Insurance CEO Pay

The hurricanes of 2004 and 2005 are long gone, but they left a lasting gouge on the property insurance market along the Gulf Coast. Insurance companies have raised rates, dropped thousands of policyholders and, in some cases, even stopped writing new business in the region, generally on the grounds that they must cut their potential losses from future storms.

But there is little sign the belt-tightening extends to top executives at those firms, when measured by pay. Since Hurricane Ivan struck in 2004 many industry leaders have enjoyed handsome boosts in compensation, according to public records reviewed by The Press-Register of Mobile. The companies defend their pay practices, offering a variety of reasons for the increases, such as strong corporate performance and pay scales at similarly sized firms.

At State Farm, which announced in February it was dropping homeowner coverage for some 2,600 policyholders in Mobile and Baldwin counties, Chairman and Chief Executive Officer Edward Rust Jr. collected about $11.7 million in salary and bonus last year - more than double the $5.5 million he received in 2004. Other top executives shared in the wealth. Michael Tipsord, the company's chief financial officer, made almost $5 million last year, compared with $1.1 million in 2004.

At Alfa Insurance Corp., which is dropping wind coverage for 4,600 coastal policyholders in Alabama, President and CEO Jerry Newby's compensation package last year totaled about $1.7 million, up by more than one-quarter since 2004. For chief executives at California-based Fire Insurance Exchange and Texas-based USAA, two other leading writers of homeowner policies in the state, the percentage increases in compensation during the 2004-06 time frame were about 75 and 150 percent, respectively.

The Press-Register obtained the numbers from the Nebraska Department of Insurance, which requires all insurers licensed in the state to report the total compensation of their 10 highest-paid executives each year. Of the leading homeowner-insurance providers in Alabama, the Nebraska agency lacked complete records for only one, the Automobile Insurance Company of Hartford.

At State Farm, which was Alabama's leading property insurer last year with almost 30 percent of the market, compensation "has been very modest compared to companies of our size," spokesman Phil Supple said. While the Illinois-based insurance giant ranked 22nd last year on Fortune magazine's list of the top 500 companies in the United States, Rust's compensation placed 124th, Supple said.

He also saw no connection between State Farm's executive pay scale and its efforts to limit exposure to future hurricane losses.

"That, in a way, is what's called good business," he said on the latter subject. "You need to make sure that you don't overextend your company and harm its financial strength."

Echoing that argument was Dave Rickey, a spokesman for Alfa, whose headquarters are in Montgomery. "We're always looking at the risk ahead, not necessarily what's happened in past years," Rickey said. He did not know all the factors behind the jump in Newby's compensation. About one-third came from salary and bonus increases; the remainder resulted from a boost in "all other compensation," according to Alfa's latest filing with the Nebraska insurance department. That category may include everything from stock options to long-term disability reimbursement, Rickey said.

One industry critic saw the growing pay packages as evidence of an industry awash in cash.

"They're making so much money, they've got to spend it somewhere," said Robert Hunter, director of insurance for the Consumer Federation of America, an advocacy group. "Why not spend it on themselves?"

In a study released early this year, Hunter concluded the property and casualty insurers garnered record profits of about $60 billion last year. At the same time, in a continuation of a trend dating to the late 1980s, claims payouts by the top 10 insurers fell to 52 percent of total premium revenue, the report estimated.

One partial exception to the trend of skyrocketing executive pay was Illinois-based Allstate Insurance Co., which has taken steps to drop between 9,500 and 10,000 homeowner policies in Alabama, according to the state insurance department. Chief Executive Edward Liddy's total compensation fell by almost one-third between 2004 and 2006. Still, his pay package, including stock options, last year amounted to about $20.1 million.

That figure, which comes from the company's filing with the Nebraska insurance department, is almost $4 million lower than Allstate reported in a proxy statement to the U.S. Securities and Exchange Commission earlier this year. Company spokeswoman Laura Strykowski could not explain the discrepancy. Liddy stepped down as Allstate's CEO at the end of last year, while keeping the chairman's post.

Of the nine other Allstate executives listed in the latest Nebraska report, seven had seen their compensation rise since 2004, sometimes significantly. For Robert Pike, executive vice president and secretary, last year's total added up to $11.1 million, well more than twice what he had earned two years earlier.

Allstate ties executive compensation to performance, Strykowski said. "With a superior year of performance in '06, Allstate's executives were paid superior levels of compensation," she said.