting around $20 to $25 a year, policy holders can rebuild, say, a kitchen damaged by fire with upgraded Energy-Star appliances, lighting, electronic equipment and roofing.
Write to Jilian Mincer at jilian.mincer@dowjones.com and Shelly Banjo at shelly.banjo@wsj.com
Wednesday, April 15, 2009
Shippers face higher insurance as pirates run amok
LONDON – Shipping your oil across the Gulf of Aden? Don't forget your piracy insurance.
As a ragtag group of gunmen face off against the U.S. Navy near the coast of Somalia, industry-watchers say shipping companies already smarting from the global downturn are forced to pony up extra cash for steeper premiums to cover multimillion dollar ransoms or take the long way around African continent in the hope of dodging hijackers.
"The pirates were the only people who had a good year in 2008," said Crispian Cuss, a security consultant with the Dubai-based Olive Group.
The Gulf of Aden, which connects the Indian Ocean to the Red Sea and the Suez Canal, is one of the busiest and most dangerous waterways in the world. As pirates have become more aggressive, the cost of insuring ships has gone up. Some companies are spending more time training their crews, others are avoiding the area altogether — taking long trips around the Africa's southern tip that can potentially add millions to the cost of each journey.
While the coast of Somalia has been a problem for years, it was flagged in May as an area of particular concern by Lloyd's Market Association, and premiums have been rising — at least tenfold, according to some media reports. Neil Smith, the senior manager for underwriting for Lloyd's Market Association, has said the exact figures are commercially sensitive in a highly competitive industry.
Large ships generally carry three separate types of insurance. Marine — or hull — insurance covers physical risks, such as grounding or damage from heavy seas. A second type of policy, protection and indemnity, covers crew issues, while war risk insurance covers acts of war, insurgency, and terrorism.
Although war risk policies typically cover hijackings and piracy, insurers often charge extra for ships that venture into high risk areas such as the Gulf of Aden. Others, including Chicago-based Aon Corp. and London's International Security Solutions Ltd., have recently launched new plans specifically tailored to cover losses incurred by piracy — for example by including ransoms and cargo delays under the same policy.
The other option available to ship operators, taking the long way around Africa's Cape of Good Hope instead of the short cut through the Suez Canal, is also expensive.
Routing a tanker from Saudi Arabia to the United States through the Cape of Good Hope, for example, would add 2,700 miles to the voyage and boost annual fuel costs by about $3.5 million, according to the U.S. Department of Transportation's Maritime Administration. In addition, it said using that route would mean the ship could make only five round trips a year instead of six, cutting delivery capacity by 26 percent.
European economies stand to absorb most of any extra expense. The Maritime Administration says more than 80 percent of trade moving through the gulf is with Europe.
While some shipping companies, such the world's largest, Maersk, have decided to take their oil tankers around the Cape of Good Hope, others have been reluctant to shoulder the extra expense, according to Graeme-Gibbon Brooks, the managing director of Dryad Maritime Intelligence Service, based in the English port city of Southampton.
"We have had a couple of phone calls from people saying: 'It might well be safer to go around the Cape of Good Hope, but our competitors are not doing it,'" Brooks said. "The problem with any diversion, be it through the south of the cape or elsewhere, is that it's going to have a commercial impact which will ultimately be borne by the consumer."
But one analyst said the global downturn may be making the southern route more attractive.
"Because there are so many vessels plying the seas right now, it makes sense to take the leisurely way around Africa. ... You're removing capacity from the industry and helping to put upward pressure on freight rates," said Jim Wilson, the Middle East correspondent for Fairplay International Shipping Weekly magazine.
As a result, demand for fuel on the West coast of Africa has surged as more ships coming from the east need to refuel after circling the cape, he said. At the same time, Egypt's revenues from Suez traffic are down sharply from last year.
The pirate attacks have begun to spook some mariners. Noel Choong, head of the International Maritime Bureau's piracy reporting center in Malaysia, noted that the crew of one ship recently refused to travel from Mombasa, Kenya, to South Africa for fear of being attacked.
Still, as security consultant David Johnson noted, taking the long way around to avoid the Somali coast doesn't guarantee safety from pirates. The Saudi supertanker Sirius Star was captured by pirates six months ago while deep in the Indian Ocean, far from the pirates' traditional hunting ground.
"Whichever way you go you're going to run into pirate hotspots somewhere down the line," said Johnson, the director of U.K.-based EOS Risk Management.
Insurance companies have also taken note of the pirates' increased range:
"Until recently, insurers regarded vessels as being relatively safe if they kept a reasonable distance from the Somali coast," said Smith, the manager at Lloyd's Market Association. Writing in the February-March issue of Cargo Security International, he said the situation had now changed.
The latest pirate attacks come at a particularly challenging time for the shipping industry.
Dubai-based DP World, one of the world's biggest port operators, warned last month that a falloff in global trade that began late last year "shows little sign of easing" because of the global recession.
Drewry Shipping Consultants Ltd. recently predicted cargo container shipments globally will drop 4.5 percent this year following decades of constant growth.
___
Associated Press Writers Adam Schreck in Manama, Bahrain, and Sean Yoong in Kuala Lumpur, Malaysia, contributed to this report.
As a ragtag group of gunmen face off against the U.S. Navy near the coast of Somalia, industry-watchers say shipping companies already smarting from the global downturn are forced to pony up extra cash for steeper premiums to cover multimillion dollar ransoms or take the long way around African continent in the hope of dodging hijackers.
"The pirates were the only people who had a good year in 2008," said Crispian Cuss, a security consultant with the Dubai-based Olive Group.
The Gulf of Aden, which connects the Indian Ocean to the Red Sea and the Suez Canal, is one of the busiest and most dangerous waterways in the world. As pirates have become more aggressive, the cost of insuring ships has gone up. Some companies are spending more time training their crews, others are avoiding the area altogether — taking long trips around the Africa's southern tip that can potentially add millions to the cost of each journey.
While the coast of Somalia has been a problem for years, it was flagged in May as an area of particular concern by Lloyd's Market Association, and premiums have been rising — at least tenfold, according to some media reports. Neil Smith, the senior manager for underwriting for Lloyd's Market Association, has said the exact figures are commercially sensitive in a highly competitive industry.
Large ships generally carry three separate types of insurance. Marine — or hull — insurance covers physical risks, such as grounding or damage from heavy seas. A second type of policy, protection and indemnity, covers crew issues, while war risk insurance covers acts of war, insurgency, and terrorism.
Although war risk policies typically cover hijackings and piracy, insurers often charge extra for ships that venture into high risk areas such as the Gulf of Aden. Others, including Chicago-based Aon Corp. and London's International Security Solutions Ltd., have recently launched new plans specifically tailored to cover losses incurred by piracy — for example by including ransoms and cargo delays under the same policy.
The other option available to ship operators, taking the long way around Africa's Cape of Good Hope instead of the short cut through the Suez Canal, is also expensive.
Routing a tanker from Saudi Arabia to the United States through the Cape of Good Hope, for example, would add 2,700 miles to the voyage and boost annual fuel costs by about $3.5 million, according to the U.S. Department of Transportation's Maritime Administration. In addition, it said using that route would mean the ship could make only five round trips a year instead of six, cutting delivery capacity by 26 percent.
European economies stand to absorb most of any extra expense. The Maritime Administration says more than 80 percent of trade moving through the gulf is with Europe.
While some shipping companies, such the world's largest, Maersk, have decided to take their oil tankers around the Cape of Good Hope, others have been reluctant to shoulder the extra expense, according to Graeme-Gibbon Brooks, the managing director of Dryad Maritime Intelligence Service, based in the English port city of Southampton.
"We have had a couple of phone calls from people saying: 'It might well be safer to go around the Cape of Good Hope, but our competitors are not doing it,'" Brooks said. "The problem with any diversion, be it through the south of the cape or elsewhere, is that it's going to have a commercial impact which will ultimately be borne by the consumer."
But one analyst said the global downturn may be making the southern route more attractive.
"Because there are so many vessels plying the seas right now, it makes sense to take the leisurely way around Africa. ... You're removing capacity from the industry and helping to put upward pressure on freight rates," said Jim Wilson, the Middle East correspondent for Fairplay International Shipping Weekly magazine.
As a result, demand for fuel on the West coast of Africa has surged as more ships coming from the east need to refuel after circling the cape, he said. At the same time, Egypt's revenues from Suez traffic are down sharply from last year.
The pirate attacks have begun to spook some mariners. Noel Choong, head of the International Maritime Bureau's piracy reporting center in Malaysia, noted that the crew of one ship recently refused to travel from Mombasa, Kenya, to South Africa for fear of being attacked.
Still, as security consultant David Johnson noted, taking the long way around to avoid the Somali coast doesn't guarantee safety from pirates. The Saudi supertanker Sirius Star was captured by pirates six months ago while deep in the Indian Ocean, far from the pirates' traditional hunting ground.
"Whichever way you go you're going to run into pirate hotspots somewhere down the line," said Johnson, the director of U.K.-based EOS Risk Management.
Insurance companies have also taken note of the pirates' increased range:
"Until recently, insurers regarded vessels as being relatively safe if they kept a reasonable distance from the Somali coast," said Smith, the manager at Lloyd's Market Association. Writing in the February-March issue of Cargo Security International, he said the situation had now changed.
The latest pirate attacks come at a particularly challenging time for the shipping industry.
Dubai-based DP World, one of the world's biggest port operators, warned last month that a falloff in global trade that began late last year "shows little sign of easing" because of the global recession.
Drewry Shipping Consultants Ltd. recently predicted cargo container shipments globally will drop 4.5 percent this year following decades of constant growth.
___
Associated Press Writers Adam Schreck in Manama, Bahrain, and Sean Yoong in Kuala Lumpur, Malaysia, contributed to this report.
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