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To: Mike Johnston who wrote (51430)	1/25/2006 6:03:14 PM
From: shades	Read Replies (1) \| Respond to of 110194

=DJ Auto Insurance Price Cuts Could Mean War, or Tech Glitch . By Lavonne Kuykendall Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--When a major auto insurance executive said he saw clear signs that some auto insurers were setting prices below their costs, opinions varied on whether auto insurers are starting a price war or if some may be experiencing some problems with microsegmenting their potential customers. A Safeco Corp. (SAFC) executive raised the issue when he suggested Tuesday that an auto insurance price war is underway, with some insurers pricing too low to sustain a profit, at least in some segments of the market. Michael LaRocco, Safeco's president of product underwriting and claims, said during the company's fourth-quarter earnings call Tuesday that the company's new auto business was down 29% from last year's fourth quarter and that part of the reason was that some insurers were greatly undercutting Safeco's prices. "We are starting to see a few competitors showing more of a take-all-comers approach to nonstandard, things like no money down or offering discounts that we don't believe are actuarially justified," LaRocco said during the call. "We're also seeing a national competitor roll out products that seem to us to be significantly underpriced. In one state, at least, the pricing seems to be 30% low and they're achieving closure ratios of nearly 80% on business quoted." The comments helped drive stock prices down Tuesday for Safeco and auto insurers Allstate Corp. (ALL) and Progressive Corp. (PGR). Prices were under pressure again Wednesday, as Safeco fell 0.2% to $53.59 and Allstate dropped 1.4% to $50.56. Progressive gained 0.1% to $106.14, after losing ground during the session. All three stocks traded well above normal volume both days. LaRocco suggested two possible reasons for the low prices. "It could be something as simple as just misses or it could be something more planned, like buying business and hoping to hang onto it after the rate increases afterwards," he said. A Safeco spokesman said that LaRocco would not elaborate on his remarks. Some analysts discounted the scenario of insurers price-cutting to buy marketshare. Rather, increasingly sophisticated pricing technology technology could lead to some microsegments of customers getting prices that look irrational to the insurer's competitors, especially if they don't have all the same data. "It is possible that microsegmentation can be carried too far, but I think Safeco is taking a solo position saying on an industry-wide basis that there is a lot of severe price cutting," said Donald Light, an insurance analyst at research firm Celent LLC. Light called microsegmentation an effort to "get a finer tooth comb to decide what price to charge for a particular application." Many large insurers, including Safeco, have worked to fine-tune their pricing, and sometimes mistakes are made. Analyst Alison Jacobowitz of Merrill Lynch said in a Wednesday note that she understood that "the national company referred to by Safeco has already pushed for higher prices in at least one state," she said. "We sense that although some players appear to be irrational, many of the larger public companies are maintaining a certain level of discipline" and investors may have read too much into the remarks. But it is troubling for an insurer to offer prices so much lower than its competitors that it wins a vast majority of its quotes, said Fox-Pitt, Kelton Inc. analyst Gary Ransom. Winning 80% of its quotes should quickly tell an auto insurer "they are doing something wrong," he said. "Either that, or they will keep going the course until their losses teach them." One aggressive price cutter may tempt others to match those prices to hang onto their customers, he said. "No one benefits by doing this. It is an ephemeral dream that there is any benefit to getting marketshare by cutting price." Sandler O'Neill analyst Nick Pirsos said it is possible that Safeco's observations signal the start of a pricing war, at least in the nonstandard segment, but "we expect rating agency pressures, increased reinsurance costs, and higher capital requirements will prevent additional auto carriers from engaging in inadequate pricing during 2006," he wrote in a Tuesday note. Sandler O'Neill, Fox, Pitt-Kelton and Merrill Lynch make a market in Safeco. Merrill Lynch has provided Safeco investment banking services within the past year, and Sandler O'Neill expects to perform investment banking services for Safeco in the next three months.

To: Mike Johnston who wrote (51430)	1/25/2006 6:18:17 PM
From: GraceZ	Read Replies (3) \| Respond to of 110194

Almost no one would use gold as an indicator of the current rate of inflation. Just think if you used gold as an indicator all through it's 20 year bear market, you'd have understated inflation by a serious amount. Nor would most serious economists see the rate at 6%! People don't agree on what inflation is, but it does have a real definition. Where do you live, Manhattan? If one worked in the hospitality sector (a low productivity growth sector) and lived in a place where incomes have risen sharply over the years due to sharply rising levels of productivity as well rising net worth due to a steady influx of multi-generational wealth, like NYC or San Francisco, someone could have a very warped view of inflation.