By Pat Speer March 1, 2009
The board of American International Group Inc. (AIG) on Sunday is reported to have approved an extensive revision of the government's $150 billion bailout, according to Reuters. The news comes after a week of rumors that AIG and government officials were contemplating slicing the organization up into three separate companies, and on the verge of the company releasing a roughly $60 billion loss early on Monday.
A source with “direct knowledge of developments” told Bloomberg today that as part of the deal, in a meeting with the government AIG said it planned to rename its property-casualty business to differentiate it from AIG, and it will be given its own board of directors, said the source.
AIG reported that the division was losing employees and having difficulty attracting new clients as a result of its financial problems.
INN reported last week that John Williams, previously SVP of operations at one of AIG's fastest-growing commercial units in the , its small business division, is joining Torus Insurance Ltd. as global head of business operations. Hiscox, a specialty insurer, said it hired Steve Silverman to lead Hiscox's newly created inland marine business. Silverman was AVP and product line manager for AIG's Lexington Insurance's inland marine and specialty property business in the and .
INN also reported through Reuters last week that bidders were predicted to emerge for some Asia-based units of American International Group Inc. (AIG).
The paper named Toronto-based Manulife Financial Corp. and London–based Prudential Plc as potential suitors. The article also says the two companies may team with a sovereign fund based in to buy another AIG unit, American International Assurance Co.
For the latest on the additional $30 billion in bailout funds from the Treasury, click here.
Showing posts with label Insurance networking news. Show all posts
Showing posts with label Insurance networking news. Show all posts
Monday, March 2, 2009
Friday, February 27, 2009
Swiss Re Sigma Study Scopes Scenario Planning
By Alex Vorro February 24, 2009
Scenario analysis is rapidly becoming the method of choice to evaluate multiple risks for many insurers, says a new sigma study by Swiss Re. But despite its prevalence, Swiss Re feels carriers could do more to fully exploit these state-of-the-art approaches.
Scenario analysis helps insurers make business decisions by considering a number of potential future developments, allowing them to manage a broad range of often-interrelated risks, according to the Zurich-based reinsurer. It is used most frequently in areas such as strategic planning, risk management and underwriting.
"Events like the financial crisis will accelerate the adoption of these approaches and encourage insurers to use state-of-the-art scenario analysis to evaluate risks," says Kurt Karl, a Swiss Re economist.
A state-of-the-art approach, Karl says, would see insurers excelling in the following types of scenario analysis:
• A global model of assets and liabilities that can be stress tested with insurance, economic and financial market shocks
• A regular program of internal scenario tests related to shocks such as natural catastrophes and pandemics, as well as economic and financial market shocks
• Models that capture how these shocks affect each major asset class and business line
Because insurers face such a vast number of risks, including natural catastrophes, mortality risks and investment volatility, these risks can often interact in complex ways.
In the case of a pandemic, for example, thousands of people may lose their lives, resulting in a sharp increase in life insurance claims. In addition, as people shop, work and travel less to avoid becoming infected, businesses may suffer, causing corporate bond defaults to rise. A related impact on the business landscape is faltering share prices.
Because carriers have to price and manage these risks, they need a deep understanding of the risks and how they interact.
"The insurance industry, unlike some other industries, tends to focus on unlikely events," Karl says. "They use models provided by regulatory authorities or their own in-house models, which are then 'shocked' with a wide range of scenarios to evaluate tail risk. The better models take into account the benefits of diversifying insurance and asset risks."
In order to illustrate how scenario analysis works, the Swiss Re study suggests how an insurer might evaluate a complex scenario like a pandemic. Medical experts are needed to understand how pandemics spread and to help determine infection, mortality and morbidity rates. Economists are needed to assess the impact on different parts of the economy and capital markets. Underwriters are needed to gauge the costs to various insurance lines.
When the analysis is complete, insurers must then review mitigation strategies: Is additional reinsurance required? Should more restrictive clauses be imposed on, for example, business interruption insurance?
"Insurers must also evaluate how a pandemic would impact asset returns,” Karl says. “One must be prepared to de-risk the asset portfolio quickly, if the risk of a severe pandemic escalates."
But, while Swiss Re feels the use and sophistication of scenario analysis in insurance has improved, it is far from perfect. The industry is not yet fully applying state-of-the-art standards.
"The current financial crisis will definitively advance the use of scenario analysis by insurers," Karl adds. “This sigma aims to improve the understanding and use of scenario analysis and modeling in insurance.”
Scenario analysis is rapidly becoming the method of choice to evaluate multiple risks for many insurers, says a new sigma study by Swiss Re. But despite its prevalence, Swiss Re feels carriers could do more to fully exploit these state-of-the-art approaches.
Scenario analysis helps insurers make business decisions by considering a number of potential future developments, allowing them to manage a broad range of often-interrelated risks, according to the Zurich-based reinsurer. It is used most frequently in areas such as strategic planning, risk management and underwriting.
"Events like the financial crisis will accelerate the adoption of these approaches and encourage insurers to use state-of-the-art scenario analysis to evaluate risks," says Kurt Karl, a Swiss Re economist.
A state-of-the-art approach, Karl says, would see insurers excelling in the following types of scenario analysis:
• A global model of assets and liabilities that can be stress tested with insurance, economic and financial market shocks
• A regular program of internal scenario tests related to shocks such as natural catastrophes and pandemics, as well as economic and financial market shocks
• Models that capture how these shocks affect each major asset class and business line
Because insurers face such a vast number of risks, including natural catastrophes, mortality risks and investment volatility, these risks can often interact in complex ways.
In the case of a pandemic, for example, thousands of people may lose their lives, resulting in a sharp increase in life insurance claims. In addition, as people shop, work and travel less to avoid becoming infected, businesses may suffer, causing corporate bond defaults to rise. A related impact on the business landscape is faltering share prices.
Because carriers have to price and manage these risks, they need a deep understanding of the risks and how they interact.
"The insurance industry, unlike some other industries, tends to focus on unlikely events," Karl says. "They use models provided by regulatory authorities or their own in-house models, which are then 'shocked' with a wide range of scenarios to evaluate tail risk. The better models take into account the benefits of diversifying insurance and asset risks."
In order to illustrate how scenario analysis works, the Swiss Re study suggests how an insurer might evaluate a complex scenario like a pandemic. Medical experts are needed to understand how pandemics spread and to help determine infection, mortality and morbidity rates. Economists are needed to assess the impact on different parts of the economy and capital markets. Underwriters are needed to gauge the costs to various insurance lines.
When the analysis is complete, insurers must then review mitigation strategies: Is additional reinsurance required? Should more restrictive clauses be imposed on, for example, business interruption insurance?
"Insurers must also evaluate how a pandemic would impact asset returns,” Karl says. “One must be prepared to de-risk the asset portfolio quickly, if the risk of a severe pandemic escalates."
But, while Swiss Re feels the use and sophistication of scenario analysis in insurance has improved, it is far from perfect. The industry is not yet fully applying state-of-the-art standards.
"The current financial crisis will definitively advance the use of scenario analysis by insurers," Karl adds. “This sigma aims to improve the understanding and use of scenario analysis and modeling in insurance.”
Gartner: I.T. Spending to Grow 2.6%
By Howard Anderson, Health Data Management February 24, 2009
The U.S. health care industry will increase spending on information technology by 2.6% to $28.4 billion in 2009, according to Gartner Inc., a Stamford, Conn.-based research and consulting firm.
Because of the recession, the rate of growth will be down substantially from 2008, when health I.T. spending grew 6.6%, and 2007, when it grew 7%, says John Lovelock, Gartner’s research VP for health care. Nevertheless, I.T. spending will grow more in health care during 2009, than any other sector of the U.S. economy, he says.
One significant reason for the continued growth, Lovelock says, is the expectation of federal financial incentives for electronic health records under the economic stimulus package in the coming years. Another, he says, is that health care is playing “catch up” after years of spending less on I.T. than other sectors. “Only in the last few years has clinical software been as functional as advertised,” he adds.
U.S. health care I.T. spending will grow more rapidly in the years ahead as the economic stimulus’ impact is felt more profoundly, Lovelock says. By 2011, he predicts spending growth will return to the 6.6% level achieved in 2008.
For more information on Gartner’s latest I.T. spending report, “Dataquest Alert: Utilities, Healthcare and Government Lead IT Spending Growth in Challenging 2009,” visit gartner.com.
The U.S. health care industry will increase spending on information technology by 2.6% to $28.4 billion in 2009, according to Gartner Inc., a Stamford, Conn.-based research and consulting firm.
Because of the recession, the rate of growth will be down substantially from 2008, when health I.T. spending grew 6.6%, and 2007, when it grew 7%, says John Lovelock, Gartner’s research VP for health care. Nevertheless, I.T. spending will grow more in health care during 2009, than any other sector of the U.S. economy, he says.
One significant reason for the continued growth, Lovelock says, is the expectation of federal financial incentives for electronic health records under the economic stimulus package in the coming years. Another, he says, is that health care is playing “catch up” after years of spending less on I.T. than other sectors. “Only in the last few years has clinical software been as functional as advertised,” he adds.
U.S. health care I.T. spending will grow more rapidly in the years ahead as the economic stimulus’ impact is felt more profoundly, Lovelock says. By 2011, he predicts spending growth will return to the 6.6% level achieved in 2008.
For more information on Gartner’s latest I.T. spending report, “Dataquest Alert: Utilities, Healthcare and Government Lead IT Spending Growth in Challenging 2009,” visit gartner.com.
Thursday, February 26, 2009
Investment Returns Insurers’ No. 1 Concern
By Alex Vorro February 24, 2009
Investment performance is being hailed as the most pressing concern of insurers during this economic crisis, according to a recent survey from PricewaterhouseCoopers LLP.
When PricewaterhouseCoopers last polled insurers in its 2007 “Insurance Banana Skins” survey, investment returns failed to crack the top 10 concerns. But in 2009, investment performance, equity markets and capital availability topped the list. Overregulation—the No. 1 risk in 2007—fell to fifth place.
Respondents to this year’s survey are anxious about Solvency II, which some said would raise capital requirements during these “demanding times.” They also are apprehensive about a regulatory knee-jerk reaction to the banking crisis, the report says.
Exposure-led risks, such as pollution, catastrophe exposures, terrorism and climate change, also dropped in the rankings, as risks related to the financial downturn rose to the forefront.
New York-based Centre for the Study of Financial Innovation worked in conjunction with PricewaterhouseCoopers on its “Insurance Banana Skins 2009” survey. They interviewed 400 companies in 39 countries.
Investment performance is being hailed as the most pressing concern of insurers during this economic crisis, according to a recent survey from PricewaterhouseCoopers LLP.
When PricewaterhouseCoopers last polled insurers in its 2007 “Insurance Banana Skins” survey, investment returns failed to crack the top 10 concerns. But in 2009, investment performance, equity markets and capital availability topped the list. Overregulation—the No. 1 risk in 2007—fell to fifth place.
Respondents to this year’s survey are anxious about Solvency II, which some said would raise capital requirements during these “demanding times.” They also are apprehensive about a regulatory knee-jerk reaction to the banking crisis, the report says.
Exposure-led risks, such as pollution, catastrophe exposures, terrorism and climate change, also dropped in the rankings, as risks related to the financial downturn rose to the forefront.
New York-based Centre for the Study of Financial Innovation worked in conjunction with PricewaterhouseCoopers on its “Insurance Banana Skins 2009” survey. They interviewed 400 companies in 39 countries.
AIG May Face Bankruptcy, Evaluating Alternatives
By INN Editorial Staff February 23, 2009
American International Group Inc. said yesterday that it's weighing "potential new alternatives" with the Federal Reserve Bank of New York in response to its continued struggles, according to a MarketWatch report.
"We continue to work with the Federal Reserve Bank of New York to evaluate potential new alternatives for addressing AIG's financial challenges," company spokesman Joseph Norton said in a statement. "We will provide a complete update when we report financial results in the near future."
AIG's issued its statement after CNBC said yesterday that the company will report a $60 billion loss next Monday, and is seeking further governmental support. According to the New York Times, under the U.S. Federal TARP program, the government has already lent AIG $150 billion.
The insurer’s massive losses are due to writedowns on commercial real estate and other assets, CNBC reported. AIG's board will meet Sunday to work out an agreement with the government, the news outlet said.
Additionally, the loss may trigger more ratings downgrades, which would leave AIG needing to raise more collateral, according to CNBC's David Faber. The law firm of Weil, Gotshal & Manges is preparing a bankruptcy filing for AIG, but that outcome is unlikely, he said.
The talks with the government include the possibility of additional funds for the insurer and trading debt for equity, a source familiar with the matter told Reuters.
Today, the Wall Street Journal and Financial Times ran separate stories on talks between the government and AIG over a new rescue deal. Unnamed sources said a revised arrangement could involve swapping the $60 billion federal loan for equity, other debt, and pieces of some of the insurance giant's businesses.
According to the Journal, the government could receive "major stakes" in spun-off businesses, probably including some in Asia, and the unnamed sources now say AIG is likely to post a fourth-quarter net loss of more than $60 billion on Monday.
American International Group Inc. said yesterday that it's weighing "potential new alternatives" with the Federal Reserve Bank of New York in response to its continued struggles, according to a MarketWatch report.
"We continue to work with the Federal Reserve Bank of New York to evaluate potential new alternatives for addressing AIG's financial challenges," company spokesman Joseph Norton said in a statement. "We will provide a complete update when we report financial results in the near future."
AIG's issued its statement after CNBC said yesterday that the company will report a $60 billion loss next Monday, and is seeking further governmental support. According to the New York Times, under the U.S. Federal TARP program, the government has already lent AIG $150 billion.
The insurer’s massive losses are due to writedowns on commercial real estate and other assets, CNBC reported. AIG's board will meet Sunday to work out an agreement with the government, the news outlet said.
Additionally, the loss may trigger more ratings downgrades, which would leave AIG needing to raise more collateral, according to CNBC's David Faber. The law firm of Weil, Gotshal & Manges is preparing a bankruptcy filing for AIG, but that outcome is unlikely, he said.
The talks with the government include the possibility of additional funds for the insurer and trading debt for equity, a source familiar with the matter told Reuters.
Today, the Wall Street Journal and Financial Times ran separate stories on talks between the government and AIG over a new rescue deal. Unnamed sources said a revised arrangement could involve swapping the $60 billion federal loan for equity, other debt, and pieces of some of the insurance giant's businesses.
According to the Journal, the government could receive "major stakes" in spun-off businesses, probably including some in Asia, and the unnamed sources now say AIG is likely to post a fourth-quarter net loss of more than $60 billion on Monday.
3 Major Insurers’ Ratings Plummet
By Carrie Burns and Retirement Income Reporter Editorial Staff February 23, 2009
The beleaguered life insurance industry continues to take a beating from the rating agencies as Genworth Financial and Prudential Financial both were both downgraded.
Prudential’s downgrade by Fitch Ratings was especially harmful, as the second-largest insurer lost eligibility for the U.S. commercial paper program, reducing the company’s access to short-term debt markets. Both Genworth and Hartford Financial Services have already lost access to the commercial paper program because of downgrades.
Prudential’s holding company will lose out on $1.3 billion in total Commercial Paper Funding Facility, but the company maintains it has sufficient resources to repay debt when it is due at the end of April. Prudential is selling its stake in Wachovia Securities after halving the quarterly dividend and suspending share buybacks to preserve capital amid investment declines, Bloomberg reported.
“We no longer have the ability to borrow funds from the Commercial Paper Funding Facility,” Bob DeFillippo, a spokesman for the Newark-based insurer, told Bloomberg in an interview. “The company’s liquidity requirements are not dependent on access to the commercial paper market or to debt capital markets.”
Fitch downgraded Prudential’s short-term debt rating to F2 from F1 after the insurer posted two straight quarterly losses. It posted an $878 fourth-quarter loss.
Meanwhile, A.M. Best Co. downgraded Genworth’s key life/health financial strength rating to “A” from “A+,” and issuer credit ratings from “a” from “aa-”. All ratings have been removed from under review with negative implications and assigned a negative outlook.
The rating actions reflect the impact that the current market has had on Genworth’s holding company liquidity and overall financial flexibility, the significant unrealized loss positions maintained within its fixed income investment portfolio and the narrowing of its business profile as a result of sales and earnings declines within its various product lines.
P&C insurers are not immune to the downgrades. After CNA Insurance Cos. announced fourth quarter 2008 results, which included a net operating loss for the fourth quarter of 2008 of $21 million, or $0.15 per share and net loss for the fourth quarter of 2008 of $336 million, or $1.31 per share, Fitch Ratings and A.M. Best announced downgrades of the insurer.
Fitch downgraded the insurer financial strength ratings of CNA's property/casualty insurance subsidiaries to “A-“ from “A.” The Rating Outlook is Negative. Fitch says its rating actions reflect its updated review of CNA's exposure to the volatile credit and investment market conditions, which are having a negative impact on its asset portfolio, earnings and capital position. Fitch believes that CNA's negative earnings demonstrate a higher level of financial volatility than what was anticipated at the prior rating level.
A.M. Best Co. revised CNA’s outlook to negative from stable. A.M. Best’s negative outlook reflects CNA’s fourth quarter 2008 results, which were strained by significant investment losses, both realized and unrealized, as well as declining net investment income due to losses from limited partnership investments. Given the magnitude of investment losses already reported, continued turmoil in capital markets and CNA’s sizeable investment in mortgage and asset-backed securities, uncertainties exist regarding the potential for continued investment losses and the further strain that may place on risk-adjusted capitalization, according to the rating agency.
The beleaguered life insurance industry continues to take a beating from the rating agencies as Genworth Financial and Prudential Financial both were both downgraded.
Prudential’s downgrade by Fitch Ratings was especially harmful, as the second-largest insurer lost eligibility for the U.S. commercial paper program, reducing the company’s access to short-term debt markets. Both Genworth and Hartford Financial Services have already lost access to the commercial paper program because of downgrades.
Prudential’s holding company will lose out on $1.3 billion in total Commercial Paper Funding Facility, but the company maintains it has sufficient resources to repay debt when it is due at the end of April. Prudential is selling its stake in Wachovia Securities after halving the quarterly dividend and suspending share buybacks to preserve capital amid investment declines, Bloomberg reported.
“We no longer have the ability to borrow funds from the Commercial Paper Funding Facility,” Bob DeFillippo, a spokesman for the Newark-based insurer, told Bloomberg in an interview. “The company’s liquidity requirements are not dependent on access to the commercial paper market or to debt capital markets.”
Fitch downgraded Prudential’s short-term debt rating to F2 from F1 after the insurer posted two straight quarterly losses. It posted an $878 fourth-quarter loss.
Meanwhile, A.M. Best Co. downgraded Genworth’s key life/health financial strength rating to “A” from “A+,” and issuer credit ratings from “a” from “aa-”. All ratings have been removed from under review with negative implications and assigned a negative outlook.
The rating actions reflect the impact that the current market has had on Genworth’s holding company liquidity and overall financial flexibility, the significant unrealized loss positions maintained within its fixed income investment portfolio and the narrowing of its business profile as a result of sales and earnings declines within its various product lines.
P&C insurers are not immune to the downgrades. After CNA Insurance Cos. announced fourth quarter 2008 results, which included a net operating loss for the fourth quarter of 2008 of $21 million, or $0.15 per share and net loss for the fourth quarter of 2008 of $336 million, or $1.31 per share, Fitch Ratings and A.M. Best announced downgrades of the insurer.
Fitch downgraded the insurer financial strength ratings of CNA's property/casualty insurance subsidiaries to “A-“ from “A.” The Rating Outlook is Negative. Fitch says its rating actions reflect its updated review of CNA's exposure to the volatile credit and investment market conditions, which are having a negative impact on its asset portfolio, earnings and capital position. Fitch believes that CNA's negative earnings demonstrate a higher level of financial volatility than what was anticipated at the prior rating level.
A.M. Best Co. revised CNA’s outlook to negative from stable. A.M. Best’s negative outlook reflects CNA’s fourth quarter 2008 results, which were strained by significant investment losses, both realized and unrealized, as well as declining net investment income due to losses from limited partnership investments. Given the magnitude of investment losses already reported, continued turmoil in capital markets and CNA’s sizeable investment in mortgage and asset-backed securities, uncertainties exist regarding the potential for continued investment losses and the further strain that may place on risk-adjusted capitalization, according to the rating agency.
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