Archive for November, 2008
Angry Citi Investors To Unveil New Court Complaint - Steven Wevodau
NEW YORK (Reuters) - After Citigroup Inc (C.N: ) shares tumbled last year on the bank’s subprime mortgage woes, angry investors sued for fraud. Now, stockholders are due to file a new version of their lawsuit as their losses have become much more stark.
A lot has changed for the worse for Citigroup stockholders since the lawsuit about its subprime debt exposure was first brought in November 2007. The bank’s shares are trading at around $6 apiece compared with $31 a year ago — even after two government bailouts in the last two months.
The U.S. government this week agreed to inject $20 billion of capital and shoulder nearly $250 billion in potential losses on about $306 billion of the bank’s risky assets — after injecting $25 billion of taxpayer money in October.
A consolidated shareholder complaint in the case is scheduled to be filed in U.S. District Court in Manhattan by Monday. An earlier version accused Citigroup and several individuals, including former CEO Charles Prince, of violating securities law by artificially boosting the bank’s stock price by concealing its exposure to subprime-linked debt.
Citigroup believes the lawsuit “is without merit, and will defend against it vigorously,” company spokesman Mike Hanretta said on Tuesday.
The lawsuit, which seeks class-action status on behalf of a large group of stockholders, could be among the biggest subprime-related cases moving through U.S. courts, given Citigroup’s huge stock market declines.
The company was once the biggest U.S. financial institution based on stock market value, but shares have plummeted and are down 54 percent this month alone. Shareholder lawsuits can take years to litigate, and many are ultimately thrown out by courts or settled.
The lead plaintiff is a group of former employees and directors at closely held Automated Trading Desk (ATD) who received Citigroup stock in exchange for selling their electronic trading firm to the bank in a $680 million deal announced in July 2007.
Through that deal, group members acquired more than 3.9 million Citigroup shares, which were valued at about $52 a piece at the time the buyout was being negotiated, according to a January court filing from the ATD plaintiffs.
The group said its members had suffered losses of about $76.8 million as of January, a figure that is much higher now given Citigroup’s stock declines this year.
A lawyer for the shareholders, Ira Press of law firm Kirby McInerney LLP in New York, declined to comment about the specifics of the new court complaint, saying it is still being drafted.
“If last week is any indication, the story may still be unfolding,” he said. “We are obviously continuously monitoring the unfolding events.”
The original lawsuit was filed by an individual investor. Other shareholders have competed to become lead plaintiff, a role that allows investors to help set strategy in litigation and play a role in any possible settlement talks.
U.S. District Judge Sidney Stein, who is overseeing the case, appointed the ATD Group as the lead plaintiff in August.
POSTED BY STEVEN WEVODAU
Economy Shrinks At Fastest Pace In Seven Years - Steven Wevodau
WASHINGTON (Reuters) - The U.S. economy contracted at its fastest pace in seven years in the third quarter as consumer spending plunged to a 28-year low, data showed on Tuesday, raising the specter of a deeper recession.
Separate reports showed U.S. home prices continued their downward spiral, with the cost of single-family homes plunging by a record 17.4 percent in September from a year earlier.
The data painted a dismal picture of the troubled economy and backed views the Federal Reserve could push benchmark lending rates to an unprecedented zero percent by early 2009.
“We are in the early stages of one of the worst recessions in the post-war period, even factoring in a massive stimulus program,’ said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.
The grim reports partially overshadowed the Fed’s announcement that it would use up to $800 billion to buy mortgage-related debt and consumer debt securities. The Dow Jones industrial average ended up 36.47 points at 8,479.86, after a choppy session.
U.S. government debt prices rallied, helped by a safe-haven bid fueled by the worsening outlook. The dollar, however, fell a third session against the euro, handing the European single currency its best three-day percentage advance ever.
The Commerce Department revised the annual rate of decline in third-quarter gross domestic product to 0.5 percent from the 0.3 percent that it reported a month ago. It was the sharpest fall in GDP since the third quarter of 2001, in the aftermath of the September 11 attacks.
Corporate profits dropped for a second straight quarter and business investment fell for the first time since the end of 2006, signaling a wariness about prospects for future sales.
Consumers, hard hit by rising unemployment and plunging home equity, held back and sent spending falling at its sharpest rate since the second quarter of 1980. Consumer spending accounts for two-thirds of economic activity.
Many analysts believe the United States already has joined Europe in recession, though it will take another quarter of contraction to meet a widely used definition for it — back-to-back quarters of declining output.
The third-quarter decline in GDP was a striking contrast with the second quarter’s relatively brisk 2.8 percent rate of growth. The U.S. economic decline is widely predicted to accelerate in the fourth quarter and last into 2009.
POSTED BY STEVEN WEVODAU
Department of Justice Will Not Challenge Formation of Consortium of Commercial Insurers
POSTED BY STEVEN WEVODAU
WASHINGTON, Nov 24, 2008 /PRNewswire - Proposal Could Result in Greater Competition for Large Commercial Insurance Policies
The Department of Justice announced today that it will not challenge a proposal by the Ivy Capital Group, LLC (Ivy) to form a consortium that will offer business insurance policies to large companies. The Department said that the formation and operation of the consortium is not likely to reduce competition and could offer a new competitive option for large commercial insurance policies.
Ivy has proposed forming Concepta Services LLC (Concepta) to offer large commercial insurance policies equal to or in excess of $250 million, by consolidating the capacity of commercial insurers that lack the capacity individually to offer large commercial insurance policies.
The Department’s position was stated in a business review letter from Deborah A. Garza, Acting Assistant Attorney General in charge of the Department’s Antitrust Division, to counsel for Ivy. Ivy is a Delaware limited liability company, the investors of which are principals in an independent firm that provides management and financial consulting services to Fortune 500 companies.
“The formation of Concepta is not likely to reduce competition in the sale of large commercial insurance policies,” said Garza. “To the contrary, Concepta may provide a competitive new option for those looking to purchase these types of policies.”
Ivy proposed forming and operating Concepta as a consortium that would allow commercial insurers to combine their insurance capacity to jointly offer large commercial insurance policies. Membership in the consortium would be limited to those insurers who do not have the ability to offer such policies on their own. Ivy represented that the likely Concepta participants currently generate no more than five percent of the total premiums from the sale of large commercial insurance policies in the United States, and that they do so by pooling capacity with other insurers. Jointly offering large commercial insurance policies through Concepta could be more efficient for these insurers than their current methods of offering such policies, including the use of reinsurance.
Under the Department’s business review procedure, an organization may submit a proposed action to the Antitrust Division and receive a statement as to whether the Division currently intends to challenge the action under the antitrust laws.
A file containing the business review request and the Department’s response may be examined in the Antitrust Documents Group of the Antitrust Division, U.S. Department of Justice, 450 Fifth Street, NW, Suite 1010, Washington, D.C. 20530. After a 30-day waiting period, the documents supporting the business review will be added to the file, unless a basis for their exclusion for reasons of confidentiality has been established under the Business Review Procedure.
SOURCE U.S. Department of Justice
Pennsylvania Insurance Commissioner Announces $40 Million Settlement With Deloitte & Touche LLP - Steven Wevodau
HARRISBURG, Pa., Nov 24, 2008 /PRNewswire - Litigation Recoveries at $145 million
Pennsylvania Insurance Commissioner Joel Ario, in his capacity as statutory liquidator for Reliance Insurance Company, announced today that the Insurance Department has finalized a $40 million settlement with Deloitte & Touche LLP in connection with the firm’s auditing services for Reliance.
“We have fought long and hard in this case, and we are pleased with this settlement,” Commissioner Ario said, adding that the goal in this, and prior actions, has been to maximize recovery for Reliance policyholders from its parent companies, management and outside professionals.
“This $40 million settlement will directly benefit Reliance’s policyholders. When combined with the $45 million previously recovered from the Reliance parent companies, as well as the approximately $60 million recovered from the settlement of actions against the company’s former officers and directors, the grand total of recoveries in the Reliance estate total nearly $145 million from litigation brought by the department,” Ario said.
In addition to this substantial recovery, insurance regulation now provides additional protections to minimize the risks associated with the auditing of insurance companies.
The department has been working through the National Association of Insurance Commissioners on new requirements related to auditor independence, corporate governance and internal control over financial reporting designed to promote the accuracy and reliability of financial statements filed by insurance companies.
Other key developments in financial regulation include strengthening risk-based capital requirements and adopting more stringent standards for actuarial opinions on the adequacy of insurance company reserves.
The department will continue working to develop and implement new tools for state regulation of insurance company financial solvency and to minimize the number and impact of insurance company insolvencies.
A copy of the settlement agreement can be found at the Reliance Documents Web site: www.reliancedocuments.com. Policyholders with questions in the Reliance liquidation estate should call (215) 864-4500.
The Insurance Department took statutory control of Reliance on May 29, 2001, under an Order of Rehabilitation, followed by an Order of Liquidation that October. On Oct. 15, 2002, the department, as the liquidator, filed a complaint in Commonwealth Court of Pennsylvania against Reliance’s outside auditor, Deloitte & Touche LLP, and its appointed actuary, Lommele. This complaint was originally captioned as “Koken v. Deloitte & Touche LLP et al” (Docket No. 734-MD2002) and is now captioned as “Ario v. Deloitte et al.” Among other things, the complaint alleged claims for breach of fiduciary duties, professional negligence and the recovery of preferential transfers.
A Pennsylvania-based insurance company, Reliance was licensed to write insurance in all 50 states. The states with the largest number of policyholders included California, New York, Florida, Pennsylvania, Illinois and Texas. Reliance Insurance Company’s insurance business consisted primarily of workers’ compensation, commercial auto, commercial liability and personal auto coverage.
POSTED BY STEVEN WEVODAU
2008 - First Half Results - Steven Wevodau
|
By Dr. Robert P. Hartwig, CPCU The property/casualty (P/C) insurance industry reported an annualized statutory rate of return on average surplus of 5.4 percent during the first half of 2008, down by nearly two-thirds from 13.1 percent during the first half of 2007 and by more than half from the 12.3 percent return for all of 2007. The sharp decline in profitability is partially attributable to a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the property/casualty insurance industry. The decline in profitability was led by a substantial deterioration in underwriting performance in those two segments, pushing the first-half combined ratio up to 102.1, more than 9 points above the 92.7 combined ratio for the same period last year and 6.5 points above the 95.6 combined ratio for full-year 2007. Excluding mortgage and financial guarantee insurers reveals declines of a more modest and cyclical nature, with return on average surplus coming in at 7.6 percent (compared to 12.8 percent in first-half 2007). Net written premium growth, which turned negative in 2007 for the first time since 1943 (down 0.6 percent), continued on its negative trajectory, falling once again by 0.6 percent (-0.7 percent excluding mortgage and financial guarantee insurers). Policyholders’ surplus, a measure of capacity, decreased for the third consecutive quarter, down 2.5 percent to $505.0 billion as of June 30 from $517.9 billion at year end 2007. The results were released by ISO and the Property Casualty Insurers Association of America (PCI). |
|
|
|
Mortgage and Financial Guaranty Lines Drive Underwriting Results, Obscuring Modest Cyclical Deterioration and Impact of Catastrophes Three key factors drove underwriting performance during the first half: the impact of the housing and credit crisis on mortgage and financial guarantee insurers and the resulting spillover into the overall property/casualty insurance industry sector’s financial results; the continuation of soft market conditions through much of the industry; and a surge in catastrophe losses. Each of these factors is discussed in detail below. Underwriting: Separating Mortgage and Financial Guarantee Impacts The first-half’s underwriting performance was influenced significantly by underwriting losses reported by many mortgage and financial guarantee insurers. While it is not unusual for results in any given quarter to be driven by the experience in a small number of lines or by a specific event (such as home and commercial property coverage after a major catastrophe), it is rare for lines that account for just a sliver of industry premiums to produce large-scale impacts on industry performance. The mortgage and financial guarantee lines—with $4.1 billion in net written premiums during the first quarter—accounted for just 1.8 percent of the $221.9 billion industrywide total. Nevertheless, according to ISO, the loss and loss adjustment expenses of this segment ballooned to $10 billion—an increase of 462.2 percent—propelling its combined ratio to an unprecedented 242.3 for the half compared to 74.1 during the first half of 2007. That was enough to add 2.9 points to the industrywide combined ratio, which finished the first half at 102.1—its highest level in six years. Cyclical Considerations Premium Growth Remains Negative Catastrophe Losses: First Half Total Exceeds All of 2007 Catastrophe losses during the first half of 2008 were fueled primarily by record-breaking tornado activity, severe hail and wind losses (apart from tornadoes). During the second quarter, the Midwest suffered its most severe floods since 1993—which cost private insurers $600 million. While flooding is not covered under standard home insurance policies, private insurers do cover flooded motor vehicles (provided the policyholder carries comprehensive coverage) and some businesses purchase protection on commercial structures along with business interruption and contingent business interruption losses in some cases. Private crop insurance is also commonly purchased. It is important to note that crop (agricultural) losses are not included in the official catastrophe figures compiled by ISO’s PCS unit. The losses have continued apace through the third quarter, historically the most expensive for insurers due to the fact that the peak of hurricane season occurs in September. The most significant catastrophe so far in 2008 was Hurricane Ike, which roared ashore in Galveston, Texas, on September 13 as a strong Category 2 storm. Official PCS insured loss figures were not available as of this writing, but by averaging the midpoint of independent catastrophe modeling firm estimates, insured losses from the storm appeared to total approximately $9.8 billion. If this figure holds, Ike will become the fourth most expensive hurricane in United States history. Ahead of Ike (stated in 2007 dollars) are Hurricane Katrina ($43.6 billion), Hurricane Andrew ($22.9 billion) and Hurricane Wilma ($10.9 billion). Because the range across all modeling firms’ estimates extends from a low of $7 billion to a high of $12 billion, Ike could potentially be ranked as the third most expensive storm in history. Much of the loss in Texas will be borne by the Texas Windstorm Insurance Association, which insures the majority of properties in the state’s coastal counties. Hurricane Ike was not the only severe hurricane of the year. Hurricane Gustav caused $1.9 billion in insured losses, according to PCS, when it struck the Louisiana coast on September 1. Investments The upshot of the volatility, according to ISO and PCI, is that the industry’s total investment gain slipped by 18.4 percent or $5.6 billion to $24.8 billion from $30.3 billion during the first half of 2007. Investment gains consist primarily of interest earned from the industry’s bond portfolio as well as realized capital gains and losses from investments, especially stocks. Contributing to the decline was a $1.1 billion realized capital loss compared to a $10.4 billion gain during the same quarter last year. Insurers realized $9.0 billion in investment for all of 2007. It is too soon to estimate realized investment gains or losses for the full year. Although markets were down further during the third quarter, they remain exceedingly volatile. Moreover, capital gains (and losses) are realized at the discretion of management. The last time insurers turned in an industrywide realized capital loss for a calendar year was 2002. Profitability and Capacity Net income after taxes (profits) during the first half of 2008 fell $18.8 billion or 57.4 percent from $32.7 billion during 2007’s first half. The decline is attributable to the previously discussed deterioration in underwriting and investment performance. Losses at mortgage and guarantee insurers are another key factor. Excluding those insurers would imply a smaller reduction in net income of 38.8 percent, according to ISO/PCI. Because profits fell more quickly than policyholders’ surplus, return on average surplus declined to 5.4 percent during the first half, down from 13.1 percent during the same period one year earlier and 12.3 percent for all of 2007. Excluding mortgage and financial guarantee insurers yields a return on average surplus of 7.6 percent during the first half compared with 12.8 percent in the period a year earlier. Policyholders’ surplus decreased in the first half by $12.9 billion, or 2.5 percent, to $505.0 billion from $517.9 billion at year-end 2007. The decline is the third consecutive quarterly drop in policyholders’ surplus, which recently peaked at $521.8 billion during the third quarter of 2007. The net $16.8 billion decline in surplus represents a reduction of 3.2 percent in the industry’s capital base. Surplus increased by 6.2 percent in 2007, 14.3 percent in 2006, 8.2 percent in 2005, 13.4 percent in 2004 and 21.6 percent in 2003, following declines in 2000, 2001 and 2002. The return to negative capital accumulation is attributable to several causes, the largest and most obvious being declining prices for financial assets. During the first half, insurers recorded unrealized capital losses totaling $18.5 billion in addition to $1.1 billion in realized capital losses. Some insurers also continue to return capital to shareholders through dividends and share buybacks. Share buybacks reached a record $23.2 billion in 2007. |
|
|
|
The Global Financial Crisis: Implications for Insurers The credit crunch that began with the subprime mortgage meltdown in mid-2007 has precipitated a broader economic crisis in the United States and abroad that has challenged every industry in ways that were not foreseen a year ago—insurers included. The insurance industry’s financial performance in 2008 has been bruised by the bloodshed on Wall Street. That being said, insurance has remained the most resilient of the financial services segments. The scope of destruction arising from the nation’s credit crisis is both frightening and breathtaking. Amid the wreckage are all five of the nation’s investment banks—all highly levered institutions that made too many bad bets in risky subprime mortgages and related securities. Lehman Brothers, having survived innumerable crises over its 158 years of existence, filed for bankruptcy on September 15. Back in March, Bear Stearns was effectively bankrupt before the Federal Reserve agreed to take $29 billion in risky debt of its books while at the same time forcing it into the arms of JPMorgan Chase. Merrill Lynch saw the writing on the wall after Lehman’s bankruptcy and on that same day sold itself to Bank of America for about $50 billion—half its value of just a year earlier. With their stock under siege and their operating models badly damaged by the seizure of credit markets, the two remaining investment banks, Morgan Stanley and Goldman Sachs, successfully petitioned the Federal Reserve to convert to bank holding companies—effectively ending in a span of less than six months the Wall Street model that had reigned since the Great Depression. That was not all, not even by a long shot. The year has borne witness to some of the largest bank failures in United States history. The September 26 bankruptcy of Washington Mutual—with $307 billion in assets—was by far the country’s largest. On July 12, the government seized IndyMac Bank, with $32 billion in assets, ranking the collapse as the third largest (now the fourth) of all time. On September 29, Wachovia (the sixth largest US bank by assets) narrowly averted bankruptcy through an FDIC-assisted purchase by Citigroup. On September 7 federal regulators also seized Fannie Mae and Freddie Mac, the nation’s largest mortgage lenders, which collectively own or guarantee $5.4 trillion in mortgages—about half of the U.S. total. These events and many others persuaded Treasury Secretary Paulson, Federal Reserve Chairman Bernanke and President Bush (not to mention presidential candidates John McCain and Barack Obama) that an emergency “bailout” plan was necessary in order to shore up shaky financial institutions, restore the flow of credit and avoid a total financial collapse. After much effort, the Emergency Economic Stabilization Act of 2008 was put to a vote in the U.S. House of Representatives on September 29 but failed. The “Troubled Asset Relief Program” proposed within the bill would have created a mechanism for financial institutions to sell to the government as much as $700 billion in problem mortgage-related assets. The failure of the bill led to a drop of nearly 800 points on the Dow Jones Industrial Average—the largest drop in history. On a global scale, governments have worked to try to contain the financial contagion by injecting liquidity. In an unprecedented move on September 29, the governments of Belgium, the Netherlands and Luxembourg nationalized Fortis, a bank and insurance conglomerate that is one of Europe’s largest financial institutions, with an injection of 11.2 billion Euros ($16.4 billion). Fortis suffered from its exposure to certain structured credit assets and a loss of confidence among investors. The AIG Rescue Package |
|
|
|
Are Insurance Companies a Pillar of Strength in the Financial Services Sector? A case can be made that the property/casualty insurance industry has fared relatively well since the beginning of the global credit crisis in mid-2007. Investment portfolios are generally conservatively managed. Although AIG made big headlines when it appeared headed toward bankruptcy, insurance regulators throughout the United States and abroad made it clear that the insurance subsidiaries they supervise were solvent and that the problems arose in non-insurance operations. As discussed previously, there have indeed been severe problems at several financial guarantee and mortgage insurers. More fundamentally, insurance companies have avoided most of the problems of the investment banks and many other financial institutions because of their superior risk management model. Specifically insurers have done a better job of ascertaining and underwriting risks. Many banks “gave away the pen” and allowed mortgage brokers to peddle loans to people with increasingly poor credit characteristics. Because these mortgages could be pooled and sold as mortgage- backed securities, originators of mortgages had little or no “skin in the game” and consequently no stake in the long-term performance of the loan. This separation of underwriting and risk bearing contrasts sharply with insurers’ approach to underwriting and risk management. Insurer control over underwriting authority is much tighter. And although insurers spread risk through the use of reinsurance, they always retain some share of the losses. Insurers are also much less dependent on borrowed money than are banks and investment banks. Most of the major investment banks in the United States borrowed 25 to 30 dollars for every dollar they held in capital. Large debt burdens are uncommon in the insurance world. The reality is that throughout its nearly 200-year history in the United States, the property/casualty insurance industry has endured every conceivable economic circumstance and crisis and managed to persevere. Financial panics, deep recessions and war plagued the country throughout the nineteenth century and well into the first half of the twentieth. Since then inflation, stagflation, stock market bubbles and gyrating interest rates have made their presence known, but ultimately insurers have managed their way through each of these challenging periods. Experience has demonstrated that insurers, unlike banks, rarely run into deep financial trouble because of poor economic conditions. Instead, it is deficient loss reserves and inadequate pricing that historically account for the lion’s share of insurer impairments. |
|
|
|
The Weak Economy and Credit Crunch: Implications for Insurers While the economy may have averted sinking into an official recession during the first half of 2008 (defined as two consecutive quarters of negative real GDP growth), a steady stream of bad economic news, from slumping home prices and sales to record oil prices to rising unemployment have begun to take their toll on the wallets and confidence of consumers and the businesses that depend on them. Some of the key impacts of the economic downturn for insurers are reviewed in the sections below. Exposure Impacts Frequency and Severity Impacts Apart from the subprime and credit crises, most of the discussion related to the economy, especially in recent months has centered on record high oil prices and rising inflation. Historically both have had significant impacts on the industry. Rising Energy Prices and Personal Auto Insurance Claim Behavior In 1973/1974 and again in 1979/1980, oil shocks sent gasoline prices to record highs—if it was available at all. People drove less and consequently were involved in fewer motor vehicle accidents. According to ISO Fast Track data records for the period coincident with the Arab oil embargo of 1973/1974, personal auto claim frequency for collision, property damage liability and bodily injury coverages fell by 7.7 percent, 9.5 percent and 13.3 percent, respectively. After the embargo was lifted and gas prices began to fall, claim frequency rebounded almost immediately, reaching pre-crisis levels within two to three years. Claim severity, in contrast, tended to increase after the oil shocks. The reason is that the increase in oil prices drove inflation for most goods and services higher, pushing up repair, replacement and labor costs. Medical costs and ultimately tort costs were also driven higher. The analogy between the energy price shock today and the 1970s is not a perfect one. Gasoline is available today, whereas that was not always the case during the supply crises of the 1970s. Congress also lowered the speed limit to 55 miles per hour in 1974 as part of the Emergency Highway Energy Conservation Act (authority to regulate speed limits on highways was returned to the states in 1995). The act contributed to the reduction in accident frequency. No such legislation is currently before Congress. |
|
|
|
Summary Economic turbulence has had an impact on the financial and underwriting performance of the P/C insurance industry during the first half of 2008. The sharp decline in profitability is primarily attributable to a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the property/casualty insurance industry. Excluding this segment reveals a much more modest decline in profitability more in keeping with the pace normally associated with cyclical downturns. Volatile investment markets also contributed to the decline. One continued cause for concern in 2008 is that premium growth remains in negative territory and is, in fact, severely negative on an inflation-adjusted basis. Fundamentally, however, the property/casualty insurance industry remains quite strong financially, with policyholders’ surplus close to all-time record highs. A detailed industry income statement for the first half of 2008 follows: |
First Half 2008 Financial Results*
($ Billions)
|
Net Earned Premiums |
$217.7 |
|
Incurred Losses (Including loss adjustment expenses) |
162.4 |
|
Expenses |
60.2 |
|
Policyholder Dividends |
0.7 |
|
Net Underwriting Gain (Loss) |
-5.6 |
|
Investment Income |
25.8 |
|
Other Items |
0.2 |
|
Pre-Tax Operating Gain |
20.4 |
|
Realized Capital Gains (Losses) |
-1.1 |
|
Pre-Tax Income |
19.3 |
|
Taxes |
5.4 |
|
Net After-Tax Income |
$13.9 |
|
Surplus (End of Period) |
$505.0 |
|
Combined Ratio |
102.1** |
| *Figures may not add to totals due to rounding. Calculations in text based on unrounded figures. **Includes mortgage and financial guarantee insurers. Excluding these insurers the combined ratio was 99.2. |
|
Fed increases lending to banks, investment firms - Steven Wevodau
CENTRAL BANK: The Fed said its net holdings of business loans over the week ending on Wednesday increased US$16.5 billion from the previous week
AP, WASHINGTON
Sunday, Nov 30, 2008, Page 11
The US Federal Reserve boosted its lending to commercial banks and investment firms over the past week, indicating that a severe credit crisis was still squeezing the financial system.
The Fed released a report on Friday saying commercial banks averaged US$93.6 billion in daily borrowing for the week ending on Wednesday.
That was up from an average of US$91.6 billion for the week ending on Nov. 19.
The report also said investment firms borrowed an average of US$52.4 billion from the Fed’s emergency loan program over the week ending on Wednesday, up from an average of US$50.2 billion the previous week.
The Fed said its net holdings of business loans known as commercial paper over the week ending on Wednesday averaged US$282.2 billion, an increase of US$16.5 billion from the previous week.
The central bank on Oct. 27 began buying commercial paper, the short-term debt that companies use to pay everyday expenses. It was one of a series of moves the Fed has made to try to unfreeze credit markets.
The report also said insurance giant American International Group’s (AIG) loan from the Fed averaged US$79.6 billion for the week ending on Wednesday.
That was down by US$5.6 billion from the average the previous week.
The reduction reflected a modification of the government’s support program for AIG earlier this month.
Under that change, the Treasury stepped in with a US$40 billion purchase of stock in AIG, using money from the government’s US$700 billion financial system rescue package.
The increased support from the Treasury allowed the Fed to reduce slightly the size of its total loans to AIG.
POSTED BY STEVEN WEVODAU
On Eve of Black Friday, Survey Suggests a Mixed Forecast for Consumer Technology and Media Sales
POSTED BY STEVEN WEVODAU
NEW YORK–(BUSINESS WIRE)–As the holiday shopping season approaches, six out of ten U.S. consumers intend to cut their spending in at least one area of communications and media entertainment – ranging from purchases of PCs, digital cameras, and music players to premium TV channel subscriptions and landline phone service – according to a detailed new survey of consumer sentiment by international management consulting firm Oliver Wyman. Only 21% of survey respondents plan to increase spending in at least one of the areas.
If this snapshot of consumer sentiment were to prevail over the next year, the overall impact for these sectors would be a 5-6% decline in sales, said Mark Teitell, a partner in Oliver Wyman’s Communications, Media, and Technology practice. Teitell directed the online survey of more than 500 adults across the country.
Sales of devices such as desktop and notebook computers, music players, and digital cameras are the most threatened, with over 50% of respondents reporting they plan to spend less on devices over the next year, which equates to about a 10% drop in sales. However, sales of next-generation devices are expected to increase: Blu-ray players by 140%, smartphones by 9%, and HDTVs by 3%.
In most device categories, promotional pricing would increase unit sales but not enough to justify broad discounts. Teitell noted that a discount of 20% could motivate a handful of on-the-fence purchasers to buy, but broad discounts might result in an overall decrease in sales revenue. “Price discounts should be used cautiously and targeted at on-the-fence purchaser segments when used,” he said. “There’s a risk of cannibalizing revenue from consumers already intending to make the purchase, without drawing sufficient new buyers to increase revenues overall.”
Subscriptions including broadband Internet access, mobile phone plans, pay-TV and content subscriptions such as Netflix are the most insulated from the economic downturn. 63% of respondents expect their spending to be about the same next year as it was this past year, and 9% plan to spend even more. Only 28% plan to spend less on network subscriptions. However, a 5% sales decrease is still predicted within this category, with premium TV channels being the most vulnerable; 22% of current subscribers said they are somewhat likely to discontinue premium channels to watch more standard pay-TV.
In the area of entertainment content, such as movies, TV shows, and video games, 36% of consumers intend to spend less, equating to a 5% sales drop. Of these entertainment categories, watching movies in theaters could prove to be most volatile, as it’s the most cited category among both respondents who plan increases and those who plan decreases in spending in entertainment.
“Consumers are being selective in where they pull back,” Teitell said. “Delaying the purchase of a computer, digital camera, or music player as a cost-saving measure is easier than canceling or downgrading a subscription for high-speed Internet access or a mobile phone data plan, which consumers may be contractually locked into.”
About Oliver Wyman
With more than 2,900 professionals in over 40 cities around the globe, Oliver Wyman is an international management consulting firm that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm helps clients optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is part of Marsh & McLennan Companies (NYSE: MMC - News). For more information, visit www.oliverwyman.com.
Canadian Property Insurers Attractive to BMO Analyst
November 28, 2008 | about stocks: FFH / KFS / NBFCF.PK
Canada’s property and casualty insurers have had a tough time on markets this year, but for BMO Capital analyst John Reucassel, the outlook is attractive, particularly for industry players, ING Canada Inc. [IIC.TO] and Northbridge Financial Corp. (NBFCF.PK).
Mr. Reucassel said in a note to clients:
The two main reasons that ING Canada and Northbridge make relatively attractive investments are “hard” book values and the potential for premium growth in 2009.
Mr. Reucassel has “outperform” ratings on both Northbridge and ING Canada, with respective price targets of C$38 and C$43. ING is down 39% year-to-date, while Northbridge has tumbled 16%.
Kingsway Financial Services Inc. (KFS), another Canadian P&C insurer is rated “market perform” by Mr. Reucassel with a C$9 price target.
Shares in Kingsway have fallen as much as 70% over the past 52 weeks and the company, derailed by higher claims revisions and credit rating downgrades, is now undergoing a sizable restructuring and reorganization. The company is also battling an active shareholder in The Stillwell Group who wants to shake up the board by adding members of their choosing.
The analyst said:
Kingsway has clearly been an underperformer but appears to be undertaking the appropriate steps to address the underperformance. However, there remains a confidence gap between investors and management that will only be solved with tangible results and time.
To assess both ING Canada and Northbridge’s “hard” book values, the analyst took a look at their current leverage, capital ratios, tangible assets, asset mix and quality, and reserve development.
He wrote:
Both ING Canada and Northbridge have no debt and modest goodwill. The biggest liability of any insurer is the unpaid claims (i.e., reserves) and both companies have a long history of favourable reserve development.
He also added that ING and Northbridge are both well capitalized.
In terms of asset mix and quality, Mr. Reucassel said Northbridge’s investment portfolio has performed well in the market downturn, while ING Canada has a healthy bond portfolio. However, ING’s preferred share and common share portfolios could act as a drag to earnings in capital over the short to medium term.
The BMO analyst told clients:
We expect the value of preferred shares to deteriorate in Canada over the next couple of years, based on a substantial increase in the supply of preferred shares.
He also noted the dramatic expansion in the amount of preferred shares that banks can now issue to shore up tier 1 capital in the current economic environment.
Mr. Reucassel said investors should also consider the impact that both Northbridge and ING Canada’s large parent organizations could have on the future share prices.
Fairfax Financial Holdings Inc. (FFH), who own Northbridge, are firing on all cylinders and might buy back the remaining 40% of shares in Northbridge it doesn’t currently own. ING Groep NV, meanwhile, has been hit hard by the credit crisis and should it desperately need to raise capital, could consider selling it’s 70% position in ING Canada.
POSTED BY STEVEN S. WEVODAU
Constellation Energy CEO Shattuck makes case for MidAmerican deal to employees
POSTED BY STEVEN WEVODAU
Baltimore Business Journal - by Robert J. Terry Staff
Constellation Energy CEO Mayo A. Shattuck III urged employees of the Baltimore Fortune 500 company to support its planned merger with MidAmerican Energy Holdings Co., a Warren Buffett-owned firm that struck a deal in September to buy Constellation (NYSE: CEG) for $4.7 billion.
In a letter filed Tuesday with the U.S. Securities and Exchange Commission, Shattuck said the union “is in the best near- and long-term interest of Constellation Energy and our many stakeholders.” Billionaire investor Buffett and his holding company, Berkshire Hathaway (NYSE: BRK.A, BRK.B), “has repeatedly demonstrated its commitment to this partnership,” Shattuck added, and the $26.50-per-share offer is “fair, reasonable and the best alternative … given the seismic changes in the economy and the energy sector during the past several months.”
Here is Shattuck’s letter in its entirety:
Dear Colleague,
Today we announced that we filed a definitive proxy statement with the U.S. Securities and Exchange Commission for our pending merger with MidAmerican Energy Holdings Company, and announced that a shareholder vote will be held on Dec. 23, 2008.
As you may know, our shareholders include hundreds of large institutions such as mutual funds and banks, as well as thousands of individual investors. This, of course, includes many current and former Constellation Energy employees, with a large concentration of BGE employees and retirees in Maryland.
It is my view, and that of our management committee and board of directors, that the merger with MidAmerican is in the best near- and long-term interest of Constellation Energy and our many stakeholders. I urge all of you holding shares to carefully review and consider the proxy materials that will be mailed to your homes in the days ahead. I believe that when you review the facts and weigh the pros and cons, you’ll agree this merger is right for our company, and I’d like to share with you some of the reasons why.
MidAmerican, a member of Warren Buffett’s Berkshire Hathaway family, has repeatedly demonstrated its commitment to this partnership. It invested $1 billion in Constellation Energy in September during one of the worst liquidity crises in financial market history, and more recently entered into agreements which provide Constellation Energy with up to $350 million of additional liquidity resources. These commitments are helping us weather the unprecedented collapse of global credit markets.
Since the announcement of the merger, it has become even more apparent that MidAmerican’s $26.50-per-share offer is fair, reasonable and the best alternative for shareholders, given the seismic changes in the economy and energy sector during the past several months. The decline in valuation is by no means limited to our company, as the shares of many of our merchant peers are down 60 percent to 80 percent this year. MidAmerican’s offer accurately reflects the realities of today’s economy and the pessimism on Wall Street.
The long-term prospects for the merger are encouraging. MidAmerican has promised that Constellation Energy and BGE will operate autonomously. The headquarters of both companies will remain in Baltimore, and local management will continue to make day-to-day decisions. MidAmerican has made a commitment in its filing with the Maryland Public Service Commission to delay and reduce proposed electric and gas distribution rate increases for BGE customers, and it has pledged that it will be a partner in developing new power generation in our home state. Finally, MidAmerican has promised that it will initiate no workforce reductions at BGE as a result of the merger through January 2012 … if ever. These are exceptionally strong commitments, particularly in today’s challenging economic environment.
In the weeks leading up to the Dec. 23 shareholder meeting, we’ll provide you with additional information about the voting process, post updates to our employee merger site on myConstellation, as well as our external merger Web site, constellationmidamerican.com, and do our best to answer your questions. We very much want you to be an ambassador for what we believe is an excellent partnership.
Regards,
Mayo
Minnesota banks saw profits hit in Q3
POSTED BY STEVEN WEVODAU
Minneapolis / St. Paul Business Journal - by Jennifer Niemela Staff Writer
Minnesota’s banks have seen their profits more than halved in one year, according to third-quarter data released Tuesday by the Federal Deposit Insurance Corp.
Net income for the first nine months of 2008 was $443 million for Minnesota’s 410 commercial banks, compared to $980 million for the first nine months of 2007.
While about two-thirds of the Twin Cities’ 119 banks were profitable in the third quarter, seven Twin Cities banks lost more than $2 million in the third quarter.
The biggest loser was BankFirst, based in Minneapolis, which lost $9.1 million for the quarter on assets of $320 million, bringing its total losses for the first nine months of 2008 to $77.5 million.
Next was Inter Savings Bank, based in Maple Grove, which lost $7.8 million on assets of $858 million. The bank, which does business as Interbank and is one of the state’s largest savings and loans, agreed earlier this month to be sold to Richmond, Va.-based Genworth Financial Inc. Interbank has been hit hard by the housing crisis. Its profits have been on a downward spiral for the past year. It lost $3.5 million in the second quarter and $5.2 million in the first quarter.
The loses were from a combination of write-downs or loses on sales of properties, as well as increased allowances for future losses, said Fred Stelter, president and CEO of Interbank. “You just keep plowing through this stuff and in the process we’ve taken some hits, but our goal is maintain our well-capitalized position,” Stelter said.
Mainstreet Bank, of Forest Lake, lost $5.6 million on assets of $463.6 million. It has downsized its pool of lenders in recent months. The loss is from loan loss provisions, said Karen Greisinger, a spokeswoman for the bank. Mainstreet officials expect the bank to profitable by the first quarter of 2009.
First Minnesota Bank in Minnetonka lost $3.9 million on assets of $345.2 million.
American Bank of St. Paul in St. Paul, lost $2.8 million on assets of $673.7 million. The bank lost money its preferred stock holdings in Fannie Mae and Freddie Mac, said John Kimball, its president.
Riverview Community Bank in Otsego, and Citizens State Bank in Hudson each also lost more than $2 million for the third quarter.
AnchorBank, based in Madison, Wis., which has several branches in the western-Wisconsin portion of the Twin Cities metro area, lost $21.8 million and had that state’s second-steepest losses. AnchorBank is different from Wayzata-based Anchor Bank, which was profitable this quarter.
On a brighter note, the metro area’s biggest loser of the second quarter 2008, M&I Bank, which lost $388 million on assets of $57.7 billion, was profitable this quarter. M&I, which is based in Milwaukee but has a growing Twin Cities presence, this quarter was Wisconsin’s most profitable bank with income of $78.6 million on assets of $56.9 billion.
Biggest losers, metro area banks, Q3 2008
• BankFirst Minneapolis:
Assets: $319 million; Losses -$9.1 million
• InterBank Maple Grove
Assets: $858 million; Losses: -$7.8 million
• Mainstreet Bank Forest Lake
Assets: $463.6 million; Losses: -$5.6 million
• First Minnesota Bank Minnetonka
Assets: $345.2 million; Losses: -$3.9 million
• American Bank of St. Paul St. Paul
Assets: $673.7 million; Losses: -$2.8 million
• Riverview Community Bank Otsego
Assets: $131.7 million; Losses: -$2.5 million
• Citizens State Bank Hudson
Assets: $193.3 million; Losses: -$2.3 million
Source: FDIC
Categories
- Aetna - Steven Wevodau
- AIG
- AIG - Steven Wevodau
- AMERIGROUP Corporation - Steven Wevodau
- Arthur J. Gallagher & Co.
- Berkshire Hathaway
- Brown & Brown Inc. - Steven Wevodau
- Chubb - Steven Wevodau
- CNinsure Inc. - Steven Wevodau
- Edgewood Partners Insurance Center
- Hartford Financial - Steven Wevodau
- Hudson Insurance Group - Steven Wevodau
- InsWeb - Steven Wevodau
- Leads360 - Steven Wevodau
- Lehman Brothers Holdings
- Lincoln Financial - Steven Wevodau
- Lincoln National Corp. - Steven Wevodau
- Marsh & McLennan Companies - Steven Wevodau
- Mercer
- Mercury General Corporation - Steven Wevodau
- National Financial Partners Corp. - Steven Wevodau
- Odyssey Re Holdings Corp. - Steven Wevodau
- Other Press Releases
- PMI Group Inc. - Steven Wevodau
- Press Releases
- Steve Wevodau Press Releases
- Texas Mutual Insurance Company - Steven Wevodau
- Travelers Companies - Steven Wevodau
- Triad Guarantee Corporation - Steven Wevodau
- Uncategorized
- Universal Insurance Holdings - Steven Wevodau
- USI Holdings - Steven Wevodau
- Warren Buffett - Steven Wevodau
- Wausau Insurance - Steven Wevodau
Links
- Blog Traffic School - Steven Wevodau
- Ezine Articles by Steven Wevodau
- FastCompany - Steven Wevodau
- Steven Wevodau
- Steven Wevodau - Accident & Health Insurance News
- Steven Wevodau - Insurance Mergers & Acquisitions
- Steven Wevodau - Property & Casualty Insurance
- Steven Wevodau Amazon
- Steven Wevodau Naymz profile
- Steven Wevodau ZoomInfo