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What’s New: In brief (August 08, 2006)


August 8, 2006   by Canadian Underwriter


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MFX has customized a fully integrated, online front and back-end policy processing system for Gateway Insurance Company of St. Louis, MO. Replacing existing technology, this new system integrates third party software with MFX’s WriteNow online underwriting system and its web-based claim handling system, ClaimsAssure. The system is provided under SecureSource, MFX’s data center outsourcing services. Brian Casey, senior vice-president for claims and litigation council at Gateway says Gateway has recently expanded into general liability and specialty areas including liability for roofing contractors. As an expanding company Casey says it is key Gateway has an internal front-to-back policy processing system. “In replacing our existing systems with MFX’s integrated solution, Gateway’s aims were increased efficiency and consistency while developing a more user-friendly system that could be better utilized by outside agents, inside claims people and financial managers,” Casey says. “We were replacing two separate systems for commercial and personal automotive lines that required two separate training programs and made performance reporting extremely difficult.” Casey says MFX has built safeguards into the system allowing outside agents stick to comply with the underwriting guidelines. Under the terms of the agreement, MFX will provide this new system to Gateway Insurance via an ASP- (applications service provider) based model. This enables subscriber-based usage, which can be controlled by Gateway, and also removes the need for costly investment in software licenses, hardware and experienced personnel that often make these types of projects cost-prohibitive.

A.M. Best Co. recently released a special report “Domestic Captives The Pace of Change Quickens” on captives that highlights existing concerns including the effect of rising interest rates and slowing economic conditions; increased volatility in equity markets; difficult fronting and reinsurance terms; and the increased competition from commercial carriers as numerous lines start to weaken in their traditional markets. In addition, the captive industry, as monitored by A.M. Best, has strengthened its capital base relative to the risks assumed. However, A.M. Best says the segment must still recoup from damage done in prior years, when surplus declined significantly while premiums and loss reserves grew substantially. Net premiums written grew by 47% over the five years through 2005, but only by 5.8% in the past year. Loss reserves and admitted assets grew by 45.8% and 37.4%, respectively, over the past five years. The industry maintained the pattern in 2005, with growth rates of 7.8% and 6.6% for these measures. Of concern, A.M. Best reports, is that while the aggregate growth in surplus kept pace in the past year with a 9.1% increase, the five-year cumulative growth was just 13%. This is an improvement from data reported by A.M. Best last year based on the 2000 through 2004 five-year period. If current trends continue, A.M. Best says the captive industry will build a stronger surplus base with which to negotiate better reinsurance terms and prepare for an eventual soft market cycle. The comparative overall industry gross and net leverage measures remain more aggressive than those of the captive companies and it appears captive industry leverage measures have shown some favorable movement, according to A.M. Best. Stockholder dividends exceeded contributed capital amounts in three of the past five years and A.M. Best says unrealized capital losses severely affected surplus in the years 2001 and 2002, while unrealized gains provided sizable boosts to surplus in 2003 and 2004. Though price firming in some segments already had occurred previously, the events of September 11, 2001, further hardened the commercial market, triggering pricing dislocations and coverage availability issues. This had the immediate effect of increasing fronting and reinsurance costs for captives, but it provided pricing and growth opportunities as well, according to A.M. Best. Overall, however, the ratings agency says throughout the period, underwriting results have been unfavorable, leading to a heavy reliance on investment income.


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