The latest draft technical specification for QIS5, the fifth Quantitative Impact Study of Solvency II, reveals that local politicians rather than CEIOPS are the real decision-makers when it comes to decisions on capital adequacy ratios and other CEIOPS recommendations, claims Keefe, Bruyette & Woods analyst William Hawkins. KBW said that the development shown in QIS5 was generally good for the insurance industry, with the EC's cover note displaying a number of points on which the EC has effectively overruled CEIOPS. Annex 1 of the EC cover note displays a number of changes to the CEIOPS recommendations, because of a "Policy decision". Mr Hawkins said that "we believe these two words highlight what we have always emphasised about the real power in the decision-making process lying with the EC and – implicitly – local politicians", adding that "we believe that much focus on the Solvency 2 consultation process to date has over-emphasised the role of CEIOPS in the process". KBW predicted that decision-making by politicians rather than number crunchers would generally be good news for insurers. On the technical side, KBW noted that the capital charge for equity investment had been reduced from 45% to 39% for global equities, and that the volatility shock had been reduced. CEIOPS has also increased its allowance for diversification of risk. The spread risk capital requirement has gone up, but there is a duration cap of seven years. On the risk-free rate, the EC has basically sided with the industry rather than with CEIOPS, with the basic rate referred to the swap curve rather than the government yield curve, and an acknowledgement that there needs to be some form of adjustment for a liquidity premium.

US lawmakers would commit "significant policy error" if  they decided to subject p/c insurers to bank-style regulation in their efforts to overhaul regulation of financial services, Insurance Information Institute president Robert Hartwig said Wednesday. Economist Hartwig said that "bank-style regulation could needlessly raise insurance costs for hundreds of millions of insurance consumers and would unfairly require insurers to subsidies the reckless lending practices and speculative activities of failed banks". Noting that the US p/c insurers claims-paying capacity rose 11.8% to $511.5bn last year, Dr Hartwig said that "the resilience of the p/c insurance industry during time of extreme distress and volatility in the global economy and financial markets truly sets p/c insurers and reinsurers apart from the rest of the financial services industry". Including p/c insurers into sweeping financial reforms would be misguided because, as p/c insurers have noted, "they were not the cause of the [financial] crisis and the industry does not pose a systemic risk to the financial system", he said. "No p/c insurer failed because of the financial crisis, compared to more than 200 bank failures to date".

German reinsurer Hannover Re said at the weekend that it anticipates a "large claim" as a result of the sinking of the Deepwater Horizon oil rig last week. It said that a precise analysis was not yet possible. A "large claim" is one that is likely to cost Hannover Re more than €5m ($6.8m), the company said. Meanwhile, a statement last week from the US Coastguard that the sunken rig did not appear to be leaking oil appears to have been optimistic. Up to 1,000 barrels, 42,000 gallons, a day are now thought to be leaking into the Gulf of Mexico, although current winds are not pushing it into the Louisiana coast. The Transocean rig is contracted to BP, which has sent ships and aircraft to contain the slick. However, poor weather over the weekend stopped dispersal work. The slick currently covers about 400 square miles of sea. The 11 people missing after the blast are now presumed dead. Deepwater Horizon was about 52 miles southeast of Venice, Louisiana, when the explosion occurred last Tuesday.

US p/c group Travelers Cos has posted Q1 net income of $647m, marking a decline of 2.3%, as record disaster-related claims erased improved investment results. The New York-based group's underwriting income for the period fell to $155m from $465m, as catastrophe related losses, net of reinsurance, jumped to $471m from $83m. The increase in cat losses was largely tied to winter storms in the eastern US and the Chilean earthquake, making it "an unusually significant catastrophe quarter for Travelers", said chairman and chief executive Jay Fishman. "We were faced with an exceptional number of claims". He told analysts in a conference call that "renewal rate gains remain positive in each of our business segments, retention was strong, and new business in total remained on par with last year's quarter". With the jump in cat losses, Travelers' combined ratio rose to 96.4% from 90.6%, as net earned premiums fell 1.3% to $5.23bn. The rise in cat losses offset a 39% increase in investment income to $753m and a swing to realized investment gains of $25m from year-earlier losses of $214m. Despite the unexpected jump in Q1 cat losses, Travelers is sticking with its previous projection for full-year 2010 earnings to be in a range of $5.20 to $5.55 a share. It raised its quarterly dividend by 9¢ to 36¢ a share. Meanwhile, Travelers said that it had received 52 claims from customers relating to faulty drywall manufactured in China, none of them "significant" in terms of potential payment. It said that it had no direct liability exposure to the companies that manufactured the drywall; it had one general liability policy on a major public residential contractor.