This very well could be the most important Slabbed post of the year…

And it has nothing to do with Jefferson Parish Political Corruption.

For literally years our good friend Mr CLS has been methodically hammering away at the complexities surrounding insurance securitization and the implications of such for each and every one of us, especially those of us on the coast being price gouged for wind coverage. So suppose you’re a reporter with insurance beat responsibilities like Becky Mowbray, Anita Lee, Jeff Amy, Paige St John, Beatrice Garcia or a national outfit like Bloomberg that has done some quality coverage on insurance issues that is ready to kick it up a notch in terms of understanding.  What is now coming to light with Bank of America’s alleged forced placed insurance fraud is a must read as more turds float to the surface in the global insurance finance cesspool.

Some of the very same problems could very well exist in other facets of the securitized insurance market; problems the folks at U Penn Wharton School no doubt did not conceive of when they were pioneering insurance linked securities such at Catastrophe Bonds not long ago as the reasons for the lack of market transparency in the global insurance markets come into sharper focus.

Don’t look for the political shoe shine boys for big insurance such as the coast’s own Steven Palazzo or Commish Mike Chaney to say much on this.  Both men, despite paying lots of lip service to the topic of insurance, remain firmly, purposely ignorant of the any fraud perpetrated by their big business buddies on Wall Street.

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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””

A Must Read Courtesy of Editilla

Let’s climb the Ladder and find out more about insurance linked securities European style and how Cat Bonds may be coming to a mutual fund near you soon.

Since its inception in 1996 the insurance-linked securities market has witnessed worldwide issuance of $38bn and has more than remained stable throughout the credit crunch. According to AM Best, the catastrophe bond market grew from $1.99bn to $4.69bn between 2005 and 2006, and Swiss Re predict that the wider ILS market will follow suit by growing to $1trln over the next decade.

Investors recently raced to buy a $260m catastrophe bond designed to protect East Japan Railway against earthquake damage. Rodrigo Araya of Moody’s Investors Service says, “The market has grown at a scorching pace in the last three years. We will probably see about $8bn in new issuance this year.”

At the end of August, catastrophe bonds returned 3.4 percent since May 31st according to data provided by Swiss Re, the world’s largest reinsurer and bigest underwriter of cat bonds. The average corporate bond declined 0.3 percent and asset-backed debt fell by 3.3 percent during the same period according to data provided by Merrill Lynch and Co. Continue reading “A Must Read Courtesy of Editilla”