A bit over a week ago a print journalist familiar with Slabbed’s coverage of the post Katrina insurance wars sent me this link to a National Underwriter top 10 insurance living legends piece that featured Dickie Scruggs (one notch above true living legend Karen Clark) at the 7 spot. We used to feature the NU a good bit on Slabbed but that ended after they ignored the insurance industry getting its ass kicked in Corban v USAA where Nationwide Insurance’s lawyers made particular asses of themselves asserting wind coverage was properly denied if, after the wind 99% destroys the covered property, storm surge destroys the other 1%. The industry contends in such a scenario taxpayer provided coverage under the National Flood Insurance Program was the proper source of coverage and that is exactly the way they adjusted their claims here after Katrina tendering flood insurance policies pretty much sight unseen and denying any wind coverage that would come from their coffers.
For those of you folks still wondering why the country is broke after figuring out it is not the union pipe fitter that goes to work everyday for 6AM at the shipyard, or school teacher unions or Mexican ditch diggers, I’d submit if you multiply the above scenario 1000 times and you’d find the answer as most of the politicians that matter on any level are owned by some special interest. To illustrate the point allow me to update several insurance business world stories Slabbed covered in years gone by and start with that NU story I linked above.
A few weeks ago word filtered out the Rigsby sisters false claims act complaint against State Farm would be moving to trial on the exemplar claim known around the blogs as McIntosh v State Farm. State Farm is PR savvy and when that case heats up, invariably David Rossmiller, a partner at the Portland Oregon insurance defense firm of Dunn Carney pops up like a fly on shit regaling us with his knowledge of the minutiae of insurance contract law. Since Rossie, as he is known on Slabbed, surfaced blogging on Hurricane wind water cases of the type he has never tried in Oregon, it naturally aroused suspicions locally that he was an adjunct of State Farm PR, a view now widely shared in the local print media in South Mississippi. Back in the day Rossie was a darling in local insurance defense circles and on the Hard Line GOP political resource YallPolitics in the blogosphere, which still features the insurance litigation here on the coast in a section termed Scruggs scandal and it is indeed a popular insurance industry meme that the wind damage down here was all a figment of Dick Scruggs imagination thus the lumping. Scapegoating trial lawyers in still popular in GOP circles folks but that stands to reason since the GOP is the party of big business special interests but I’m getting ahead of myself.
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”
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”
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……”
A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.
How Inflation Swindles the Equity Investor by Warren E. Buffett, Fortune May 1977
As the current CDO/MBS meltdown manifests itself in varying ways throughout our financial system we’ve seen Mr Buffett’s name with increasing regularity in the financial press. His recent 2008 shareholder letter was widely cited early last week in the press for instance, especially the paragraph that attempts to put current events in a historical perspective. I was drawn to the paragraph two above that one:
This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.
I immediately wondered what he meant by ‘They”. “They won’t leave willingly”. And is this the same “they” that brought us this disaster? Did anyone at CNBC, the Wall Street Journal or the New York Times read Buffett’s letter with a critical eye? I’ll warn our readers now this will be a long post by necessity.