I’ve been sent several articles on the Cat Bond market of late, some very good and some not necessarily worthy of the publication in which they were printed. I’ll start with an article from The Banker Magazine which is not yet online which I read courtesy of Factiva. While the article is generally good the author, Edward Russell-Walling parrots some long discredited facts about Cat Bonds, such as their being non correlated with the broader financial markets which the financial crisis of last year exposed as pure BS and it is there we start:
In 2008, the annus horribilis, non-correlation did not prevent it slumping to $2.7bn. Some hedge funds, which had been prominent players in this market, became distressed sellers and depressed pricing. The situation was aggravated by the downgrade of four cat bonds exposed to Lehman Brothers which, as total return swap counterparty, was effectively holding the investors’ capital.
What the author neglects to mention was “the innovation” of stuffing issues full of subprime mortgages whose accompanying (illusory) high yields no doubt drastically lowered the cost to the issuer. Lehman, as the guarantor, is cited as a problem because of its insolvency but the fact is TARP and the United States taxpayers are what has propped up every such issue so structured as major guarantors like AIG and the other Wall Street investment banks were essentially insolvent meaning their financial guarantees were worthless. Without the Lehman guarantee for instance Allstate’s Willow Re, which defaulted on their interest payments to investors earlier this year, plunged to around 50 cents on the dollar or roughly about what the underlying subprime mortgages were worth.
That said Russell-Walling did give a good explanation of the concept of the “trigger” in these agreements and it is there we pick back up:
One important choice that had to be made was the nature of the trigger. An indemnity trigger is activated by the issuer’s actual losses. So if the cover is for $100m with an excess of $400m, the bond is triggered once claims exceed $400m. Non-indemnity triggers may be based on other mechanisms, such as modelled loss, insured industry loss or physical parameters such as earthquake magnitude or wind speed. Continue reading “News from the Cat House Part Deux: Bondage and Discipline sometimes missing from the equation”
Yep he did. Keep pounding Jim, AIG policyholders need not also be bagholders too.
Thursday, August 13, 2009
Baton Rouge, Louisiana
WHY CAN’T I GET A LOUISIANA BAILOUT?
At first, it was the big financial guys who were “too big to fail” that were getting all that bailout money. Billions to banks, insurance companies, and then to auto makers. If you are old enough to remember back to the depression, the popular song of the suffering epitomized what was taking place:
“Once I built a railroad, I made it run, made it race against time.
Once I built a railroad, now it’s done. Brother, can you spare a dime?”
Well you can sure tell that inflation kicked in. Instead of financial panhandlers asking passersby for a dime, they head to Washington and ask for a spare $50 billion or so.
At the front of the line is A.I.G., Louisiana’s biggest insurance boondoggle that this column wrote about last week. It is hands down the biggest single financial disaster in Louisiana history of a company with such a huge Louisiana presence. This is a company that recently posted the largest quarterly loss in American Corporate history-some $61.7 billion. To put this sum in perspective, A.I.G. was losing more than $27 million every hour. That’s $465,000 every minute.
Now one would assume that there are regulatory mechanisms in place to protect the weary and leery average citizen. And in fact, the supposed white knights are the various state insurance commissioners who took great umbrage of the accusations made in last week’s column of how perilous the financial condition of A.I. G. happens to be. “Misinformation is being circulated” with “inappropriate assertions based on incomplete information that ultimately hurt both policyholders and taxpayers,” the National Association of Insurance Commissioners’ press release lamented. The release went on to say that “A.I.G. companies are financially sound and fully able to pay claims.” Continue reading “Jim Brown ain’t backing down on AIG’s Insolvency: Captured Regulators and Jackassery at the NAICS”
Thursday, August 6, 2009
Baton Rouge, Louisiana
INSURANCE DYSFUNCTION CONTINUES
Press reports, both nationally and at home, have confirmed what financial analysists and investigators have known for months. Louisiana continues to have the most dysfunctional insurance system and the worst insurance climate in the country. In almost every category, insurance rates are the highest nationwide. And just last week, the New York Times published a front page investigative report on major financial trouble involving Louisiana’s largest insurance company.
The American Insurance group (A.I.G.) does more insurance related business in Louisiana than any other company. A.I.G. recently received the largest bailout in history. Yet serious questions are being raised about insider swapping of both assets and liabilities among numerous A.I.G. subsidiaries. The Times article says A.I.G. is selling way too much insurance. “State insurance commissioners are supposed to keep insurers from writing new policies if in doubt that they can cover their claims,” the article concludes.
One of the voices raising alarms is former Louisiana chief insurance examiner W.O. Myrick. He was quoted extensively in the Times article, and has looked at a number of A.I.G. subsidiaries that do extensive business in Louisiana. W.O. was of great help in my initial days of taking over a deeply troubled department back in 1991. He assisted me in shutting down some 50 insolvent insurance companies. So he knows the territory, and when he says there is potential trouble, you can bet on it.
Remember now that we are talking not only about Louisiana’s largest company, but one that so far has received over $210 billion in federal bailout funds. That’s a lot of dough in anyone’s book. How much? Figure that $700 for you and each member of your family goes from the tax till to A.I.G. And since the government has to borrow the money, add in 10% for the next 30 years. We ain’t talkin’ chump change here. Continue reading “Jim Brown Joins Slabbed in Calling Out AIG: You’re Insolvent and We Know It”
There have been a good number of news tidbits that do not necessarily constitute a post here on Slabbed on their own but when taken together tie up several loose ends and lend context to a story that does merit it’s own post in Mike Chaney’s recent insurance forum held last Thursday and Friday here on the coast. So let’s backtrack a week and shake us up slabbed insurance cocktail by beginning with Anita Lee’s coverage of day 2:
Gov. Haley Barbour joined the coastal insurance debate Friday, telling an audience he believes regional compacts would be the best way to regulate wind coverage in coastal zones from Texas to Maine.
Barbour introduced The Travelers Insurance Cos. president, Brian MacLean, to explain the company’s proposal for improving the coast insurance market. Insurers have pulled back from coastlines in recent years, leaving state-run wind pools to fill the void.
Wind pools were intended as insurers of last resort, but their market shares have grown to levels that experts agree are unsustainable. Insurance works by spreading risk, not concentrating it.
Haley has been conspicuously absent from the insurance scene refusing to comment on the litigation while offering cheap lip service to Gene Taylor’s multi peril bill. I suspect he and the State GOP has been searching for a way to throw a bone to the people on the coast that helped elect him while working hard to preserve GOP big business bonafides with the campaign money machine that is big insurance. Continue reading “Slabbed Daily July 22-24. Lets tie a few things together”
You’d think after the first time AIG paid fat executive bonuses while borrowing billions from the Treasury because of their habit of “tatooing” toxic paper they would have learned. Nope, seems the gang thinks they deserve extra for their fine work cratering the financial system in 2008. So while the nations unemployment rate skyrockets to 10% thanks to Wall Street greed millions in taxpayer dollars will be paid to the people who brought you this disaster.
Here is the Reuters story courtesy of Yahoo Finance:
American International Group (NYSE:AIG – News) is preparing to pay next week millions of dollars more in bonuses to dozens of corporate executives, a source familiar with the development said.
AIG has been talking with Washington’s newly-appointed compensation czar Kenneth Feinberg about the bonuses, which are due to be paid on July 15, said the source.
The company is reviewing its compensation plans with Washington as it tries to avoid the national furor set off by $165 million in retention bonuses paid to employees of a financial products unit in March. Much of AIG’s $99 billion in losses last year stemmed from derivatives written by that unit. Continue reading “Additional evidence the insurance crowd in New York marches to the beat of a different drummer”
I finished my first radio appearance a few minutes ago and thought the show went very well. Kevin Buckel was kind enough to call in explaining his public records lawsuit against the Commish as we covered a variety of insurance related topics from appraisal to the actual cost to insure a home here in the GO Zone. Now here is a months plus worth of insurance news with more to come. (H/t to Editilla and Alan Lange)
First up we have a trio of somewhat conflicting articles out of the Louisiana insurance market, which the Wall Street Journal editorial board held up as a stellar example of a well working state insurance market, while not mentioning Louisiana has some of the highest homeowner insurance rates in the country. I’ll start with the “good” news that Louisiana Citizens rates are dropping in Orleans Parish per the Times Picayune which cites “increased competition” as the reason:
As of May 1, homeowners policies in Orleans Parish will reflect a 9 percent decrease. The stripped down “dwelling” policies, which don’t include liability coverage, dropped 22 percent, said John Wortman, chief executive of the state-sponsored insurer of last resort.
“This is because the market rates have gone down and we follow the market place,” Wortman said.
Statewide, however, the average rate climbed 7 percent and homeowners rates also rose in St. Tammany and Jefferson parishes as well.
By law, Citizens must set its prices to match that of the most expensive insurer in each parish. Continue reading “Slabbed Daily Weekend Edition: June 6/7. Catching up on insurance news.”
Save your life and evacuate. Or stay to make certain your wind insurance pays. Decisions decisions….
Its that time of the year – the beginning of another Hurricane season complete with advance news stories why our insurance rates need to rise yet again. Some evac stories always make it to the mix and it is there we start with this Melissa Scallan Sun Herald story:
Womack and other state officials are encouraging residents to go north, not east or west and to leave by alternate rather than primary routes, such as U.S. 49.
Some of the new and less-traveled routes include Mississippi 605 and Mississippi 67, which tie into each other and lead to U.S. 49. Wayne Brown, Southern District transportation commissioner for the state Department of Transportation, encourages residents to take highways such as Mississippi 15, 57, 63 and 29.
“If people stick to those, in my opinion, they’ll have much less traffic to deal with,” Brown said.
The state has agreed again this year to allow south Louisiana residents to use Mississippi interstates to evacuate.
If asked by Louisiana Gov. Bobby Jindal, Mississippi will contraflow interstates 55 and 59, which means traffic in all lanes will flow north.
On I-55 contraflow will end just south of Brookhaven. On I-59 it will end just south of Hattiesburg.
Some exits will be open so motorists can get gas and food, Brown said, but those could be closed intermittently.
“We’re going to let them get off, but if that stop becomes congested we’ll close the exit,” he said.
Bob Chapman, emergency services manager for MDOT, said contraflow is one reason department officials encourage Mississippi residents to leave as early as they can.
“We can’t contraflow U.S. 49 for our residents because there are too many access points,” he said.
“The main emphasis is to evacuate early and go where you want to go.”
Next up is the obligatory Insurance (Mis) Infortmation Institute’s annual news plant explaining that costly Hurricanes are the reason rates are so expensive. What the story fails to mention is that insurers are paying out less in claims as a percenatge of their revenues than ever thus losses can’t be the true reason rates are sky high, coverage is scarce despite III’s paid shill Robert Hartwig’s protestations to the contrary. We pick up the AP story as published by the Houston Chronicle (h/t Mrs Sop): Continue reading “Slabbed Daily June 1, 2009: Hurricane Season / Toxic Paper Edition”
Ajax RE – named after the suicidal Greek warrior from Homer’s Iliad – were there sufficient funds to repay the bonds’ principle on maturity date of May 8th or just default dead money not talking?
We found Ajax’s achilles heel in early March. We too now wonder if the bagholders I mean bondholders were made whole or if they are suffering their losses in silence.
Meantime it is full speed ahead for USAA and their new Bermuda based SPE Residential Re.