Aon Urges Use of TARP’s Insurance Component
An Aon Corp. official urged the Treasury Department to make greater use of the insurance component of the Troubled Asset Relief Program as a means of opening up the currently frozen U.S. credit markets.
“Such an approach would benefit taxpayers, financial institutions saddled with illiquid assets, and homeowners,” said D. Cameron Findlay, executive vice president and general counsel of Aon.
Findlay made his comments in testimony at an oversight hearing on the Emergency Economic Stabilization Act of 2008 held by the House Financial Services Committee. He was testifying on behalf of the Council of Insurance Agents and Brokers.
The insurance program to back up distressed mortgage-based securities was added to the EESA as the price for House Republicans to support the legislation. The Treasury Department is drafting regulations that will be used in connection with the program but has not implemented the program as yet.
Asked whether he had examined the Aon proposal, Secretary of Treasury Henry Paulson said he “hasn’t looked” at the Aon plan but his staff might have examined it. However, he confirmed in answering a question posed by Rep. Judy Biggert, R-Ill., that the Treasury Department is developing regulations designed to implement the insurance plan. “We will develop a plan,” Paulson said. “The legislation asked us to develop a plan, and we will develop a plan.”
Genworth, Lincoln, Hartford Apply for Thrift Charters
More insurers are hoping to make themselves eligible for the U.S. Treasury Department’s Capital Purchase Program by acquiring federally regulated financial institutions.
Genworth Financial Inc., Richmond, Va., said it had agreed in principle to acquire InterBank FSB, of Maple Grove, Minn. Genworth also has filed a savings and loan holding company application with the federal Office of Thrift Supervision and a Capital Purchase Program application with the U.S. Treasury, the company said. InterBank said it has been exploring the possibility of improving the services it offers by affiliating with a larger financial services company.
Similarly, Lincoln National Corp. has agreed to acquire Newton County Loan & Savings FSB, Goodland, Ind.; applied for savings and loan holding company status from the OTS; and applied to participate in the CPP.
Hartford Financial Services Group Inc. announced it was acquiring a savings bank, applying for a thrift charter, and applying to participate in the Capital Purchase Program.
AEGON N.V., The Hague, Netherlands, also is seeking to acquire a thrift and participate in the CPP, according to press reports.
EU to Rein In Rating Agencies
Citing rating agencies’ conflicts and overoptimistic assessments it believes led to the global financial turmoil, the European Commission has put forward proposals for new regulations for the agencies.
Moody’s said it was hopeful the new proposals would permit flexibility. Standard & Poor’s said it was examining them to see if they permitted independence and consistency.
The commission noted the proposal is one of a number of concepts put forward to deal with the financial crisis and adds to the commission’s proposals on Solvency II, Capital Requirements Directive, Deposit Guarantee Schemes, and accounting. It said the new rules are designed to ensure high-quality credit ratings that are not tainted by the conflicts of interest that are inherent to the ratings business.
“These very exacting rules are necessary to restore the confidence of the market in the ratings business in the European Union,” said Internal Market and Services Commissioner Charlie McCreevy in a statement, adding the proposal “goes further than the rules that apply in other jurisdictions.”
Fiscal Crisis Is Opportunity For Insurers
The current financial climate is an opportunity for insurers to make needed changes, the new president of Lloyd’s North America told an insurance industry group. Lori Ann Lowery, speaking to members of the Advancement of Professional Insurance Women, commented, “people are talking about the glass half empty—we’re seeing people let go, the redundancy factor.”
What happens in these scenarios, she said, is “there is an opportunity to prune. We should look at this as a glass half full because there are exciting things going on in our industry. The opportunity to be creative and innovative is greater than it has been in years.”
Whose fault is the financial crisis? “It’s everybody’s responsibility, from the buyers who wouldn’t afford the homes to rating agencies,” she said. “And any time you have the pressure for profitability we have had with financial institutions over the past 10 years, it puts a speculative bent on everyone trying to get in and figure out how they are going to make the analysts’ earnings requirement.”
Lowery asserted the industry is historically resilient. In the 1980s, she noted, product liability and directors’ and officers’ liability had “basically dried up in terms of capacity.” What did the industry do? “We went out and formed ACE and XL. . . . We become creative when things get difficult. We were able to survive two world wars, Vietnam, Korea, Sept. 11, 2001, and the Eliot Spitzer investigation, among other things,” she said.
Landgraf: States Will Try to Limit Federal Role
The financial crisis will affect how insurers will be regulated, one legal expert predicts.
Charles Landgraf, an attorney in the Washington office of Dewey & LeBoeuf LLP, tried to map out the possible changes at an executive conference for the life insurance industry.
The conference was sponsored by Dewey & LeBoeuf LLP, New York; Ernst & Young LLP, New York; and Summit Business Media LLC, New York, the parent of Tech Decisions.
One point that seems to be clear is insurance companies that want to participate in the Troubled Asset Relief Program must have a bank or thrift unit or be in the process of applying to become a bank, Landgraf said.
There also are indications a company that wants to use TARP money to make an acquisition must get permission from the Treasury Department, Landgraf added.
It will be interesting to see whether the federal government will use guarantees, in addition to actual cash infusions, to shore up companies in need of capital, Landgraf said.
Landgraf also discussed how the crisis could affect insurance regulation.
He predicted any effort to federalize insurance regulation will trigger pushback from state regulators and state governors who fear loss of regulatory clout as well as premium tax dollars, even though advocates of federal regulation proposals have promised not to change the premium tax structure. “States will fight to the death,” arguing they have a history of protecting consumers, Landgraf said.
AIG Expects to Pay $6M in Deferred Compensation
American International Group said it plans to dole out close to $6 million to seven executives under the terms of the deferred compensation program it has said it will end by early next year.
The insurer announced it was ending the plan because it worked as an incentive for certain employees to leave the company. The company said approximately $500 million in earned but deferred pay would be distributed in the first quarter of 2009, which is pay that individuals earned but volunteered to defer receiving until a later date presumably for tax benefits. The plans involve 5,600 employees.
In a filing with the Securities and Exchange Commission, the company said under its Senior Partners Plan, a total of 14 separate plans, there was an aggregate $5.96 million.
Six executives will receive $3.04 million. At the top of the list is Jay S. Wintrob, executive vice president, retirement services, who will receive $1.9 million. Win J. Neuger, chief investment officer, will receive $607,953. David L. Herzog, chief financial officer, will receive $371,422. The remaining four will receive a total of $161,860, ranging from more than $100,000 to $8,564.
Male Drivers Most Dangerous, Say Survey Numbers
Male drivers are cited for reckless driving 3.41 times more than women, according to a new study that found men are more dangerous behind the wheel. San Francisco-based Quality Planning, a company that validates policyholder information for auto insurers, said its proprietary findings reveal dramatic differences in the number and type of traffic violations received by men vs. women.
According to Quality Planning, the data shows when it comes to traffic laws, women are far more observant of them than men and the laws violated more frequently by men are those laws designed to safeguard people and property.
The company noted reckless driving offenses, committed far more frequently by men, are considered one of the most serious traffic offenses by courts, since they imply a disregard for the rights and safety of persons or property.
Quality Planning said it analyzed 12 months’ of 2007 policyholder information for U.S. drivers, comparing the number of moving and nonmoving violations for both men and women. Overall, the data shows men are much more likely to receive a traffic citation than women, and this difference in driving behavior is consistent across all age groups.
AALU Event Speakers Ponder New Congress
The next Congress could give the life insurance industry a federal charter system—but participants in a discussion hosted by a group that backs the optional federal charter concept said the next Congress also could consider measures that would increase insurers’ regulatory burdens.
Life industry representatives talked about the insurance legislation climate during a recent post-election Webcast organized by the Association for Advanced Life Underwriting. Advocates of optional federal charter proposals want Congress to create a federal insurance regulator and let insurers and producers choose between state and federal regulation.
“We think an OFC has moved from a possibility, maybe even a probability, to an inevitability [in the next Congress],” said Mike Hunter, COO of the American Council of Life Insurers. The AALU supports the concept of OFC legislation.
Due to the financial crisis, industry participants “must be on our toes to make sure Congress doesn’t overdo it,” said Ken Kies, a member of the AALU counsel team who has served as chief of staff at the Congressional Joint Committee on Taxation. “Congress has a habit when a problem comes up of sometimes going a little too far, and we have a huge problem here, so we don’t want to end up with something like a Sarbanes-Oxley Act on steroids.”
P&C Price Increases to Be Short-Lived
Any forthcoming price increases for the property/casualty commercial insurance industry will be short-lived, but personal lines rates will continue upward, according to a financial analyst.
Meyer Shields, with Stifel Nicolaus, said while companies were heralding the rise of prices for commercial accounts during their third-quarter financial results, absent was any discussion of how long price increases will last and what the magnitude of those increases will be.
According to Shields’ analysis, any price increases will not be long term because competition for new business will remain intense. Price increases now will create excess profits once the financial markets settle down, and that, in turn, will reignite the soft market.