Claims And Issues

"The Emergency Economic Stabilization Act of 2008": well, never mind!

    The bill pending before the House of Representatives was defeated on Monday, 09.29.08, but some sort of relief similar to that bill, "The Emergency Economic Stablization Act of 2008," is still anticipated in Washington.  See Joel Achenbach and Ashley Surdin, "For Many Americans, Fear And Distrust Run High" (Washington Post Online, Tuesday, September 30, 2008).

    In the meantime, I briefly reviewed the 110-page pdf of the defeated bill, looking for an authorization for the Federal Government to take over Insurance Regulation, as I posted yesterday that I intended to do.  I found no authorization in the defeated bill.  Time will tell.

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"The Emergency Economic Stabilization Act of 2008".

     The three-page (some say two-and-one-half page) outline of Treasury Secretary Henry "The Hammer" Paulson for a takeover of the national economy, has become a 110-page pdf for a bailout of the national economy.  It is soon to be voted on by Congress:  Here are some places to download the amended proposal and review the bill:  The United States Congress; C-Span; and The Washington Post.

    I will be looking at the bill to see if I can see what are some of the effects it might have on Insurance, particularly whether it still includes Mr. Paulson's proposal to take Insurance Regulation away from the States which have performed it well, and give it to the Federal Government, which has not performed well in the last 7 or 8 years, and never before in the area of Insurance Regulation at all.

Please Read The Disclaimer.

Barely Plans, Bear Stearns, Bailout: "Where's The Insurance?": updated.

    More words have appeared and should be added I supposed to the one-page "fact sheet" of unknown Republican Members of Congress, posted here on Friday, 09.26.08:  See Edmund L. Andrews, "House Republicans Support A Plan That Would Insure Troubled Mortgages" p. A16, col. 1 (New York Times Nat'l Ed., Saturday, September 27, 2008).  More words.  Not more clear..  It is possible to say the same thing in many different words at many opportunities and still say nothing new at the end of the day.

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Credit Default Swaps: Unregulated Insurance, Cause of Bankruptcies, Bailouts.

    One of the more respected business reporters in the nation reported recently that credit default swaps are the root cause of every bailout decision.  Gretchen Morgenson, "Fair Game/Your Money at Work, Fixing Others' Mistakes" p. 1, col. 2 (New York Times Nat'l Ed., SundayBusiness Section, September 21, 2008).

    She also provides two helpful definitions to add to our collection previously posted in this space.  The first is that credit default swaps are "unregulated derivative contracts that allow investors to bet on a debt issuer's financial prospects".  The other is to measure how they operate, which is "like insurance policies against the possibility that an issuer of debt will not pay on its obligations".  Id.

    Insurance companies reportedly merit bailouts from "beleagured taxpayers" on account of these weapons of financial destruction.  In particular, credit default swaps "were the single biggest motivator behind the A.I.G. deal."  Id.

    With $62,000,000,000,000.00 or $62 Trillion at risk in the Credit Default Swaps Market, this is a type of Insurance that is crying -- just as now, Federal Taxpayers are crying -- for regulatory oversight.

    Now is the time to regulate credit default swaps as the Insurance they are.

Please Read The Disclaimer.

    

Barely Plans, Bear Stearns, Bailout: "Where's The Insurance?"

    An unspecified number of Republican Members of Congress are reportedly working from a "fact sheet" on a plan that "calls for a mortgage-backed security insurance fund".   Alison Vekshin and James Rowley, "House Republicans Undercut Bush on Rescue, Slow Talks (Update 1)" (Bloomberg.com, Friday, September 26, 2008).  Few details are reported at this time.

    However, this much is known.  One of the talking points on the fact sheet "plan," if you will, is more deregulation because in the eyes of the unspecified group of Republican Members of Congress, the government is still a problem standing in the way of private capital formation which they trust will restore the economy to where they want it, i.e., with value intruded into hedge funds, collateralized debt obligations, and credit default swaps.

    They offer a fact sheet as a substitute for the three-page sheet that Treasury Secretary Henry "The Hammer" Paulson released at 1:00 A.M. last Sunday morning to take over the economy of the United States.

    It comes as no surprise that politics reportedly intruded on the day and derailed an agreement on restoring confidence to the nation's economy.  According to many reports, the intrusion was led by the failed campaign of John McCain.  Report published by the Miami Herald including material provided by the Associated Press, and by McClatchy Newspapers:  "GOP Rebellion Could Derail Bailout" (Miami Herald Online, Friday, September 26, 2008).

    Do any of these people spend any of their time thinking about the national economy, or is it all always about their hold on power?

    If more details are forthcoming about insurance for bailouts, they will be posted here.

Please Read The Disclaimer.

    

    

Florida Insurance Commissioner Cites State Farm On $120 Million in Discounts.

     The Florida Insurance Commissioner has ordered State Farm Florida to provide credits or refunds amounting to $120 Million.  This is not linked at all to State Farm's rejected Property Insurance Premium Increase request.  Jennifer Liberto, "$120M Refund on Way" (St. Petersburg Times Online, Tuesday, September 9, 2008).

    The Order was instead issued to compel discounts required by the Florida Windstorm Loss Reduction Rating Plan.  Press Release of the Florida Office of Insurance Regulation, "Fla. Insurance Commissioner Orders State Farm to Refund $120 Million to Policyholders for Unpaid Mitigation Discounts," Tuesday, September 9, 2008.

Please Read The Disclaimer.

 

"Post-Claims Underwriting Rescission," revisited.

    Another Health Insurance Company in California has settled "Post-Claims Underwriting Rescission" allegations with a regulatory agency.  Health Net Inc. reportedly agreed with the California Department of Insurance to these provisions addressing such allegations in connection with Health Insurance Policies issued to individual persons:

     1.  Pay $3,600,000.00 in Penalties;

    2.  Pay up to $14,000,000.00 on Medical Claims it had previously denied; and

    3.  Offer to reinstate 926 individual Policyholders whose individual Health Insurance Policies were "rescinded" after they made Claims.

    The settlement agreeement is said to be the first of its kind with the California Department of Insurance.  As reported in the linked article, Federal Law prohibits cancellation of Group Health Insurance Policies issued to Employers.  Lisa Girion and Marc Lifsher, "Health Net to Reinstate 926 Dropped Policyholders in California" (Los Angeles Times Online, Friday, September 12, 2008).

    The newest settlement comes shortly after many related developments on cancellation and rescission and alleged "Post-Claims Underwriting," all of them posted here previously.  As summarized in the linked newspaper article, past developments on these issues include:

    Health Insurance Companies agreeing to pay fines to the California Department of Managed Health Care;

    A lawsuit by the Los Angeles City Attorney asserting fraudulent practices;

    And an Arbitration Hearing in which Punitive Damges were assessed because the evidence showed that in part Employee Bonuses were awarded based on the number of "Rescinded" Policies after Claims were made.  See id.

    It remains to be seen whether future allegations of these practices in California will resume against individuals who hold Health Insurance Policies, get sick, and make a claim.

Please Read The Disclaimer.

Credit Default Swaps to be REGULATED as INSURANCE -- FINALLY!

    "'Regardless of how we got in this, we are in it.  And we shall succeed!' Why, not even a burglar could have said that better."  Mark Twain.

    The Governor of New York has drawn howls of opposition from Wall Street to his announcement of a plan by which the New York State Department of Insurance will begin regulating credit default swaps under guidelines that reportedly take effect in January, 2009.  Shannon D. Harrington and Christine Richard, "Credit Swaps Move Closer to Regulation With N.Y. Plan (Update 2)" (Bloomberg.com, Tuesday, September 23, 2008).

    "Credit default swaps" have been addressed and definitions have been provided here in many posts.  In the linked newspaper article, it is said that credit default swaps "are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt or to hedge against losses.  They pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrower fail to adhere to its debt agreements."   Id.

    The New York State Superintendent of Insurance will provide more details about the plan and its guidelines.  Until then, it is reportedly clear that, first of all, the plan limits the issuance of credit default swaps to licensed Insurance Companies.

   Second, the licensed Insurance Companies must demonstrate that they have the capacity to actually pay claims on the credit default swaps they issue, in the event of a default.

   In the interim, the linked newspaper report quotes many investors including investors in the previously unregulated credit default swaps, which are now renowned for their role in the current credit market crisis, as being outright opposed to or otherwise scoffing at the New York Insurance Regulation guidelines -- even before the Insurance Department guidelines are more fully announced.

    For a more understandable definition of "credit default swaps," and a perhaps more careful examination of their regulation as Insurance in New York, see Danny Hakim, "New York to Regulate a Financial Tool Behind the Credit Crisis" p. C10, col. 1 (New York Times Nat'l Ed., Tuesday, September 23, 2008):  "Credit-default swaps essentially function like insurance contracts to protect bond buyers from the risk that companies will default, but over the years they have become a favorite tool of speculators who use them to bet that a certain company will fail."

Please Read The Disclaimer. 

Credit Rating Companies Revisited.

    Credit Rating Companies like Moody's Investors Service are at it again.  They are threatening to downgrade the credit ratings of two formerly large Bond Insurance Companies, Ambac and MBIA.  See Jody Shenn and Christine Richard, "Ambac May Delay New Insurer After Moody's Warning (Update 1)" (Bloomberg.com, Friday, September 19, 2008).  Apparently the Credit Rating Companies just found out that there is a credit market crisis and that the Bond Insurance Companies may not be worthy of a high-value credit rating.

    Since the Credit Rating Companies were responsible for totally mis-rating the credit of Bond Insurance Companies for decades, it is not reasonably justifiable to rely on them now to rate the credit of other companies, such as AIG, Freddie Mac, Fannie Mae, Merrill Lynch, or Lehman's, or any other.

Please Read The Disclaimer.

Federal Insurance Guarantee for Money-Market Funds.

    The current controllers of our Federal Tax Monies have proposed an undefined plan to guarantee or totally insure Money-Market Funds.  Whether the plan is ill-defined remains to be seen, for the plan is not a plan, yet.  It is the idea of a plan.

    Here are the features, maybe, according to a spokesperson for the Treasury Department quoted by Josh Friedman, "U.S. Offers to Insure Money Market Mutual Funds" (Los Angeles Times Online, Saturday, September 20, 2008):

• Insurance Coverage would be made available by the Federal  Government to "general purpose funds, with government and tax-free municipal funds excluded."
• There is likely to be no policy limit.  The Insurance Coverage will be without limit.  (Since there is a limit on the amount of Federal Deposit Insurance Coverage at traditional banks, it seems like a good bet that this proposal will generate a large transfer of deposits into money-market funds instead.)
• The total initial amount of Insurance Coverage for all potentially covered money-market funds is $50,000,000,000.00 or $50 Billion.

That is Fifty Billion Dollars of our Federal Taxpayer Monies, dear Federal Taxpayer.

Please Read The Disclaimer.

Credit Market Crisis and Iraq Invasion "Solutions": The Selling Continues.

    "When a hammer is the only tool you have, every problem looks like a nail."

    Henry "The Hammer" Paulson wants his three-page "plan" enacted now, without interference on behalf of protecting people who are going to lose their homes and savings.  In the meantime, the failed CEOs of large corporations will still receive their separation bonuses worth millions of dollars to each of them.  On these counts alone, Mr. Paulson is clearly not the right person for this job.

    For the features of Mr. Paulson's "plan" as of this morning, see Dawn Kopecki, "U.S. Widens Scope of Bad-Debt Plan Beyond Home Loans (Update 1)" (Bloomberg.com, Monday, September 22, 2008).

    Solving the credit market crisis calls for input from those experienced with solving the problems, rather than causing them.

    Further, the current regime's "plan" announced by Mr. Paulson even shows how afraid they are of Judges holding him accountable to law, because their "plan" would bar judicial review of his and their conduct.  Greg Stohr, "Dodd, Democrats Question Lack of Court Access in Rescue Plan" (Bloomberg.com, Monday September 22, 2008).  Putting to one side all justified suspicion that this proposal reflects a guilty mind, there is a provision of the United States Constitution at work here:  No money shall be withdrawn from the Federal Treasury except as authorized by  appropriation pursuant to law.

    Other provisions of the United States Constitution should never have been ignored in the past.  This provision of the United States Constitution should not be ignored now, by any person.

    Further pages were added to their three-page "plan" over the weekend, according to these reports.  The Treasury Department of Mr. Paulson announced that rather than offering to Insure all money-market funds, they will offer to Insure "those [funds] held by investors as of Sept. 19, excluding any subsequent contributions."  Kopecki, supra.

    In addition, the scope of their "plan" expanded but not their estimate of how much they expect their expanded "plan" will cost.  Over the weekend, the current regime expanded their proposals by using words even more ambiguous and broad than the three-page outline they previously submitted as their "plan."   As of Monday morning, they now propose to spend Federal Taxpayer Funds on what they call "troubled assets, without specifiying the type," and not just "mortgage-related securities."  Kopecki, supra.  This expansion of scope did not expand their estimate of cost to Federal Taxpayers, however.

    This may not be absolutely their last territorial demand.  The selling of financial fear continues, by those who caused it and by those who demand greater powers to benefit themselves at the expense, literally, of the vast, silent majority of Federal Taxpayers.

Please Read The Disclaimer.

Credit Market Crisis, And Invading Iraq: The Final Solutions.

          "Fool me once, shame on you.  Fool me twice, shame on me."  Mom.

     "There is a crisis.  We must give the administration the authority now to do what they decide to do in the future."  "Only bold action taken right now can save us from the tragedy that threatens us."  "The leaders know things that we do not know.  We can trust them because they know more than we do."

     Echoes of Wag The Dog, and of other times and places, are very, very loud.

    The leaders are the people who brought us this mess.  The tragedy is that no-one questions them.  There is a crisis and solving it requires including the kind of people who are experienced in solving it, not the kind of people who are seeking immunity for their own failures -- again.

    For the current regime's sales pitch repeated, most often without question, see the following which include representative examples of an apparently universal re-publication of the sales pitch:  Edmund L. Andrews, "Bush Officials Urge Swift Action on Broad Rescue Powers/Emergency Request to Congress -- Cost Could Reach $1 Trillion" p. A1, col. 5 (New York Times Nat'l Ed., Saturday, September 20, 2008); Jackie Calmes, "Dazed Capital [sic?] Takes on Feel of Wartime" p. A1, col. 5 (New York Times Nat'l Ed., Saturday, September 20, 2008); Peter G. Gosselin, Maura Reynolds and Richard Simon, "Economic Bailout Plan Takes Shape" (Los Angeles Times Online, Saturday, September 20, 2008);  David Cho and Binyamin Appelbaum, "Historic Market Bailout Set in Motion" (Washington Post Online, Saturday, September 20, 2008); Jill Drew, Cecilia Kang and Nancy Trejos, "Cultural and Structural Shifts Rise Out Of Risk-Taking Titans' Hard Fall" (Washington Post Online, Sunday, September 21, 2008); Jenifer B. McKim, "How Will We Be Affected?/Why is it my Responsibility to Bail These Companies Out?" (Boston Globe Online, Sunday, September 21, 2008); and David M. Herszenhorn, "Administration is Seeking $700 Billion for Wall St.; Bailout Could Set Record/Goes To Congress/Treasury Would Face Few Restrictions on Buying Bad Debt" p. A1, col. 6 (New York Times Nat'l Ed., Sunday, September 21, 2008).

    For another way of looking at the current regime's sales pitch, please re-read this post. 

Please Read The Disclaimer.
 

Fannie, Freddie Failures -- Fiduciary?

    The fired CEOs of Fannie Mae and Freddie Mac will not be receiving the full amounts of their  multi-million dollar separation payments, it is reported by Zachary A. Goldfarb, "No 'Golden Parachutes' for Fannie, Freddie's Ex-Chiefs" (Washington Post Online, Monday, September 15, 2008).  Both Fannie Mae and Freddie Mac recently agreed to revising (upward) their respective CEOs' separation provisions, also known as golden parachutes because they lower only one person for a golden landing while doing absolutely no good for anyone else.  However, not recently enough.

    Since the Federal Taxpayer Takeover of both Fannie Mae and Freddie Mac by agents of the current Federal Government, it has been reported that the Federal agents are talking about not paying the full amount of these golden parachute provisions, now funded by you and by me, dear Federal Taxpayer.  Id.

    Later newspaper articles report that the fired CEOs will only lose about 1/2 of their separation bonuses, the remaining millions of dollars to be paid by you and by me, the Federal Taxpayers.  Zachary Goldfarb, "Fannie, Freddie's Former CEOs to Lose $12.6 Million in Severance Pay" (Washington Post Online, Tuesday, September 16, 2008). 

    The agenda really begins with how much the fired CEOs, on whose watch Fannie and Freddie failed, are going to pay back.  To talk about not paying these people the "full" or "part" of the amount of their separation bonuses is insulting if not downright farcical.

    It remains to be seen whether the current agents of the Federal Taxpayers have the capacity either to deny these people anything, or to recoup the gains these people received while failing so miserably that the same Federal Taxpayers are suddenly saddled with responsbillity for the failures of these people.  See Binyamin Appelbaum, Carol D. Leonnig and David S. Hilzenrath, "How Washington Failed to Rein in Fannie, Freddie/As Profits Grew, Firms Used Their Power to Mask Peril" (Washington Post Online, Sunday, September 14, 2008).

    More on this story is posted on Insurance Claims and Bad Faith Law Log, available at www.insuranceclaimsbadfaith.typepad.com.

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More on "Credit Default Swaps" and Other Financial Finagling.

     In Wall Street's never-ending coverup of mechanisms for greed, one of the stonewallers of choice is the little understood "credit default swap".  Here is an insightful explanation in a newspaper report which addresses the failing financial fortunes of "the credit markets":  "[C]redit default swaps [are] used by insititutional investors for protection from potential bond defaults".  Alex Berenson, "Fearing Worse to Come, Investors Drive Dow to Biggest Loss Since '01" p. C7, col. 1 (New York Times Nat'l Ed., Tuesday, September 16, 2008).

    Sounds a lot like "insurance" when you say it that way.

Please Read The Disclaimer.

AIG, Failure Previously Unimagined, Insurance and Credit Default Swaps.

    AIG employees were playing with fire.  Not all AIG employees.  Not the people who knew about Insurance.  No, the burning bozos were people who manifestly did not know about Insurance.  They knew about greed.  They lit credit default swaps that in reality are Insurance but that Insurance Regulators will not interfere with (because they do not understand these products, either).  See Edmund L. Andrews, Michael J. de la Merced, and Mary Willliams Walsh, "Fed in $85 Billion Bailout Plan of Faltering Insurance Giant" p. A1, col. 6 (New York Times Nat'l Ed., Wed., September 17, 2008).    And these particular AIG employees were so arrogant that they never understood the risks of danger to their Company, its Shareholders and its Policyholders.

    They worked primarily in AIG's London-headquartered "financial products group," not in any of the many AIG Insurance groups.  These people "sold credit-default swaps, complex financial contracts allowing buyers to insure securities backed by mortgages."  Jonathan D. Glater, "A.I.G. is Still Profitable, With a Wide Array of Enterprises" p. C1, col. 2 (New York Times Nat'l Ed., Wed., September 17, 2008), published Online with added byline for Heather Timmons.  [Emphasis added.]

    AIG got a loan from the unelected officials of the current regime who pledged the full faith and credit of the American Taxpayers.  AIG got this loan because of AIG's "financial insurance" operations, "which effectively requires [that] it cover losses suffered by other institutions in the instance of defaults of securities that they have purchased.  That means A.I.G. is potentially on the hook for securities that were once considered safe."   Andrews, de la Merced & Walsh, supra.

    Simply put, the Federal officials opted to bail AIG out because they recognized "how much fear remains about the destructive potential of the complex financial instruments, like credit default swaps, that brought A.I.G. to its knees."  Id. 

    It is past time for Insurance Regulators to regulate.  Credit default swaps are thinly disguised, poorly concealed Insurance.  Now is the time to regulate these weapons of toxic destruction, before they regulate us who never made a cent from them and who are now called upon to pay on account of them.

Please Read The Disclaimer.

     

AIG Insurance Seems Solid, Federal Takeover Caused by Financial Failure ...

... AIG Run Into Ground by Pursuit of Greed, Deliberately Hidden Complexities.

    The headlines this morning tell the morning tale:  Hugh Son and Erik Holm, "Fed Takes Control of AIG With $85 Billion Bailout (Update 1)" (Bloomberg.com, Wed., September 17, 2008); and Edmund L. Andrews, Michael J. de la Merced and Mary Williams Walsh, "Fed's $85 Billion Loan Rescues Insurer" (New York Times Online, Wed., September 17, 2008).

    It appears that AIG's woes were not caused by its Insurance operations.  There is general agreement that AIG's Insurance subsidiaries are completely solvent.  AIG is the world's largest Insurance organization.  It achieved that status by making perhaps more money than any other Insurance Company had ever made in the history of the world. 

    The problems of AIG were caused instead by the needs of its operators to make even more money.  They may not have invented the deliberately complex financial instruments to hide the risk they were taking on, such as credit default swaps and collaterallized debt obligations, but the AIG "management" used them often.  Too often.  AIG is the famous Insurance Company that wanted to be a bank.

    The Federal bailout, by whatever name, reportedly has these features:

    --An $85 Billion loan to AIG for a two-year term;

    --79.9% of AIG's stock will be transferred to the Federal Government; and

    --"Management" of AIG will be replaced.

So now you and I, fellow Federal Taxpayer, own AIG.  Will we be asked to finance the golden bailout by subsidizing the departure of the "management" that caused us these difficulties?  And who caused so many people so much pain?

Here is another question:  When and how much money is that "management" going to repay out of the money they already got while they ran AIG into the ground?

Please Read The Disclaimer.

Insolvency and Insurance Guaranty Associations On the Brain ...

                    ....  Because of AIG, for Crying Out Loud!

    Knowledge helps drive away fear.  Here is a link to the National Organization of Life and Health Insurance Guaranty Associations' web site:  www.nolhga.com.  There you can find information on subjects such as what happens when a Life or Health Insurance Company becomes insolvent, and how NOLHGA and State Insurance Guaranty Associatons protect Policyholders.

    And here is a link to the web site of the National Conference of Insurance Guaranty Funds:  www.ncigf.org.  They offer similar information involving Property and Casualty Insurance Companies.

    This timely popular interest in Insurer Insolvency has been brought about by the decline of AIG, of all the Insurance Companies in the world!  See, e.g., Ron LIeber and Tara Siegel Bernard, "Wall Street and You:  Sorting Out the Changes in the Financial World" p. C6, col. 1 (New York Times Nat'l Ed., Tuesday, September 16, 2008) and Jeff Plungis, "AIG Bankruptcy May Put Consumers Under States' Care (Update 1)" (Bloomberg.com, Tuesday, September 16, 2008).

Please Read The Disclaimer.

 

"AIG, OMG!"

        "It's too big to be allowed to fail!"  This time representatives of large investors with lots of money tied up in huge financial houses are saying that about AIG.  See Hugh Son, "AIG Credit Rating Cut Threatens Quest For Funds, Roils Markets"  (Bloomberg.com, Tuesday, September 16, 2008).

    Standard and Poor's and Moody's Investors Service both cut AIG's credit ratings.   Id.

    Wall Street, which seemingly is  never prepared for anything, is reportedly not prepared for AIG to collapse.  Mary Williams Walsh and Michael J. de la Merced, "A Race For Cash at A.I.G. as Ratings Are Downgraded" (New York Times Online Tuesday, September 16, 2008, report filed Sept. 15, 2008).

Please Read The Disclaimer.

Catastrophe Model Companies Estimate Damages, Provide Basis to Evaluate Themselves.

    Companies marketing Computer Models of Catastrophes have now opened a new line of potential profit for themselves.  They have become estimators.  Their estimates of Catastrophe Claims (not including Uninsured Damages) from Hurricane Ike in Texas vary as widely as the scoring in Little League Teeball games:

                    1.  Eqecat, Inc. (mentioned in a post here on September 7, 2008 that implicated CatClaim Models) reportedly estimates $8,000,000,000.00 to $18,000,000,000.00 or $8 Billion to $18 Billion in Insured CatClaim Damages.  Eqecat is based on Oakland, California.

                    2.  AIR Worldwide, located on the other Coast, in Boston, Massachusetts, estimaes $8 Billion to $12 Billion.

                    3.  Risk Management Solutions Inc., based in Newark, California, reportedly estimates $6 Billion to $16 Billion.  See Erik Holm, "Hurricane Ike's Toll in Texas May Cost Insurers Up to $18 Billion" (Bloomberg.com, Sunday, September 14, 2008).

    The next potential profit line that the Computer Modelmakers may venture into, may be  to provide estimates of paid claims on which Premium Rate Filings will be based -- rather than on the actual payments of actual CatClaims.

Please See The Disclaimer.

Association Directors and Officers.

    Automatic renewal provisions in management contracts reportedly may not be a good thing for Directors and Officers of Homeowner and Condominium Associations.  Association Directors and Officers who agree to such provisions reportedly may be opening themselves up to claims that their agreement is a wrongful act that was not in the best interests of the Association.  See Stephen Glassman and Donie Vanitzian, "Homeowner Associations/Management Contract That Renews Automatically Should Be Rejected" (Los Angeles Times Online, Sunday, September 7, 2008).

Please Read The Disclaimer.

Renter's Insurance Protection a Rate Bargain.

    As the housing market tubes ever downward, more people in this country rent their homes rather than purchase them.  Like Homeowners, Renters have Insurance needs.  However, unlike most Homeowners, certainly in Florida for example, most Renters pay bargain Premiums for comparable Insurance Coverage including contents.  Moreover, a Renters Insurance Policy reportedly "generally includes items stolen from your car."  Candice Choi, "Too Few Renters Sign Up For Protection" (MiamiHerald.com, Sunday, August 31, 2008).  Further, most Renters Insurance Policies reportedly also include valuable Liability Insurance Coverage such as for Claims against Renters by persons who slip and fall in your apartment.  Id.

    Insurance Coverage at bargain rates is something to look into, there can be no doubt.  Particularly in Hurricane Season in Florida and in the Gulf and Atlantic Coast States.

Please Read The Disclaimer.

Documents to Have at Hand Before the Hurricane.

    Hurricanes and other potential Catastrophes have a lot of similarities.  One of the many things they have in common is preparing for them by gathering together the papers that will be handy to have on hand if there is a Catastrophe.  Here is a short but significant list of documents to include in preparation for any Hurricane or other possible Catastrophe:  "Hurricane Preparation:  Don't Forget IDs" (South Florida Sun-Sentinel.com, Saturday, September 6, 2008).

Please Read The Disclaimer.

Regulation vs. Rampant Runaways: Which is Repugnant?

    Regulation by government officials may be a good thing.  Perhaps a very good thing in some cases.  If not most cases.

    Regulators familiar with a regulated industry often have knowledge about better practices than those pursued as an apparent result of greed run rampant to benefit the few at the expense of the institutions and the other participants involved.

    Think about banking, for example.  Financial institutions are being shut down at the expense of small depositors who lose much money.  Financial regulators have pointed to practices recenty that may turn around major financial corporations and prevent them from collapsing, as distinct from patching up the broken pieces after another bank failure.  William Heisel & E. Scott Reckard, "Oversight Pressure May Explain Moves at Downey Financial/Accused of 'Unsound Practices,' the Lender Has Raised Fresh Capital and Lost its Chairman" (Los Angeles Times Online, Saturday, September 6, 2008).

    Regulation has its place when performed by people who know what they are about.

Please Read The Disclaimer.

    

Reinsurance Rates, Writedowns, and Catastrophe Claims -- or Not.

     The Reinsurance industry is in good shape reports Moody's Investors Service.  Reinsurance rates drop when there are fewer Hurricanes or other Catastrophe Claims, in basic terms, and increase when there is more demand for Reinsurance such as in years when there is more and greater damage from Hurricanes.  Reinsurance rates are in their second year of decline, at least until Hurricane Gustav arrived.  Moody's takes the declining two-year rate period into account in its report, noting that Reinsurance Companies have also taken the two-year rate decline into account.  They have the financial strength to earn Moody's expectation of a stable outlook despite lower rates for Reinsurance, and despite a recession in the United States, "and the credit market disruption."  Oliver Suess, "Strong Financials Let Reinsurers Weather Turmoil, Moody's Says" (Bloomberg.com, Friday, September 5, 2008).

    The world's two largest Reinsurance Companies are Munich Re and Swiss Re, measured by net Reinsurance premiums written.  Oliver Suess, "Munich Re and Swiss Re Top S&P's List of Largest Reinsurers" (Bloomberg.com, Saturday, September 6, 2008).  They both have a different story to tell.  Both reportedly want to raise rates to "reverse" the two-year "20 percent decline in rates".  Oliver Suess and Jon Menon, "Munich Re May See Higher Rates, Profits in Wake of 2008 Storms" (Bloomberg.com, Friday, September 5, 2008).  It is reported that Munich Re's share price is down 12% compared to 2 years ago, and that Swiss Re's share price is down 29% over the same two-year period.  Id.

    Further, a report recently issued by Standard & Poor's seems to support the Reinsurers and contradict Moody's.  S&P's report contains the opinion that Reinsurers may experience "material reduction" in Underwriting Profits if they are not allowed to raise their rates, now.  Oliver Suess, "Munich Re and Swiss Re Top S&P's List of Largest Reinsurers" (Bloomberg.com, Saturday, September 6, 2008).  The culprit seems to be increased claims costs.  Id.  More specifically, claims costs increased with a rising "frequency and severity of claims" apparently since 2006 and 2007.  Oliver Suess, "Reinsurers Need Higher Rates to Offset More Claims, S&P Says" (Bloomberg.com, Saturday, September 6, 2008).  Reportedly, Hurricane Gustav, for example, caused "insured damages of about $3 billion to $7 billion ... according to estimated [sic] by modeling firm Eqecat Inc."  Id.

    (Parenthetically, "insured damages of about $3 billion to $7 billion" is a very broad range indeed.  Until September, 2008, claims incurred and reported were listed in those terms, i.e., claims incurred and reported.  Claims are not shown nor reported "according to estimates by modeling firms".)

    Perhaps reflecting a truer reality, Swiss Re recently said itself, that its 2Q 2008 Profit declined 53% because of "writedowns related to credit-default swaps."  Oliver Suess and Jon Menon, "Munich Re May See Higher Rates, Profits in Wake of 2008 Storms" (Bloomberg.com, Friday, September 5, 2008).

    In fact, in the same linked newspaper report it is also reported that ceding Insurance Companies (inaccurately sometimes referred to in the report as "primary" insurers) themselves accounted for $77 Billion of such writedowns from 2007 through 1Q 2008.  Id.  American International Group ("AIG") alone accounted for about half of that amount, it is reported.  Id.

    In a related or unrelated development, AIG and General Reinsurance Corporation executives were recently convicted of criminal charges of fraud and conspiracy.  Federal prosecutors put the price tag to AIG shareholders "as much as $1.4 billion".  David Voreacos and Jane Mills, "Investors Lost $1.4 Billion in General Re, AIG Fraud, U.S. Says (Update 2)" (Bloomberg.com, Friday, September 5, 2008).

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Rate Hike Appeal, Re-Hearing Denied.

    In 2006, State Farm Florida received a 52.8% Premium Rate Increase for its Florida Property Insurance Policies.

    In 2007, State Farm Florida reportedly agreed to a 9% Premium Rate Reduction for those same Florida Property Insurance Policies.

    In 2008, State Farm Florida requested another 47.1% Premium Rate Increase.  Its request was denied.  State Farm Florida then appealed, asking for what amounts to a rehearing based on the same evidence that it produced to support its original, unsuccessful request to increase Premiums. 

    On the date of this post, State Farm Florida's appeal was denied.

    Next step?  Likely on the way to Court, says a spokesperson for State Farm Florida.  Bill Kaczor, "Appeal Denied in State Farm Hurricane Rate Case" (South Florida Sun-Sentinel.com, Friday, September 5, 2008).

    Stay tuned.

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Bond Insurance Companies May Not Pay Out on Auction-Rate Bonds ....

....  Auction-Rate Bond Marketers Are Buying The Bonds Back Rather Than Pay Potentially Much Greater Penalties in Proceedings Pursued by State Regulators.   

    One-time sellers of Auction-Rate Bonds are buying them back rather than face paying penalties.  Regulators of the sellers have launched investigations across the nation, and these local governmental investigations are resulting in settlements by which the sellers reduce their potential penalties exposure in return for protecting the people and local goverments to which they rather aggressively sold these securities.  Allegedly, the once-upon-a-time sellers kept selling Auction-Rate Bonds even after the market dried up for them -- in a niche market.  That means that, allegedly, the sellers knew the conditions of that unique market and most buyers did not.  Interview With Massachusetts Secretary of State William F. Galvin, "Still Sorting Out The Auction-Rate Mess/Galvin's Office Addresses Conflicts" (Boston Globe Online, Sunday, August 31, 2008).

    To offer a helpful definition here, adding to past posts about Auction-Rate Bonds and other types of Bonds which drew Bond Insurance Policies, Auction-Rate Bonds "are investment notes or securities or bonds -- financial commitments" which were treated like cash because they could be bought and sold with ease in their heyday.  This "high degree of liquidity" came from "a process of periodic rebidding."  Id.  The rates of Auction-Rate Bonds and Securities were regularly reset at auction, in basic and simple terms.

    Conflicts of interest are at the heart of investigations into the sale and purchase of other securities, such as Mortgages, and the sale and purchase of commodities, such as oil, wheat and cotton.  "There's not adequate supervision," says Secretary Galvin.  "We're all committed to a free market economy.  But a free market only works when it's truly free and it's not rigged."  Id.

    Settlements by Auction-Rate Bond sellers by which they buy back the Bonds they once sold with relish, may have the effect of preventing Claims on Bond Insurance Policies before the Claims can ripen.  That would be a positive effect for Bond Insurance Companies for certain.

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California Quakes and Small Business Preparedness: Shake Out 11.13.08.

        Safety of employees trumps data preservation.  Securing property so it does not shake out the door, window or unannounced openings in your place of business.  Such things will help prevent unnecessary Insurance Claims, which even when covered hardly compensate for an entire loss.  Safety of people and security of property are only a few of the many good suggestions available in this fine article by Cyndia Zwahlen, "Small Business/Get a Move on Quake Preparedness Plans/Small Businesses Should Take Steps to Minimize Injury and Damage in the Next Temblor" (Los Angeles Times Online, Monday, August 11, 2008).

    California small businesses that want to participate in a statewide observance of the Great California Shakeout scheduled for November 13, 2008 can find out even more at www.shakeout.org.

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Condominium Associations Insurance, Other Dues And Assessments.

    Insurance Premiums for Condominium Association Insurance Policies are paid either from Owners' dues or from assessments on the Owners.  Dues and assessments are paid to the Condominium Association.  The Association remits the Insurance Premiums to the Insurance Companies.  In broad terms, dues and assessments set by Condominium Associations are explored by Stephen Glassman & Donie Vanizian, "What Can Condo Owners do When Homeowner Fees Spiral Out of Control?" (Los Angeles Times Online, Sunday, August 10, 2008).

    One sign to look for that is explained in the linked newspaper article:  Look at how often special assessments are charged, and for what.

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After Katrina Came Gustav: Reduced CatClaims Coverage Spawns CatClaimsResponse Units.

    Hurricane Gustav will be met with special Catastrophe Response Claims Units from Insurance Companies that have reduced CatClaims Coverage on the Gulf Coast.  Erik Holm, "Insurers Preparing for Gustav With Rapid-Response Claims Teams" (Bloomberg.com, Saturday, August 30, 2008).

    CatClaims three years ago in the aftermath of Hurricane Katrina caused a sharp reduction in CatClaims Coverage, more so on the Gulf Coast than in many other areas.  That CatClaim experience and the resulting reduction in Coverage spawned the enlistment of specialized CatResponse Claims Units at several Insurance Companies.  The Companies with CatResponse Claims Units include the two largest Homeowner's Insurance Companies, Allstate and State Farm.

    The CatResponse Claims Units' mission seems to be to "speed up the payment of claims once [Hurricane Gustav] hits," id., at the same time reducing the severity of the Claims' impact generally.

    Time, and events yet to come, will tell.

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