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Advisen Weekly News Update: News Weekly Wrap Up For Period Ending June 26, 2009
Publication Date:
06/28/2009
Source:
Advisen
News Weekly Wrap Up For Period Ending June 26, 2009
News Weekly Wrap Up For Period Ending June 26, 2009
Advisen
WEEKLY
NEWS
WRAP-UP
VOLUME 8
Week 26 (June 22, 2009
– June 26, 2009)
This
Week’s Focus:
AIG
Reinsurance
Regulation
Markets and Producers
AIG
AIG Spins Off 2 Units
to Cut Debt. American
International Group Inc. said it will reduce outstanding U.S. loans
by $25 billion by giving the government a preferred stake in two life
insurance subsidiaries – American International Assurance Co. (AIA
Group) and American Life Insurance Co. (ALICO). The Federal Reserve
Bank of New York will receive preferred interests worth $16 billion
in AIA Group and $9 billion in ALICO, which will eventually be
independent companies once a public offering is completed. The stakes
will cut AIG's outstanding debt to $15 billion from $40 billion, and
reduce the size of the credit facility available to AIG from the bank
to $35 billion from $60 billion. AIG, which first discussed a
possible spinoff or outright sale of the two divisions in March, will
continue to hold common and preferred stakes in the two SPVs. It will
raise additional capital, which could be used to further reduce the
government loans, once it sells common shares in the two life
insurers. AIG added the timing for the public offerings would depend
on market conditions. AIG has previously said it also plans to spin
off AIU Holdings, its property and casualty insurance business.
(Source: “AIG moves to spin off 2 units, reduce US debt,”
Associated Press, 06/25/2009)
Four Companies Freed
From AIG Shareholders Suit. Delaware
Chancery Court Judge Leo Strine dismissed claims against Berkshire
Hathaway Inc.; its General Reinsurance Corp. subsidiary; Marsh &
McLennan Cos.; and Ace Ltd. that accused them of helping American
International Group Inc. deceive investors in overstating its
finances. Strine wrote, "In this context there is no societal
interest in making sure that each party gets its 'fair' share of the
conspirators' societally unfair bargain. Last year, Strine approved a
$115 million settlement between plaintiffs in the suit and former AIG
head Maurice Hank Greenberg and other former AIG officials. One
former executive of AIG and four from General Re, a member of the
Berkshire Hathaway Insurance Group, were convicted in connection with
a fraudulent finite reinsurance transaction between Gen Re and AIG.
(Source: “Several Companies Dismissed From AIG Shareholders Suit,”
BestWire Services, 06/22/2009)
Reinsurance
Upcoming Reinsurance
Renewals Dimmed by Global Financial Crisis. The
global reinsurance market’s critical negotiating season leading up
to January 1 renewals will kick off at Rendez-Vous in September, but
as reinsurers and insurers head into Monte Carlo, they may well be
less certain of the ground they stand on than in any season in recent
memory. Reinsurers and primary insurers don't appear to have any
leverage over each other as both sides have been hammered by
investment losses since the global recession took hold last year,
putting a premium on underwriting performance. The currency effect
can be seen among Lloyd's reinsurers, where the deprecation of the
British pound against the U.S. dollar since mid-year 2008 has created
problems for Lloyd's reinsurers with a lot of dollar-denominated
business. About 60% of Lloyd's total business is written in U.S.
dollars, while capital requirements have to be met in British pounds.
While market capital was up slightly in sterling terms for 2009,
capacity fell by about 24% in U.S. dollar terms. The outlook for
pricing has improved in recent months as the pound regained some
ground, but volatility is still the worry as banking problems,
government actions and a possible deepening of the recession all can
send the pound plunging. While catastrophe events are always a big
potential factor affecting reinsurers, uncertainties over
government-backed hurricane pools and the weather itself mean the
market will just have to wait and see what happens. This year,
reinsurers may be more at the mercy of the global financial crisis
than anything else this year, and hence less in control of their own
fates. The crisis has had a "considerable effect" on
reinsurers' capital positions, which were down by 15% to 20% coming
into 2009, according to Andrew Appel, chief executive of reinsurance
broker Aon Benfield. This impact was "far greater" than any
catastrophe loss in 2008, Appel said told BestWeek Europe. (Source:
“The Global Financial Crisis Is Clouding the Picture for Upcoming
Reinsurance Renewals,” BestWire Services, 06/22/2009)
Offshore Reinsurance
Tax Debate Heats Up. As
Congress prepares to break at the end of June for the July Fourth
holiday, the insurance industry is bracing for the possible
introduction of legislation that could change how offshore reinsurers
are taxed. The Coalition for a Domestic Insurance Industry supports
the legislation, saying it would close a tax loophole that favors
U.S. companies that set up affiliated reinsurance operations
overseas. Otherwise, they say, other U.S. companies will establish
offshore affiliates to move premiums out of the United States, which
could threaten the future of the domestic insurance market. The
coalition is made up of 14 U.S. companies, including W.R. Berkley,
Berkshire Hathaway, Chubb Cos., Hartford Financial Services Group,
Liberty Mutual, Markel Corp., Safeco Corp., Travelers Cos. and Zenith
Insurance Co. On the other side, the Coalition for Competitive
Insurance Rates says the proposal would be bad for consumers. They
say it is a punitive tax that would result in a reduction in capacity
and higher insurance prices. The Coalition for Competitive Insurance
Rates includes the Risk and Insurance Management Society and consumer
groups such as the Florida Consumer Action Network, as well as
international organizations such as the Association of Bermuda
Insurers and Reinsurers and insurance companies including Fireman's
Fund Insurance Co., Munich Reinsurance America, XL America and Arch
Capital Group Ltd. U.S. Rep. Richard Neal, D-Mass., introduced the
legislation, H.R. 6969 last year, which would have limited deductions
for related-party reinsurance cessions to the average percentage of
premium ceded to unrelated reinsurers. The bill died when Congress
adjourned last year, but Neal is expected to introduce it again this
June, said Bradley Kading, president and executive director of the
Association of Bermuda Insurers and Reinsurers. While Berkley says
the bill would level the playing field for insurers, Kading said it
would be a bad thing for insurance buyers. He quoted a study by the
Brattle Group that estimated that under the similar Baucus plan, the
reinsurance supply would dwindle by 20% and have an overall impact of
increasing costs for consumers by $10 billion to $20 billion. If
introduced, the bill likely is to have a long road to follow, Kading
said, due to the bill's opposition plus the other items already on
Congress' agenda. (Source: “Offshore Reinsurance Tax Debate Is
Heating Up,” BestWire Services, 06/18/2009)
Regulation
Global
Insurance Regulators Said to be Eyeing New Solvency Rules. In
an effort to prevent crises like what happened to American
International Group Inc. (AIG) last year, global insurance industry
regulators are set to begin talks this week on creating the first
common rules on solvency requirements for international insurers. At
a three-day meeting in Taiwan scheduled to start Wednesday, the
International Association of Insurance Supervisors is expected to
hammer out a detailed schedule to come up with requirements for major
insurers' solvency margin ratios. The move is in line with a mandate
handed down by leaders of the G20 countries last November triggered
by a U.S. Federal bailout of the country's biggest insurer that now
tops $180 billion in overall value. In addition to AIG, international
insurers like Prudential PLC (PUK), MetLife Inc. (MET) and Tokio
Marine Holdings Inc. (8766.TO), could be affected, while big European
players, which will likely become subject to tighter regional rules
in coming years, may be less involved. Sources say that the goal is
to build a framework to enable regulators to examine things without
being hindered by regulatory differences among countries and grasp
risks in the global insurance system. Though non-binding and likely
to take years to finalize, given that the IAIS represents insurance
regulators from around 140 nations, observers say new rules on
solvency margins would carry significant weight. Many details of
possible new rules still need to be worked out, they say, but one
element that will be central to any changes that the solvency ratio
requirements will be applied to all group companies of insurers,
including non-insurance businesses, rather than just the insurer
itself. (Source: “Global Insurance Regulators Eye New Solvency
Rules – Sources,” Dow Jones News Service, 06/23/2009)
Federal Reserve
Answers Concerns on Systemic Risk Regulation. Treasury
Secretary Tim Geithner said, in testimony before the Senate Banking
Committee, that the administration has no current plans to designate
insurance companies for systemic risk oversight, but defended the
choice of making the Federal Reserve the U.S. systemic risk
regulator, a significant piece of the administration's new regulatory
reform overhaul. He said the Fed proposal is "not so sweeping
and broad a net" as some fear, but that insurance companies and
other nonbank financial entities could be added down the line if the
proposal becomes law. The new plan, which requires congressional
approval, includes Federal Reserve oversight of large holding
companies deemed systemically significant due to their size, leverage
and interconnectedness. The Federal Reserve would have the authority
to set capital, liquidity and other requirements, including mandatory
set-asides of additional reserves. Some committee members on both
sides of the aisle expressed strong concern with adding more duties
to the Federal Reserve. The Obama plan has a "grossly inflated
view of the Fed's expertise," said ranking Republican Richard
Shelby, R-Ala. The Federal Reserve has no built-in experience in
overseeing insurance, hedge funds or other nonbank entities, he said.
American Insurance Association President and Chief Executive Officer
Leigh Ann Pusey said she has some concerns about the logistics
involved in having the central U.S. bank potentially oversee elements
of an industry with which it otherwise has no involvement. Such a
partial measure would not be as proficient as a broad-based federal
regulator would, she said. (Source: “Senators Cite Concerns Over
Federal Reserve as Systemic Risk Regulator,” BestWire Services,
06/18/2009)
Markets and Producers
Brit1…
International commercial-insurance provider Brit Insurance Holdings
PLC (BRE.LN) withdrew its all-share takeover offer proposal to
Lloyd's of London insurer Chaucer Holdings PLC (CHU.LN) after failing
to get support from the target's board. The deal would have valued
Chaucer at about GBP220 million.
Prudential2
…
Prudential
Financial Inc., the second biggest U.S. life insurer, has exercised
the option to sell its minority stake in the retail brokerage
formerly known as Wachovia Securities to Wells Fargo & Co., the
bank that owns most of the business.
Ironshore3
…
Bermuda-based
specialty insurer Ironshore Inc. said it is receiving equity
financing of up to $300 million, and will use the funds to expand
Ironshores specialty insurance business. GTCR Golden Rauner LLC has
committed to purchase $200 million of newly issued equity of
Ironshore, while existing Ironshore shareholders are expected to
purchase the other $100 million.
Sources:
“Brit Insurance
Withdraws Offer For Chaucer,” Dow Jones News Service, 06/23/2009
“Prudential Financial
Exercises Option to Sell Brokerage Stake to Wells Fargo,” Bestwire
Services, 06/19/2009
“Ironshore Gains $300
Million Private Equity Infusion,” BestWire Services, 6/24/2009
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