Claims And Issues

Health Insurance Premium Differences for Individual Coverage: Sexist or Actuarial?

    Health Insurance Companies charge higher Premiums to women than to men for the same Individual Coverage. 

    Health Insurance Companies say that (1) women go to the doctor more than men (that is what the Health Insurance Companies say) and that (2) women pay more for additional maternity or pregnancy Coverage.

    Women respond that they are charged more for the same exact Indivdual Health Insurance Coverage that is offered to men.  Additional Premiums for additional Coverage are, well, additional and that is not what is at issue here.  What is at issue is the same Coverage for a higher Premium for women.  

    Health Insurance Companies had better support their arguments with clear actuarial data, or be prepared to charge the same identical Premium to all persons paying Premiums for identical Individual Health Insurance Policies.

    The controversy is examined by Robert Pear, "Women Buying Health Policies Pay a Penalty/Premiums Are Higher Than Those For Men" p. A1, col. 5 (New York Times Nat'l Ed., Thursday, October 30, 2008).

Please Read The Disclaimer.

Recoupment and Restitution of Gotten Gains: "Well, Never Mind"?

    The New York Attorney General has apparently wrung an agreement from A.I.G. to stop lavishly spending Taxpayer funds on partridge hunts, spas, and failed fired executives.  However, the A.G. recently demanded more from A.I.G. than that.  The A.G. previously demanded that A.I.G. take all necessary steps to get funds back from those same executives.  How is that going?  No word, yet.  See Jonathan D. Glater, "A.I.G. Agrees to Suspend Milions in Executive Bonus Payments" p. B4, col. 1 (New York Times Nat'l Ed., Business Day Section, Thursday, October 23, 2008).

    If this is someone's idea of a "compromise," it is strictly to AIG's benefit --and the benefit of its executives who were involuntarily separated from service.

Please Read The Disclaimer.

 

Credit Rating Companies Rated "Conflicted" by Congress.

    Credit rating companies are under fire for inherent conflicts.   Credit raters are paid by the companies whose credit they rate.  See generally Gretchen Morgenson, "House Panel Scrutinizes Rating Firms" p. B1, col. 6 (New York Times Nat'l Ed., Business Day Section, Thursday, October 23, 2008)(published online under the headline, "Credit Rating Agency Heads Grilled by Lawmakers").

    Credit rating companies play an important role in rating the credit of Bond Insurance Companies, as has been posted here many times.  Without a high credit rating, Bond Insurance Companies have tanked, to put it in the current vernacular.

    The current credit crisis is also in large measure a result of Credit Rating Companies not necessarily accurately reflecting the Credit Rating of their sponsors, it is reported.  Until recently, investors allegedly depended on the high Credit Ratings assigned by the Credit Rating Companies to guarantors of some securities that now have now value.

    For example, Credit Rating Companies are reportedly responsible for triggering a slew of "multimillion-dollar collateral calls" made on Insurance Companies which previously guaranteed the payment of mortgages and other assets.  The Credit Rating Companies have only now lowered the guarantor Insurance Companies' credit raitngs, seemingly all of a sudden.  This contributes a lot to the current credit fiasco.

    The guarantor Insurance Companies are finding to their surprise that 'suddenly' their own credit ratings have been marked down by the Credit Rating Companies.  When the Insurance Company's credit rating is downgraded, nervous investors "call the collateral".  Nervous investors thus demand payment, now.

    A reported example of this dreadful effect caused by credit rating downgrades is AIG.  AIG has recently acquired a Federal Taxpayer bailout involving $123 Billion as a result, and may demand more.  David Cho, Binyamin Appelbaum and Zachary A. Goldfarb, "Bailout Expands to Insurers" (Washington Post.com, Saturday, October 25, 2008).

Please Read The Disclaimer.

Regime Without Change: "Bailout" Money Quietly Distributed, No Taxpayer Benefit.

Part Three of Three Parts.

    It is pretty clear that many of the people who made bad investment decisions are also clueless aout Insurance.  Some of those people are in the current Federal Govenment, and some are in the private sector.  When it comes to Insurance, none of those people should be listened to.  It would do us no good and it would only encourage them.

    Two previous posts in this space accorded recognition to the undisputed fact that almost all Insurance Companies have recently lost money on bad investments.  See also  Edmund L. Andrews and Eric Dash, "Insurers and Automakers Get in Line for the Bailout" p. B1, col. 5 (New York Times Nat'l Ed., Business Day Section, Saturday, October 25, 2008).  Their bad investments have been in the same things in which many other adults also foolishly lost a lot of money:  Credit default swaps, collateralized debt obligations, and other exotic products of securitization that falsely offered great rewards for minimal subprime risks, only to yield credit chaos.  In addition to previous posts here, see generally David Cho, Binyamin Appelbaum and Zachary A. Goldfarb, "Bailout Expands to Insurers" (Washington Post.com, Saturday, October 25, 2008); Robert Schmidt, "Paulson Weighs Buying Stakes in U.S. Insurers, Regional Lenders" (Bloomberg.com, Saturday, October 25, 2008.

    Bad results from bad investments have led the current Federal Government to worry that Insurance Companies might fail.  The recent bad investment results have also led some people in the current Federal Government to believe that this moment provides an opportunity for all financial corporations to become larger, using Federal Taxpayer Funds for their mergers and acquisitions.

    The bad results have also induced Credit Rating Companies to lower the credit ratings of many Insurance Companies, among other businesses.  On September 29, 2008 Fitch Rating Services reportedly "cut its outlook on the U.S. life insurance industry to 'negative'".  Hugh Son and Andrew Frye, "Insurers May Tap U.S. Treasury After Banks Get Funds (Update 2)" (Bloomberg.com, Tuesday, October 28, 2008).  The Credit Rating downgrade was not because of any concern at all about the payment of Claims on Insurance Policies, but was instead based "on concern that declines in the value of fixed-income investments will erode capital."   Id.  On September 30 -- the next day -- the S&P Life & Health Insurance Index reportedly began a month-long drop that has cut Life Insurance share prices in half.  Id. 

    None of these opinions takes into account a very important fact in the Insurance Industry:  Insurance Companies of all types can pay Claims, by all accounts.  There is NO "urgent liquidity crisis that would leave insurers unable to pay claims".   Andrews and Dash, supra.

    There is a basis, however, for the fear that the current Federal Government either feels or that it engenders in this effort.  By and large, Life Insurance Companies are its likely targets and at the same time are the likely recipients of the Federal Bailout with Taxpayer Funds.

    First, the prospects of failure of Insurance Companies fall differently upon different Insurance Companies.  Property and Casualty Insurers are by and large uninterested in the Federal handout.  Reportedly, the vast majority of Insurance Companies that belong to the American Insurance Association reject the Bailout.  They encourage instead a private sector solution involving injection of capital, rather than a Federal solution involving a captial injection of Taxpayer Money.  The Travelers News Release, "Travelers Does Not Seek Federal Assistance," Tuesday, October 28, 2008.

    Second, State Insurance Guaranty Funds treat insolvency of different Insurers and thus their Insureds or Policyholders, well, differently.  So, apparently, do Federal Bankruptcy laws.  If Property and Casualty Insurers are declared insolvent under State Insurance Laws, ordinarily the State Insurance Guaranty Fund takes over the payment of Claims under their policies within certain limiits and the insolvent Property or Casualty Insurance Company is off the financial hook because it is insolvent.   There is stll protection of their Policyholders' potential losses, although the protection is limited.  Life Insurance Company products such as "the cash value of life insurance policies" and "fixed annuities" are reportedly "guaranteed only up to $100,000."  Cho, Appelbaum and Goldfarb, supra.

    This difference in treatment by State Insurance Laws goes a long way to explain why Life Insurance Companies, which are afforded lesser protection than Property and Casualty Insurers, and which face large investment losses, have reportedly been in talks with the current Treasury Department about participating in the Federal handout-bailout.  In fact, some news reports have it that it is the current Treasury Department which is actively encouraging Life Insurers to take the Federal Taxpayer Funds.  Son and Frye, supra, quoting a spokesperson for the American Council of LIfe Insurers.

    It also explains why the largest Property and Casualty Insurance Companies in the country, like The Travelers, have rejected the Federal Bailout and have encouraged the Life Insurance Companies reaching for the Federal Bailout to seek capital in the private sector instead.  The Travelers News Release, "Travelers Does Not Seek Federal Assistance," Tuesday, October 28, 2008.

Please Read The Disclaimer.

Federal Insurance Programs lose money ... On Investments, Not Claims!

    Does the headline sound familiar?  It should.  Insurance Companies in the so-called private sector -- now flooded with Federal Taxpayer money -- are losing Billions upon Billions of Dollars in their alleged financial market operations including their choices of investments, and they are NOT losing money paying Insurance Claims which, of course, involves their "core business".  Parenthetically, "core business" means what a business is actually good at.

    Not to be outdone by their "private sector" counterparts in the Insurance Industry, perhaps, Federal Insurance programs are also reportedly losing Billions and Billions of Dollars because of their own investment choices, and not from paying Insurance Claims.  The Pension Benefit Guaranty Corporation guarantees pension money including in corporate pension funds and State retirement systems.  It has "lost $2.1 billion on its investments so far this year".  Mary Williams Walsh, "U.S. Insurer of Pensions Has Lost $2 Billlion" p. B4, col. 1 (New York Times Nat'l Ed., Business Day Section, Thursday, October 23, 2008).

    "So far this year."  Less than 10 months have gone by so far this year.  Spotting them a full 10 months, this Federal Insurance program which is run with your Federal Taxpayer Money,  has thus lost an average of $210,000,000.00 or $210 Million a month in 2008 due to its investment choices.

    We should bear in mind that they have not demonstrated that they have any knowledge about Insurance, even as they have demonstrated their lack of ability to judge investment choices.

    Are these the sort of people to entrust with making more decisions about what to do with $700 Billion, the current authorized cost of the Bailout using more Federal Taxpayer Monies?

 Please Read The Disclaimer.

 

Regime Without Change: "Bailout" Money Quietly Distributed, No Taxpayer Benefit ...

 Part Two.

"Too many pigs for the trough."  Abraham Lincoln, rephrased slightly for 21st century p.c.

    The Bailout Law provides Mr. Henry Paulson, the current Treasury Secretary, with a lot of unbridled power.  Naturally, many so-called "interest groups" are lining up at the public trough with great expectations of being fed.

    The interested groups include so-called "broker-dealers" (whoever they are), automobile manufacturers, foreign-owned banks -- and many Insurance Companies, principally Life and Bond Insurance Companies.  Their chief lobbyist in common to all or almost all of them is known as the Financial Services Roundtable.  E.g., Edmund L. Andrews and Eric Dash, "Insurers and Automakers Get in Line for the Bailout" p. B1, col. 5 (New York Times Nat'l Ed., Business Day Section, Saturday, October 25, 2008); David Cho, Binyamin Appelbaum and Zachary A. Goldfarb, "Bailout Expands to Insurers" (Washington Post.com, Saturday, October 25, 2008); Robert Schmidt, "Paulson Weighs Buying Stakes in U.S. Insurers, Regional Lenders" (Bloomberg.com, Saturday, October 25, 2008).

    Some U.S. Insurance Companies -- and other "financial institutions" -- qualify for the bailout if some of their operations are already subject to regulation by a Federal agency.  That list reportedly includes a majority of the largest Insurance Companies, which is in line with the direction in which the current regime wants to go.  (See Part One of this post.)  Andrews and Dash, supra; Cho, Appelbaum and Goldfarb, supra; Schmidt, supra.

    Specifically, that list includes Insurance Companies "with affiliated thrift institutions regulated by the federal Office of Thrift Supervision," including:

• State Farm Mutual
• Principal Financial Group
• Prudential
• Nationwide
• Allstate and, guess who:
• AIG.

Some other Insurance Companies own "financial holding companies under Federal Reserve supervision," including:

• Allianz
• Hancock, and
• MetLife.

Andrews and Dash, supra.

    Qualifying for a bailout from the current regime using Taxpayer Funds is one thing.  Asking for it is another thing.  Although Insurance Companies made some bad investment choices and face investment losses as a result, "some analysts said they did not understand why insurers needed immediate government help.  'Who in the insurance industry is asking the Treasury for money?' Andrew J. Barile, an industry consultant, said.  'Allstate certainly doesn't need it.  State Farm doesn't need it.  And these are the biggest [Insurance] companies in our country.'"  Id. 

    News reports conflict about "who in the Insurance industry is asking the Treasury for money."  One report has it that Life Insurance Companies have "asked the Treasury earlier this week if they would be eligible to participate in the program".  Schmidt, supra.  Another news report has it that The Hartford, Prudential and MetLife -- all Life Insurance Companies, as it turns out -- "have pushed the Bush administration to include them in the plan."  Cho, Appelbaum and Goldfarb, supra.  Parenthetically, MetLife is due to issue its earnings report on Wednesday, October 29, 2008.

    Whether these Life Insurance Companies are asking about eligibility or asking to be included in the handout, er, bailout financed by Taxpayer Funds, the reporters involved in reporting these conflicting stories need to get together and figure out the right story.  In the interim, apparently there is no dispute that share prices of Life Insurance Companies in this country have dropped some 45% in the month of October alone.  The reason is not that they face any difficulties in paying Insurance Claims but instead that these Insurance Companies made poor investment decisions.  They invested money in "mortgage-backed securities" when, like many other investors, they almost certainly should have known better.

    One party (or "counterparty"?), however, is clearly in the mix, clearly sending signals and certainly pushing to provide large Insurance Companies with "equity injections" from the Federal bailout, whether they need the immediate government help or not:  Goldman Sachs.  Cho, Appelbaum and Goldfarb, supra.  The place where Mr. Henry Paulson worked for some 38 years before he became the Treasury Secretary in the twilight of the current regime.

    Insurance Companies large and small simply do not need immediate Federal assistance to pay any Claims of any kind by anyone anywhere.   The fear of financiers is that Insurance Companies may become insolvent, and that is a matter governed by State Law, not by Federal Law -- at the moment.  More in the concluding post, Part 3 of Regime Without Change:  "Bailout" Money Quietly Distributed, No Taxpayer Benefit.

Please Read The Disclaimer.   

MORE new "Insurance" ... And Not By Act of Congress, Either.

    There are many things emerging in reports about the credit fiasco, that cause surprise to one degree or another.  For present purposes, suffice it to say that one surprise is the accepted role that "new" kinds of "Insurance" seems to play in the plans of the current regime.

    Another is the increasing number of decisions in which Congress voluntarily abdicates its responsibility to legislate.

    Reportedly, Homeowners will somehow receive an as-yet-to-be-determined boost from a new Insurance plan to be offered through the Federal Deposit Insurance Corporation (which as posted here in recent weeks, has reportedly been chosen as the outlet for the release of other types of new Insurance programs).  The outlines as reported in newspaper reports at this time are sketchy, at best, but in general terms, the most recent new Insurance program  would involve the Federal Taxpayers shouldering "some of the losses on loans that are modified."  Vikas Bajaj, "U.S. Vows More Help for Homeowners" p. B1, col. 2 (New York Times Nat'l Ed., Business Day Section, Friday, October 24, 2008).  See also Peter Whoriskey and Zachary A. Goldfarb, "Treasury Considers Backing Mortgages" (Washington Post.com, Friday, October 24, 2008).

    If implemented, it is clear that any such plan "could cost tens of billions of dollars" of Federal Taxpayer money.  The authority to take this previously uncontemplated (but perhaps ultimately socially desriabel) action assertedly comes from "the $700 billion financial rescue bill Congress passed earlier this month."  Vikas Bajaj, supra; see Peter Whoriskey & Zachary A. Goldfarb, supra.

Please Read The Disclaimer.

Regime Without Change: "Bailout" Money Quietly Distributed, No Taxpayer Benefit.

Part One.

"Societiies in which the few are allowed to fatten themselves without limit on the labor of many are not just; they aren't even particularly productive for very long."   Tim Rutten, "Greenspan's Blind Spot/The Former Fed Chief Didn't Bank on Human Nature" (Los Angeles Times Online, Saturday, October 25, 2008).

"We need better regulation.  But most of all, we need better management."  Thomas L. Friedman, "If Larry And Sergey Asked For a Loan ..." p. 15, col. 1 (New York Times Sunday Nat'l Edition, Week In Review Section, October 26, 2008).

    The current regime wants to use the $700 Billion in Taxpayer Funds appropriated earlier this month by Congress for a purpose far beyond taking the chaos out of credit.  Led by Henry "The hammerless" Paulson, the current Secretary of the Treasury, those persons holding Federal office in the twilight of their power want to give that money to Banks which already have sufficient capital.

    This plan is not what Congress voted for.  It is not an injection of equity just to free up the credit logjam..  If that were the only purpose, the Taxpayer Funds appropriated by Congress would be targeted to Banks that need the equity in order to make loans.  There are no such targets.

    Instead, the targets of the currrent regime include many large Banks that are well positioned in the credit crisis and do NOT require an injection of equity for that purpose.  They are nonethless receiving Billions of Taxpayer Dollars from the current regime.  For what purpose, if not to free up the flow of credit, which as noted, is not a problem of equity as far as these Banks are concerned?

    The purpose is to have the cash on hand for them to merge with and acquire smaller corporations just as the current occupants of the Federal Government have advocated before most people ever heard of a credit default swap or a collateralized debt obligtation.  E.g., Edmund L. Andrews and Eric Dash, "Insurers and Automakers Get in Line for the Bailout" p. B1, col. 5 (New York Times Nat'l Ed., Business Day Section, Saturday, October 25, 2008); Peter Whoriskey and Zachary A. Goldfarb, "Banks Weighing Other Uses for Bailout Money/Some May Put it Toward Acquisitions" (Washington Post.com, Wed., October 22, 2008).

    This manifestly does NOT mean that these Banks will use the money to make loans to help the economy of the United States.  As a careful and accurate observer of finanical and political powers observed very recently:

      It is starting to appear as if one of Treasury's key rationales for the recapitalization program -- namely, that it will cause banks to start lending again -- is a fig leaf, Treasury's version of te weapons of mass destruction.

    In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation....

* * *

    I don't know about you, but I'm starting to feel as if weive been sold a bill of goods.

Joe Nocera, "So When Will Banks Give Loans?" p. B1, col. 1 (New York Times Nat'l Ed., Saturday, October 26, 2008).   

    How does this affect Insurance Companies?  The short answer to that question is that the current regime and the large Banks it is assisting to acquire other businesses have wanted for a long time to transact Insurance.  Banks have been prevented from also engaging in the Insurance business by Federal Law, until now.  If Banks are given Federal Taxpayer Funds to acquire other businesses, they are not limited to acquiring just other Banks.  They can also use that capital to acquire Insurance Companies, of course.  And prohibitiions in previous Federal Law will be "amended" in their favor to allow them to transact Insurance, no doubt.

    That also appears to be the motiviation behind extending the secret capitalization plan to end the credit chaos, if you will, to Insurance Companies -- again, whether they want the Funds or not.  That is the subject of Part Two of this post, "Regime Without Change:  'Bailout' Money Quietly Distriibuted, No Taxpayer Benefit."

Please Read The Disclaimer.

 

A.I.G.: A Taxpayer Money Sieve?

    A.I.G. reportedly has already used up 75% or $90,300,000,000.00 of a $123 Billion Federal Reserve line of credit backed by the Federal Taxpayer.  It reportedly was not supposed to be used up this fast.  E.g.,  Carol D. Leonnig, "AIG Has Used Much of its $123 Billion Bailout Loan" (Washington Post.com, Friday, October 24, 2008);  Hugh Son, "AIG Taps $90.3 Billion From Government Credit Line (Update 2)" (Bloomberg.com, Friday, October 24, 2008).

Please Read The Disclaimer.

Florida Public Housing Authorities Self-Insurance Funds Law in 2008.

    Florida has a new law that allows any two or more "public housing authorities" to band together in a "self-insurance fund" to cover both Property Insurance and Casualty Insurance Claims, if among other things:

1. The fund has "annual normal premiums" over $5,000,000.00 or $5 Million.
2. It uses an actuary to determine both rates and reserves.
3. It maintains approved Excess Insurance Coverage meaning Excess Insurance purchased "from authorized insurance carriers or eligible surplus lines insurers."

The new law is Florida Statute Section 624.46226.  It took effect July 23, 2008.  It is apparently too new to be online in statutory form, so here is a link to the Session Law, Ch. 2008-220, Laws of Florida.  The new Statute can be found in Section 4.

Please Read The Disclaimer.

Health Insurance Coverage: Limiting Costs by Not Paying Medical Mistakes.

"We believe that what gets measured is what gets done."  Scott Serota, President and CEO, Blue Cross Blue Shield Association, quoted by Elizabeth Olson, "A Plan to Improve Health Care and Limit Costs" p. B2, col. 1 (New York Times Nat'l Ed., BusinessDay Section, Saturday, October 18, 2008).

    One way to cap Health Insurance Costs is to refuse to pay for medical mistakes.  Blue Cross Blue Shield President and CEO Scott Serota is quoted as follows in the linked newspaper interview, in response to a question about refusing to provide Health Insurance Coverage to pay hospitals for "so-called 'never events'":

If they are no longer getting reimbursed for those costs, institutions will be very aggressive in eliminating those events.  There are some Blue plans that are not paying for those events.

Id.

    Recently, medicare has also stopped "paying hospitals for the added cost of treating patients who are injured in their care."  Kevin Sack, "Medicare Rules Say, 'Do No Harm'" p. A1, col.1 (New York Times Nat'l Ed., Wed., October 1, 2008).

Please Read The Disclaimer.

Bust Times, Bad Results: Insurers of Corporations Face Exposure, Risk.

    It is reported that poor corporate results, even bankruptcy, may not deter lawsuits against failed and failing corporations.  Instead, their Liability Insurance Coverage may be at risk from claims by shareholders against the insured corporations.  Jonathan D. Glater, "Financial Crisis Provides Fertile Ground for Boom in Lawsuits" p. B1, col. 2 (New York Times Nat'l Ed., Business Day Section, Saturday, October 18, 2008).

    What is not mentioned in this otherwise insightful report is that there are other types of Insurance Coverages held by failing corporations.  Claims on certain other kinds of corporate Insurance Coverages are anticipated to rise besides Liability Insurance Claims, including Claims under Director's and Officer's Coverage.

Please Read The Disclaimer.

Fallling Economy, Rising Lawsuits Mean More D & O Claims.

    A falling economy has brought corporate bankruptcies, job layoffs, and Government investigations.  Reportedly, "[i]insurance companies [are] the top target for litigation ...."  Lindsay Fortado, "U.S. Company Lawyers Expecting Litigation Surge, Survey Says" (Bloomberg. com, Tuesday, October 14, 2008).

    Lawsuits filed in the last 12 months included a large number of lawsuits against Insurance Companies.  Id.  In such a climate, claims implicating Director's and Officer's Insurance Coverage are on the horizon, and many are already here.

Please Read The Disclaimer.

Credit Default Swaps: Transparency, Insurable Interest ... Two Good Remedies.

    Independent audits provide transparency to bring the risks of Credit Default Swaps into the sunshine, and into the view of those footing the bills be they shareholders or Taxpayers.  See Ari Levy, "AIG Former Auditor Warned About Derivative Valuation in 2007" (Bloomberg.com, Saturday, October 11, 2008)(head of AIG financial products division, which dealt in credit-default swapping, reportedly told AIG's auditor that he "'deliberately excluded [AIG's auditor] from the valuation because I was concerned that you would pollute the process.'"). 

    Insurable interest is a concept that prevents strangers from betting on financial transactions in which they have no business stake.  See generally Floyd Norris, "Out of the Shadows and Into the Harsh LIght" p. B3, col. 1 (New York Times Nat'l Ed., Business Day Section, Saturday, September 27, 2008).  See also Gretchen Morgenson, "Behind Biggest Insurer's Crisis, A Blind Eye to a Web of Risk" p. A1, col. 4 (New York Times Nat'l Ed., Sunday, September 28, 2008).

    These two concepts applied to Credit Default Swaps, alone or in combination with each other or with other remedies, are the beginning of a cure of the credit catastrophe caused largely by Credit Default Swaps and by those who trade in them.

    In the meantime, investgations begin.  See generally Vikas Bajaj, "Joint U.S.-New York Inquiry Into Credit-Default Swaps" p. B4, col. 1 (New York Times Nat'l Ed., Monday, October 20, 2008).

Please Read The Disclaimer.

Recoupment and Restitution of Gotten Gains: State Demands Return Money.

    New York State reportedly allows "creditors" to sue for damages in cases in which a company pays money but "did not get adequate value in exchange."  On behalf of Taxpayers in New York, the State Attorney General is pursuing the option of a lawsuit to contend that executives of AIG, in particular, "took millions of dollars in compensation and severance but did not provide service worth the money."  Jonathan D. Glater and Vikas Bajaj, "Cuomo Asks Recovery of Bonuses at A.I.G." p. B 1, col. 6 (New York Times Nat'l Ed., Business Day Section, Thursday, October 16, 2008).

    The A.G. stopped short of a lawsuit.  Instead, the New York Attorney General sent A.I.G. a demand letter that A.I.G. itself take steps to "recover bonuses and other payments from its former executives," before further steps might be taken against A.I.G.  The letter came after A.I.G. incurred payments for a golf trip for its executives, and after A.I.G. also reportedly spent $17,000.00 on a private plane to send a select group of its executives to a partridge hunt in England.  The total payment by A.I.G. for the partridge hunt was reportedly some $90,000.00 -- even after the United States Government loaned A.I.G. $85 Billion. Id.

    One day after newspaper reports of the demand letter from the A.G. to A.I.G., it was reported that A.I.G. agreed with the A.G. to allow "its spending habits" to be examined.  Jonathan D. Glater, "A.I.G. Agrees to Let New York Review the Propriety of its Pay Packages" p. B6, col. 1 (New York Times Nat'l Ed., Friday, October 17, 2008).

    No report on whether or how much is going to be obtained from the A.I.G. executives in question.

Please Read The Disclaimer.

Beware the SEC: They Plan to "Regulate" Credit Default Swaps.

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

    The current regime occupying the Securities and Exchange Commission now reportedly wants to regulate Credit Default Swaps.  See Christopher Cox, "Swapping Secrecy for Transparency" p. 12, Sunday Opinion/Week In Review Section, New York Times National Edition, Sunday, October 19, 2008.  The motivation may include the recent announcement, posted here, that the State Insurance Commissioners, led by New York State, appear to be moving to regulate this form of Credit Insurance as the Insurance that it is.

    The SEC, it will be remembered, spluttered consistently that Wall Street financiers would regulate themselves whenever the prospect of actual Regulation surfaced in recent years.  "We all can gauge how well placed that trust was by the number of humiliated ex-CEOs who have declined their multimillion-dollar severance packages out of a sense of shame over what their failures did to individual stockholders."  Tim Rutten, "What We've Lost" (Los Angeles Times Online, Saturday, October 11, 2008).

Please Read The Disclaimer.

Mental Health and Substance Abuse Insurance Coverage: The Bailout Law.

    The newly enacted bailout law contains new provisions that affect the issuance of employer-based Health Insurance, but only some plans, not all.  These particular provisions were reportedly added as a "sweetner".  They helped to make voting for the bailout bill tolerable for some legislators.

    The new provisions only apply in the first place:

      To plans offered by Employers with 51 or more employees; and

      To plans which already offer Mental Health or Substance Abuse Health Insurance Coverage.

    Under the new Federal Statute, discrimination between co-pays or deductibles or Coverage limits for hospitalizations for physical ailments, on the one hand, and co-pays or deductibles or Coverage limits for hospitalizations for mental health or substance abuse conditions, on the other hand, will no longer be routinely permitted, as exists now under some plans that contain both kinds of Health Insurance.

    The new legislation is intended to address parity of participation, not to impose a new required offering of Coverage.  E.g., Tara Siegel Bernard and Kate Galbraith, "Bailout Brings With It Diverse Perks" p. B6, col. 1 (Business Day Section, New York Times Nat'l Ed., Saturday, October 4, 2008; Aliza Marcus, "Mental Health Coverage Expanded by Rescue Package (Update 2)" (Bloomberg.com, Friday, October 3, 2008).

Please Read The Disclaimer.

"Let's Go To The Spa!": The Sun King Runs AIG!

    An AIG decision to spend over $441,000.00 at the spa was hooted down in the United States Congress and in much of the popular press as a bad idea.  See, e.g., Michael Janofsky, "Lehman, AIG Chiefs Should 'Man Up,' Stop 'Kissing the Mirror'" (Bloomberg.com, Friday, October 10, 2008); Scott Lanman, "Frank Asks Paulson, Bernanke to Tighten Their Oversight of AIG" (Bloomberg.com, Friday, October 10, 2008).

    Their reaction was because the AIG decision came days after AIG asked for, and got, $85,000,000,000.00 or $85 Billion (that's with a "B"!) Dollars from the Federal Taxpayers.  AIG's decision was greeted with another $37+ Billion Dollars of Federal Taxpayer money from the current regime.  Total bailout of AIG so far:  Over $122 Billion Dollars.

    And no end in sight short of January, 2009, if then.

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THE new FEDERAL DEPOSIT INSURANCE: Small Banks, Small Businesses hoya!

    The number of banks closing their businesses so far in 2008 is the highest since 1993:  15.  An additional 117 banks are classified by the Federal Deposit Insurance Corporation as a "problem".  (The FDIC declines to name them.)  In response, the FDIC is reportedly adding a new kind of Insurance.  Ari Levy, "FDIC Lifts Coverage as Customers Flee Sovereign, WaMu (Update 2)" (Bloomberg.com, Tuesday, October 14, 2008).

    One news report has it that the FDIC "will create, essentially, two new insurance programs."  Binyamin Appelbaum, "Smaller Banks Resist Federal Cash Infusions" (Washington Post.com Wed., October 15, 2008).  The first insurance program addressed in this linked newspaper report is not really "new".  It involves an increase in the existing FDIC guarantee of bank deposits from an existing limit set 28 years ago in 1980 of $100,000.00, up to a new limit of $250,000.00 in 2008.  Id.; Ari Levy, supra.

    There is a totally new FDIC Insurance program for "'business transaction accounts like payroll accounts,'" FDIC Chair Sheila Bair stated on October 14, 2008.  It appears to have these  essential features:

1. The FDIC will guarantee certain deposits totaling more than $250,000.00.
2. The new FDIC Insurance program will last through 2009.
3. To qualify, the deposit accounts must not pay interest, i.e., are non-interest bearing.
4. Small businesses are mainly the kinds of depositors who use the qualifying bank deposit accounts.
5. According to FDIC estimates, this new Insurance would guarantee a maximum of $500,000,000,000.00 or $500 Billion or 1/2 Trilion Dollars.
6. Bankers agree (!) that they will all sign up for this new FDIC Insurance program.
7. The banks will pay a Premium on this Insurance Coverage of $0.10 or ten cents for every $100.00 in deposits.

    A separate new Insurance program or guarantee to be issued by the FDIC will protect investors in banks.  Banks subscribing to this additional and reportedly separate new program will pay 75 cents for each $100.00 of debt sold to investors.  Under this new form of relief, through June, 2012 the FDIC will pay all debt "issued" by the subscribing banks before June 30, 2009 if the banks go bankrupt or otherwise default on the debt.    

    With the increased limit on the existing FDIC Insurance program, and with the addition of the new FDIC Insurance program, estimates are reported that as much as 80% of bank deposits, which total some $7,000,000,000,000.00 or $7 Trillion, will now be guaranteed by the Federal Taxpayer Funds used by the FDIC.  The majority of the uninsured remainder of deposits is reportedly a mix of interest-bearing accounts including cd's, which tend to be treated by sellers and regulators alike as "investment products."  Binyamin Appelbaum, supra; Ari Levy, supra.

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Credit Default Swaps Insurance: The Never-Ending Story.

    "First the house of Lehman fell.  Now the insurance bill is coming due."  Mary Williams Walsh, "Insurance on Lehman Debt is the Industry's Next Test" p.B1, col. 6 (Business Day Section, New York Times Nat'l Ed., Saturday, October 11, 2008).  The insurance bill is in an envelope marked "Previously Unregulated Credit Default Swaps".

    The claims on Lehman's Credit Default Swaps are likely to total hundreds of billions of dollars according to the linked newspaper report.  Whether and how much of these claims can be paid by the "financial companies and investment funds" which sold them -- and which were not required ever to set aside reserves in amounts sufficient to pay any of these claims -- remains to be seen.  The answers to those questions will affect the outcome of the worldwide credit chaos.

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Credit Default Swaps Continued: The Credit Default Insurance Debacle.

    Avoiding regulation of Credit Default Swaps as the Insurance they are was never an end in itself.  One of the consequences of Insurance Regulation in every State is a requirement that the Company maintain reserves to pay future claims.  This is a major hedge against default.  Mostly, this was not done with Credit Default Swaps, if at all  -- Companies issuing Credit Default Swaps did not maintain reserves to back them up because Credit Default Swaps seem to have been totally unregulated about reserves.  See Steven Pearlstein, "Before This Hole Gets Deeper, a Break From Digging" (Washington Post Online, Saturday, October 11, 2008).

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Battles Continue Over a FEDERAL Insurance Regulator: Another "Heckuva Job".

    The CEO of the largest direct Life Insurance Company in the U.S., Northwestern Mutual, was quoted in a recent newspaper interview as venturing a prediction that the Federal Government is ripe to enact a new "regulatory regime" for the Insurance Industry.  Amy Zipkin, "A Life Insurer Projects Calm During the Storm" p. B2, col. 1 (New York Times Nat'l Ed., Saturday, October 4, 2008).

    In the interview, it is candidly reported that the insurance Industry "has been lobbying for a federal regulator" for a very long time before the present financial failure.  Id.

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New Federal Insurance Plan? What New Federal Insurance Plan?

    There are reports that the bailout bill provisions, or rescue regulations, recently passed by the U.S. Congress and signed into law by Mr. Bush include a new kind of Federal "Insurance".  Lori Montgomery and Paul Kane, "Bush Enacts Historic Financial Rescue" (Washington Post Online, Saturday, October 4, 2008).  Parenthetically, whether the signing included a signing statement, or not, is unknown and unreported at this time.

    In the linked newspaper article, it is reported that the new kind of Federal Insurance would be funded "by the banks, that would cover bad assets."  Id.  The "bad assets" would be valued by "actuaries" on the basis of "historic mortgage failure rates."  Id.

    Reportedly, there is a dispute between the Chair of the House Financial Services Committee, who says that no-one expects this new Federal Insurance plan to be activated or implemented, and he is contradicted by a spokesperson for one Member of Congress quoted in the linked newspaper report, who says that on the other hand, the new Federal Insurance plan is not discretionary, it is mandatory.  Id.

    Time will undoubtedly tell.  If anyone reads the 450+ pages of this bailout bill before I can, please drop me a line saying what you think and, most important, saying what section or page of it to visit in order to find this new kind of Federal Insurance.

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Sector Snapshot: INSURANCE on 10.09.08.

    Available financials on the Insurance Sector do not show such a good picture.  Companies with some of the most solid reputations in the sector are in the least desirable (lower left) performance quadrant.  Brokers seem to be the exception that proves the rule.  Using this link, change the "Category" wheel to "Financials" and click on the side bar for "Insurance":  "Sector Snapshot/Insurance" p. B14, col. 1 (New York Times Nat'l Ed., Thursday, October 9, 2008).

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Some Establishment White People Blame Blacks, Hispanics for Credit Crisis.

    No regulation, and deregulation of Wall Street were not the actual causes of the national financial failure, according to some proponents of a new conspiracy theory that would have you believe that it was caused instead by "minorities" who received loans supposedly made by banks "'on the basis of race and little else.'"  Darryl Fears and Carol D. Leonnig, "Activists Angered by Blame for Crisis" (Washington Post Online, Friday, October 3, 2008).  Such comments are made in public by a couple of persons who get quoted in the inevitable news reports.

    Shame on them.

    It seems that there are always a couple of persons who have nothing good to say, and feel compelled to say it.

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Bad News on the Doorstep, AIG: "One More Step" ....

.... After Announcing it Had Already Used Up 75% of its Federal Loan Money Without Selling the Assets the Loan Money Was Supposed to Buy Time to Sell.

    AIG held a conference call on Friday, October 3, 2008.  It does not seem that it went well.  After the last person hung up the phone, Standard and Poor's changed AIG's "credit watch status to negative".  Mary Williams Walsh, "A.I.G. Uses $61 Billion of Fed Loan" p. B1, col. 6 (New York Times Nat'l Ed., Saturday, October 4, 2008).  Another Credit Rating Company, Moody's, downgraded AIG's "senior unsecured debt" and left itself the option of downgrading other kinds of AIG's debt.  Id.

    The reason for these precipitous downgrades of AIG's credit ratings?  AIG announced in the conference call that it had already used up nearly 3/4 of its Federal Loan money -- and that it had not begun yet to sell the assets which the Federal Funds -- yours and mine, the Federal Taxpayers' Funds -- were supposed to buy time to sell.

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"Florida Hurricane Focus Shifting Risk to Private Sector," State Senator.

     A Florida State Senator recently wrote an interesting letter to the editor as it were, rejecting Florida State Government participation in Florida Catastrophe Insurance in favor of a National plan.  It is worthwhile reading:    Jeremy Ring, Florida State Senator, "With Taxpayers on the Hook, Florida Needs National Catastrophe Fund (South Florida Sun-Sentinel.com, Saturday, September 20, 2008).

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AIG Bailout Draws Congressional Hearings.

    The Chair of the United States House of Representatives Committee on Oversight and Government Reform reportedly will start holding Hearings in the week to come after this post, on the Federal Government's, i.e., Mr. Paulson's and Mr. Bernanke's "bailout of insurance giant American International Group".  Lori Montgomery and Paul Kane, "Bush Enacts Historical Financial Rescue" (Washington Post Online, Saturday, October 4, 2008).  It is further reported that the Hearings will also examine the Bankruptcy filing of Lehman Brothers.  Id.

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Munis: "Where is the Insurance?"

    Local government bond issues, called "munis," are facing tough times during this credit debacle.  States and Local Governments are having a hard time borrowing money.   Bond issues have reportedly been delayed or cancelled that would have brought revenue to housing agencies in California, Florida, Texas and Virginia, and that would have helped to finance other projects as diverse as hospital emergency rooms and cancer centers, sewage treatment plants, and airport terminals in Montana, Georgia, and the District of Columbia, to name only a few.  E.g., Marc Lifsher, "Credit Crunch Puts California Governments in a Corner" (Los Angeles Times Online, Thursday, October 2, 2008); Mary Williams Walsh, "Cities Are Cutting Back Projects" p. A1, col. 5 (New York Times Nat'l Ed., Wed., October 1, 2008).

    The collapse of credit ratings for Bond Insurance Companies was the subject of many recent posts in this space.  The bottom line is that Credit Rating Companies once gave such high ratings to the Bond Insurance Companies that they prospered; however, the Bond Insurance Companies ceased to prosper -- actually, they went into free fall (or freefall, as you prefer) -- shortly after they wandered far afield into the muck of a system which exalted the now-discredited Credit Default Swaps and Collateralized Debt Obligations.  These adventures not only failed in their own right, but the failures brought down the once-high Credit Ratings of the Bond Insurance Companies that departed into these discredited adventures.

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"Leave Insurance Regulation to Competent People," Florida Insurance Commissioner Says.

    Responding to the announced desires of Treasury Secretary Henry "The Hammer" Paulson to take over Regulation of Insurance Companies from the States which have always done it, Florida's Insurance Commissioner says that it should be left to the States where competent people have demonstrated that they know what they are doing.  See the lengthy Press Release, "Florida Insurance Commissioner McCarty Says:  Leave Insurance Regulation to the States," September 24, 2008.

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