Madoff Sentencing Etc

Yesterday’s sentencing of Bernard Madoff to the maximum 150 years in prison in connection with a massive investor fraud has everybody talking. The Wall Street Journal Law Blog notes that while the 150-year sentence was the statutory maximum for the 11 counts Madoff pleaded guilty to in March, it is not the longest handed down in a white collar crime case. Meanwhile, the Associated Press quotes a source that authorities are likely to charge 10 others in connection with the multi-billion dollar fraud. The New York Times DealBook blog today outlines yet another Madoff-related lawsuit this one filed against a Texas hedge fund by New Mexico’s teacher’s union. Over at the D&O Diary Kevin LaCroix recently commented that as diverse and dispersed as the consequences of the Madoff scandal have been, so too is the wave of litigation to follow in the wake of the scheme’s collapse. So it would seem. Check out the D&O Diary’s running list of Madoff-related lawsuits.

First Quarter Financials

A hostile investment environment and shrinking economy had a significant impact on the financial and underwriting performance of the property/casualty (P/C) insurance industry in the first quarter of 2009. The industry’s annualized statutory rate of return on average surplus fell to negative 1.2 percent during the first quarter of 2009, down from positive 6.6 percent in the first quarter of 2008. The industry results were released by ISO and the Property Casualty Insurers Association of America. In his commentary on the results, I.I.I. president Dr. Robert Hartwig notes that the quarter’s sharp decline in profitability and shrinking capacity was primarily due to poor investment market performance, persistent soft market conditions, modest catastrophe losses, and a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the P/C industry. However, excluding this segment and normalizing catastrophe losses reveals a much more modest decline in profitability. Here are some of the key Q1 2009 stats: net income after taxes fell $9.8 billion to negative $1.3 billion, from positive $8.5 billion in the first quarter of 2008; net written premiums fell 3.6 percent to $106.4 billion, breaking the previous record decline of 0.8 percent in 2008; industry policyholders’ surplus (the industry’s primary measure of capacity) fell by $19 billion or 4.2 percent to $437.1 billion from $456.1 billion at year-end 2008; net investment income fell by 8.7 percent to $11.7 billion; catastrophe losses (the one bright spot) totaled $2.9 billion during the first quarter, down 17.1 percent from $3.5 billion in the first quarter of 2008.

Celebrity Risk

It’s a rather sad but inevitable part of working in the insurance business that any headline news, whether a hurricane, or train crash, or a celebrity death immediately gets you thinking about the insurance coverage involved and the potential claims that will arise. And so it is with the death yesterday of pop legend Michael Jackson. From providing appearance/event cancellation coverage, to insuring celebrity body parts, to providing death and disgrace policies, specialist insurers play a major role in providing protection to the stars and the companies that promote and sponsor them. For example, over the years Lloyd’s has insured a long line of celebrities, including Rolling Stones guitarist Keith Richards’ fingers and Marlene Dietrich’s legs, and in 2007 Lloyd’s insured the smile of America Ferrera, star of the hit television show Ugly Betty, for $10 million. Whether a musician, a sports star, or a top chef, each celebrity risk profile is different and will vary according to the individual’s occupation, health, lifestyle and associated risks. An online article today at Reinsurance magazine concerns the question of insurance coverage for event cancellation given that Michael Jackson was on the cusp of a 50 concert tour.

Running on Automatic

As investigations continue into Monday’s collision of two Washington D.C. Metrorail trains that left nine dead and about 80 injured, at least part of the focus appears to be on the fact that the moving train was operating in automatic mode – meaning that it was primarily controlled by a computer. The age of the train and the electronic signal control system appear to be other areas of focus. While it is far too early to speculate on the exact cause of the crash and likely a variety of factors contributed to what is the worst crash in Metrorail’s history, the incident raises some interesting questions. There can be no doubt that the use of technology has led to a safer workplace. Workplace injury rates are now at their lowest level since the Bureau of Labor Statistics began tracking information in the 1970s, according to the agency. But whether it’s a subway car, an aircraft, or a factory manufacturing line an over-reliance on automation may also be a liability. Our fellow bloggers over at Workers Comp Insider observe that the problem may lie in the concept of a system that cannot fail, because ultimately no mechanical system can be totally fail-safe. They also raise an interesting issue: if computers are operating trains, how much attention on the part of the driver is required? Check out I.I.I. information on workers compensation.

Financial Crisis Top Risk

The financial crisis is the greatest business risk facing the insurance sector in 2009, according to the second annual business risk report from Ernst & Young and Oxford Analytica. It suggests that the consequences of economic events, financial shocks and their aftermath have been so profound that they are likely to shape the industry for the next 10 years. Major forms of change involve products, regulation, investment strategies and capital requirements. Model risk ranked as the second greatest business risk facing insurers. According to the study, the failure to recognize the shortcomings of models and to adequately capture the nature of underlying risks has left some insurance companies unprepared for the depth of recent financial events. Regulatory intervention ranked as the third top risk for insurance. While the full extent of regulatory change is unknown, early signs are that revisions to insurance sector regulation have the potential to be dramatic. Insurance companies need to recognize the broader implications and prepare for the sweeping changes that lie ahead. Check out Insurance Journal’s June 23 online article for more on the study findings.

Terrorism Update

Governments around the world are increasingly becoming involved in developing insurance programs and pools to provide terrorism coverage, though some countries still offer no governmental support at all, according to a new report from Guy Carpenter. The 2009 Global Terror Update summarizes terrorism insurance market developments in 34 countries across six continents. According to the briefing, developments on a country-by-country basis are being shaped largely by events, including new or evolving threats and local developments in insurance and reinsurance markets. A section on aviation insurance notes that though most of the government-sponsored aviation insurance schemes adopted in the wake of September 11, 2001 have been withdrawn and replaced by commercial cover, the U.S. government has extended the duration of its cover. Other governments still providing third-party liability cover in 2008 include Canada, Brazil, China, Jordan, New Zealand, Qatar and Saudi Arabia. With market capacity increasing and prices dropping considerably, coverage is available and abundant. The report also looks at recent developments in terrorism modeling. Check out I.I.I.  facts and stats  on terrorism.

Pride Month

June is Pride month and this year marks the 40th anniversary of the Stonewall riots, widely recognized as a milestone in the lesbian, gay, bisexual, and transgender (LGBT) rights movement. Here’s a round-up of some of the latest news and developments affecting the LGBT community that may be of interest:

 ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Same sex marriage has now been legalized in six states (three via a court ruling, three via the legislature): Massachusetts, Connecticut, Iowa, Vermont, Maine and New Hampshire. A same-sex marriage bill has also passed the New York State Assembly, but has yet to progress in the Senate. In California, the state Supreme Court has upheld the validity of some 18,000 same sex marriages that took place in 2008 but same sex marriage is no longer legal in the state after passage of a constitutional amendment that was upheld by the court. It’s important to recognize that state laws do not extend any of the benefits on a Federal level.

 ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Aetna last October became the first U.S. health insurer to link its site to the Gay and Lesbian Medical Association’s (GLMA) database. As a result, Aetna’s DocFind online health care provider directory is now linked to GLMA’s growing database of more than 1,200 LGBT-friendly medical professionals. The database includes primary care providers, specialists, therapists, and dentists who welcome LGBT patients.

 ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Insurers (Metlife, Chubb, Nationwide, Marsh & McLennan Cos, New York Life Insurance Co and Progressive) were among 259 businesses to earn the top rating in the seventh annual Corporate Equality index published by the Human Rights Campaign Foundation (HRC) last September. The Index rates employers based on their treatment of LGBT employees, customers and investors. Ratings are based on factors such as nondiscrimination policies and domestic partner benefits.

 ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   As companies look to reach out to the LGBT market, they may like to know that a recent national survey conducted by Harris Interactive found that gay and lesbian adults are more likely to read blogs and to use social networking tools. For example, more than half (55 percent) of gay and lesbian respondents reported reading some type of blog, compared to only 38 percent of heterosexuals. Gay and lesbian adults are also choosing to connect online through social networking sites more often, with some 23 percent of gay and lesbian respondents reporting being members of the business-oriented social networking site LinkedIn, compared to 13 percent of heterosexual adults.

EPA Declares Asbestos Cleanup Emergency

The Environmental Protection Agency (EPA) yesterday said it has determined that a public health emergency exists at the Libby asbestos site in northwest Montana. This is the first time the EPA has made a public health emergency declaration under the Superfund law (CERCLA). “This determination recognizes the serious impact to the public health from the contamination at Libby and underscores the need for further action and health care for area residents who have been or may be exposed to asbestos,† said the EPA in a press release. It noted that investigations performed by the Agency for Toxic Substance and Disease Registry have found the incidence of occurrence of asbestosis in the Libby area staggeringly higher than the national average for the period from 1979-1998. In 1963, W.R. Grace, a construction materials and chemicals company bought Zonolite, a Libby, MT company that mined vermiculite, a mineral contaminated with asbestos. Last month a Montana federal jury acquitted W.R. Grace and three former executives of criminal charges related to the contamination. The Libby asbestos site has been on the EPA’s Superfund national priorities list since 2002, and cleanup has taken place since 2000. The mine closed in 1990. Check out I.I.I. information on asbestos liability.

Regulatory Reform: Insurance Impact

The Obama administration will unveil its plan to overhaul financial regulation later today. Latest reports suggest that the plan includes proposals to create an Office of National Insurance within the Treasury department, but stops short of federal regulation of the insurance industry. According to a June 16 Reuters article by Kevin Drawbaugh and Patrick Rucker, The Office of National Insurance would monitor the industry and advise on policy issues. The office could also recommend to the Federal Reserve that large insurers be subject to strict capital and risk rules that would apply to large financial holding companies under other aspects of the Obama plan, according to Reuters. Legislation to create a federal office of insurance information was recently reintroduced in the House by Rep. Paul Kanjorski, D-PA. Check out I.I.I. information on regulatory modernization.


Driving Hazards

The importance of road safety at home and abroad is underscored by two new reports. In its first global status report on road safety, the World Health Organization (WHO) said that only 15 percent of countries have the comprehensive laws needed to address five key risk factors: speeding, drink-driving, seatbelt use, child restraints and the use of helmets. Where laws on these risk factors are in place, they are often inadequately enforced, particularly in low-income countries. WHO noted that enacting and enforcing legislation is critical in influencing exposure to the risk of a crash, crash occurrence and injury severity. Road traffic fatalities are predicted to rise to the fifth leading cause of death by 2030, resulting in an estimated 2.4 million fatalities per year, according to WHO. Check out I.I.I. info on U.S. highway safety.


Meanwhile, New York has jumped from third to first ranking to claim the title as the worst city in the U.S. for road rage. According to the fourth annual In the Driver’s Seat Road Rage Survey, commissioned by auto club AutoVantage, New York is joined by Dallas/Fort Worth, Detroit, Atlanta and Minneapolis/St. Paul as the five worst cities for road rage. This year’s survey sought to define road rage and responses pointed to two key attributes: angry drivers, including drivers who overreact and lose their tempers, and aggressive driving, including cutting into lanes, tailgating, speeding and honking. Behaviors by other drivers that cause stress for commuters and can lead to road rage include: drivers who talk on their cell phones (84 percent see this every day); driving too fast (58 percent); tailgating (53 percent); drivers eating or drinking while driving (48 percent); and texting or emailing while driving (37 percent). Check out this I.I.I. video on road rage.