A Weeks Worth of National Underwriter Breaking News at the Do Slabb Inn: Special Warren Edition

Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

Put your Dylan on and let’s begin at Berkshire Hathaway subsidiary General Re (not that the reader would know that from the story):

Convicted former Gen Re executive Christopher P. Garand was sentenced to serve a year and a day in prison on his conviction of being involved in a scheme to manipulate American International Group’s financial statement.

In addition to his prison sentence, the former senior vice president and assistant general counsel also was sentenced today to serve two years of supervised release and pay a $150,000 fine by Federal District Court Judge Christopher F. Droney, sitting in Hartford, Conn.

Mr. Garand, along with four others, was convicted in February 2008 of 16 counts that included conspiracy, securities fraud, making false statements to the Securities and Exchange Commission, and mail fraud.

The five executives were convicted of a scheme between General Re Corp. and AIG to inflate AIG’s earnings with two sham reinsurance transactions. The deal increased AIG’s loss reserves by $250 million in the fourth quarter of 2000 and $250 million in the first quarter of 2001, masking declines in loss reserves.

After investigators uncovered the activity, AIG restated its earnings, costing shareholders more than $500 million.

Christian Milton, formerly vice president of reinsurance for AIG, and the only AIG executive found guilty in the scheme, received the harshest sentence so far of four years in prison, two years probation and a $200,000 fine.

Ronald E. Ferguson, Gen Re’s chief executive officer, received two years in prison, two years probation and a $200,000 fine.

Elizabeth Monrad, Gen Re’s chief financial officer, and Robert Graham, a Gen Re senior vice president and assistant general counsel, still await sentencing.

Hmmmm. How long did Dick Scruggs get? He wasn’t in the reinsurance business.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’.
For the loser now
Will be later to win
For the times they are a-changin’.

Next up is Swiss Re, which Berkshire has a sizable stake. Recent turnover there has left the old management team looking like Swiss Cheese:

Swiss Reinsurance Company Ltd. Chairman Peter Forstmoser will resign May 1—one year earlier than planned—and will be replaced by Vice Chairman and current Credit Suisse Chairman Walter B. Kielholz, the loss-battered company said.

Mr. Kielholz said he will relinquish his Credit Suisse chairmanship to concentrate fully on the “major challenges” facing the financially troubled company.

The change in chairman is the latest big personnel change in the wake of the global reinsurer’s disclosure of a cascade of red ink on its balance sheet. On Feb. 12 the firm named Stefan Lippe to replace Jacques Aigrain as chief executive officer.

For 2008 the company had a net loss of CHF 864 million ($736.3 million at current exchange rate) driven mostly by investment losses.

The company said the reorganization of the board—which also includes the appointment of board member Mathis Cabiallavetta as vice chairman—will help strengthen focus on giving the CEO and executive committee “the best possible support” in the company’s core business.

Swiss Re added the company will also focus on significantly reducing risks in its investment portfolio and ensuring “optimal capital management in order to satisfy increased demand from clients during this period of pronounced scarcity of financing in the global insurance sector.”

Going to the Bank of Warren for funds does carry a steep price, however.

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’.
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.

And against this backdrop a US Congressman from tiny Bay St Louis Mississippi has, for the past three years, lead his peers in the US House to a new awareness of the problems facing coastal residents with the current state by state windpool structure, which leaves the ordinary people that are the retail policyholder at the mercy of these on and offshore based entities and their anti trust exemption. Who will join Congressman Taylor and right this grevious injustice to coastal homeowner’s insurance: (H/T Brian Martin)

From: e-Dear Colleague
Sent: Friday, March 06, 2009 1:45 PM
To: [email protected]
Subject: Finance: Dear Colleague: Cosponsor the Multiple Peril Insurance Act

Cosponsor the Multiple Peril Insurance Act
From: The Honorable Gene Taylor
Sent By: [email protected]
Bill: H.R. 1264
Date: 3/6/2009

What Insurance Industry Lobbyists Don’t Want You to Know

Dear Colleague:

In coastal areas, insurance premiums are 5 to 10 times higher than the amount of claims the insurance companies expect to pay. The government could set risk-based, actuarially-sound premiums to cover the expected claims without the huge additional cost of guaranteeing high rates of return to Bermuda reinsurance companies and their investors.

Who says so?

“…the prices charged for catastrophe insurance must be sufficiently high not only to cover the expected claims costs and other expenses, but also the costs of allocating capital to underwrite this risk. For truly extreme risks, the resulting premium can be as much as 5 to 10 times higher than the expected loss.”
– Managing Large-Scale Risks in a New Era of Catastrophes, Wharton Risk Management Center, University of Pennsylvania, 2008, p. 141.

“Government is not subject to the private-sector factors that produce large swings in premiums around expected loss in private insurance markets. Thus, compared with the private sector, government should be able to set insurance prices closer to expected loss for hurricanes and other catastrophic risks, and keep those prices closer to expected loss over time.”
– Lloyd Dixon, James W. Macdonald, and Julie Zissimopoulos, Coastal Wind Insurance in the Gulf States, RAND Gulf States Policy Institute, 2007, p. 8

“The private insurance mechanism is not well-suited to low frequency, high severity events. …An important first step towards the right solution is acknowledging the federal government’s critical role in either providing such coverage directly or through a backstop to the private market for high severity natural catastrophes that are otherwise beyond the ability of the private insurance market to handle.”
– Michael McCabe, Sr. VP of Allstate, letter to Hon. Maxine Waters and Hon. Judy Biggert, July 12, 2007.

Please contact Brian Martin in my office to cosponsor H.R. 1264, the Multiple Peril Insurance Act.

Member of Congress

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’.
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’.
And the first one now
Will later be last
For the times they are a-changin’.


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