Claims And Issues

State Farm, Already Appealing to Withdraw, Sent to Administrative Hearing.

    This is an Update to several posts here on State Farm's Petition to Withdraw Unconditionally from the Florida Property Insurance market, including posts on March 10 and March 13, 2009, and most recently on April 24, 2009.

    State Farm filed a Petition to withdraw entirely from the Florida Property Insurance market.  The Florida Insurance Commissioner (who heads the Florida Office of Insurance Regulation, or "OIR") conditionally approved State Farm's Petition if State Farm would among other things allow its agents to sell other Property Insurance Company Policies to replace the departing State Farm Insurance Policies.  State Farm asked to drop all of 1,200,000 Property Insurance Policies, 700,000 of which are reportedly Homeowner's Policies. Jeff Harrington, 'War Over State Farm Exit Goes to Court" (St. Petersburg Times Online Wed., April 29, 2009, published in print on Thursday, April 30, 2009).

    In a Catch-22 or Kafkaesque response, State Farm refused to allow its agents to sell other Property Insurance Policies other than its own -- and it was not going to sell any in Florida.  State Farm would allow its agents, however, to put all the State Farm Florida Property Insurance Policyholders in Citizens Property Insurance Company, the Florida "insurer of last resort".  As reported here previously, State Farm therefore appealed the OIR's conditions.

    However, thereafter State Farm also filed an Amended Petition again asking to be allowed to withdraw completely from the Florida Property Insurance market, without conditions.  On Wednesday, April 29, 2009, the Florida Insurance Commissioner hand delivered a letter to the Chief Judge of the Florida Division of Administrative Hearings requesting the appointment of an Administrative Law Judge to consider State Farm's Amended Petition for Formal Administrative Hearing.  Here is the OIR's letter:  Download 04.29.09 Letter To Florida DOAH From Florida Insurance Commissioner..

    And so the saga continues for State Farm leaving Florida Property.  In the interim, here is information assembled by the Florida Insurance Commissioner including online resources for alternative Insurance Coverage at http://www.shopandcomparerates.com and http://www.fmap.org:  Download Florida O.I.R. Helpful Information for State Farm Florida Policyholders.Updated 04.22.09.

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Sector Snapshot for Insurance is Here Again ....

.... Again, Courtesy of The New York Times.  Today's Sector Snapshot/Insurance appears on page B8, col. 1 of the Business Day Section of the National Edition of The New York Times for Tuesday, April 28, 2009.  (Be prepared to go through a click on "Financials" if necessary to bring out the slide bar and click on "Insurance".)

    The Bottom Five over the Last Year are still Life Insurance Companies all.  The efforts of many Life Insurance Companies to get Federal Taxpayer Bailout Funds, while not yet entirely successful, have apparently altered recent investor perceptions somewhat.  The Top Five Performers in the Insurance Sector of the stock market over the Last Week are all Life Insurance Companies too, and two of them are in the Bottom Five over the Last Year.

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"Unclean Hands" Bar to Advancement and Payment.

    A former officer of a corporation sued the corporation for its allegedly wrongful refusal to advance the officer's defense expenses under the bylaws of the corporation in  Download Tafeen v. Homestore, Inc. (Del. Ch. April 27, 2004)..  (Director's and Officer's Insurance Policies also usually provide for advancing the officers' defense expenses, although under the typically worded "fraud" Exclusion in such Policies the Insurance Company raising that Exclusion may have to await the outcome of the underlying litigation.)  The corporation defended these allegations with the defense of unclean hands among other defenses.

    The officer's complaint contained allegations that the underlying litigation in which the officer incurred defense expenses including attorney's fees included 6 listed lawsuits in California in which he and the corporation were sued by insurance companies.  Testimony in the Court File "revealed that [the corporation] had overstated its revenues" during the period that the officer was employed there, and that while other officers were "being prosecuted in connection with similar overstatements," the officer (who was then no longer only an employee but had apparently assumed a corporate office) "purchased a home in Florida" with a purchase price of $1.45 Million.  Id.  The Court of Chancery Judge in this case held that the facts in the record presented a triable issue of fact on the officer's "intent in buying the house" which was central to the corporation's defense of unclean hands.  Id.

    Unclean hands has even more recently been held a good defense to a Count for alleged breaches of a Settlement Stipulation and Order entered as part of a divorce decree.  The defendants included an ex-husband and a corporation.  The Settlement Stipulation and Order included personal guarantees from the ex-husband who thereby also agreed to obtain corporate guarantees (apparently later given to the plaintiff) and also a consulting agreement between the corporation and the plaintiff in  Download Medek v. Medek (Del. Ch. Sept. 10, 2008)..

    The defendants alleged "an undisclosed agreement" between the plaintiff and her ex-husband defendant, whereby the plaintiff allegedly was paid $150,000.00 "to focus her efforts to recover her claimed damages on" the other defendants.  Id. In this case, the Vice Chancellor of the Court of Chancery of Delaware ruled that the resulting defense of unclean hands was "closely interrelated" to these allegations and presented a triable issue of fact there, too.  See id.

    In addition to equitable remedies previously outlined here against persons allegedly receiving Federal Taxpayer Funds in inequitable ways, equity provides defenses to not paying such persons in the first place.  Equity has always provided those defenses.  One of them is the equitable defense of unclean hands.  Clearly, that equitable defense is alive and well.

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Property Insurers Dovetail With Environmentally Concerned Coalitions.

     The Travelers and Fireman's Fund Insurance Companies are reportedly pressing for innovations to meet climate changes that would alter forever the face of Property Insurance Coverage in the United States.  See, e.g., Cornelia Dean, "Groups See Added Risks From Change in Climate" (New York Times Online, Friday, April 24, 2009);   NU Online News Service, "Group Unveils Blueprint to Save Billions From Hurricanes" published by P & C/National Underwriter, Thursday, April 23, 2009.

    Among the innovations backed by an increasingly broader array of supporters:

• Adopting local land-use policies that deter people from construction in high-risk flood-prone areas.  An example is reportedly provided by City and County officials working together in or about Charleston, South Carolina to restrict development on Johns Island to its interior.
• Enacting more realistic Construction Codes and, at the same time, encouraging existing homeowners and commercial property owners to make their buildings more resistant to storms in storm-prone areas. 

While the members of the coalition were apparently reluctant to endorse the use of Property Insurance Premiums as a planning tool, clearly where Property Insurance in such areas is available at all the Premiums will be very high -- and the Property values are likely to increasingly become lower than they are even now.  See generally John K. DiMugno, Steven Plitt & Dennis J. Wall, "CAT Claims:  Insurance Coverage for Natural and Man-Made Disasters" (Thomson-West Publishing 2008).

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More on State Farm Florida Contests Conditions For Withdrawal.

    State Farm wants to stop selling Property Insurance Policies in Florida.  It looked for awhile like they would not contest the Florida Insurance Commissioner when he required them to allow their insurance agents, in that case, to sell other Property Insurance Policies.  At the last minute, State Farm decided to contest that after all.  See "State Farm Florida Contests Conditions For Withdrawal After All," posted here on March 10, 2009 and updated here on March 13, 2009.

    Reportedly, State Farm contends now that if its agents could sell other Property Insurance Policies in Florida -- except Citizens Property Insurance Company Policies, the State-owned "insurer of last resort," as they say -- then people could confuse State Farm with those other companies.  Is this a joke excuse?  Is it not State Farm that wants to drop the Property Insurance Policies they have written, and now they balk at helping their customers find other Property Insurance Policies to replace State Farm's?

    What person ever born could possibly confuse their replacement Property Insurance Policy, assuming that they are lucky enough to get one, with State Farm?

    The explanations along with some other recent developments are summarized by Julie Patel in the Sun-Sentinel (Ft. Lauderdale) "House Keys" Blog, under the headline, "State Farm Fights Florida's Conditions For it to Leave the State" posted Wed., April 15, 2009.

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Tips At The 2009 Annual Covention of RIMS in Orlando.

    RIMS is the Risk and Insurance Management Society.  No promotional exchange has been requested for this post.

Handouts can be printed online or on-site.  Here are some tips for their highest and best use:

• Print them out before each Session which has handouts.  They are more useful to follow along with and make notes on during the Session, than after.

• There are only two (2) printers at this time on-site.  Be patient.

• Be advised that not every Session has a handout.  Do not be frustrated therefore if your search for a Session handout gives up no results.

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"Insurance Companies, CDS's, Prove States Should Not Regulate," CEO Writes ....

....  This is a Postscript to an April 16, 2009 Post, "'Insurance Companies, CDS's, Prove States Should Not Regulate,' CEO Writes".  The April 16, 2009 Post explored when a call for Federal Regulation to displace all State Regulation was really a call for no regulation at all, in response to an Op-Ed piece in the New York Times on that date by the Allstate CEO, Mr. Tom Wilson.

P.S.

The call is explored in a Letter to the Editor published in The New York Times this morning, "What Does Allstate Want?", written on April 16, 2009 by Mr. Robert Hunter, former Insurance Commissioner of Texas and current Director of Insurance, Consumer Federation of America.  The link includes access to the original Op-Ed piece, provided by The New York Times.

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At the 2009 RIMS Annual Conference in Orlando ....

.... RIMS is the Risk and Insurance Management Society.

Rumor has it that the Insurance Companies within the AIG Group have improved at paying claims, but accounts differ on how much they have improved ....

No expense of any kind has been requested for this announcement by any person or corporation.

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Health Insurance, COBRA Alternative: UPDATE.

This updates informative posts here since January 15, 2009, including on March 3 and March 9, 2009.  Research on this web log under the Categories of Health Insurance, and Market Performance.

    Useful information on Health Insurance Coverage, COBRA, and alternatives is again available.  The information published in this news report includes a web site address and other information potentially useful to all readers, and to the people and businesses they advise in these areas:  Kimberly Lankford, Kiplinger's Personal Finance, published in The Washington Post Online, Easter Sunday, April 12, 2009.

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Risk and Insurance Management Society (RIMS) in Orlando!

    The RIMS 2009 Annual Convention continues in Orlando.  Many opportunities are provided for education and experience.  Take advantage of these fine opportunities!

    (No promotional advantage has been requested for this announcement.)

    Hurricane Season approaches again, believe it or not!  New resources are available about Wind Coverage and Flood Exclusions.  Profit from these and other resources available through www.dennisjwall.com.

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AIG Trust Agreement, Feds and Trustees: Who Do They Work For?

    The effective date of the Trust Agreement between the Federal Government, i.e., the Federal Reserve Bank of New York ("FRBNY"), on behalf of the Federal Taxpayers bailing out AIG, and the three persons who agreed to serve as Trustees, is January 16, 2009.  Nominally composed during the previous administration, this Trust instrument may soon be placed on stage during, rather than by, the current administration.  AIG is scheduled to hold its annual shareholders meeting in May and the Federal Taxpayers own nearly 80 percent of the shares.  Here is the Trust instrument:  Download .FRBNY and Jill Considine, Chester Feldberg and Douglas Foshee.0109.

    The Trustees' Fiduciary Duties according to the Trust Agreement are owed "solely" to the United States Treasury.  This has been interpreted by the President of the FRBNY to mean that the Trustees "have a legally binding obligation to exercise all their rights as majority owner of AIG in the best interest of the U.S. taxpayer."  Mr. William Dudley, President of the FRBNY, testifying to the U.S. Congress on March 24, 2009, quoted by Hugh Son, "AIG Trustees Emerge From 'Shadow' as Directors Resign (Update 2)" (Bloomberg.com, Tuesday, April 7, 2009).

    The three Trustees' Fiduciary Duties are in two parts in this instrument.  "AIG Credit Facility Trust Agreement," § 3.03(a)(i) and (ii), on page 12 of the attached Trust Agreement.

    First, there is a mixture of usual and unusual language.  The Trustees' first obligation is to act in Good Faith, which is usual for a Fiduciary, "and in or not opposed to the best interests of the Treasury".  [Emphasis added.]  The meaning of the emphasized language, which is unusual at its best, remains to be determined.

    Second, the three Trustees are charged with a Fiduciary Duty to act with "no reasonable cause to believe his or her conduct was unlawful."  This language invites interpretation on a case-by-case basis.

    When the three Trustees act, or fail to act, pursuant to these announced duties, then the Trust Agreement purports to immunize them from "liability," although it does not identify the kind of "liability" for which they might otherwise be liable if they were not immunized.  See id., § 3.05(d), page 16.

   Further, the Trust Agreement purports to provide the three Trustees with an absolute "advice of counsel" defense, so long as the Trust Attorney is hired pursuant to the Two Fiduciary Duties called "the Applicable Standard of Care" in this Trust Agreement.  Id., § 3.03 (b), page 12.

  Any ambiguity in the minds of the three Trustees is also going to be resolved in a special way under this Trust Agreement.  The three Trustees are not explicitily authorized to resolve ambiguities by asking a Court for Declaratory Relief to tell them what it is lawful to do, an action which Trustees are usually authorized to take.  Instead, they are to ask the FRBNY for "written instructions" which the three Trustees will be duty-bound to obey.  Id., § 3.05(g), pages 16-17.

A parallel post on "Insurance Claims and Bad Faith Law Blog" explores other aspects of the "AIG Credit Facility Trust Agreement," and the identity of the three Trustees and their Trust Attorney, at www.insuranceclaimsbadfaith.typepad.com.

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Federal Taxpayer Funds: The New Corporate Bond Insurance.

    The only corporate bonds being traded at this time are reportedly "investment-grade" bonds issued by "high-quality corporate borrowers."  Floyd Norris, "Off The Charts/Corporate Bonds Sell (If There's a Safety Net)" p. B3, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Saturday, April 18, 2009).  Those bonds are insured, if you will, by "government guarantees."  See id.  That of course means that they are insured by Federal Taxpayer Funds.

    Other types of financial devices, even with this form of 'insurance' which is about the only form of Bond Insurance available today, and even including "syndicated loans" which banks package up together and sell off as a separate item, are not doing nearly as well.  See id.

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"We Were Only Following Orders, er, Lawyer Memos": Lawyer Insurance?

    Newspapers report in greater detail than was previously available, that C.I.A. operatives inflicted torture in reliance on legal cover provided by Memorandums from government lawyers.  See, e.g., Mark Mazzetti and Scott Shane, "Memos Spell Out Brutal C.I.A. Mode of Interrogation" p. A1, col. 5 (New York Times Nat'l Ed., Friday, April 17, 2009).

    There are so many reactions and questions.  Some of the questions:  What type of Insurance Coverage, if any, would apply to the lawyers in question?  If any type of Insurance Coverage might apply to these lawyers, what Exclusions in those Policies, if any, may strip them of all Coverage?

Other reactions and questions are addressed in the "Insurance Claims and Bad Faith Law Blog" at www.insuranceclaimsbadfaith.typepad.com.

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"Insurance Companies, CDS's, Prove States Should Not Regulate," CEO Writes.

    Arguments in favor of a Federal regulator of Insurance Companies are presented by Tom Wilson, "Regulate Me, Please" p. A23, col. 2 (New York Times Nat'l Ed., Thursday, April 16, 2009).  Mr. Wilson is identified as the chief executive of Allstate Insurance Company.  Insurance Companies are regulated by the States.

    The arguments include the assertion that States "lack the expertise" to regulate complex securitized financial instruments.  See id.  So does everyone else, as we can see with our own eyes.  The Credit Collapse of 2007 - 2009 could not have happened without them.

    This is really an argument for no regulation at all.  If responsibility for regulation is shifted from those with experience at regulating Insurance Companies to those who have none, then there cannot be any regulation in any meaningful sense of the word, "regulation".

    As for financial creatures developed since 1980 or so, like Credit Default Swaps, if no-one can understand complex securitized financial instruments enough to regulate them, why would a Federal regulator be desired?  Why, especially, would this argument be made by an Insurance Company whose CEO writes that it did not trade in complex securitized financial instruments?

    To say again, this is really an argument for no regulation at all.  Business as usual benefitted some people very much, and most people not at all.  Business as usual is done.

    Parenthetically, this linked newspaper release contains a surprising admission.  The admission is that Credit Default Swaps were really Insurance after all, all these years.  Id.  The Insurance industry was among the crowd of once-supposedly smart people who used to say that Credit Default Swaps should not be regulated.  And that they were not "Insurance".  Certainly that CDS's should not be regulated by Insurance Commissioners.  Here is how many times the Insurance industry asked anyone to regulate Credit Default Swaps as Insurance:  _________.

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Life Insurance Companies and TARP: Less is Suddenly More.

    It has been well documented that Life Insurance Companies, which mostly made very bad securitization bets in recent years, desperately included Federal Bailout Funds or TARP money in their business models.  See, for example, recent posts here on March 31, 2009 and April 10, 2009.

    Now it is reported, in the wake of gathering restrictions on the use of Federal Bailout Funds from TARP, that one of the larger Life Insurance Companies, MetLife, has announced that it will not take TARP money.  Mary Williams Walsh, "MetLife Says it Won't Seek Aid for Troubled Assets" p. B6, col. 5 (New York Times Nat'l Ed., "Business Day" Section, Tuesday, April 14, 2009).

    MetLife Insurance Company is reportedly already satisfied with "a separate federal program, operated by the Federal Deposit Insurance Corporation, to raise about $397 million".  Id.

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Goldman Returning Federal Funds?

    Newspapers report that Goldman Sachs wants to return the Federal Funds it received to bail it out in down times.  After it spent the Federal Taxpayers' money, now Goldman Sachs reportedly perceives itself as enjoying "up" times.  Also it does not want to be restricted from pursuing again the lines of success, bonuses and rewards it became used to.  See Louise Story, "Goldman Profit Tops Forecast, and a Share Sale is Planned" p. B1, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Tuesday, April 14, 2009, published online under the headline, "Goldman Using Share Sale to Return Bailout Funds".

    The Treasury Department and the Federal Reserve are reportedly considering this request.  Their permission is required for Goldman Sachs and any other bailout patient, reportedly, to pay the Federal Taxpayer Funds back early.

    The payback demanded should include a good part of the $12,900,000,000.00 or $12.9 Billion which Goldman Sacked from AIG.  That amount was 100% of the face value of Credit Default Swaps or Credit Insurance Policy Limits by another name, which the Federal Government foolishly paid to Goldman through AIG.  See the post here on March 24, 2009, "Goldman Sacks Federal Treasury".  Now is the time to negotiate what before was not negotiated, but should have been.

    Further, Goldman's payback should also include its agreement to accept the market value or less of the remaining Credit Default Swaps it was issued by AIG, the face value of which was some $6 Billion.  See id.

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LIFE Insurance Companies Seek TARP Cover For Bad Securitization Bets.

    At least one of the Life Insurance Companies that made poor bets on securitization and has tried to apply for Federal Bailout Money by buying a bank, has been turned down.  Genworth Financial, Inc. also reportedly sells Mortgage Insurance.  Lu Wang, "Boeing, Boston Scientific, Genworth, MEMC: U.S. Equity Preview" (Bloomberg.com, Friday, April 10, 2009).

    It may be that Genworth has failed to qualify for the Troubled Asset Relief Program ("TARP"), or Bailout, because the Office of Thrift Supervision finally acted in response to a deadline that Genworth did not meet in order to buy a bank in the first place.  See, e.g., Andrew Frye, "Genworth Fails to Qualify for TARP; Shares Plunge (Update 2)" (Bloomberg.com, Thursday, April 9, 2009); David S. Hilzenrath, "Richmond Insurer Fails to Qualify for TARP/Genworth Tried to Become a Thrift" (Washington Post Online, Friday, April 10, 2009).

    Not one Property and Casualty Insurance Company has applied for a Bailout.  When these newspaper reports refer only to "insurance companies," sometimes they do not say it.  What they are referring to, of course, is LIFE Insurance Companies, ONLY.

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Federal Deposit Insurance Corporation Becoming Federal LOAN Insurance Corporation.

    The Federal Deposit Insurance Corporation provides security for bank deposits.  Literally.  Its mission is to provide insurance for deposits.  Its ability to take on obligations is capped by Federal Law at $30 Billion or $30,000,000,000.00.  See Andrew Ross Sorkin, "Dealbook/'No-Risk' Insurance at F.D.I.C." p. B1, col. 1 (New York Times Nat'l Ed., Business Day Section, Tuesday, April 7, 2009).

    Now it is proposed that the FDIC also become the FLIC, the Federal LOAN Insurance Corporation.  Under the pending Treasury Department proposal for a "public-private initiative" to buy toxic assets, the FLIC, er, FDIC would insure up to 85% of all investments by private parties.  Unfortunately, the projected exposure to insure up to 85% of all investments is reportedly between $1 Trillion and $2 Trillion, or between $1,000,000,000,000.00 and $2,000,000,000,000.00.  See id.  The cap of $30 Billion would stay.  The current Administration clearly does not want to ask Congress to change the cap. 

    This is where lawyers and CPA's apparently have rushed in, both groups clearly consulted for the purpose of providing desired opinions.

    Unknown, unnamed "lawyers" gave an interpretation of this Federal Law in October, 2008 to Ms. Sheila Bair, head of the FDIC.   They reportedly interpreted the $30 Billion cap to apply to "contingent liabilities," meaning the "expected cost" to the FDIC. 

    "That's how we've interpreted it," Ms. Bair relayed.  Id.

    When the lawyers were done, unknown and unnamed CPA's stepped in to tell Ms. Bair and the FDIC that they project no losses to the FDIC for insuring $1 Trillion in investments under the new Treasury Department "public-private initiative".  The "expected cost" to the FDIC is thus nothing.

    "Our accountants have signed off on no net losses," Ms. Bair reported.  Id. 

    In the real world, the "insurance" proposed to be provided by the Federal Loan Insurance Corporation, without changing its name from the Federal Deposit Insurance Corporation, is really a guarantee by the Federal Taxpayer that will not be paid, in the event of a disaster, by unknown, unnamed lawyers and CPA's.  The payments then will come strictly from the Federal Taxpayer.  Guaranteed.

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Guiding Principles for Claims Handling.

    For a long time, Insurance Companies issuing Insurance Policies of all kinds have attempted to write "Guiding Principles" for handling insurance claims in Good Faith.  It is to their credit that they have done so.

    These written Principles may often be a guide to standards of handling claims in either third-party cases, which involve liability insurance claims,  see First State Insurance Co. v. Utica Mutual Insurance Co., 870 F. Supp. 1168, 1176 n. 17 (D. Mass. 1994), aff'd mem., 78 F.3d 577 (1st Cir. 1996):  Download First State insurance Co. v. Utica Mutual Insurance Co. (D. Mass. 1994), affd mem., or in first-party cases involving the policyholder's own claim under her, his or its own policy of insurance.  See Glassalum International Corp. v. Albany Insurance Co., 2005 WL 1214333 *4 (S.D.N.Y. May 23, 2005)(case involved claims for Property Damage resulting from Hurricane)(subscription required for Westlaw):  Download Glassalum International Corp. v. Albany Insurance Co. (S.D.N.Y. May 23, 2005).  See Appendix 8, Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Thomson-West Publishing Co., Third Edition in progress).

A corresponding post on this same subject can be found at "Insurance Claims and Bad Faith Law Blog" at www.insuranceclaimsbadfaith.typepad.com.

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Property Insurance in Florida.

    Florida Property Insurance Premiums across the board will increase by at least 10% during the coming year, if any one of a number of pending bills passes the Florida Legislature before its current session ends in May, 2009.

    If none of the pending bills passes, it is likely that Florida residential property owners will pay even more in Property Insurance Premiums.  For example, one purpose behind the bills is to place Premium increases for Citizens Property Insurance Company, run by the State, on what the legislators call a "glide path" of gradual increases.  Without new laws, apparently Property Insurance Premiums for all Companies including Citizens are destined for huge increases.

    One reason is the Florida Hurricane Catastrophe Fund.  Its Chief Executive is reported to say that the Cat Fund has $4,000,000,000.00 or $4 Billion on hand, "a few billion more through bonds," and an $18 Billion or $18,000,000,000.00 gap to cover losses should a major Hurricane strike Florida again.  The claims payment gap would be made up by payments extracted from every Florida property owner, it is reported:  Shannon Colavecchio, "Stormy Topic Dawns: Property Insurance" (St. Petersburg Times Online, Friday, April 3, 2009).

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Health Insurance Companies Put Preexisting Conditions on Negotiations, Fear Competition: UPDATE.

    This updates a post here of Friday, March 27, 2009.

    David Lazarus writes in the Los Angeles Times that the proposal announced last week by Health Insurance Companies to drop a pre-existing conditions Exclusion in exchange for a universal Federal mandate to buy Health Insurance, was actually "disingenuous."  David Lazarus, "Health Insurers Pull a Fast One in Proposed Reform" (Los Angeles Times Online, Sunday, March 29, 2009).  Mr. Lazarus writes that the Health Insurance Companies' proposal hides their option to charge higher Premiums to sick people as they do now -- and as their proposal seems to say they will not do, in exchange for a Federal mandate.

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"Mark-to-Management" Change: Bankers' Credit Insurance Profit, Taxpayers' Expense.

   Current accounting rules binding investment houses including banks require so-called "assets" to be marked at current market value.  A lot of "assets" are insured by Credit Default Swaps, an unregulated form of Credit Insurance favored by large institutions like AIG. Presumably, even Credit Default Swaps will not pay more than an insured asset is worth. 

    Right now, and for awhile in the past, the market value of many of these toxic assets is just not as great as the people holding them purchased them for.  These people thought that they were so smart because they made so much money.  If they did not make as much money as they once thought they did, they would have to admit to themselves and to us that they were never so smart as all that.  That is an admission they cannot or will not make.

    The investment banks want to change current accounting rules accordingly.  The changes they want are known as "mark-to-management" accounting.  They want to value their "assets" at whatever price they put on the assets, regardless of what the market will bear.  See Floyd Norris, "Marketplace/Making Bank Losses Vanish" p. B1, col. 1 (New York Times Nat'l Ed., Business Day Section, Wed., April 1, 2009), published online with the headline, "Banks Are Set to Receive More Leeway on Asset Values".

    This change is obviously anti-capitalist.  They bargained for the market valuing their assets at the time that they laid out money for those assets.  Now they want to artificially inflate the value of those so-called assets.

    There is more than ego at work here.  The investment bankers want to be paid for their "assets" at a value equal to what they paid, or as close to that amount as they can get.  They want Credit Insurance to do this for them.  To say again, presumably not even Credit Default Swaps will pay a price greater than the "value" of the asset -- and these people want to change the rules to continue to overvalue their assets in the judgment of many.  At whose expense, it might well be asked?  The Federal Taxpayers have paid large amounts of money on account of AIG's Credit Default Swap insurance obligations -- even though there was no insured "loss" and at 100% of the "value" of those obligations as priced by the people who claimed them.  See "Goldman Sacks Federal Treasury," posted here on March 24, 2009.  These are the same people who insist on changing the accounting rules to keep their control over the "value" of these assets.  Marking down those assets may mark down the value or price which they are paid by Federal Taxpayers. 

    This is now how regulated Credit Insurance works.  It is not how even unregulated Credit Insurance ought to be allowed to work.

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Sector Snapshot for Insurance is Here!

    Courtesy of The New York Times, once again the Sector Snapshot for Insurance is here  As always, click first on the "Financials" Category, then click on "Insurance" on the pullout bar that comes from Financials.

    Also as before, the Insurance Sector is dominated by failing Life Insurance Companies, God bless us.

    The published Sector Snapshot for Insurance is on p. B10, col. 1 of today's Business Day Section of the National Edition of The New York Times.  It charts out an even leaner picture.  Only Aon is in the positive growth quadrant, ahead of the S&P 500 both over the last week and over the last year.

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