2nd Financial Rating Service Predicts Harm in Prop. 103

Moody’s Investors Service, echoing concern expressed by another leading financial rating firm over the financial consequences of Proposition 103, said Thursday that some property-casualty insurance companies could face long-term problems if the initiative takes effect.

Moody’s, a New York-based firm that rates the financial soundness of corporations, said insurance companies that write a substantial amount of private automobile policies would be especially vulnerable to financial difficulties. But it said the effect on companies that primarily offer commercial lines of insurance should not be significant.

The rating firm said that “premium rates for many commercial lines are currently below the levels that would be required under the proposition.”

Under the controversial measure approved by California voters last week, the insurance industry was ordered to roll back rates to levels 20% below those of Nov. 8, 1987. But implementation of the initiative has been barred by the state Supreme Court while it considers legal challenges filed by insurers.

Moody’s noted that of the 20 largest property-casualty insurance groups, 14 conduct at least 10% of their business in California. Among those, Farmers, United Services Automobile Assn., Allstate and State Farm have a substantial amount of business in personal lines of auto and property-casualty insurance, Moody’s said.

Moody’s evaluation came nearly a week after Standard & Poor’s Corp., another financial rating firm, said implementation of Proposition 103 could damage several major insurance companies’ financial strength and lead to a downgrading of their credit rating.

Stopped Writing Policies

As of Nov. 14, about 15 of 35 firms surveyed by the Independent Insurance Agents and Brokers of California had stopped writing new auto insurance policies.

One of the latest was GEICO.

One day after announcing that it had begun to offer new car insurance only through a subsidiary that would charge a higher rate, Government Employees Insurance Co. announced Thursday that all of its affiliates have ceased writing new automobile and property policies.

“It is simply not possible for us to reduce rates a further 20% when we are currently writing insurance at an inadequate rate,” William B. Snyder, chairman of GEICO, said in a statement. “Our responsibility to our policyholders in all states makes it impossible for us to continue business as usual in California while the present situation lasts.”

Snyder said the decision would be re-evaluated after the California Supreme Court reaches a final decision on Proposition 103.

GEICO said it sent a letter informing state Insurance Commissioner Roxani M. Gillespie of its decision.

Neither Moody’s nor California Department of Insurance officials could be reached for additional comment late Thursday.

Meanwhile, the state Supreme Court gave attorneys for the Proposition 103 campaign until Tuesday to submit arguments on the court’s blocking of the insurance initiative and the possible constitutional review it will undertake of the measure. The court also said attorneys for other parties, including the insurance industry, would have until Nov. 28 to respond to the briefs.

The action indicates that the court’s stay of Proposition 103 will last at least another two weeks.