Global Insurance NewsBriefs

AIG FP - Why?

2009-04-30T16:33:00.002-05:00

Why Didn't the U.S. Government Simply Guarantee AIG FP's Products? It would have saved taxpayers a lot of money.

AIG: The World will soon be able to blame the U.S. Congress

2009-03-26T10:18:00.000-05:00

Be careful what you wish for. The big PR fuss over the AIG FP bonuses may cause unintended consequences.

If the talent at AIG’s FP unit begin to leave, who is going to be able to unwind everything? It seems that just a few people were involved with the credit default swaps that caused the problem in the first place. Most of the AIG FP people were involved in other products.

With all the noise Congress made over a relatively small amount of money (compared to the amounts being thrown at the problem by Congress), it appears that some key AIG FP employees are headed for the doors (i.e., AIG FP Paris).

If there is no one left to unwind things, the result may costs more than anyone ever thought possible.

Congress is going to be left holding the bag. I wonder how they will deflect this monument to poor judgment.

AIG’s D&O?

2009-03-18T07:15:00.000-05:00

Which insurers write AIG’s D&O?

AIG: Ratings were the Real Problem

2009-03-16T07:50:00.002-05:00

Putting aside the issue of whether or not AIG should have been offering 'insurance' to firms insuring against losses on securities (notably those related to U.S. mortgages), the principle reason this whole ting started was because AIG’s ratings were downgraded.

Pure and simple: Had AIG’s ratings not been downgraded, perhaps, just perhaps, the global downward economic spiral might not have happened.

Which brings up the point that AIG recognized the potential for disaster several years ago when it stopped writing this type of business.

AIG’s Counterparty List: To Disclose or Not to Disclose? That is the question.

2009-03-16T07:46:00.001-05:00

With everything that has been said concerning which companies benefited from the U.S. Government bailout, no one has mentioned that there may have been terms and conditions in these policy contracts that more or less forbids disclosure.

I used to write a policy which clearly stated:

“The Assured and Insured Person(s) must at all times use best efforts to ensure that knowledge of the existence of this insurance is restricted as far as possible.”

The principle reason for this important condition was to avoid the ‘moral hazard’ problem.

Moral hazard?

What does Moral Hazard mean?

The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

Moral hazard explained:

Moral hazard can be somewhat reduced by the placing of responsibilities on both parties of a contract.

The inclusion of such condition in one of these policies would explain why Ben S. Bernanke, the chairman of the Federal Reserve, has said “it is proprietary information.”

AIG Slashes Minimums

2009-03-01T19:38:00.001-06:00

It has been reported that AIG units are slashing prices across all lines in order to win business. As an example, they have reduced their minimum premium on mid-market packages to $1,500, from a previous $2,500, the industry standard.

You get purchase D&O, EPLI, Crime, K&R, and Fidelity for $1500!

This is outrageous. As taxpayers, we are subsidizing this irresponsible underwriting.

Why Insurers are Faring Better than Banks

2009-02-10T14:47:00.002-06:00

I was impressed by Bob Hartwig’s (President Insurance Information Institute) presentation to the Association of General Contractors Surety Bonding & Construction Risk Management Conference in Naples, FL today, so here’s my take-away:

There are important differences between insurers and banks. During this global economic crisis insurers around the world are operating normally, unlike banks.

Why? For two reasons: 1) Insurers have a superior risk management model; and, 2) insures have low leverage (i.e., they don’t rely on borrowed money to underwrite or play claims).

The reason insurers are faring better than their financial brethren on the bank side according to Dr. Hartwig is that insurers have a superior risk management model:

•Emphasis on Underwriting
Matching of risk to price (via experience and modeling)
Limiting of potential loss exposure
Some banks sought to maximize volume and fees and disregarded risk

•Strong Relationship Between Underwriting and Risk Bearing
Insurers always maintain a stake in the business they underwrite, keeping “skin in the game” at all times
Banks and investment banks package up and securitize, severing the link between risk underwriting and risk bearing, with (predictably) disastrous consequences—straightforward moral hazard problem from Econ 101

•Low Leverage
Insurers do not rely on borrowed money to underwrite insurance or pay claims. There is no credit or liquidity crisis in the insurance industry

•Conservative Investment Philosophy
High quality portfolio that is relatively less volatile and more liquid

•Comprehensive Regulation of Insurance Operations
The business of insurance remained comprehensively regulated whereas a separate banking system had evolved largely outside the auspices and understanding of regulators (e.g., hedge funds, private equity, complex securitized instruments, credit derivatives—CDS’s)

•Greater Transparency
Insurance companies are an open book to regulators and the public

Click here to read more about this.

Insurers to Take TARP $$ - Why? Why not!

2009-02-09T07:26:00.001-06:00

>Lake Forest, Illinois, February 9, 2009 – The Dow Jones Newswires report that insurance companies that applied for capital injections from the U.S. government's $700 billion bailout fund could get approval as early as today (Monday), according to the Reuters news agency, citing two unnamed sources (why is it always put this way?) familiar with the matter.Some insurance companies recently got approval to buy banks, which would allow them to participate in the government program, the report said.

The program is part of the government's overall Troubled Assets Relief Program, or TARP. Insurance companies could hear from the Treasury as soon as Monday about whether they are eligible for the injections, it said. Unless a company was really on the verge of ruin, why would a management team want the government looking over its shoulder? This flood of money in any other country would portend the nationalization of a portion of the insurance industry.

However, in the U.S., there are different standards at work. It goes something like this: Let’s take the money – why not, we can influence Washington to forgive the debt at a later time. Actually, it must be that they don’t feel the government can or will look at anything – their plates are full and the assembled group of elected officials don’t know anything about the business anyway.

It’s more or less, free money.

I Couldn't believe my eyes

2008-09-16T16:10:00.003-05:00

From my perch on the treadmill this afternoon, the television showed what I’ve been recommending since Robert Willumstad took control (this word has now taken on a different meaning) at AIG:

Hank Greenberg wrote to the new CEO at AIG, Robert Willumstad offering his help in return for nothing. AIG turned Greenberg down because he might ‘overshadow’ the CEO. Now what is that all about?

Check out StreetTalk ™ at http://www.isn-inc.com/ – titled – “Wishful Thinking…” (July 2) or go to the editor's blog at http://www.isn-inc.blogspot.com/ – same title.

This isn’t about saving face; this is about saving AIG; this is about working smart quickly to tackle a possibly solvable challenge with the right person(s) helping. Hank Greenberg is that person – he built the company from a small insurance company into the world’s biggest commercial insurance company – he knows where all the pieces are.

I hope the Board of Directors understands this. Put differences aside – this is too big, too important for too many people in too many countries around the world. We're talking about money and people here.

Get a grip - smart people do the right thing. So do real leaders.

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Top 10 Brokers?

2008-09-15T09:17:00.002-05:00

Does anyone have a list of the top 10 brokers in:

Japan
China
Hong Kong
Taiwan
South Korea
Malaysia

Info would be gratefully appreciated.

What is going to happen at AIG?

2008-09-12T14:52:00.000-05:00

The New York Times. 2008/09/12. Page C1 – This article reports that on September 25 Robert Willumstad, AIG’s chief executive, is expected to announce a master plan to turn the company around.

StreetTalk ™ has heard that AIG may, or not – it’s hearsay, place all its’ “at risk” (that business with potential challenges) into a new company leaving the old AIG with a clean slate. This makes some sense but what will the impact be on shareholders?

Since Willumstad succeeded Martin Sullivan as head of the company in June, AIG’s stock has declined by nearly 50 percent.

Aon Presents at Lehman Brothers – Webcast Replay Available

2008-09-12T14:10:00.001-05:00

Recommend listening – Gregory C. Case, president and chief executive officer of Aon Corporation, made a presentation at the Lehman Brothers Global Financial Services Conference in New York on Tuesday, September 9, 2008. The presentation was impressive. Mr. Case's presentation will be available via live webcast. Interested parties can access a replay at http://www.aon.com/. It will be archived for up to 90 days.

Tune in to www.isn-inc.com for insurance news from around the world. For more in-depth coverage including special reports, subscribe to the Insurance Research Letter – available on-line at https://www.inc.com/members/subscribe

Stadium Naming Rights?

2008-09-12T13:30:00.000-05:00

Should Allianz who supported the Nazi war effort be allowed to put their name on the new Giants/Jets stadium in NJ? (The New York Times. 2008/09/12. Page D2.)

Aon Buying Benfield is Significant

2008-09-11T14:18:00.000-05:00

It’s been reported, though not confirmed, that Marsh didn’t get its’ act together fast enough to acquire Benfield before Aon, led by Greg Case, stepped in and closed the deal – BTW, making the guys in London a great deal of money. Aon is spending more to buy Benfield than it spent to acquire Alexander & Alexander! But it may well be worth it – with an estimated $2 billion in revenue who could possibly catch them.

Michael O’Halleran, top man of Aon Re Global, will have his hands full – capable hands, for sure, but this will take some time to integrate – if that’s the operative word – word has it that that this is a good business match – complimentary specialties, no conflicting client lists.

Someone suggested to that Rodman “Rod” Fox may be standing on the sidelines to start anew reinsurance brokerage with any people who may leave the new Aon Benfield.

Some background (not all of it – don’t ask) on Rod Fox – try and follow this – Rod Fox, worked for Ted Blanch @ E.W. Blanch for 15 years eventually becoming President and COO; joined Benfield in 2000 as a director of the group and CEO of Benfield Greig; Then in 2006, after a spell in the wilderness, was hired by Hannover Re to run its U.S. subsidiary Clarendon Insurance Group – which the German insurer spun off and it morphed into Praetorian where Fox was the CEO; something happened, and now Fox is CEO of New Asset Class – a specialty provider of property catastrophe risk management and underwriting services that utilizes proprietary technology and advanced analytics). Some people step in mud, this man steps into pots of gold……..

Tune in to www.isn-inc.com for the latest insurance news from around the world. For more in-depth coverage including special reports, subscribe to the Insurance Research Letter – available on-line at https://www.inc.com/members/subscribe

What's next at AIG?

2008-07-02T12:18:00.000-05:00

Wishful Thinking……

In a world full of odd occurrences, nothing should be unexpected.

That AIG top man Martin Sullivan was forced out after several quarters of exceptional losses is not surprising given the magnitude of the losses coupled with Wall Street’s impatience and lack of deep understanding. To me, this demonstrates former U.S. President Harry S. Truman’s famous statement, “The buck stops here”, is alive and well – Martin Sullivan took the fall. In fairness, there is simply no way that Marty Sullivan could possibly know everything there was to know about AIG. Only one man knows.

That former Citigroup President and Chief Operating Officer Robert Willumstad and current AIG board member (since 2006) was selected to take over the reins of the far-flung AIG empire was not unforeseen. On July 15, 2005, Mr. Willumstad announced his intention to leave Citigroup after being passed over for the top job saying that he wanted to run a public company.

Well, now here’s his opportunity to show what real leadership looks like. If Mr. Willumstad has the backbone a real leader is supposed to have, he will ask Hank Greenberg to return to AIG and help him sift through its various businesses and relationships that the insurer (i.e., MRG) forged over the past decades.

Please, Mr. Willumstad, beg if you must – it’s without doubt the smart thing to do.

Insurance Research Letter

2008-05-13T15:03:00.000-05:00

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