Blanco pitches key property insurance company
Insurance Afficionados,
Just a reminder of the power relationship between a company like St. Paul Travelers Cos. and a state like Louisiana. Read these two paragraphs, please:
“St. Paul Travelers officials sat through hours of presentations from state officials who argued that southeast Louisiana’s infrastructure has been strengthened since Hurricane Katrina, with sturdier homes, expectations of improved levees and plans to preserve the coastline.
Insurance Commissioner Jim Donelon said Travelers officials promised to relay highlights of the discussion to company chiefs at the company’s St. Paul, Minn., headquarters.”
To catch you up, “Blanco” is the governor of Louisiana, Kathleen Blanco. Travelers has said it intends to essentially leave the commercial market around New Orleans, a move that dramatically reduces insurance supply, pressuring rates upward and forcing the state-owned insurer to take on the riskiest commercial risk. These risks, I’m guessing here, include oil rigs, commercial fishing operations, hospitals, the basics of the economy. That would leave Travelers with the good stuff inland in the rest of the country.
So, Travelers agreed to sit for hours to consider pleas that it sell its products in Louisiana again. I thought it was generous of its executives to offer to “relay highlights of the discussion” back to the “chiefs” up in bustling St. Paul, Minn., way up the Mississippi River, hundreds of miles away, practically another country. The chairman and CEO is someone named Jay Fishman, who headed Travelers when it still belong to Citigroup Inc. The board includes Ken Duberstein, who was Reagan’s chief of staff in 1988 and 1989, a bunch of Wall Street guys, along with, for some reason, a doctor, plus the woman, I mean, a woman.
More seriously, a rhetorical question: Who has the leverage here 1. Regulated or regulator? 2. Seller or buyers, who need state intervention to win the ability just to buy the product, never mind the price or the terms?
And remember, Travelers(1) is one of three insurers (the others are Allstate and Louisiana Citizens, administered then by an A.I.G. unit) whose post-Katrina behavior triggered so many complaints that Donelon (the guy up there pitching Travelers for hours) ordered a rare market-conduct exam conducted by an outside firm. That report is due in February. I don’t know who the contractor is, but I’ll find out. I’m afraid I don’t want to know.
http://www.nola.com/newsflash/louisiana/index.ssf?/base/business-4/1165367398247340.xml&storylist=louisiana
click here to read the story
(1) ‘05 net income: $1.622 billion.
‘05 third (Katrina) quarter net: $162 million.
‘06 third quarter net: $1.043 billion (2).
(2) Sometimes I think Insurance Notes! is turning into a tip sheet for insurance stocks.
Private note to Alabama Alum: Still wondering what’s wrong with state-based insurance markets?
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December 6th, 2006 at 10:15 am
I like that bit where ‘expectations’ and ‘plans’ are used to evidence that something has been strengthened. It reminds me of an old Monty Python skit in which a famed hypnotist is put to work ‘constructing’ large blocks of housing.
December 6th, 2006 at 10:12 pm
There is something truly sad about the image of a governor (especially a woman governor, and a Democrat) begging corporate minions to please, please, PLEASE keep playing in the sandbox. Shouldn’t the LA officials have been looking those “company chiefs” square in the eye? In St. Paul if necessary?
And yes, I agree about the investment tips. I’ve thought several times reading these postings that the truly cynical thing to do would be to run right out and buy insurance stock….
December 7th, 2006 at 5:32 am
Thanks, both.
EA, I obviously agree there’s something out-of-whack when the state, which is the regulator of Travelers, is to some degree at its mercy. This cannot give confidence to policyholders hoping for action against Travelers on their claims.
The gender/political point is well taken. I’d also say it probably pays better to be a shareholder than a policyholder.
December 7th, 2006 at 12:46 pm
I can’t tell if this is worse than taxation without representation.
January 30th, 2007 at 10:55 am
[…] Blanco says she was encouraged by the outcome of a two-hour pitch session with St. Paul Travelers Cos.’ executives in December that resulted in the commercial carrier partly reversing a decision to pullback from the market. […]
February 26th, 2007 at 10:44 pm
[…] Listen, this Rating Commission debate is of a piece with what I call the Louisiana Model or the PowerPoint approach, a reference to Governor Blanco and Commissioner Donelon’s dogged efforts to sell the market on the state’s efforts to make itself more attractive by reinforcing levees, stiffening building codes, dropping regulation, allowing price hikes, and what have you. […]