Court deals blow to insurers in America

NEW YORK - Property and casualty insurers active in the United States have suffered a serious blow with this week's decision by California's Supreme Court upholding the state's controversial caps on profit margins, writes Larry Black.

The court unexpectedly ruled that the 10 per cent cap and a dollars 1bn customer rebate imposed by the state in 1991 were both constitutional.

The regulations, fiercely opposed by the insurance industry, were the result of a 1988 referendum in California on soaring car and property insurance premiums.

None of the UK firms active there - notably the Farmers subsidiary of BAT, General Accident and Royal Insurance - was directly affected by the ruling, either having been exempted from the 20 per cent rate rollback in 1991, or having reached a settlement with the state's insurance commissioner.

'We've never received a rollback order, and believe our rates have always been fair,' John Millen, a spokesman for Farmers Group in Los Angeles, said.

'The danger with this ruling is that this means they can now issue more (rollbacks).'

Analysts say the decision will almost certainly encourage similar measures in other American states. Some 13 states now have elected insurance commissioners on the Californian model.

'They are almost certainly anticipating demands for similar rollbacks from their constituents,' said Jack Snyder, vice-president of AM Best, an insurance industry rating agency.