Insurance Claims And Issues

"Fay, You Are No Hurricane" -- So, No Effect on Premiums?

    Hurricanes caused hidden damage in Florida in 2004 and 2005.  They caused Premiums to rise because they caused the Florida Hurricane Catastrophe Fund and Citizens Property Insurance, for example, to require higher assessments.  See Tom Zucco, "Fay Unlikely to Cause Havoc With Insurance" (St. Petersburg Times Online, Monday, August 18, 2008).

    Fay is a Tropical Storm and not a Hurricane as this post is written.  Presumably, Fay will not cause charges to be imposed which can cause Insurance Premiums to rise accordingly.  Presumably.

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Florida Office of Insurance Regulation Putins Allstate Insurance.

    For nearly a year, Allstate Insurance Company and its subsidiaries resisted investigations by the Florida Insurance Commissioner into its Reinsurance arrangements, its unauthorized Catastrophe Models that consistently predicted greater damage -- and thus the 'need' for greater Premiums -- than was predicted by the Catastrophe Models that have long been used in the industry and in Florida, and Allstate's relationships with raters and trade associations.  As readers of this web log know, many posts here have followed the developments during that time, until Allstate exhausted its appeals and Courts overruled its objections to the Insurance Commissioner's investigations.  Now, what the Florida Insurance Commissioner calls "'drastic actions'" have been agreed to by Allstate.  Tom Zucco, "Deal Cuts Allstate's Rates" (St. Petersburg Times Online, Friday, August 15, 2008).

    The capitulation to which Allstate has been forced to consent is as overwhelming in its own way, as the recent invasion of Georgia by the Russian Army.  Allstate's "agreeement" was released on Friday, August 15, 2008, the traditional day of the week to release bad news to the public and press.  The agreement includes these terms:

Allstate will pay a $5,000,0000.00 fine to the Florida Insurance Regulatory Trust Fund under its agreement with the Florida Office of Insurance Regulation, which is the Florida Insurance Commissioner's Office;

Allstate will write 100,000 new Insurance Policies in Florida over the next three years, breaking down into 50,000 new "basic" Homeowner's Insurance Policies and 50,000 new Condominium, Renters and other residential Property Insurance Policies;

Allstate will lower Premiums on its existing "Florida policies" by 5.6 %, it is reported in the linked article, although what kind of Insurance Policies they are is not reported;

Allstate will not seek a Premium Rate Increase for at least a year, although again, the linked article does not identify for what kind of Insurance Policies;

Allstate will continue to 'cooperate' with the Florida O.I.R. investigations; and

Allstate waives its rights to challenge this agreement in Court.

    Allstate is reportedly the Number 2 Automobile Insurance Company in Florida, writing an average of some $564,000.00 in new Premiums a month in that line of business.  It is also reportedly the Number 4 Property Insurance Company in Florida.

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Premiums Rise for Long-Term Insurance.

    John Hancock is reportedly joining Genworth in seeking Premium Rate Increases for some existing Long-Term Insurance Policies.  Kimberly Lankford, Kiplinger's Personal Finance, published as "Long-Term-Care Insurance Rates Are Set to Increase" at washingtonpost.com, Sunday, August 17, 2008.  Where the companies have filed their Rate Increase Requests is not reported in the linked newspaper article.

    For John Hancock, apparently this raise in rates for Long-Term Insurance is a first.  Recommendations and suggestions are provided in the linked newspaper report, including if you currently hold a Long-Term Insurance Policy you may wish to hold on to it regardless of Premium Rate Increases, because new Policyholders face higher Premiums anyway; switching Long-Term Insurance Companies at this time is not a very attractive option.

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Collateralized Debt Obligations, Credit Default Swaps, And Credit Insurance, Continuation ....

.... Part 3:  What Is The Prognosis?

     Merrill Lynch's recipe for settlements of CDO indemnity obligations may be "a template for Wall Street, Bank of America Corp. analysts said."  John Glover, "Merrill CDO Deal May Be Model, Bank of America Says (Update 1)" (Bloomberg.com, Friday, August 1, 2008).  

    Another description from a different analyst is that Merrill may have set a "benchmark".  John Glover, "Merrill Gives Up Gains, Is 'On Hook' For CDO Losses (Update 2)"  (Bloomberg.com, Wed., July 30, 2008).

    Yet a third description of this conduct is that Merrill Lynch has ushered in "a sea change in the way banks are approaching their holdings of troubled investments."  Jenny Anderson, "An Investment Firm That Prospered From Past Crises Turns to Mortgages" Business Day Section, p. C1, col. 3 (New York Times Nat'l Ed., Wed., July 30, 2008).

    Here is what Merrill arranged.  It held Collateralized Debt Obligations.  It sold them to Lone Star Funds.  The sale price was in the neighborhood of 22 cents for 100 cents or 22 cents on the dollar.  Merrill loaned Lone Star 75% of the 22 cents-for-100 cents purchase price.  Glover, "Merrill Gives Up Gains, is 'On Hook' for CDO Losses (Update 2)", supra.

    To fully understand the potential significance of this transaction, it is reported that some accounting information will help.  "Investment banks [like Merrill Lynch] can book a gain if an insurer is willing to pay more to terminate its liability on a default swap contract than the amount at which the bank has it on its books, Bank of America said."  Glover, "Merrill CDO Deal May Be Model, Bank of America Says (Update 1)," supra.  [Emphasis added.]  Unknown, unnamed "analysts" say:  "'Monetization of these gains, we feel, would follow.'"  Id.

     I think this means that right now, no-one can honestly say what these paper accounting "gains" are worth.  They do know enough to know, apparently, that an insurer shedding liability on "a default swap contract" is a postiive gain.  Insurance regulators will otherwise "probably" take over the Insurance Companies "and pay the holders of municipal bonds they guaranteed before the banks," according to "the analysts".  Id.

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Expert Witnesses, Reasonableness of Conduct and Other Business/Law/Financial Issues.

     Do you pay your Expert Witnesses $1,000 an hour?  Summaries in the newspapers of recent studies reflect that Expert Witnesses often charge that much.  Here is a handy link here.  This report uses many of the studies as resources.

    It is interesting that in 1 out of 3 lawsuits, Expert Witnesses testify at Trial in Federal Court about the "reasonableness of a party's actions" and other "business/law/financial" issues, as reported by studies of Federal Civil Trials and surveys of Federal Trial Judges across the nation.  More such issues are likely to be presented as the financial crisis deepens.

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Past Fears, Uncertain Future Drive Florida State Hurricane Warnings.

    Predictions of the future can be very uncertain.  Sometimes perceived future dangers, for example, are based more on past fears than present facts, perhaps.  It is reported that the Florida "state meteorologist" (did you know that Florida has one of those?) predicts an active Hurricane Season in the rest of 2008.  HIs predictions, together with consequences of not preparing for Hurricanes in the past, and some people's current state of preparedness, are all broadly explored by Curtis Krueger, "Don't Panic, Just be Wary" (St. Petersburg Times Online, Saturday, August 9, 2008).

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Unidentified Claim Practices Settlement by Life Insurer -- Update.

     This Updates a Previous Post.

    The unidentified claim practices settlement by a Life Insurance Company will remain unidentified if it is left up to the parent Life Insurance Company, apparently.  The parent Company in question is Healthmarkets, Inc.  It is also in the business of selling Health Insurance Policies through numerous subsidiaries.  Here is Healthmarkets' own July 21, 2008 "Press Release" on "Healthmarkets' Subsidiaries Reach Settlement With State Regulators".  It could not be more vague if it was deliberately written to be vague -- which clearly seems to be the case with this press release.

    Three days after Healthmarkets' Press Release regarding its settlement with many State regulators, Reuters reported that the ratings of Healthmarkets, Inc. and many of its subsidiaries were downgraded.  Reuters Report, "A.M. Best Downgrades Ratings of HealthMarkets, Inc. And Its Subsidiaries" (Thursday, July 24, 2008).

    It turns out that the settlement is massive by any measure.  HealthMarkets and its affected subsidiaries agreed that they would pay $20 Million in fines and penalties now, and that they would pay another $10 Million in the future if they did not live up to the progress requirements they agreed to.

    It is also an innovative settlement arrangement.  The ground-breaking feature of it is that State Insurance Regulators worked together under the auspices of the National Association of Insurance Commissioners to address many complaints against HealthMarkets, Inc. and its subsidiaries across the entire nation.  When the settlement was signed in July, 29 jurisidictions signed off on the settlement at that time.  Designated 'enforcers' of the settlement are Washington State, Alaska, California, Florida, Oklahoma, and Texas.  The settlement agreeement provides an August 18, 2008 deadline for other State Insurance Regulators to sign on.

    As part of the settlement agreement, HealthMarkets, Inc. and its participating subsidiary companies must report two times a year through December 31, 2009 that they have imporved in some 13 areas covered by their agreement, including:

    Agent training and supervision;

    Claims handling; and

    Complaints and grievances, among others.

For a comprehensive report on the settlement, participating State Insurance Regulators, and how the settlement agreement was reached, see this NAIC Press Release, "State Insurance Regulators Levy $20 Million Fine Against Healthmarkets" (July 24, 2008). 

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Federal Disasters Declared, Catastrophe Models Unspecified But Described As Consistent.

     During his two terms as president, Mr. Bush has issued 422 declarations of disaster.  That is described as more than President Bill Clinton and far more than President Ronald Reagan, also two-term presidents.  The largest number of Mr. Bush's disaster declarations in any given year came in 2004.  Austin Bogues, "Bush Declared 422 Major Disasters" (New York Times Online, Sunday, August 10, 2008).

    Mr. Bush's government committed $40 Billion in disaster relief from the Federal Government after Hurricane Katrina and Hurricane Rita in 2005.  Since they took office, they have committed an additional $47 Billion, for a total of $87 Billion in Federal Taxpayer Funds used for disaster relief, so far.  With or without the relief following Hurricanes Katrina and Rita, Mr. Bush has assigned more Federal money to disaster relief than his predecessor by some 2 and 1/2 times after adjusting for inflation, it is reported in the linked newspaper article.  The likely cause is, ironically, global warming.

    Before concluding this post, it is worth noting that a curious quote in the linked report is attributed to a person with the Environmental Defense Fund.  He is quoted as observing that "'weather events'" are "'consistent with what the models predict'".  However, the linked article does not provide a description of whose Computer Catastrophe Models they have in mind.

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Rate Rejection Redux.

 This Updates a Previous Post.

    Florida Farm Bureau's 2007 Premium Rate Increase was rejected in 2008.  FFB's 2007 Premium Rate Hike Request was for a 26.8 % increase.

    FFB also requested a Premium Rate Increase in 2008, upping the ante so to speak to 28.4%.  It was recently rejected by the Florida Office of Insurance Regulation.  FFB may now request an Administrative Hearing with a Florida Administrative Law Judge, or Hearing Officer.  Florida Farm Bureau has reportedly issued some 100,000 Homeowner's Insurance Policies in Florida.  Tom Zucco, "Farm Bureau Rate Hike is Rejected" (St. Petersburg Times Online, Tuesday, August 5, 2008).

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Unidentified Claim Practices Settlement by Life Insurer.

     In 2007, these three Life Insurance Companies reportedly took back over $115,000,000.00 or over $115 Million from Floridians who paid them Premiums:

     1.  MEGA LIfe and Health;

     2.  Mid-West National LIfe, and

     3.  Chesapeake Life.

Each is reportedly a subsidiary of HealthMarkets, Inc.  HealthMarkets recently settled many claims in many States for unidentified practices, reportedly resulting in a payment of $1,700,000.00 or $1.7 Million "for Florida".  Kris Hundley, "Florida to Get $1.7-Million From Insurance Settlement" (St. Petersburg Times Online, Friday, July 25, 2008).

If more information can be located from other sources, it will be posted here in the future.

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