Slabbed Daily July 13: Presidential Daily Briefing Edition

There is a good and topical insurance news story today that caught my attention, especially since it relates to a post I did on the recently released National Association of Insurance Commissioners whitepaper on their recommendations for a national response to the problems related to availability and affordability of catastrophic property and casualty insurance. In that white paper the Commishes reported there was plenty of private market capital available to back the risks. Of course I think the Commishes are all wet on their conclusions and for some backing on that assertion I offer one of our favorite insurance people here on slabbed in support of my conclusions, Mr Warren Buffet himself. The Wall Street Journal (subscription required) has the story:

Berkshire Hathaway’s reinsurance business, a big profit center for the diversified company, has pulled back from one of the more volatile corners of the reinsurance market: catastrophic property damage.

In recent years, Berkshire Hathaway Reinsurance Group made a push into the profitable business, in essence writing insurance for other insurers that wished to offload some exposure to big losses like hurricane damage. Just a few years ago, Berkshire pulled in $2.2 billion in premiums on a year that saw no major storms.

But recently, Berkshire has become more cash-constrained. Its retreat in “cat” reinsurance suggests it has become more risk averse amid a recent downgrade to its credit rating, a series of hits to Berkshire’s bottom line and ongoing turmoil in the economy.

In May, at the company’s annual meeting in Omaha, Neb., Berkshire Chairman Warren Buffett said the company is “doing less natural risk in terms of hurricanes because…we don’t have as much excess capital as we had a couple years ago.” At the end of the first quarter, Berkshire had slightly less than $20 billion in cash, its lowest level in years. Continue reading “Slabbed Daily July 13: Presidential Daily Briefing Edition”

Suppose you are a consumer who reads slabbed…..

And you’ve read every detail of the aberrant behavior of many insurance companies that do not pay legitimate claims in companies like Allstate, State Farm, USAA and Nationwide. The larger question becomes is there an insurance company that actually treats their customers fairly come claim time?

I don’t know why I haven’t yet linked the FBIC website rankings of insurer claims practices here on Slabbed because they rank not only the worst bad faith insurers but also the ones that treat their customers right. Here is the FBIC’s list of the top 10 bad faith insurers which includes life and health insurers as well as P&C insurers:

1. The Hartford
2. State Farm
3. Allstate
4. Unum (UnumProvident)
5. Berkshire Hathaway
6. CNA
7. American Family (Of pink pig fame)
8. AIG
9. Lumbermens (Kemper)
10. Assurant Health

And the good faith insurers?: Continue reading “Suppose you are a consumer who reads slabbed…..”

The Tangled Web Part Deux: Support your local TARP insurer and/or subsidize “the wealthy”

I love it when I hear that mental “click”! I’ve been squirreling away several important news links like pieces of a jig saw puzzle trying to figure out how to make them fit and be understandable to a broader audience. This post is partially in response to the recent guest column by Eli Lehrer of the Competitive Enterprise Institute that ran in the Sun Herald last Thursday. The S/H was no doubt attracted to the piece by Mr Lehrer’s use of scare tactics including yet more premium increases for our private/industry run insurer of last resort and it is with that incredible piece of propaganda that we start:

As it girds for the busy months of hurricane season, Mississippi has plenty to worry about. Homeowner’s insurance coverage remains difficult to find and expensive for those who have it.

If that weren’t enough, some members of Congress now want to change the tax law in a way that would drive already expensive coastal Mississippi insurance premiums even higher.

The proposed new tax will impact “offshore affiliated reinsurance” — a rather esoteric product that matters a lot in Mississippi. Explaining why requires some background. To begin with, all sizeable primary insurers — companies like Allstate, Farm Bureau, Nationwide and State Farm — buy insurance of their own, reinsurance, to help cover particularly large losses and diversify their own portfolios.

Particularly in high-hurricane-risk areas like the Gulf Coast, many companies find it advantageous to buy some or all of their reinsurance from a parent or sister company that they know won’t abandon them following a major storm.

Now we slabbers well know the reinsurance examples he uses have a grain of truth to them and indeed the domestic insurers Lehrer mentions sometimes use reinsurance but generally not the high priced kind used by our windpool. Allstate, for example, reported on page 35 of their last quarterly financial statement filed with the SEC, a mere $141 million of  property and casualty reinsurance premiums for Q1 2009. (Considering Allstate measures it assets in billions of dollars $141MM is a very small amount). Readers interested in greater detail on the interplay of reinsurance and catastrophe payouts should start with this link, which I featured in this post. From there we have posts on the trend to and use of insurance linked securities in lieu of traditional reinsurance treaties (and the subprime problems contained therein) here, here, here, here, and here. Not to be out done by the people in Bermuda, State Farm, among others, created their own Bermudan reinsurance subsidaries to play the tax game.

Suffice it to say Slabbed is calling bullshit on Eli Lehrer. Not only is his opinion piece propaganda of the type that would make Joseph Goebbels proud it is insulting he actually pretends to care what people here pay for wind premiums (or even know that people well off the beach pay huge amounts for wind insurance here). The CEI is working equally hard to insure HR 1264, Gene Taylor’s multiple peril bill remains DOA Continue reading “The Tangled Web Part Deux: Support your local TARP insurer and/or subsidize “the wealthy””

Moody’s Downgrades Berkshire Hathaway

The announcement came late last night. Yahoo finance has the AP story:

Billionaire Warren Buffett’s company lost its pristine triple-A rating from Moody’s on Wednesday because the recession has diminished Berkshire Hathaway Inc.’s financial strength

Ratings agency Moody’s downgraded the credit rating for Berkshire and several of the company’s insurance subsidiaries.

Moody’s says Berkshire and its insurance companies, including National Indemnity and Geico, aren’t as strong financially because the market value of their investments has fallen. Also, Moody’s says the recession hurt Berkshire’s non-insurance businesses. Continue reading “Moody’s Downgrades Berkshire Hathaway”

Oh Insurer Where Art Thou Part 5: In the Jailhouse Now

Song Jimmie Rodgers
Lyrics by Sop81_1
Performed by: Maurice “Hank” Greenberg, Ronald E. Ferguson, Robert D. Graham and Christopher P. Garand, and Christian M. Milton
Special Guest Yodelers: Warren Buffet, Tim Balducci, Steve Patterson, Joey Langston and Dick Scruggs

I had a friend named Ramblin’ Ron
Who used to steal gamble and rob
He thought he was the smartest guy in town
But I found out last Monday
That Ron got locked up Sunday
They’ve got him in the jailhouse way down town
He’s in the jailhouse now he’s in the jailhouse now
I told him once or twice quit playin’ cards and shootin’ dice
He’s in the jailhouse now Continue reading “Oh Insurer Where Art Thou Part 5: In the Jailhouse Now”

About that increased short interest in Berkshire Hathaway……

The spirited commentary on my latest swipe at Warren serves as the inspiration for this post that will hopefully give those so interested an insight into what I look at when evaluating short term pricing direction. As I implied in that post I concentrate my efforts following “smart” money which I defined as the bondholders for the longs and short sellers as there is often a correlation in the level of short interest and bond pricing.

For those scratching their heads wondering what the heck I’m talking about let’s start by examining the graphic from Wiki on the top left along with this link to their page on the topic which contains a good layman’s definition of short selling:

Short selling or “shorting” is the practice of selling a financial instrument that the seller does not own at the time of the sale. Short selling is done with the intent of later purchasing the financial instrument at a lower price. Short-sellers attempt to profit from an expected decline in the price of a financial instrument. Short selling or “going short” is contrasted with the more conventional practice of “going long”, which typically occurs when a financial instrument is purchased with the expectation that its price will rise. Thus, being “long” is just a way of saying that you own a positive number of the securities; being “short” is just a way of saying that you own a negative number of the securities. Continue reading “About that increased short interest in Berkshire Hathaway……”

Is it possible Berkshire Hathaway is insolvent Part Deux: Fitch Downgrades Warren

The emperor has no clothes! Bloomberg has the story (H/T Russell):

Billionaire Warren Buffett’s Berkshire Hathaway Inc. had its top-level AAA credit rating cut by Fitch Ratings, which cited concern about the potential for losses on the insurer’s equity and derivatives holdings.

Buffett’s role as chief investment officer also puts the company at risk if he becomes unable to do the job, Fitch said in a statement. Fitch cut the so-called issuer default rating on Berkshire to AA+, and senior unsecured debt to AA. The insurance and reinsurance units kept their AAA status, with a negative outlook for all entities, Fitch said.

“Fitch views this risk as unrelated to Mr. Buffett’s age, but rather Fitch’s belief that Berkshire’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett,” Fitch said. Buffett is 78.

Berkshire joins General Electric Co., which was downgraded by Standard & Poor’s today and lost its status as one of the remaining AAA companies in the U.S. Berkshire stock fell 35 percent in 12 months on concern that Buffett’s bets on derivatives — instruments he has called “financial weapons of mass destruction” — will crush profit at the firm. Continue reading “Is it possible Berkshire Hathaway is insolvent Part Deux: Fitch Downgrades Warren”

What’s Another 3 Billion Dollars Among Friends? Rohm & Haas Busts Buffett’s Chops

Even an Oracle is sometimes blind. From the Business Insider at Clusterstock:

Investors are already fretting about Berkshire Hathaway’s pristine financial standing, as the CDS market assigns the company a 13% chance of going totally bust. Meanwhile, Buffett’s latest stock moves — which may pan out over the long term — have gone the wrong way.

Yesterday’s Dow Chemical/Rohm & Haas settlement means The Oracle needs to put up more cash, per an agreement he made last Summer. On Squawk Box yesterday, he described the $3 billion commitment as “dumb” in light of the changed economy:

QUICK: A lot of viewers wrote in and had specific questions about your investments. David wrote in and says, “You’ve committed financing for Dow Chemical’s acquisition of Rohm and Haas Company. What are your thought on the upcoming lawsuit and whether or not the deal should continue to move forward?” Continue reading “What’s Another 3 Billion Dollars Among Friends? Rohm & Haas Busts Buffett’s Chops”

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. Continue reading “A Weeks Worth of National Underwriter Breaking News at the Do Slabb Inn: Special Warren Edition”