USF&G disputes consumer study

October 19, 1990

The head of USF&G Corp. said a recent study by Public Citizen, a consumer group founded by Ralph Nader, is an effort by the group to bring about federal regulation of the insurance industry.

"By establishing doubt as to the effectiveness of state regulators to prevent insolvencies, Public Citizen hopes to create greater support for federal regulation of our industry," said Jack Moseley, chairman, president and chief executive officer of the company.

Baltimore-based USF&G, the parent company of United States Fidelity and Guaranty Co., was one of five insurance companies cited by the Public Citizen study as being in shaky financial condition. The other companies were Aetna, American International Group, Hartford Insurance Group and Liberty Mutual.

In a written response yesterday, Moseley contended that Public Citizen is trying to "undermine the McCarran Ferguson Act and state regulation of insurance." The act, passed in 1945, exempts bTC insurance companies from some antitrust laws and gives states the right to regulate insurers.

"In using Monday's fear tactics, Public Citizen hopes to unite insurance consumers behind it. They missed their mark," Moseley said. He said the report involved "gross misrepresentation of data and inappropriate conclusions."

Robert Dreyfuss, a spokesman for Public Citizen, denied use of "fear tactics." He said the group stands by the report and said it was written in lay terms so it could be easily understood.

Moseley said the response to the report "has caused much confusion at a time when our economy can least afford it."

Company officials also criticized a headline in Tuesday's Evening Sun. The headline, which appeared on a story about the report, said the consumer group predicted that a severe downtown could "wipe out" USF&G. The company said the "verbiage used to describe such an amateur-hour report caused a lot of unnecessary worry for local policyholders and stockholders as well as employees."

Moseley said USF&G is a "financially strong organization" as evidenced by high ratings by A.M. Best, a national insurance rating agency. He said Best uses 86 tests to evaluate financial strength. Public Citizen only used six tests.

He said the conclusions of Public Citizen were "unsubstantiated and hypothetical in nature."

"For example, one test is based on swings in net premiums written and concludes that any company with significant swings is following 'troublesome business practices,' which could lead to future cash flow problems," Moseley said.

"This premise is absurd," he said. "The property/casualty underwriting cycle is an expected phenomenon that affects large commercial lines underwriters such as USF&G and other competitors. Adjusting premium volume to match market conditions is actually a prudent business decision. To conclude that a test such as this could indicate the potential for insolvency is irresponsible.

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