Philly Deals: Risk managers note a big year for catastrophes

A tornado that hit Hempfield Township, Pa., in March was part of “a global record for natural catastrophes” in 2011. The Risk Management Society is holding its annual conference in Philadelphia this week. BARRY REEGER / Tribune Review

“You can’t get a ho­tel room in Philadelphia this week. We’re having to put peo­ple at the air­port, and over in Jer­sey,” says John Beau­champ, who weighs and prices weath­er dam­age and oth­er en­vi­ron­men­tal risks for companies as an un­der­writ­er in the Philadelphia of­fice of London-based spe­cial­ty in­sur­er Beazley Group.

He’s talking about RIMS 12, the New York-based Risk and Insurance Management So­ci­e­ty’s an­nu­al con­fer­ence at the Pennsylvania Convention Center, which has col­lect­ed crowds of pros who track floods, fires, storms, fi­nan­cial fraud, med­i­cal-data se­cu­ri­ty, fear of ter­ror­ism, glob­al warming, and oth­er mod­ern ills for their living.

There’s plen­ty to talk about, says Beau­champ: “2011 was a glob­al re­cord for nat­u­ral catastrophes. Tsu­na­mi, earth­quake, tor­na­does. We had a lot of rain. It was a sub­stan­tial year. So carriers are looking at their risk modeling and start­ing to shift the prop­er­ty in­sur­ance mar­ket.”

Still, the long-awaited “hardening” of prices has not reached the point where consumers will notice they’re paying more, says Nicho­las Economidis, Beachamp’s col­league at Beazley. Today’s low in­ter­est rates make life tough for insurers. When investments are prof­it­able, underwriters can cut prices and make it up from the mar­ket. Low yields leave them scrambling.

Last month, as lo­cal underwriters gathered at Philadelphia Insurance Day, a kind of re­hears­al for the larger na­tion­al gathering, “the big top­ic of con­ver­sa­tion was the prop­er­ty mar­ket: ‘If this continues we will see dras­tic changes.’ But what if it was just a one-year anom­a­ly?” asked Beauchamp.

The warm win­ter, the latest Plains tor­na­does, make it look as if there’s more to come. Amer­icans may have to choose be­tween paying more to live at the Shore and oth­er weath­er-sen­si­tive places, and evacuating for higher, cool­er ground — though, as investors say, past per­for­mance is no guar­an­tee of fu­ture results.

RIMS is a big na­tion­al con­fer­ence that has also been in New York, San Francisco and Chi­ca­go. “Philadelphia is still very much an in­sur­ance town,” still home to Ace Ltd.’s former Insurance Co. of North America busi­ness and a lot of smaller, specialized underwriters, even if head­quar­ters companies like Cigna, Gen­er­al Ac­ci­dent and Re­li­ance “have moved on,” says Economidis.

Owners want more

Gov. Corbett’s in­sur­ance com­mis­sion­er, Mi­chael Consedine, brushed aside complaints from ri­val suit­or Liberty Mutual and lawsuits by policyholders and share­hold­ers who said they were not getting a good deal, and on Mon­day approved Na­tion­wide Mutual Insurance Co.’s planned acqui­si­tion of Harleysville Mutual Insurance Co.

Harleysville Mutual policyholders still have to vote on the deal. And the courts have yet to rule on all the lawsuits, whose brief his­to­ry filled six pages of a Securities and Exchange Commission filing by the group’s for-prof­it af­fil­i­ate, Harleysville Group Inc., on Mon­day.

Two share­hold­ers sued Harleysville Mutual and Na­tion­wide in Chan­cery Court in Dela­ware, alleging the companies undervalued the deal; six policyholders filed Com­mon Pleas Court suits in Pennsylvania against Harleysville Mutual, arguing that mu­tu­al directors who also sit on the board of Harleysville Group fa­vored them­selves and oth­er share­hold­ers over policyholders when they voted to ac­cept Na­tion­wide’s of­fer of $60 a share for their in­ter­est in the mu­tu­al, while giving the mu­tu­al’s policyholders no cash.

In­dus­try observers Brian Sul­li­van, a one­time Inquirer re­port­er who edits Cal­i­for­nia-based Risk In­for­ma­tion Inc., and Da­vid Schiff, retired pub­lish­er of Schiff’s Insurance Ob­serv­er, said pre­vi­ous sales of Pennsylvania mutuels were slowed by lit­i­ga­tion un­til buyers agreed to pay cash to policyholders — the mutuels’ owners.

Harleysville and Na­tion­wide in­sist that they are act­ing with­in their rights un­der Pennsylvania law and that the merg­er will leave Harleysville policies better funded than staying in­de­pen­dent; Consedine agrees. The pol­i­cy­hold­er suits are the sub­ject of a scheduled Philadelphia Com­mon Pleas Court hearing on Thurs­day and Fri­day to con­sid­er an in­junc­tion that could slow the sale, which would strength­en the plaintiffs’ case.

Con­tact col­um­nist Jo­seph N. DiStefano at 215-854-5194, or @PhillyJoeD on Twit­ter.