Claims And Issues

MOVE FEDERAL RESERVE TO BORDER. HE WOULD NOT GET IN.

The current chief prospect for the Federal Reserve owes $75,000 in back taxes.  For 5 years.

If he were at the border trying to get into the United States, they would not let him in.

But he is not.  He is in Washington, D.C. trying to get into the United States Federal Reserve.

Odds are he is likely to make it in the current Federal Government.

See Alan Rappeport, Jim Tankersley and Glenn Thrush, Fed Pick Who Owes Taxes is Latest Example of Trump's Vetting Woes, New York Times, Friday, March 29, 2019, p. B3  (New York Times may charge for online access).

Please Read The Disclaimer.  This blog article ©2019 Dennis J. Wall.  All Rights Reserved.

WIND 2019: LET THE CONFERENCE BEGIN!

On its website, the Windstorm Insurance Network (WIND) describes itself as "the only member association to bring together both defense and policyholder professionals to connect, learn, and engage on important topics in the property/windstorm insurance claims industry."  I will be taking a look myself this week.

Starting tomorrow, Thursday the last day of January in 2019, and scheduled to continue on Friday, February 1, 2019, I will be attending the sessions I signed up for a couple of months ago.  They include catastrophe claims handling and Hurricane damages coverages.  I would like to meet up with many participants especially the defense and policyholder professionals that make up the announced membership of WIND, in other words, the people who represent the people who make and deny insurance claims every day but especially after Hurricanes and earthquakes and wildfires.

The 20th Annual Windstorm Insurance Conference is set for Jan. ​30 - Feb. 2, 2019 at the Walt Disney ​Dolphin Resort.  (I will not be staying there.  I will drive back and forth from my home in the Orlando area.  It's a lot less expensive.)

Please Read The Disclaimer.  ©2019 Dennis J. Wall.  All Rights Reserved.

NOT EXCLUSIONS EXACTLY. "INELIGIBLE RISKS" ON THE RISE.

When an insurance carrier declines to issue an insurance policy because the risks are too rich for its blood, the insurance company is not declining coverage under a policy because of an exclusion.  Instead, it is declining to issue a policy in the first place because of "ineligible risks."  Ineligible risks are on the rise because rather than denying already-issued coverage on the basis of exclusion, carriers are declining to cover certain risks at all.  See Ron Hurtibise, "Insurers Widening Lists of Things They Won't Cover" (Sun-Sentinel Online [Ft. Lauderdale, Florida], posted April 24, 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements).  You are invited to visit the author's website here.  All rights reserved.

 

PRIVATIZING PRISONS FOR PROFIT? REPORTS ....

Who has the Coverage?

 

          Reports of despicable conditions in for-profit prisons contain opinions.  These reports also contain evidence of facts.  Photographs and eyewitnesses have recorded these conditions in a private prison in Mississippi recently:

• "Dirt, feces and, occasionally, blood are caked on the walls of cells."
• Prisoners with treatable medical conditions, like glaucoma, do  not receive medical treatment.  When these individuals are released, their condition has deteriorated to the point where the condition is untreatable.
• Guards, who are paid a small hourly wage, spend little time in the solitary-confinement block.  Prisoners in solitary confinement sometimes set fires to their bedding in order to get the guards' attention and, even then, the guards sometimes do not respond.

These eyewitness accounts and photographic evidence and more are reported for example by Erica Goode, "Seeing Squalor and Unconcern in Southern Jail," p. 1, col. 1 (New York Times Nat'l ed., Sunday, June 8, 2014).  The Mississippi prison in question is run by Management and Training Corporation from Utah.

           Management and Training Corporation made one comment for publication.  They blamed these problems on the corporation they replaced in 2012, one GEO Group.  Otherwise, they declined to comment, saying they would not comment because they have been sued.  This is unusual.  Even aside from the fact that due diligence probably revealed these conditions before Management and Training Corporation took over the running of this Mississippi prison, this is 2014.  It has now been two years since CEO Group was in charge, and this is still unusual.  Many large corporations stage large press campaigns to "push back" against lawsuits.

           Management and Training Corporation is entitled to a defense.  Questions abound about how they will defend themselves.  Which of their carriers will fund their defense?  What sort of insurance coverage will provide them indemnity if their defense fails?  Who will cover these people against such reports?  And what sort of exclusions could apply, intentional damages exclusions for example?  So much depends on what Management and Training Corporation has to say about its prison-keeping.  When they start talking we will know more.  Until then, questions continue to pile up.

 

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

Related articles

Allocation, Indemnity, Defense Insurance Coverage Issues: Part Two.

Seeing Squalor and Unconcern in Southern Jail

CAVALCADE OF RISK 206 EDITION.

You and I are in for a treat.  Click the hyperlink below for an alternative version of the lender force-placed insurance crisis:

 

 http://69.89.31.201/~thedecpa/force-placed-insurance-mistakes/
Force Placed Insurance ? Mistakes Made by Homeowners and Lenders (And What to do Instead)
 
This post discusses the problems inherent in the current/past arrangement of force placed insurance, and what should be done instead.

 

Continuing with alternative viewpoints, here is a post on a different subject, guns:

Blog URL: http://insureblog.blogspot.com/
Post Name: CCW, Guns and Insurance
Post URL: http://www.insureblog.blogspot.com/2014/04/ccw-guns-and-insurance.html
Summary: InsureBlog's Henry Stern has some potentially disturbing news for folks with their Concealed Carry permits.

 

Computer problems this morning!  More to come later. In the meantime, the next Cavalcade host is Ms. Rebecca Shafer, www.workerscompdaily.com.

 

 

 

 

 

Counting All Hurricanes! Forecasters Fumble, Rockies Crumble, Florida Humble.

   One of the enduring legacies of the George W. Bush Administration was its award of lucrative (no-bid?) contracts to meteorologists located at Colorado State in the Rocky Mountains to issue Hurricane forecasts for Florida.

   Now it is reported that Hurricanes were, shall we say, 'under-reported' in past years.  See Ken Kaye, published in the Orlando Sentinel on Sunday, November 6, 2011 under the headline, "Storm of Controversy:  Did Experts Miss 75 Hurricanes?" p. B1, col. 1, published online at Florida Sun-Sentinel on Saturday, November 5, 2011 as "Hurricane Center:  More Than 240 Tropical Systems Missed". 

   If Hurricanes and other Weather Disasters are not forecast accurately, how can Homeowners, Property Owners, Landlords, Tenants, and their Insurance Companies reasonably be expected to adequately prepare for Claims which follow these Disasters?

   The author will co-present "Disasters in Insurance:  The Sequel" on Friday, November 18, 2011 live from Noon to 1:00 PM ET via the West Legal Education Center website.  Thereafter the Webinar will be available on demand, 24/7, on the website.  Here is a handy link to the prequel Webinar broadcast live on October 21, 2011:  http://westlegaledcenter.com/program_guide/course_detail.jsf?courseId=41335829

Please Read The Disclaimer.

Hurricane? Tropical Storm? Irene is a CATASTROPHE.

   Call it Hurricane Irene or call it Tropical Storm Irene.  By any name, it was a Catastrophe.

   Estimates of Insured Losses were greater than actual Claims after Irene passed through, as of August 29, 2011 anyway.  Stocks of Insurance Companies led a rise in share prices of shares traded on the New York Stock Exchange as a result.  E.g., Noah Buhayar, "Irene's Estimated U.S. Insurer Cost Drops to $2.6 Billion; Hartford Climbs" (Bloomberg.com, Monday, August 29, 2011); Associated Press copyrighted report, "Insurers Drive Stocks Higher After Weak Irene" (Published Online by the Los Angeles Times, Monday, August 29, 2011).

   However, in addition to Property Damage Claims, more "exotic" kinds of Claims not widely known to the public or the press, almost certainly are yet to be made.  They include "ALE" or "Additional Living Expense," cf. Noah Buhayar - Bloomberg, supra (not using the term, but pointing out that   Insured Losses "may include hotel and living expenses for policyholders"), and Business Interruption Claims.  See, e.g., id.; Mary Williams Walsh, "Irene Adds to Bad Year for Insurers" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Monday, August 29, 2011).

   Irene is clearly a Catastrophe.  The Insurance Information Institute reportedly estimates $7 Billion or $7,000,000,000.00 in losses, placing Irene among the "Top Ten" CATClaims in U.S. history.  Mary Williams Walsh - New York Times, supra.

   Likely results will include less Property Insurance Coverage available to people and businesses located on the Coasts.  See, e.g., Noah Buhayar - Bloomberg, supra; Mary Williams Walsh - New York Times, supra.

   Without endorsing any answers in advance, you and your clients may wish to access "Bucks" blog on the New York Times Website if you have Insurance questions as a result of Hurricane Irene, or for steps you and your clients might take before the next Catastrophe, you might consider scouring the Boston Globe Online for Mark Jewell, Associated Press Copyrighted report, "Insurance Tips to Keep in Mind as Irene Closes In" (Published at Boston Globe Online, Saturday, August 27, 2011).

    The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  As a result, the ACI will offer you a large  discount if you choose to register for the Conference.  In order to register and receive this discount from the ACI, contact Amanda Waltmon, Esquire, Legal Analyst and Program Director at the ACI and the deadline most recently announced by the ACI for requesting this discount is August 31, 2011.  Ms. Waltmon's direct dial is 212.352.3220, ext. 5231 or send Ms. Waltmon an EMail at [email protected].  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.

Please Read The Disclaimer.

One Bankruptcy Judge to Decide BP Fiasco Insurance Coverage Issues?

    Recent newspaper reports reflect anxiety over an unlikely possibility:  that BP will file for Bankruptcy.  BP's exposure to many Damages Claims of many kinds may force it to seek reorganization under the U.S. Bankruptcy Code, it is reported.  See, for example, John Schwartz, "Weighing the Possibility of Bankruptcy for BP/Liability Claims Expected to be Enormous" p. A11, col. 5 (New York Times Nat'l ed., Saturday, July 10, 2010).

   If BP filed for Bankruptcy in the United States, then under the U.S. Bankruptcy Code and established practice, the many Insurance Coverage Issues arising out of the Drilling Explosion Fiasco may well be decided by one (Bankruptcy) Judge.

   However, why must BP file for protection from creditors and Claimants in the United States?   Perhaps it will seek that protection in the Courts and Laws of the United Kingdom.  It used to be called "British Petroleum" for a reason.

Please Read The Disclaimer.

BP Oil Disaster Hits Insurance Sonar Screen.

   "BP brought another $25 million to Florida on Tuesday, [June 8, 2010,] but instead of a thank you they got a lot more criticism."  Brent Kallestad, "Florida Politicians Demand More, Faster Claims Monies From BP" (Insurance Journal Online, Thursday, June 10, 2010).

   Those ungrateful "Florida politicians".  What were they thinking?  Not grateful for a disaster that has caused BP to try to purchase absolution at a lower price than Florida Juries might otherwise award and assess in Compensatory and Punitive Damages?  Not sufficiently thankful for potential elimination of Florida's Number One Industry -- Tourism -- on the Florida Panhandle Beaches, and perhaps at other Florida locations to come depending on where BP's oil plumes land?

   Not sufficiently grateful, indeed.  BP is trying to buy their way out of a potentially much higher Judgment.  And keep much of the Billions it has made as a result of its flawed business model which clearly requires other people to shoulder much or all of the risk of this deepwater drilling fiasco, while BP receives Billions of Dollars in profits that result.  Grateful?  Get real.

   This being business, investors have more or less naturally taken a business view of BP's exposure.  BP's stock is trading today for an amount that is less than the amount by which the share price has fallen in the past two months:  Down $33.30 per share from some $62.50 a share in mid-April, to $29.20 a share at the close on Wednesday, June 9, 2010.

   At the same time, BP's costs of doing business are increasing in many ways in addition to the obvious prospects of liability for cleanup costs, economic damages, other Compensatory Damages, and Punitive Damages:  "The annual cost to insure $10 million in BP bonds rose by $10,600 to $36,800," according to a report published in the Wall Street Journal on Thursday, June 10, 2010.    See Guy Chazan and Stephen Power, "U.S. Ramps Up Tab On BP" p. A1, col. 3 (Wall Street Journal, Thursday, June 10, 2010).

Postscript Sunday, June 13, 2010 to the above post which was originally published here on Friday, June 11, 2010: 

The Florida perspective on the continuing BP disaster of death and destruction is also explored in an informative post on "Venture Blog" on Monday, June 7, 2010, written by Robert Trigaux, "Will BP Oil Ruin Florida Coastline Because of Inadequate Resources to Clean Up the Mess?" 

Please Read The Disclaimer.

Risk Management Certification Sources.

    Sources of certifications for Risk Managers are reaching out for tuition.  Demand grew for Risk Managers to bear a degree or designation to display that the current generation of Risk Managers knows what they are about, following the advent of the Great Recession, in other words, when the bottom fell out of the world economy.  Parenthetically, many Risk Managers could have told you what was coming before the Great Recession came.

The many sources of certifications for Risk Management students to pursue are outlined by Jeremy Greenfield, "Risk Managers Get Certified/As Profession Grows, Demand Increases for Standards-Setting Examinations" p. B8, col. 3 (Wall Street Journal, Thursday, April 1, 2010).

Please Read The Disclaimer.

Excess Insurance, Risk Management, and Reserves.

    **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.** 

   Excess Insurance incepts, or begins its Coverage, over and above Primary and other underlying Insurance.  In an interesting article, Robert S. Schimek, Chief Financial Officer of Chartis (formerly known as AIG's Property and Casualty lines of business, according to the article), is quoted as saying that Excess lines are "among the most complex lines of business to reserve for."  Robert S. Schimek, quoted by Mary Williams Walsh, "A.I.G. Posts Loss of $11 Billion on Higher Claims" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Saturday, February 27, 2010).

   Mr. Schimek observed that two (2) lines of Insurance accounted for some 90% of the additional monies which AIG posted to its Reserves on Friday, February 26, 2010:  Excess Worker's Compensation and Excess Casualty.  Id.

Please Read The Disclaimer. 

Derivative Contracts (Some) Feature Bond Insurance, So ... Regulate as Insurance.

    **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**

   Derivatives contracts are complex.  So complex that in order to understand them, the great majority of commercial investors (let alone average people) have to hire "quants" or mathematical gurus to guide them through the complexities.

   The complexity of derivatives contracts is not to be minimized nor denied.  They are deliberately made complex.  Since they are so complex, they have largely escaped regulation.

   Including Insurance Regulation.  Derivatives contracts offer "insurance, for example, on trading positions".  Louis Uchitelle, "Elders of Wall St. Favor Tight Rein" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Wednesday, February 17, 2009).

   A good explanation of the purposes and results of derivatives contracts is given by Christopher Emsden, "Derivatives Promise Pain for Italians" p. C2, col. 6 (Wall Street Journal, "Money & Investing" Section, Thursday, February 18, 2010) subscription required to access Online Edition.

   Mr. Emsden explains in his report that the debts assumed under derivatives contracts can last for 20 to 30 more years.  Greece reportedly used them on a large scale to avoid European Union Rules on the amount of debt member states are allowed to carry.  Municipalities in Italy have reportedly entered into $48,000,000,000.00 or $48 Billion worth of derivatives contracts.  "That is equivalent to almost a third of all debt held by Italy's regions, provinces and municipalities."  Id.  Italian municipal governments often used derivatives contracts "to protect public bond issuers against adverse interest-rate movements," Mr. Emsden reports.

   Not being very well versed, myself, in the world of derivatives contracts or in finance for that matter, I take this to mean that the municipal governments used derivatives contracts to insure against unwanted increases in the interest rates that they would have to pay on their bonds; in the event that the interest rate exceeded a certain amount, derivatives contracts would provide insurance which would pay all or part of the excess.

   Different kinds of derivatives contracts may serve the different purposes of different kinds of Insurance Policies.  The kind of derivatives contracts that are used by munis "to protect public bond issuers against adverse interest-rate movements" walk and talk like Bond Insurance.  Munis in the United States have suffered with Bond Insurance Companies and Credit Rating Companies, as readers of this space know.  See generally the posts filed on this site in the Category of "Bond Insurance".  It appears that in the future, munis in the U.S. may soon feel the same pain that munis in Italy are reportedly experiencing, with derivatives contracts, i.e., unregulated Bond Insurance.

Please Read The Disclaimer.

Homeowners, Condomium Owners: Review of Association Records.

   Review of records that are required by law to be kept by Homeowner's Associations is available to Homeowners in California.  See Stephen Glassman and Donie Vanitzian, "Associations/Homeowners Have Legal Right to Review Association's Records" (Los Angeles Times Online, Sunday, January 10, 2010).

   California Law limits the fees which Associations may charge to review and copy the documents.  Moreover, under California Law it is reportedly the Association which must make the records available, not for example the Real Estate Manager.  Id.  Parenthetically, note that Real Estate Managers are often made "Additional Insureds" by Endorsement to the Association's General Liability Insurance Policy.

   Suggestion to Associations, and to Homeowners and Condominium Owners alike:  If there is a similar Law concerning production of Association records in your jurisdiction, as there apparently is in California, then a request for the production of those documents should ordinarily be sufficient by referring in the request to all the records identified under that Statute.  See id.

   Please Read The Disclaimer.

Banks Today, Lloyd's of London Yesterday: Lessons to Learn.

   Fifteen years ago or so, Lloyd's of London allowed its underwriters to reinsure the same risks many, many times.  When the risks became losses, Lloyd's "Names" lost their shirts because they paid so many Claims.  The cures for that fiasco included "improving transparency about where risk is accumulating, centralizing oversight of the activities of those risk-takers, and bundling old, impaired assets into a separate unit to free up capital."  Simon Clark and Kevin Crowley, "Lloyd's of London, 'RBS of 15 Years Ago,' Has Lessons for Banks (Update 1)" (Bloomberg.com, Tuesday, December 15, 2009), citing Lloyd's Chair Peter Levens.

   "The reinsurance bubble" suffering which was caused by some at Lloyd's and endured by many 15 years ago, "is comparable to the subprime crisis" now, according to an Insurance industry official.  Id.  "'We've learned about aggregation of risk,'" says another Insurance industry official.  "'The banking industry didn't seem to have in place the same mindset that looked at causality, and underlying causality -- if this went, that could go.'"  Id., quoting Dane Douetil, CEO of Lloyd's Insurer Brit Insurance Holdings PLC.

   Please Read The Disclaimer.

The Hurricanes Are Coming, The Hurricanes Are Coming!

    Is your Insurance Coverage prepared for Hurricanes?  The Hurricane Season officially begins on Monday, June 1, 2009.  Ready?  Explore the issues addressed in this report from Slate, by Martha C. White, "Hurricane Prudence/Is the Battered Insurance Industry Ready for the Storm Season?" (Sunday, May 31, 2009).

    The two main issues addressed in this report are the reasons why Property and Casualty Insurance Companies are so much sounder financially than Life Insurance Companies, and some of the changes in Florida Insurance since the 2004 and 2005 Hurricane Seasons struck the State.

    Speaking of Florida and incoming Hurricanes, President Barack Obama reports that Federal Government statistics reflect that "a huge percentage of people" has not experienced a Hurricane.  The statistics reflect that nearly half of the population on the Eastern Seaboard have recently moved to cities there, without experiencing a Hurricane.  See Steven Thomma, "Obama:  Hurricane Readiness is Residents' Responsibility" (McClatchy Newspapers Online, Friday, May 29, 2009).   The Federal Government has provided a potentially useful web site for information and/or planning for Hurricanes:  www.ready.gov.

    Florida newspapers are providing their Hurricane guides at about this time.  Check out in particular "What You Should Know About Your Insurance" in the Orlando Sentinel Hurricane Guide (Sunday, May 31, 2009).  And see also this piece in the Orlando Sentinel's Guide, "How to File an Insurance Claim After the Storm," or contact one of the many Florida State Government agencies, and Private Insurance Companies, listed at "Hurricane Central" on the web site of the Florida Insurance Council, www.flains.org.

Please Read The Disclaimer.

Property Insurers' Agenda Increases Premiums of Florida House.

    Property Insurance Companies' proposed legislation passed the Florida House.  The bill awaits the Florida Senate and the Governor.  Among other long-sought features, the Property bill would:

• Increase Citizens Property Insurance Company Premiums by 10% per year.
• Enable a Commission to recommend elimination of all or most of the Premium discounts for Hurricane Mitigation measures recently enacted into Florida Law -- measures to strengthen the construction of Florida Homes that were recently demanded by Property Insurance Companies.
• Increase Property Insurance Premiums including Homeowner's Insurance Premiums apparently, by 10% per year.
• Restrict Policyholders and other Insureds on adjusters they hire for assistance on their Homeowner's and other Property Insurance Claims, and enable another Commission to recommend more restrictions.

The potentially biggest feature of this bill even when it is put alongside these other very big features?  "Gradually reduce the $29 billion Florida Hurricane Catastrophe Fund by $12 billion."  Julie Patel, "Rates Would Rise Under Legislation/Florida House Passes Sweeping Property Insurance Bill" (South Florida Sun-Sentinel.com, Friday, May 1, 2009).

Please Read The Disclaimer.

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).

Please Read The Disclaimer.

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.

Please Read The Disclaimer.

"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.

Please Read The Disclaimer. 

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.

Please Read The Disclaimer.

"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:  _________.

Please Read The Disclaimer.

 

AIG: Still Splitting and Selling Off, By Another Name.

    "Mr. Bernanke said [AIG] became a 'hedge fund, basically, that was attached to a large and stable insurance company' and made 'huge numbers of irresponsible bets.'" Federal Reserve Chair Ben Bernanke, quoted by Edmund L. Andrews and Jackie Calmes, "Fed Chairman Backs Call For Higher Spending" p. A14, col. 1 (New York Times Nat'l Ed., Wed., March 4, 2009).

    AIG is breaking itself up and selling itself off in pieces.  AIG is selling a controlling interest in its two biggest units to Federal Taxpayers in exchange for more Federal Taxpayer Funds.  The two units are to be put in trust, and the Federal Taxpayers will receive 70% to 75% interests in American International Assurance (AIA) and American Life Insurance Company (Alico).  Alico in particular was recently taken off the market for a private sale after AIG received offers it considered all too low.  The current arrangement with the Federal Government is AIG's way of selling itself off by another means.  Francesco Guerrera, "AIG to Split in Exchange for Lifeline" p. 1, col. 2 (Financial Times, Monday, March 2, 2009).

    The reported purpose of the new deal is to leave AIG, by whatever name, in the Insurance business.  Period.  See Mary Williams Walsh, "A Remake of A.I.G. Is the Goal of Rescue" p. B1, col. 6 (New York Times Washington Edition, Business Day Section, Tues., March 3, 2009).  In the words of former AIG Chair Maurice "Hank" Greenberg, there will "never be another AIG as we knew it."  Maurice Greenberg, quoted by Brady Dennis, "AIG Posts $61.7 Billion Loss, Faces Grim Future" p. D1, col. 6 (Washington Post, Tuesday, March 3, 2009).

    There is a dispute apparently among newspaper reports whether this new agreement represents the "third bailout" of AIG by the Federal Government, e.g., Brady Dennis, "AIG Posts $61.7 Billion Loss, Faces Grim Future/Insurer Warns It May Need More U.S. Help" p. D1, col. 6 (Washington Post, Tuesday, March 3, 2009); Brady Dennis, "Ailing AIG to Receive Access to More Cash/Insurer Expected to Report Record Losses" p. A1, col. 5 (Washington Post, Monday, March 2, 2009),or the "fourth intervention" by the Federal Government in favor of AIG since September, 2008.  Andrew Ross Sorkin and Mary Williams Walsh, "U.S. Said to Offer $30 Billion More to Help Insurer/4th A.I.G. Intervention" p. A1, col. 6 (New York Times Washington Edition, Monday, March 2, 2009).

    Parenthetically, the linked Times report tracks these three previous "interventions" up until now:  (1) September, 2008:  The Federal Reserve loaned $85 Billion to AIG secured by AIG's "warrants" for just a hair less than 80% of AIG shares; (2) October, 2008:  The Federal Government made a $38 Billion "facility" for the use of AIG's "securities lending business," and also provided AIG access to "a new commercial paper program"; and (3) November, 2008:  The Federal Government "restructured" its original loan terms with AIG in a number of ways, including reducing the principal of the original rescue loan to $60 Billion, extending the repayment period from two years to five years, "injecting" $40 Billion in new money into AIG, all for a total commitment of $150 Billion in Federal Taxpayer Funds into AIG, the Times reports.  Id. 

    Once again:  The reason for all this splitting up and selling off?  The Insurance operations of AIG are reportedly as profitable now as they ever were.  The reason for separating the successful Insurance operations from fantastic failures of finance including so-called "financial services divisions" was previously posted here many times:  AIG entered many derivatives contracts and made much money, but it did not back up its derivatives commitments with sufficient capital reserves and it was not regulated in doing so  When Standard & Poor's was poised this week to again lower AIG's credit ratings, another collateral call round would have been triggered which AIG could not afford to meet.  Before that could happen, as reported for example by Sorkin and Walsh, supra, the Federal Government "intervened," again.

    Derivatives.  Credit Default Swaps.  Securitization.  No regulation.  No Reserves.  How is that all going, again?

Please Read The Disclaimer.

 

Credit Default Swaps: Who Will Survive Them?

    AIG continues to lead.  They are the fastest-falling "Insurance Company" in the current world of finance.

    Reportedly, AIG faces a deadline of February 28, 2009 or thereabouts -- tomorrow.  The reason for the deadline is left unstated.  Mary Williams Walsh and Michael J. de la Merced, "As A.I.G.'s Losses Grow, Its Survival Options Shrink" p. B5, col. 1 (New York Times Nat'l Ed., Business Day Section, Wed., February 25, 2009).

    Among AIG's alternative choices before tomorrow's deadline are to continue trying to raise capital by selling some of its subsidiaries, or to continue trying to raise capital by asking for more Federal Taxpayer Money in exchange for a Federal Taxpayer share of its business.

    The first alternative, to continue to try to raise capital by selling some of the AIG subsidiaries, is not going as well as AIG might have hoped.  AIG is reportedly not receiving the size of bids that it anticipated.  Its subsidiary, American Life Insurance Company or "Alico," for example, would seem to be an attractive investment in untapped markets of consumers who have not yet been exposed to Life Insurance products.  Alico has operations in some 55 countries.  However, the bids that AIG has received to date, including from MetLife and AXA, are so small in AIG's estimation that AIG reportedly may take the "for sale" sign down from Alico. 

    That would leave the alternative of asking for more Federal Taxpayer Money.

    The unannounced reason, touched upon in the linked newspaper report, for these hard choices for AIG?  AIG issued many Credit Default Swaps.  As a standard part of all CDS arrangements, the issuer agrees to uphold a certain Credit Rating.  If AIG, for example, fails to maintain the specified Credit Rating, it will face a collateral call under these CDS's to immediately post the full amount of each of these CDS's.  (The people indemnified by these guarantees are among the few who still find any credibility in what Credit Ratings Companies have to report.)  That is more money than AIG probably ever had, and it is certainly more money than AIG has on hand now.

    Credit Default Swaps.  Unregulated at the Federal level, unregulated at the State level.  How are they going?

Postscript on Saturday, February 28, 2009:

See generally Lauren Silva Laughlin and Richard Beales, "BreakingViews.com, Spreading Pain In A.I.G.'s Bailout" p. B2, col. 1 (New York Times Nat'l Ed., Business Day Section, Friday, February 27, 2009).

Please Read The Disclaimer.

Director's and Officer's Risk Management Included in Financial Fiduciary Duties.

    Fiduciary Duties include Risk Management.  Whether or not people sitting on corporate Boards of Directors had the duty to act as a Fiduciary on issues of Financial Risk Management, they apparently are seen as having Fiduciary Duties on financial Risk Management now.  See Zachary A. Goldfarb, "SEC to Examine Boards' Role in Financial Crisis" (Washington Post Online, Friday, February 20, 2009).

    Correspondingly, Insurance Coverage Claims on Director's and Officer's Policies are bound to follow in increasingly greater numbers as a result of these issues.

    A post on other features of this issue can be found at www.insuranceclaimsbadfaith.typepad.com.

Please Read The Disclaimer.

If Insurance Trades Like a Security, Regulate Like a Security?

        Apparently the new Administration in Washington has made a decision that the Federal Government should have the power to regulate Credit Default Swaps as securities.  This means that the States would perhaps completely lose any power to regulate CDS's that act like Insurance, as the Credit Insurance they really are.

    One option is frequently found in Federal Statutes:   Provide an exemption in favor of State Regulation where State Regulation exists; otherwise, Federal Regulation will occupy the vacuum.  In this instance, whenever CDS's function like Insurance and are regulated by the States, which after all have been regulating Insurance of various kinds long enough to be fully experienced at it, then the Regulation of those particular kinds of CDS's can and should be "exempted" from Federal Regulation in favor of the existing State Regulation.  In an earlier post here, it was reported that New York State for one example will begin regulating Insurance-like Credit Default Swaps this month.   See also posts of December 24, 2008 and January 7, 2009 archived in the Categories of Credit Insurance, Market Performance, Regulation, Reserves, and Risk Management. 

    "Tradeability" seems to be the determinative test used by the Obama Administration for Federal Regulation of CDS's at this early date.  If a CDS cannot be traded "on exchanges or through clearinghouses" then the Obama Adminstration reportedly will not try to regulate them.  If on the other hand a CDS can be traded, then regardless of other characteristics -- such as the distinction between Insurance in which the purchasing party has an Insurable Interest should a nonparty "default," vs. wagers or bets in which the purchasing party has no dog in the fight but instead is only placing a bet or wager that the nonparty will (or will not) default -- then the fact that the given CDS can be traded like a security is all that will count in the Federal Government attempting to regulate it like a security, rather than treating a qualifying CDS like Insurance.  (Insurance has for many years been regulated by the States.)  See generally Stephen Labaton, "Obama Plans Fast Action to Tighten Financial Rules/New Scrutiny for Hedge Funds, Derivatives Market and Credit Rating Agencies" p. 1, col. 5 (New York Times Nat'l Ed., Sunday, January 25, 2009).

    Happily, the Obama Administration reportedly would or "could" include new requirements for Reserves in its attempts to fashion regulatory schemes for Credit Default Swaps:  "The new trading procedures for derivatives could also enable regulators to impose capital and collateral requirements on companies that issue credit default swaps that would make them safer investments."  Id.

Please Read The Disclaimer.

CDS Unregulated "Insurance": Regulation and Risk Management Mean Capital Reserves.

    A previous post exposed the little-known fact that there are several different kinds of Credit Default Securities or CDSs.  See "CDS Unregulated 'Insurance':  How the AK-47 Chewed Up Wall Street," December 24, 2008.  See also "CDS Unregulated 'Insurance':  The AK-47 Loose on Wall Street," December 15, 2008.

    Some CDSs function like Insurance.  Other CDSs function like wagers or bets.  Few CDSs are regulated.

    There is general agreement that the lack of regulation of CDSs must change.  There is disagreement, though, over many specifics of how the different types of CDSs can most efficiently be regulated.  There is no disagreement, however, that CDSs require Reserves:

The most critical role for regulation is to make sure that the sellers of risk have the capital to support their bets.

Michael Lewis and David Einhorn, "The End Of The Financial World As We Know It" p. 9, col. 1 (New York Times Nat'l Ed., Week in Review Section, Sunday, January 4, 2009).

Please Read The Disclaimer.

Hurricanes Not Buffeting Florida, Benefits Both Florida and Mr. Buffett.

    After Hurricanes Charley, Ivan, Jeanne, Rita and Wilma et al. pummeled Florida properties in recent years, the Florida Legislature established a fund for the avowed purpose of enabling Florida Property Owners to purchase Property Insurance Coverage.  The fund was so large that there were warnings that with one Catastrophe, the Taxpayers of Florida would potentially be on the hook for more money to fund CatClaims than anyone had yet dreamed of.

    To its credit, the State of Florida purchased a reported "option agreement" from Mr. Warren Buffett's Berkshire Hathaway Inc.  In exchange for $224 Million, Berkshire Hathaway agreed in the event of a Catastrophe "to buy $4 billion of bonds to finance storm recovery".  That agreement expired as of December 31, 2008.  Although it has been characterized as another shrewd business move for Mr. Buffett, see, e.g., Hugh Son, "Buffett Wins $224 Million Storm Bet With Florida (Update 2)" (Bloomberg.com, Monday, December 29, 2008); Tom Petruno, "Buffett's Berkshire Scores on Florida Hurricane Season Bet" (Money & Co. Blog, Los Angeles Times Online, Monday, December 29, 2008), with all due respect to Mr. Buffett it was also a shrewed business move under the circumstances for Florida Taxpayers as well.

Please Read The Disclaimer.

AIG "a systemically important company"--New Deal, Old Company, Again.

    A post here on November 10, 2008 explored new deals for AIG from the current Treasury Department.  The post addressed raising capital, with Federal Taxpayer Funds or with private funds.  After receiving Federal Taxpayer Funds, AIG is reportedly asking for new deals on paying them back.  See Francesco Guerrera, "AIG Seeks Easing of Rules on Disposals" (Financial Times.com, Tuesday, December 30, 2008).

HAPPY HOLIDAYS and HAPPY NEW YEAR to ALL!

Please Read The Disclaimer.

"Financial Literacy" Including Insurance.

    Financial literacy is absolutely necessary in the United States to our survival as a nation, there can be no doubt.  The idea of adding the teaching of the basics of finance, "financial literacy," to the core curriculum at some level in the U.S. education system possibility of teaching the basics of finance, "financial literacy," is gaining supporters at a rapid pace.  See, e.g.,  Peter Applebome, "Contemplating the Boobs we Were" p. 3, col. 1 (Week In Review Section, New York Times Nat'l Ed., Sunday, December 28, 2008);  Bob Herbert, "Stop Being Stupid" p. A19, col. 6 (New York Times Nat'l Ed., Saturday, December 27, 2008).  That is a good thing.  The idea and the courses should include concepts of Insurance, such as appreciating the role of "investors" having an insurable interest, or not, and the recognition and management of Risk.

    But so is the teaching of History absolutely necessary.  And so is teaching the ability to read and write with organization, precision and the capacity to persuade.

    When courses such a these are taught as a part of the currrent core curriculum at any level in the U.S. education system, truly it will be good.  More than a mantra, it will be a good thing.

Happy Holidays and Happy New Year to All!

Please Read The Disclaimer.

CDS Unregulated "Insurance": How the AK-47 Chewed Up Wall Street.

      There are at least two (2) types of Credit Default Swaps (CDS's) that were loose on Wall Street.  One is akin to Insurance:  It provides a contracted payoff in the event of a default on a transaction, often involving an insurable interest in the transaction held by the one buying the CDS.

    Another kind of CDS is like a bet.  No insurable interest is required.  Nor for that matter is a transaction required.  The bet-like CDS can be purchased to pay off if a stated event occurs, such as the lowering of interest rates by the Fed for example, otherwise the bettor-purchaser loses the bet if the stated event does not occur.

    The different types of CDS's have been lumped together, although they are different.  Perhaps that is because they have not recently been regulated.  The first group, which is like Insurance, has always been susceptible to Regulation by the States as Insurance.  Few State Insurance Commissioners have attempted to regulate any CDS's, in the past.  Effective next month, however, the New York Department of Insurance for example will begin regulating some forms of CDS's.  (See previous posts on this issue in this space.)

    The kinds of CDS's that are like bets have also been unregulated.  Since they are not Insurance or sufficiently like Insurance to attract the attention of State Insurance regulators, they were and are left alone by them.  Eight (8) years ago, in an apparent display of caution, CDS's in general were preempted from Regulation by the States as "bets".  This was enacted in the Commodity Futures Modernization Act of 2000.  Why the CFMA and why the link to financial devices used in agriculture?  Because "futures" trading of agricultural commodities has involved various kinds of "futures contracts" which, in essence, have come to include CDS's and other derivatives.

    The background of CDS's, and their role in de-Regulation efforts and in financial failures, are all examined in this extremely informative, riveting CBS 60 Minutes Video on Credit Default Swaps.

    Today "Regulation" of some or all CDS's is something of a turf war among and between Federal agencies.  Whether they will leave any role for State Insurance Departments to do what they do best, which is to Regulate "Insurance" products and devices, is unknown.  The Federal Securities and Exchange Commission just announced that it was authorizing a "central clearinghouse for transactions involving credit-default swaps" in order to attempt to "bring transparency to the market, posssibly reducing risks to the financial system." Marcy Gordon, "SEC Moves to Bring Transparency to Market for Credit-Default Swaps" (Washington Post.com, Associated Press Copyrighted Story, Wed., December 24, 2008).

    On the same day, the Commodity Futures Trading Commission and the Federal Reserve Bank of New York -- home of the Treasury Secretary-nominee in the incoming new Administration -- authorized instead two (2) other clearing houses for credit-default swaps, ostensibly for the same purpose.  Hal Weitzman, "Citadel and CME Win CDS Clearing Consent" (Financial Times.com, Wed., December 24, 2008).

    In the meantime, CDS's continue to take their toll, whether they are more like losing "bets" or more like "Insurance" which is not backed by Reserves.

Please Read The Disclaimer.