Florida Driver's Licenses Have New ID Requirements

Renewing or updating information on driver's licenses in Florida will get tougher after Dec. 31.

After that, the state will require additional proof of identity and place of residence. It's part of the federal "Real ID'' Act, which aims to reduce fraud and combat terrorism.

Starting Jan. 1, new license applicants and in-person renewals need two proofs of residence, proof of Social Security number and a primary form of identification. An existing license or identification card does not qualify.

The new ID requirements coincide with big increases in the cost of a license for Florida residents. In September, the price of a new license rose from $27 to $48, renewals rose from $20 to $48 and replacements increased from $10 to $25.

P&C Industry Net Income Makes Dramatic Turnaround

The property and casualty insurance industry’s consolidated net income through the first three-quarters of 2009 improved dramatically—a 272 percent turnaround compared to the same period last year—although experts said there are plenty of signs for caution ahead.

Net income improved by close to $12 billion, rising to $16.2 billion, according to a report on the industry’s consolidated nine-month results released today by Jersey City, N.J.-based Insurance Services Office, Inc., and the Property Casualty Insurers Association of America, headquartered in Des Plaines, Ill.

The industry’s rate of return on average policyholders’ surplus also improved from 1.2 percent for the first nine months in 2008 to 4.5 percent this year.

The results were helped by a big drop in net losses on underwriting, improving $16.6 billion to a loss of only $3.2 billion during the period, compared to $19.8 billion a year earlier.

The industry’s combined ratio for the first three quarters improved 4.8 points to 100.7. However, the report noted, if there had not been a decline in claim costs, the combined ratio would have risen 3.5 points.

In a statement, Michael R. Murray, ISO’s assistant vice president for financial analysis, said that despite the improvement in annualized rate of return, the rate was only half of what it usually is.

He noted that for the 24 years ISO has collected consolidated industry-wide data, the rate of return averaged 8.7 percent. He cited the “poor results for mortgage and financial guaranty insurers through nine-month 2009” as the main factors “dragging down the industry’s rate of return year-to-date.”

David Sampson, PCI’s president and chief executive officer, also saw some dark clouds in the results amid the silver linings.

“While the 100.7 percent combined ratio for nine-months 2009 compares favorably with the 104.8 percent average combined ratio for the first nine months of every year since 1986, today’s low interest rates and investment yields mean insurers must now post significantly better underwriting results just to be as profitable as they once were,” said Mr. Sampson.

“For example, for nine-months 1986, insurers achieved a 14.9 percent annualized overall rate of return with a combined ratio of 108 percent,” he noted. “For nine-months 2009, insurers’ annualized rate of return was just 4.5 percent, even though the combined ratio was 7.3 percentage points better [than in 1986].”

However, he added that “with insurers’ annualized rate of return showing some growth, the increase in policyholders’ surplus is yet another welcome sign that regulators and consumers can continue relying on the financial strength of property and casualty insurers despite lingering problems in the banking sector.”

He said p&c “insurance failures remain extremely rare events but, year-to-date through Dec. 19, regulators had seized 140 banks. Insurers’ superior performance reflects the strength of their balance sheets.”

Mr. Sampson noted the industry has $1.2 trillion in funds available “to fulfill their promises to consumers”—a figure he reached by combining $490.8 billion in policyholders’ surplus as of Sept. 30 with $552.4 billion in loss and loss adjustment expense reserves and $204.7 billion in unearned premium reserves.

In a separate commentary on the results, Robert P. Hartwig, president of the Insurance Information Institute in New York said the results “provide solid evidence of a substantial and sustained rebound in profitability for p&c insurers in the wake of the financial crisis that began in mid-2007.”

However, he warned, the economic indicators do “nothing to salve the impact of the ongoing six-year-old soft market, as well as significant reduction in demand for insurance driven by a deep global recession that has destroyed property and liability exposure on a worldwide scale.”

He went on to say that the swing to profitability through three quarters was “first and foremost due to an end of the financial panic that sent stock markets into a freefall following the failure of Lehman Brothers.”

Profits, he noted, were earned entirely in the second and third quarters of this year. And while net income is positive, the industry’s 4.5 percent rate of return is “woefully inadequate by any standard.”

Such a low return, he said, could lead to the exit of capital and difficulty in raising new capacity after a “major ‘capital event’” particularly in the current economic environment.

“While insurers remain cautious about the economy and financial market conditions, there is guarded optimism that both will continue to improve as the industry moves into 2010,” Mr. Hartwig said.

Florida Judge Approves Liquidation of First Warranty

A Circuit Court judge in Florida's Leon County has ordered the warranty company, Intercontinental Marine Service Corp., which does business as First Warranty Group of Florida, into liquidation.

The company, with approximately 10,000 in-force policies in Florida and other states, was originally placed in receivership in July 2009, with the Department of Financial Services as the receiver.

The liquidation order, issued late Friday, December 18, by Judge John C. Cooper, cancelled the remaining motor vehicle service warranty agreements written by IMSC as of 11:59 p.m., December 18, 2009.

The company previously issued motor vehicle service agreements in Florida, Texas, North Carolina and Oklahoma. IMSC was licensed in Florida in 2003, and surrendered its Florida insurance license in October 2007.

The Department of Financial Services said it will send a notice of the liquidation proceeding to the known IMSC warranty policyholders, and to automobile dealers that sold the warranties.

There is no guaranty association in Florida for warranty companies. IMSC policyholders will need to file a claim for any unearned premium and other claims they may have under the warranty contracts as part of the IMSC receivership proceeding. Officials said that instructions for filing claims in the receivership proceeding will be provided to the policyholders at a later date.

Health Bill Passes Key Senate Vote

A broad healthcare overhaul passed its first crucial test in the Senate Monday, with 60 Democrats voting to put President Barack Obama's top legislative priority on a path to passage by Christmas.

In a middle-of-the-night vote in a snowbound U.S. capital, Democrats unanimously backed the first in a series of three procedural motions to cut off debate and move the bill to a final vote by at least Christmas Eve.

"We'll get this passed before Christmas and it will be one of the best Christmas presents this Congress has ever given the American people,'' Democratic Senator Tom Harkin said.

Monday's vote was the first test of whether Democrats could secure the 60 votes needed to overcome unified Republican opposition and muscle healthcare reform through the Senate.

Republicans acknowledged they could not stop the bill, which would spark the biggest changes in the $2.5 trillion U.S. healthcare system since the 1965 creation of the Medicare health program for the elderly.

"The impact of this vote will long outlive this one frantic, snowy weekend in Washington,'' Republican Senate leader Mitch McConnell said. "This legislation will reshape our nation, and Americans have already issued their verdict -- they don't want it.''

The bitter healthcare debate has consumed the U.S. Congress for months and raised the stakes for Obama, with his political standing and legislative agenda on the line less than a year into his first term.

The Senate cast the vote in a formal roll call, with senators calling out their votes from their desk. Democrats hugged and shook hands in celebration afterward, while Republicans headed home quickly.

Democrats were assured of victory Saturday after their last holdout, Senator Ben Nelson, agreed to a compromise ensuring federal funds would not be used to pay for abortions and sending extra healthcare money to his home state of Nebraska.

With 60 votes in hand, the only drama in the early Monday vote was whether all of the Democrats would make it through the snow-packed streets of Washington to the Capitol.

'PRAY FOR A NO-SHOW'

"What the American people ought to pray is that someone can't make the vote tonight,'' Republican Senator Tom Coburn said beforehand.

The loss of even one Democrat would sink the plan in the 100-member Senate. Democrats control 60 votes, the exact number needed to overcome united Republican opposition.

If the Senate passes the health bill, it must be reconciled with a version passed by the House that has stricter anti-abortion language and a government-run insurance option dropped from the Senate bill to appease moderates.

The merged bill must be passed again by each chamber before it is sent to Obama, but the final measure is unlikely to stray far from the Senate version given the difficulties in winning approval there.

Nelson said he will oppose the combined bill if it changes his abortion deal or reinstates the government-run insurance option, and other Democrats voiced similar concerns.

"Significant deviations from the core principles I insisted on in this compromise must remain, or I will withhold my support,'' Democratic Senator James Webb said.

The Senate bill would require most Americans to have insurance, extend coverage to 30 million uninsured Americans and provide subsidies to help some pay for it.

It would set up exchanges where those who are not covered by work-based policies could choose which plans to buy, and would halt industry practices like refusing insurance to people with pre-existing medical conditions.

Obama has asked the Senate to finish by the end of the year to prevent the issue from spilling into the campaign for November 2010 congressional elections. Opinion polls show the bill losing public support, with majorities now opposed to it.

The vote early Monday formally cut off debate on an amendment offered Saturday by Senate Democratic leader Harry Reid that made the final changes needed to win the support of all 60 Democrats.

In addition to the abortion compromise and the jettisoning of the government-run insurance option, the revisions require health insurance plans for large groups to spend at least 85 cents of every dollar on medical costs, potentially crimping their profits.

Also included is an increase in the bill's Medicare payroll tax from 0.5 percent to 0.9 percent on income over $200,000 for individuals and $250,000 for couples.

Democrats hope Republicans will surrender once Democrats prevail in the three procedural test votes that require a 60-vote threshold. The next test vote would be Tuesday morning -- 30 hours after the first one -- and the final one on Wednesday afternoon.

If Republicans insist on using all of their allotted time under Senate rules, they can delay the final vote until late on Christmas Eve. That vote requires only a simple majority.

"We are not going to give up after this vote, believe me,'' Republican Senator John McCain said.

Judge Rules for Lloyd's In Dispute Over Stanford's Insurance

A federal judge in Houston found accused swindler Allen Stanford and his attorneys in contempt of a court order Wednesday over their attempts to collect insurance policy proceeds to pay defense costs.

No sanctions were imposed, according to the judge's order.

U.S. District Judge David Godbey in Dallas, who oversees the civil fraud case, granted the motion filed by insurer Lloyd's of London, which issued Stanford's directors and officers policy.

The defendants and Lloyd's are battling over the payment of defense fees in federal courts in both Dallas and Houston.

Kent Schaffer, Stanford's lawyer, could not immediately be reached for comment.

In November, the insurer said it was denying payment of defense costs after Aug. 27, the day Stanford's former chief financial officer, James Davis, pleaded guilty to fraud.

Lloyd's, which has so far advanced a total of $4.2 million in legal fees to Stanford defendants, declined to provide additional coverage because claims resulting from money laundering are excluded under the policy, according to court records.

U.S. District Judge David Hittner, who presides over the criminal case, is expected to take up the defense fee issue at a hearing Thursday.

Stanford, 59, is accused of leading a Ponzi scheme centered on certificates of deposit issued by his Stanford International Bank Ltd, his offshore bank in Antigua.

The former billionaire has been in jail since his arrest on criminal charges in June. He has denied any wrongdoing.

The civil case is SEC v Stanford International Bank et al, U.S. District Court, Northern District of Texas, No. 3:09-cv-00298-N. The criminal case is USA v. Stanford et al, U.S. District Court, Southern District of Texas, No. 4:09-cr-00342.

State Farm To Stay In Fla. Home Market; Will Cut 125,000 Policies

Florida’s acrimonious battle with State Farm over its effort to leave the state’s homeowners insurance market has ended with the company winning a 14.8 percent rate increase and permission to drop 125,000 policyholders.

Insurance Commissioner Kevin McCarty announced that he had ended the yearlong dispute and resolved pending legal action with a consent order allowing the non-renewal of 125,000 of the company’s 810,416 Florida policies.

“By the terms of the Consent Order, State Farm Florida will remain a significant player in the Florida residential property insurance marketplace,” he said in a statement released after a press conference.

The insurer had issued a withdrawal plan on Jan. 27--a month after a judge had upheld Mr. McCarty’s denial of a 67.1 percent rate increase. In February, the commissioner said the insurer could withdraw, but only by complying with stringent conditions he set.

He forbid them from dumping customers on the state-run insurer of last resort, and said they should allow their agents to place policies with other private insurers.

The company had argued that it was going broke in Florida, but Mr. McCarty declared then that the State Farm contention it faced insolvency and an inability to pay claims was “both disingenuous and misleading.”

He noted today that the agreement he had reached with the insurer is “the product of a long and arduous negotiation process.”

“The final result is beneficial to the people of the state of Florida, and beneficial to the Florida insurance marketplace,” he added. “The consent order satisfies the Office’s requirements issued in our Order dated Feb. 13, 2009, and allows State Farm Florida to remain a viable insurer in the Florida market.”

His statement noted that even after the non-renewals, State Farm Florida will remain the largest private insurer of property insurance risk in Florida.

The Consent Order that was reached, the department explained, results in State Farm pulling the withdrawal plan it filed on Jan. 27, 2009, as well as the cancellation of a hearing set for Jan. 25, 2010, before the Division of Administrative Hearings.

State Farm Florida issued a statement saying the consent order “will allow us to continue to serve most of our current policyholders, and help improve State Farm Florida’s financial ability to be there when our customers need us most.”

The company said policies designated for non-renewal would receive at least six months advance notice, adding that “State Farm agents will be able to provide affected residential customers with other insurance options. New rates will go into effect as policies are renewed.”

“We apologize for any inconvenience or anxiety this process might cause our customers, but this is a necessary step for us as we attempt to stabilize State Farm Florida’s financial condition and serve our remaining customers,” the company said.

The carrier added that “these are not easy times for the Florida property insurance market. The [Office of Insurance Regulation] has noted publicly that 102 of the 210 private property insurers operating in the state are losing money, and three have gone out of business in the last year.”

State Farm said that “to that end, it is essential for the state to continue working to develop constructive and sustainable insurance reforms that better serve the long-term interests of all Floridians.”

Meanwhile, in New York regulators tordered State Farm to let 113 homeowners renew policies that the company wanted to drop because their houses were on the coast.

KBW Says P&C Stocks Look Feeble For 2010

Disappointing returns on equity in the coming year may lead the property and casualty insurance industry to a quicker return to stiffer pricing, according to Keefe, Bruyette & Woods analysts.

The firm said it expects flat p&c stocks in 2010 with risk of weak book value growth and ROE, valuations remaining low, and every line on the income statement “more likely to disappoint than positively surprise. The upside is that perhaps significant disappointment will lead the industry to the eventual hard market turn that much quicker.”

KBW said it views the “widely held” expectations of a 9-to-11 percent ROE for the industry as likely to disappoint.

Premium volumes, according to KBW’s analysis, could be even lower than expected as competitive pressures worsen and buyer budgets remain tight.

It further estimated that loss ratios could deteriorate as weather normalizes, reserve releases decline and soft rates flow into results.

KBW foresees that expense ratios may rise as premium volumes fall and management teams invest into new platforms.

Investment yields are falling and “income will be weak in 2010,” in KBW’s view. Its analysts also expect that share buybacks may disappoint and the firm noted that balance sheet risks include weakening reserve positions and the potential of a “double dip” recession hitting investment portfolios.

The firm said the chance of meeting the 9-to-11 percent ROE expectation is low, while the odds of disappointment are high and in either case, it believes valuation expansion is unlikely.

On the positive side, it found valuations are near all-time lows, well below book value, and barring a major catastrophe, another round of credit market losses, or a spike in loss cost inflation, book values are unlikely to decline. The group could tread water. KBW said it focuses its recommendations on companies with sound long-term growth strategies including ACE, Allied World Assurance Company Holdings Ltd. and Hanover Insurance Group.

A portion of the equity analysts’ 56-page report says that with the sector having a “not great but not too terrible” fundamental outlook, many investors reach the false conclusion the stocks are “cheap,” trading below book value, which may not be possible because overall premium volume decline may be worse than 5 percent.

The study said that the industry’s combined ratio, excluding Bermuda-based insurers, is “deteriorating but not terrible for an estimated level of 99 this year and better than 105 for 2010—better than the historical average over the last 40 years.

Regarding merger activity, KBW said it expects that the most likely acquisition targets are still small-to-midcap specialty players with strong niche-market positions, and if improved market conditions create more deals, it is highlighting “names such as American Safety (ASI), Eastern Insurance (EIHI), Navigators Group (NAVG), SeaBright Insurance (SBX) and The Hanover Insurance Group (THG) as potential candidates to be involved.

House Passes Financial Services Reform Bill

The U.S. House approved the biggest changes in financial regulation since the Great Depression Friday, marking a win for the Obama administration and congressional Democrats.

With the Senate due to debate similar reforms well into next year, the House voted 223-202 to pass a 1,279-page bill hammered out in the months since last year's financial crisis convinced Democrats of an urgent need for reform.

The bill would create an inter-agency council to police systemic risk in the economy, crack down on hedge funds and credit rating agencies, set up a financial consumer watchdog agency, and expose Federal Reserve monetary policy to unprecedented congressional scrutiny, among other reforms.

Faced with a recession and multi-billion-dollar taxpayer bailouts of firms such as AIG and Citigroup Inc stemming from the Bush administration, President Barack Obama and fellow Democrats are vigorously pushing for change.

Republicans and an army of lobbyists for banks and Wall Street firms, whose profits would be threatened, have fought for months to weaken and delay reforms, criticizing what they call an unneeded and costly intrusion on business. The battle will continue for months to come in the slower-moving Senate, which is expected to push for more modest legislation.

Once the separate bills pass the House and Senate, the chambers would have to agree on legislative compromise that could be passed into law.

The House bill faced a flood of amendments during floor debate this week, with mixed results for both sides.

In a win for the banking industry, the House voted to reject a measure that would have allowed bankruptcy judges to change the terms of mortgages for distressed homeowners.

Known as "mortgage cramdown,'' the measure was defeated in a 188-241 decision as a proposed amendment to the broader bill. The vote marked a reversal from the House's passage in March of a "cramdown'' measure that later died in the Senate.

On another vote, Democrats beat back an attempt to weaken a key provision of the reforms bill -- the proposed creation of a Consumer Financial Protection Agency (CFPA).

COUNCIL REJECTED

An amendment proposed creating instead a council of regulators, which the White House said would let banks and mortgage and credit card firms "continue to get away with the practices that helped cause the financial crisis.''

In a setback for corporate good-governance activists, the House rejected an amendment that would have required small corporations with market capitalization of less than $75 million to get external reviews of their internal financial controls under regulations passed after the Enron fiasco.

The amendment concerned applying certain audits under the 2002 Sarbanes-Oxley laws to small firms. By rejecting the proposal, which was supported by senior Democrats, lawmakers left an earlier amendment in the bill that would permanently exempt small firms from complying with the rules for audits.

The House approved a section of the broad reforms bill Thursday that would impose regulation for the first time on the $450 trillion over-the-counter derivatives market, including credit default swaps like those at the root of AIG's problems.

The bill "will increase transparency in the marketplace and reduce the systemic risk that over-the-counter derivatives can pose to the economy if left unchecked,'' said Democratic House Agriculture Committee Chairman Collin Peterson in a statement.

The House also backed an amendment from Democratic Representative Stephen Lynch to limit financial firms to 20 percent ownership stakes in OTC derivatives clearinghouses.

If ultimately approved, the Lynch measure could affect Wall Street giants that dominate OTC derivatives markets -- Goldman Sachs Group Inc JPMorgan Chase & Co, Citigroup, Bank of America Corp and Morgan Stanley -- and exchange operators such as Nasdaq OMX.

In addition to systemic risk regulation and the CFPA, the broader House bill would give the government new powers over large banks and set up new protocols for dealing with large firms, known as "too big to fail,'' that get into trouble.

It would also impose new curbs on executive pay, strengthen protections for investors and, for the first time, set up a federal office to monitor the insurance industry.

Forecasters Expect More Active Atlantic Hurricane Season Next Year

Colorado State University researchers are predicting a more active Atlantic hurricane season next year, with six to eight hurricanes, at least three of them major.

Philip Klotzbach and William Gray predict 11 to 16 named storms in the forecast released Wednesday. They say three to five of the storms will be major hurricanes with sustained winds of 111 mph (180 kph)or greater.

Gray says warm sea surface temperatures will contribute to above-average activity. The forecast says there is a 64 percent chance of at least one major hurricane reaching the U.S. coastline.

Nine named storms developed last season. Three became hurricanes, and none came ashore in the U.S.

The Colorado State team, which has issued forecasts for 27 years, will issue updates in April, June and August.

Poll Finds Drug Costs Rose Nearly 8% For Workers’ Comp

The inflation rate for workers’ compensation drug costs, which had been slowing, has now increased 7.5 percent, driven upward by overuse of medication, according to a new poll.

Madison, Conn.-based Health Strategy Associates’ (HSA) announced the findings after its Sixth Annual Survey of Prescription Drug Management in Workers’ Compensation.

The firm said the increase follows five years of progressively lower drug cost inflation rates documented in its previous surveys.

Workers’ comp payers said the primary cost driver was utilization, citing such specific issues as the over-use of pain medications and physician prescribing patterns. To combat inflation, payers are increasing investments in analytics and moving towards step therapy and stronger clinical management of pharmacy.

“Payers are also calling on their Pharmacy Benefit Management (PBM) firms for deeper insight into pharmacy trends, better management of claimants with chronic pain issues, and stronger first-fill capture programs,” said HSA principal Joseph Paduda.

Other concerns cited were per-unit cost increases, the predominance of single-source brands, and the rebranding of the pain medication OxyContin. Physician dispensing continued to be an issue for payers with significant business in California and the southeastern United States, especially Florida.

HSA said some respondents saw significant decreases in their drug costs with four participants reporting drops of nine percent or more from their 2007 costs.

Unlike previous years, drug cost inflation trended lower at smaller payers than their larger competitors. “Smaller payers seem to be ‘faster to market’ with utilization controls, adjuster education and data sharing with their PBM partners,” Mr. Paduda noted.

For the fourth consecutive year, the survey was sponsored by Cypress Care, a national workers’ compensation pharmacy benefits manager, and its successor organization, Healthcare Solutions, Inc.

Decision makers and operations staff from eighteen carriers and third party administrators participated. Respondents’ 2008 drug expenses ranged from $1.2 million each to $148 million; respondents’ cumulative drug spend totaled $810 million, 19.3 percent of the total workers’ comp drug spend.

A copy of the survey results will be available online after Jan. 15 at info@healthstrategyassoc.com.

Drunk Driving Death Rates Decline in 40 States

Drunken driving fatality rates have fallen in 40 states and the District of Columbia, an encouraging sign that crackdowns are improving highway safety.

The Transportation Department said that 11,773 people were killed in drunken driving crashes in 2008 for a rate of 0.4 per 100 million vehicle miles traveled. In 2007, 13,041 motorists were killed in alcohol-impaired crashes for a rate of 0.43.

Vermont, Wisconsin, Maine, Nebraska, Minnesota, Connecticut, South Dakota, Arizona and the District of Columbia saw fatality rates involving alcohol-linked crashes decline by 20 percent or more.

The rates were virtually unchanged in three states -- Delaware, Florida and Pennsylvania -- and rates increased in seven states: New Hampshire, Kansas, Wyoming, Rhode Island, Idaho, Oklahoma and Colorado.

"Drinking and driving do not mix -- ever. The message bears repeating especially this time of year,'' said Transportation Secretary Ray LaHood, who announced plans for a $7 million holiday advertising campaign to combat drunken driving.

LaHood said states that made the most progress on impaired driving fatalities had been the most aggressive in arresting and prosecuting offenders and using patrols and checkpoints to keep their roads safe.

Chuck Hurley, the chief executive officer of Mothers Against Drunk Driving, also noted that improvements were made in states such as New Mexico and Arizona which have adopted tough laws using breath-monitoring ignition interlock devices for offenders.

All 50 states and the District of Columbia have set a blood alcohol concentration of 0.08 as the legal limit for drivers.

The Supreme Court affirmed the Appellate Court’s reversal of the trial commissioner in Dinuzzo v. Dan Perkins Chevrolet Geo, Inc.

The Supreme Court affirmed the Appellate Court’s reversal of the trial commissioner in Dinuzzo v. Dan Perkins Chevrolet Geo, Inc., et al released November 10, 2009. The case should serve as a strong statement that the claimant must establish all underlying facts necessary to support a medical opinion on causation of injury. A doctor’s conclusionary opinion will not suffice.

In Dinuzzo the claimant was alleged to have died due to a heart attack brought on by inactivity following a back injury. The evidentiary record failed to reveal a diagnosis of atherosclerotic heart disease or witnesses to describe heart attack symptoms. To further confound the expert there was evidence that the claimant’s symptoms could have been consistent with interferon usage. There was no evidence that the inability to exercise was as a result of the back injury.

The Court noted that no proper inference of a causal relationship could be drawn from the facts produced and that the claimant therefore had failed to meet his burden of proof.

AIG Further Cuts Debt Owed U.S.; Readies Global Life Units for Sale

American International Group, Inc. (AIG) today said that it has closed two previously announced transactions with the Federal Reserve Bank of New York (FRBNY) that have reduced the debt AIG owes the FRBNY by $25 billion in exchange for the FRBNY’s acquisition of preferred equity interests in certain newly formed subsidiaries.

As of today, including the $25 billion debt reduction, AIG’s outstanding principal balance under the FRBNY credit facility is approximately $17 billion, down from approximately $42 billion, excluding interest and fees. As a result of these transactions, the total amount available under the facility has been reduced from $60 billion to $35 billion.

AIG said the transactions advance AIG’s goal of positioning two of the company’s international life insurance franchises, American International Assurance Company, Limited (AIA) and American Life Insurance Co. (ALICO), for initial public offerings or third party sale, depending on market conditions and subject to customary regulatory approvals.

“Today’s announcement that we have reduced our debt to the Federal Reserve Bank of New York by $25 billion sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back,” said Bob Benmosche, AIG chief executive officer. “Moreover, these transactions position AIA and ALICO, two terrific, unique international life insurance businesses, for the future.”

Benmosche said that AIG would take an incremental charge related to its prepaid commitment asset in the fourth quarter in connection with the reduction in the total amount available under the FRBNY credit facility resulting from the closing of the AIA and ALICO transactions. The prepaid commitment asset was established at the inception of the FRBNY credit facility on Sept. 16, 2008, in an amount of $23 billion and represented the value to AIG of the initial $85 billion of credit provided by the FRBNY. Since the inception of the FRBNY credit facility and through Sept. 30, 2009, AIG has recognized a total of $11.7 billion of amortization expense, and expects to recognize in the fourth quarter an additional amount of $5.7 billion, including $5.2 billion of accelerated amortization related to these transactions. These cumulative charges reflect the reduction of the facility from the initial amount of $85 billion to $35 billion as well as periodic amortization.

Benmosche further noted that after the FRBNY facility is fully repaid, the AIG Credit Facility Trust will continue to hold a preferred voting interest in AIG, currently approximately 79.8 percent, through the ownership of the Series C Preferred Stock.

“We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities, such as the previously announced loss that we expect to recognize in the upcoming quarter related to our announced agreement to sell our Taiwan-based life insurer Nan Shan,” Benmosche said.

The AIA and ALICO transactions involve AIG contributing the equity of each of AIA and ALICO to separate special purpose vehicles (SPVs) in exchange for interests in the SPVs. Under the terms of the transactions, the FRBNY receives preferred interests with a liquidation preference in the AIA SPV of $16 billion and with a liquidation preference in the ALICO SPV of $9 billion.

The liquidation preference of the preferred interests represents a percentage of the estimated fair market value of AIA and ALICO. AIG holds all of the common interests in the AIA and ALICO SPVs and will benefit from the fair market value of AIA and ALICO in excess of the value of the preferred interests as the SPVs monetize their stakes in these companies in the future.

Until AIG divests a majority of its common interests in AIA and ALICO, AIA and ALICO will continue to be consolidated in AIG’s financial statements.

Regarding repositioning ALICO, Rodney O. Martin, Jr., ALICO chairman and CEO said that securing the value of this insurer is in the "best interests ofpolicyholders, distribution partners, and the American taxpayer."

ALICO sells life insurance, accident and health insurance, retirement planning, and wealth management services through 40,000 agents, brokers and financial institutions and 11,000 employees across 54 countries, ALICO serves 19 million customers worldwide. ALICO has branch offices and affiliates in Europe, Asia, the Middle East, Africa and Latin America. ALICO is domiciled in Wilmington, Delaware and has regional headquarters in Tokyo, London, Paris, Athens, Dubai, and Santiago, Chile.

Deep-Frying Turkey Sparks House Fire in New York Suburb

Fire officials say oil from a deep-fried Thanksgiving Day turkey sparked a house fire in suburban New York.

There were no injuries reported in Wednesday's fire at the North Babylon home. Firefighters were there for about two hours.

The North Babylon fire chief says the family put the turkey in too fast and the oil boiled over, sparking flames. The home's exterior and rear deck were damaged.

The fire started to spread inside but firefighters stopped it. The home is habitable.

Fire officials say the family is headed to a relative's for holiday dinner. The family was not identified.

Miami Condo Association Sues QBE Insurance Over Hurricane Claims

A Miami condominium association is suing its insurer, QBE Insurance Corp., and its Florida general managing agent, for more than $500 million in damages, claiming bad faith and deception in handling hurricane claims.

Daniel S. Rosenbaum, the managing partner of Katzman Garfinkel Rosenbaum, LLP, in West Palm Beach, said his firm obtained a judgment against QBE from a federal court jury trial in February, 2009 for approximately $25 million, plus another $1.75 million being awarded in attorneys' fees, for Buckley Towers Condominium in Miami.

Rosenbaum said he has now filed another lawsuit in Miami-Dade County Circuit Court. This second lawsuit for $500 million is against QBE and its managing general agent, Florida Intracoastal Underwriters Limited Co., a wholly-owned subsidiary of Brown and Brown, Inc. The new lawsuit accuses both companies of engaging in deceptive and fraudulent bad faith claims handling practices as a general business practice, and having a specific intent to injure Buckley Towers while it sought insurance coverage to repair the heavily damaged buildings.

According to the law firm, earlier this year, the Miami-Dade County Unsafe Structures Board condemned as unsafe the two 17-story towers, located at 1321 N.E. Miami Gardens Drive. The buildings were ordered to be demolished in late 2010 unless repaired, which Rosenbaum said cannot be done without the insurance money awarded to Buckley Towers. Buckley Towers has 564 units with more than 1,200 residents.

"QBE, as a business decision, decided to let the buildings be condemned and physically torn down, and the residents forced out of their homes," the lawsuit states. "These condemnation proceedings would have been avoided had QBE fairly and honestly adjusted the claim."

The lawsuit alleges that QBE, in concert with Florida Intracoastal Underwriters, intentionally delays and fails to settle valid claims because it can "take advantage of the socioeconomic conditions of residents," the lawsuit states, "and the inability of residents to raise the money to make the repairs."

Rosenbaum said QBE issued a hurricane insurance policy in May, 2005 to Buckley Towers. Hurricane Wilma struck the two Y-shaped, lakefront towers on October 24, 2005. The condominium association notified the insurer of extensive damage to roofs, windows, sliding glass doors, as well as extensive structural damage to the buildings. The association filed a federal lawsuit for its losses when QBE refused to pay any part of its claim, according to the attorney.

In the new lawsuit, Buckley Towers states that Florida Intracoastal Underwriters and QBE hired as its contact person an estimator whose Florida insurance adjustor's license was revoked for failing to disclose felonies, including one for insurance fraud. The company also retained engineers and inspectors "in an attempt to minimize the damages that Buckley Towers sustained," and has done this routinely, as a business practice, to communities all over Florida.

According to the lawsuit, "QBE continued to insist that the damages were simply wear and tear, pre-existing or non-existent conditions."

U.S. Finds Strong Link Between Chinese Drywall and Corrosion

Federal safety officials say they have discovered a strong link between drywall made in China and the home corrosion reported by thousands of U.S. property owners whose homes used the drywall.

The results are from an indoor air study of 51 homes and come just weeks after the Consumer Product Safety Commission stopped short of linking the air quality and corrosion complaints with the Chinese-made building material and promised further study.

"We now can show a strong association between homes with the problem drywall and the levels of hydrogen sulfide in those homes and corrosion of metals in those homes," the CPSC said in its announcement of the air quality results.

The agency said it can now move forward working with Congress and the White House to develop effective remediation methods for homeowners and further investigate the health effects.

"Ongoing studies will examine health and safety effects, but we are now ready to get to work fixing this problem," said U.S. Consumer Product Safety Commission Chairman Inez Tenenbaum.

In addition to releasing the air quality findings, CPSC also unveiled additional preliminary research findings on corrosion safety issues.

One study compared 41 "complaint" homes in five states with 10 noncomplaint homes built around the same time in the same area as the complaint homes. The findings showed that hydrogen sulfide gas is the essential component that causes copper and silver sulfide corrosion found in the complaint homes. Other factors, including air exchange rates, formaldehyde and other air contaminants contribute to the reported problems.

In ways still to be determined, according to the researchers, hydrogen sulfide gas is being created in homes built with Chinese drywall. Earlier studies found large amounts of elemental sulfur in the Chinese drywall. CPSC is investigating drywall from other sources that may mimic the problems found with Chinese drywall. CPSC is meeting with drywall manufacturers and others who are studying this issue to take their findings into consideration.

The study also found elevated formaldehyde readings in both the control and complaint homes. This is typical for new, more air-tight homes due to items such as cabinets and carpets which emit formaldehyde. Both formaldehyde and hydrogen sulfide are known irritants at sufficiently high levels. The concentrations measured in this study were below those levels. Investigators believe that the additive or synergistic effects of these and other compounds in the subject homes could cause irritant effects evident in the homes.

While drywall-related corrosion is clearly evident, CPSC said long term safety effects are still under investigation.

To date, CPSC has received more than 2,000 reports from consumers and homeowners concerned about problem drywall in their homes.

The complaints have raised concerns for politicans, insurers and contractors.

CPSC said it continues to search for homes exhibiting the corrosion and health effects under study. In addition to a direct call to consumers, CPSC is contacting all states to ensure that all homes with these problems have been reported to CPSC.

Officials said they are also working with U.S. Customs and Border Protection to monitor imports of possible Chinese drywall but they believe that no new Chinese drywall has entered the U.S. in 2009.

CPSC said it has secured the cooperation of the Chinese government to help identify the sources and causes of this problem.

The technical research reports from CPSC are available online.

Stanford Sues Lloyd's of London for Defense Fees Under D&O Policy

Allen Stanford, who faces U.S. criminal and civil charges for allegedly leading a $7 billion Ponzi scheme, is suing Lloyd's of London for defense costs.

Lloyd's had advanced some legal fees under a directors and officers policy. But the insurer sent a letter on Nov. 16 declining to extend coverage for beyond Aug. 27, according to the complaint filed in federal court in Houston Friday.

The insurer has declined to provide additional funds, the lawsuit said, because claims resulting from fraud and money laundering are excluded from coverage.

Laura Pendergest-Holt, Stanford's former chief investment officer, and former Stanford accounting executives Mark Kuhrt and Gilbert Lopez are also plaintiffs in the lawsuit, court records show.

The defendants, who are accused of involvement in a scheme using certificates of deposit (CDs) issued by the firm's offshore bank in Antigua, have battled to come up with funds to pay their attorneys.

Stanford and Pendergest-Holt had their assets frozen when the U.S. Securities and Exchange Commission filed civil fraud charges in February. Kuhrt is represented by a court-appointed attorney.

Dick DeGuerin, Stanford's attorney who resigned from the case because he was not paid, said in an April court filing that the the cost of defending the former billionaire would exceed $20 million.

A representative for Lloyd's could not immediately be reached by email for a comment.

Stanford, Pendergest-Holt, Kuhrt and Lopez have all pleaded not guilty. Stanford is in a Houston jail awaiting trial.

The case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co., U.S. District of Court, Southern District of Texas, No. 09-03712.

Most Americans Want Congress to Address Cost of Malpractice Suits

Most Americans want Congress to deal with malpractice lawsuits driving up the cost of medical care, says an Associated Press poll.

Yet Democrats are reluctant to press forward on an issue that would upset a valuable political constituency -- trial lawyers -- even if President Barack Obama says he's open to changes.

The AP poll found that 54 percent of Americans favor making it harder to sue doctors and hospitals for mistakes taking care of patients, while 32 percent are opposed. The rest are undecided or don't know.

Support for limits on malpractice lawsuits cuts across political lines, with 58 percent of independents and 61 percent of Republicans in favor. Democrats are more divided. Still, 47 percent said they favor making it harder to sue, while 37 percent are opposed.

The survey was conducted by Stanford University with the nonprofit Robert Wood Johnson Foundation.

Limits on jury awards in malpractice cases could reduce the federal deficit by $54 billion over 10 years, says the Congressional Budget Office, because doctors caring for Medicare and Medicaid patients would order up fewer tests to guard against being sued.

"In this country, there are just too many people who are just out for a quick buck,'' said Christine Vasquez, 67, a retiree from Clarkston, Michigan. "I think our insurance costs would go way down if (doctors) didn't have to be so scared to be sued all the time.''

In the poll, 59 percent said they thought at least half the tests doctors order are unnecessary, ordered only because of fear of lawsuits.

The issue pits two of the most powerful lobbies in Washington against each other: doctors and trial lawyers.

Doctors complain that fear of frivolous lawsuits prompts them to practice defensive medicine, running up costs. They say malpractice insurance premiums are so high in parts of the country that some doctors avoid certain areas, even relocate.

Lawyers argue that limits on lawsuits infringe on the constitutional right of each citizen to have his or her day in court. And they point out that 44,000 to 98,000 people die in hospitals each year as a result of medical errors -- from misdiagnosis to getting the wrong medication -- a glaring problem for a country that prides itself on the world's most advanced medical care.

The poll suggests that patients see medical errors as fairly common. Twelve percent of those who'd been in the hospital in the past five years -- and 10 percent of those who'd been to the doctor in that time period -- said they thought there had been a mistake in their treatment. People were more forgiving of errors in the doctor's office than in hospitals.

Republicans have been sympathetic to the complaints of doctors, while Democrats tend to line up with the lawyers. Over the years, the two sides have fought each other to a standstill.

Obama tried to open a middle way, agreeing with doctors that defensive medicine is a problem but disagreeing with their specific prescription of placing limits on jury awards.

Such limits can work against people who have suffered the most harm. A family whose youngster was left brain-damaged by an anesthesiologist's mistake probably wouldn't be able to offset the costs of lifelong care.

Instead, Obama wants to develop alternatives to going to court, such as programs through which doctors and hospitals own up to mistakes, offer restitution and take corrective action to prevent other patients from being harmed. His administration is providing $25 million in grants for states to experiment with alternatives to lawsuits.

Congress could give a boost to these experiments by providing temporary federal protection from being sued to hospitals and doctors who take part. But Democrats are having none of it, perhaps mindful that lawyers are among their party's most generous campaign contributors. And Republicans, by their lockstep opposition to the health care bill, have given up the leverage they might have had to get malpractice curbs included.

"The bill addresses one of the problems with the health care system, which is lack of coverage, but it doesn't address the root causes of an extraordinarily inefficient delivery system,'' said Philip Howard, founder of Common Good, which advocates for changes to the malpractice system.

Some trial lawyers took issue with the AP survey, saying the poll question did not fully address the harm patients suffer from medical malpractice.

"If (people) knew about the frequency of medical errors, we believe they would have answered this question very differently,'' said Linda Lipsen, a top lobbyist for the American Association for Justice, which represents lawyers.

The poll was based on landline and cell phone interviews with 1,502 adults from Oct. 29 to Nov. 8. It has a margin of error of plus or minus 2.5 percentage points. The interviews were conducted by GfK Roper Public Affairs & Media. Stanford University's participation was made possible by a grant from the Robert Wood Johnson Foundation, a nonpartisan organization that conducts research on the health care system.

House, Senate Healthcare Bills Have Major Differences

The healthcare legislation released by the Senate's Democratic leaders Wednesday resembles a bill passed by the House of Representatives on Nov. 7 in many ways but there are some major differences between the two.

The Senate has yet to begin debate on its bill, which is likely to change during the amendment process. Here is a summary of some of the major differences between the proposed Senate bill and the House-passed legislation.

PUBLIC OPTION

Both bills would establish a new government insurance program to compete with private companies on proposed new state insurance exchanges. Under the Senate bill, states would be allowed to opt out of offering the federal health plan.

INDIVIDUAL MANDATES

Both the Senate and the House require most individuals to obtain health insurance. But the penalties on those who fail to get coverage are different.

The House would impose a 2.5 percent penalty tax on income up to the average cost of an insurance policy.

The Senate would phase in a maximum $750-per-adult annual penalty. A slightly higher penalty would be imposed for failure to obtain coverage for children.

EMPLOYER MANDATES

The House bill requires employers with payrolls above $750,000 to provide health insurance to workers. Those who fail to do so face a penalty of 8 percent of payroll. Employers with payrolls between $500,000 and $750,000 pay fines on a sliding scale of 2 percent, 4 percent and 6 percent of payroll.

The Senate bill has no employer mandate. But firms with more than 50 workers would have to pay a fine of $750 annually per worker if any of their employees obtain federally subsidized coverage on the exchange.

ABORTION

Both the Senate and the House bills bar the use of federal funds to finance abortion. The House bill contains tougher language that would require anyone seeking coverage for elective abortions to purchase separate insurance riders.

FINANCING

The biggest difference between the two bills is in the area of financing.

The House bill would impose a 5.4 percent surtax on individuals earning more than $500,000 a year and couples making more than $1 million. It also raises money by imposing a 2.5 percent excise tax on medical devices, by ending some tax breaks for multinational companies and by closing a biofuels tax loophole for paper companies.

The Senate bill includes a 40 percent excise tax on high- cost health insurance plans.

It also raises payroll taxes for Medicare, the government health insurance plan for the elderly, to 1.95 percent from the current 1.45 percent for individuals earning $200,000 or more and for couples earning $250,000 or more.

The Senate bill includes special fees on insurers, drug companies and medical device makers and it imposes a 5 percent tax on elective cosmetic surgery.

Floridians Concerned About Their Personal Financial Condition

Against the backdrop of the worst economic slump in more than 30 years, more than 83 percent of Floridians are concerned about their money challenges and 43 percent don’t expect to be financially stronger a year from now – some of the key findings in a new poll, reflecting deep ongoing public concern.

The poll, released by a broad coalition of insurance, banking and consumer interests, is part of a new financial education initiative called Money Wise Florida. The program is sponsored by the Florida Association of Insurance Agents. The project also will include a 30-minute television special that will be broadcast statewide in 2010.

“This poll reflects the reality that so many Floridians are feeling a direct hit in these difficult economic times,” said Florida CFO Alex Sink. “Florida’s families are looking for useful information and education that will allow them to strengthen their financial futures and, in turn, help the overall financial future of our state.”

Among the markers of trouble, 38 percent of those polled say they have personally suffered a financial crisis in the past year, 73 percent know someone who lost their job, and 1 in 4 say their home is worth less than their mortgage.

All that translates into a population unwilling to make the kind of investments or purchases that could stimulate Florida’s economy.

Of those polled:

• 55% not confident investing in stocks, real estate, buying a new house or car
  
• 72% not confident about changing jobs, starting a business or running debt
  
• 47% will spend less on this holiday season
  
• 43% are most likely to cut going out to eat from their budget
  
• 21% most likely to cut out going to the movies

“More than a third of Floridians say they have suffered a personal financial crisis in the past year. Adequate insurance can help prevent a crisis,” said Bill Gunter, chairman of the Florida Association of Insurance Agents, which sponsored Money Wise Florida. “We hope Money Wise Florida will help Floridians arm themselves with information to make good financial decisions and come through these challenging economic times stronger.”

Florida Jury Orders $300 Million Damages for Ex-Smoker

A Florida jury Thursday ordered cigarette maker Philip Morris USA to pay $300 million in damages to a 61-year-old ex-smoker named Cindy Naugle who is wheelchair-bound by emphysema.

The Broward Circuit Court jury assessed $56.6 million in past and future medical expenses against the company, part of Altria Group Inc., as well as $244 million in punitive damages.

The verdict is the largest of the so-called Engle progeny cases that have been tried so far, both sides said.

Philip Morris will seek further review of the verdict because of "numerous erroneous rulings by the trial judge,'' Philip Morris spokesman Murray Garnick said in a statement.

"We believe that the punitive damages award is grossly excessive and a clear violation of constitutional and state law,'' Garnick said.

Naugle's lawsuit was among about 8,000 cases filed in the wake of a 2006 Florida Supreme Court decision that tossed out a massive class action against the tobacco companies. The case, known as Engle v. RJ Reynolds, resulted in the largest verdict in U.S. history at trial -- $145 billion.

The Florida high court ruling, which decertified the class of about 700,000 smokers, allowed some to file individual complaints.

The case is Naugle v. Philip Morris USA.

Did Government Overpay to Bail Out AIG?

Officials handling the multibillion dollar bailout of insurance giant America International Group Inc. mismanaged an initial rescue attempt and may have overpaid other banks to wind down AIG's business relationships, a government watchdog says.

The Federal Reserve Bank of New York -- headed at the time by now-Treasury Secretary Timothy Geithner -- paid AIG's business partners full face value for securities so they would cancel insurance contracts AIG had written in order to ease the firm's liquidity crunch. But at least one of those partner banks offered to canceled the contracts for less, according to a report from Neil Barofsky, the Special Inspector General for the $700 billion financial bailout Congress approved last October.

That means officials may have spent billions more than necessary to cancel debt insurance contracts with banks including Goldman Sachs Group Inc. and others, the report says.

AIG, a financial services conglomerate that was the world's largest insurer, was considered so interconnected with other companies that its failure could upend the global financial system. As it teetered last fall, officials decided to save the company with billions of taxpayer dollars and government guarantees to prevent deepening the spreading financial crisis.

After several bailouts, AIG now holds government commitments worth up to $180 billion -- more than any other company. The Treasury Department owns nearly 80 percent of the company.

Critics have long argued that AIG's trading partners should have been forced to take less than 100 percent of the value of their contracts with AIG. They note that the protection AIG offered -- in the form of complex products called credit-default swaps -- was unregulated and that AIG's trading partners knew the risks and should have to assume some losses.

Officials, however, have said they feared that underpaying AIG's business partners would cause the company's credit to be downgraded, which also could have sparked AIG's collapse.

The new report faults the New York Fed for decisions that "severely limited its ability to obtain concessions'' from other banks. In particular, it says, officials refused to use their regulatory power over American banks like Goldman and Merrill Lynch, now part of Bank of America Corp., to force them to take concessions.

A French regulator had refused to accept concessions from the Fed for $20.8 billion worth of securities held by Societe Generale and Calyon, and New York Fed officials did not want to treat the U.S. banks differently. But the report points out that American banks already were benefiting from the financial bailout -- Goldman, for example, had recently received the Fed's OK to become a bank holding company as a way to boost assets -- and all the banks receiving AIG rescue funds benefited from the billions the U.S. already spent on AIG.

The New York Fed also weakened its bargaining position by refusing to threaten that AIG would go bankrupt after an initial $85 billion bailout proved too small to save the firm, the report says. Furthermore, negotiators led by Geithner told the banks that any concessions would be purely voluntary, the report says.

The result, the report says, was a weak negotiating strategy with little chance of success in obtaining concessions from the banks. It says the initial bailout "was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG.''

The report says at least one bank, Germany-based UBS, told the New York Fed it would accept less than face value to cancel the contracts, as long as the other banks did so as well. The other banks refused to take less money "voluntarily,'' it says.

As president of the New York Fed, Geithner signed off on many key decisions concerning AIG's bailouts -- including the move to pay in full for securities held by other banks, the report says. Also involved were officials from Treasury and the Federal Reserve.

The report says Geithner denied that officials intended to give other banks a "backdoor bailout.'' Yet it says decisions Geithner approved-- "indeed, the very design'' of AIG's rescue -- meant that billions of taxpayer dollars were "funneled inexorably and directly'' to other banks.

It acknowledges that officials had good reasons to save AIG, and were appropriately reluctant to break contracts the company had with other companies. But it says those decisions "came with a cost _ they led directly to a negotiating strategy that even ... Geithner acknowledged had little likelihood of success.''

In a joint response, the Fed and New York Fed argue that they acted to protect AIG's customers, whose insurance policies, annuities and retirement plans would have been threatened if the company failed -- not just the banks with which AIG had business relationships. They defend the terms of the first bailout and the decision to pay off other banks.

"Our negotiating strategy, including the decision to treat all counterparties equally, was not flawed or unreasonably limited,'' they wrote.

In its response, Treasury emphasizes that the events "developed extremely quickly'' and that officials did not intend to provide further assistance to AIG after the initial $85 billion bailout that the report says tied their hands.

"This report overlooks the central lesson learned from the'' AIG rescue, Treasury spokeswoman Meg Reilly said in a statement. "The lesson is that the federal government needs better tools to deal with the impending failure of a large institution'' in times of crisis.

She said the Obama administration's proposed overhaul of financial regulation would accomplish that goal. The new rules would give regulators the power to unwind large financial firms whose failures threaten the financial system. The process initially would be funded by taxpayers.

Barofsky faults the Federal Reserve for refusing at first to reveal which banks had received billions of American taxpayer dollars supposedly intended to save AIG. The Fed released the banks' names and the amount of their payoffs only after lawmakers demanded greater transparency.

Barofsky had earlier asserted that taxpayers are unlikely to recover the money spent rescuing AIG. Officials from Treasury and the Fed say they still hope the money will be repaid.

CEO Benmosche Believes AIG Employees' Compensation Too Low

American International Group Inc.'s tough talking chief executive has reportedly threatened to quit, but the giant insurer, which is showing signs of life after its brush with bankruptcy last year, could do fine without him.

Robert Benmosche threatened to quit AIG in part because he complains he cannot pay employees enough, according to the Wall Street Journal.

AIG declined comment, but in a letter to employees Benmosche said he was working aggressively to "overcome this compensation barrier that stands in the way of restoring AIG's value.''

He also said he was "totally committed'' to seeing the company through its difficulties.

As a recipient of some $180 billion in government aid, AIG falls under the purview of Obama administration compensation czar Kenneth Feinberg and Benmosche has balked at Feinberg's proposed pay restrictions.

But if Benmosche, the well regarded former CEO of MetLife Inc., makes good on his reported threats to leave AIG, it would hardly be a tragedy for the company, analysts said. He has been at the insurer for only about three months, which is not enough time for him to have become essential for its daily operations. And Wall Street is full of competent executives looking for work.

"The loss of one chief executive won't change too much for AIG,'' said Sean Egan, principal of ratings agency Egan-Jones Ratings Co in Haverford, Pennsylvania. "There are plenty of other people who can fill the role.''

A CALCULATED RISK

What is at issue in Benmosche's conflicts with Feinberg is whether companies that rely on government support to stay in business can pay less than competitors that have shucked that support.

Feinberg has cut cash compensation for the 25 best-paid employees at companies that received multiple bailouts and is setting guidelines for pay for the next 75.

For AIG in particular, Feinberg has vowed to limit bonuses at the company's Financial Products unit, whose massive payouts earlier this year sparked huge outrage. AIG is on track to pay $198 million in bonuses to Financial Products employees in March 2010.

Making these cuts amounts to a gamble.

"He's thinking he can limit pay and that an insufficient number of people will leave for better opportunities to really harm the companies,'' said Robert Sedgwick, a partner in executive compensation and benefits at law firm Morrison Cohen in New York.

To some analysts, that is a reasonable bet. The pool of talent for hire is likely fairly deep now, as financial companies have announced about 400,000 layoffs since the credit crunch really accelerated in mid-2007, according to outplacement firm Challenger, Gray & Christmas. So even if people leave, others can replace them.

"There are a lot of qualified people out there who would love to work at AIG,'' said Bill Fitzpatrick, equity research analyst at Optique Capital Management in Milwaukee, Wisconsin.

And if it were not for several bailouts that left the government on the hook for some $180 billion of potential exposure to AIG, the insurer would be out of business now. Some argue employees should be grateful they still have jobs.

"If it weren't for government support, this firm would be gone many times over. So this is the cost of being propped up by the government,'' said Campbell Harvey, finance professor focusing on risk management at Duke University.

'TIRED OF THE UNCERTAINTY'

The risk to AIG and other companies under Feinberg's aegis, including Citigroup Inc. and Bank of America Corp. is that top producers will leave, Optique's Fitzpatrick said.

Steven Eckhaus, a compensation lawyer with Katten Muchin Rosenman LLP, said a "staggering'' number of high-level people who work for publicly traded financial companies are already looking to leave, if they have not already.

"People are tired of the uncertainly about what they are going to be paid, about disclosure and tax issues,'' Eckhaus said.

But others are not convinced compensation limits are a big problem for AIG. Feinberg is only influencing compensation for the top 100 employees at AIG, but the company has a total of nearly 100,000.

"The prospect of the top 100 people leaving in the near term is probably relatively low,'' said David Roberts, chief executive of Verus Research, which provides compensation analysis.

But if the financial sector recovers over the longer run, pay limits may pose a problem, he added.

Top Health Plans’ Medical Expenses Rising, Membership Falling

KENNEBUNK, Maine-The nation’s leading health insurers saw an aggregate decline of 836,000 members for the first six months of 2009. Declining commercial enrollment was offset primarily by gains in products offered to seniors and growth in Medicaid business. Administrative Services Only (ASO) enrollment experienced its first quarterly decline since June 2007. The difficult economy is still taking a toll in terms of rising medical expenses and declining membership for most plans however profitability is showing signs of improvement for some of the top plans in the country.

Mark Farrah Associates (MFA), a leading provider of market data and intelligence solutions, found -- for the eight leading U.S. health insurers -- aggregate membership was down to 132.4 million members from 133.2 million members at year-end 2008. For these top insurers, combined Medicare Supplement and Medicare Advantage enrollment increased by 405,000 members between 4Q08 and 2Q09 offsetting some of the 1.452 million membership decline experienced in the Commercial sector. Medicaid enrollment increased 211,000 for the same period.

ASO enrollment decreased -0.9% and risk enrollment declined -0.2% for these plans between 2Q08 and 2Q09. Between first and second quarter 2009 ASO enrollment declined -4.6%, the first quarterly decline since June 30, 2007. Of the top plans, all but Aetna, HCSC and Health Net reported decreases in ASO covered lives.

In the latest Healthcare Business Strategy report, MFA reviewed enrollment and financial trends among eight top health insurers: Aetna, CIGNA, Health Care Service Corporation (HCSC), Health Net, Humana, Kaiser Permanente, UnitedHealth Group and WellPoint. These eight health plans cover 59% of the total insured population in the nation, up 2.3% from second quarter 2008. Membership data, financial statistics and observations were gleaned from the October 2009 Health Insurer Insight™ series.

To read the full text of “Top Plans’ Medical Expenses Rising, Membership Falling,” visit the Healthcare Business Strategy library on Mark Farrah Associates’ website www.markfarrah.com.

Ratings Recap: ProAssurance, Lawyers Mutual

Standard & Poor's Ratings Services has revised its outlook on ProAssurance Corp. (PRA) to positive from stable, and has affirmed its 'BBB-' counterparty credit rating on the company."The outlook revision reflects our view of PRA's improved financial leverage and operating performance that have been bolstered by strong fixed-charge and interest coverage metrics and a low leverage ratio," explained credit analyst Damien Magarelli. S&P said the counterparty credit rating on PRA "reflects the company's strong competitive position, which has improved further after the acquisitions of PICA Group, Mid-Continent General Agency Inc., and Georgia Lawyers Insurance Co., as well as strong operating performance, though premiums and prices continue to decline. The rating also reflects PRA's strong financial flexibility and low financial leverage, as the company successfully converted $107.6 million in convertible debentures to equity in 2008 and completed other debt reduction programs in the past two years." These positive factors, however, are partially "offset by the company's modest geographic concentration by state, though PRA is nationally diversified," said S&P. The rating agency also noted that PRA has a "business concentration in the medical malpractice niche (though it is slowly diversifying), which subjects the company to systematic risks as a result of regulatory reform and changing industry trends that may have a significant impact on the company's underwriting results. The company also faces some inherent business risks, such as potential inadequate reserves and capital related to recent acquisitions."

A.M. Best Co. has downgraded the financial strength rating to 'A-' (Excellent) from 'A' (Excellent) and issuer credit rating to "a-" from "a" of Lawyers Mutual Liability Insurance Company of North Carolina (LML), but has also revised the outlook for both ratings to stable from negative. Best explained that these rating actions were taken "due to the deterioration in LML's operating performance during its most recent five-year period. The company was negatively impacted by a significant increase in claims frequency from late 2007 into 2009, driven by losses within several areas of legal practice, particularly real estate." Best also noted that "LML has posted net underwriting losses in four of the past five years. Adverse reserve development coupled with reactive premium rate management has negatively impacted the company's current operations. Partially offsetting these rating factors has been the company's favorable investment results helping to generate a cumulative net income of $3.7 million over the last five years." On a more positive note Best indicated that LML's ratings are supported by continuing "strong risk-adjusted capitalization for its rating level, a dominant market position in lawyer professional liability in North Carolina and its consistently high policyholder retention rates. These factors are derived from the company's extensive knowledge of the legal profession and continued dedication to providing superior service to its customers." Best added that the stable outlook recognizes "LML's capitalization and management's commitment to return the company to underwriting profitability through appropriate rating actions."

Chartis CFO Says Insurer Isn't Seeing Employee Exodus

Bailed out insurer American International Group Inc's global property-casualty division, Chartis, has not seen an exodus of employees because of pay limits imposed by Washington, the unit's chief financial officer said on Thursday.

Robert Schimek praised AIG Chief Executive Robert Benmosche -- who reportedly was distressed enough about pay curbs to threaten to quit recently -- for standing up for employees.

"That's just Bob saying 'I want to get it right for these people,''' said Schimek, who has known Benmosche for many years, having worked closely with him on MetLife Inc's initial public offering earlier this decade.

AIG's property-casualty unit was renamed Chartis Inc. in July as part of an effort to avoid being linked with the now-tarnished reputation of AIG.

Schimek, speaking on the sidelines of an insurance conference held by Ernst & Young in New York, estimated that about one-fifth of the 100 senior managers affected by the pay restrictions work for the global property-casualty division. "These people have been fully communicated to'' about the pay restrictions, he added. Chartis employees are taking the furor over pay as best as one can, he said. "We are used to it.''

The Obama administration's pay czar, Kenneth Feinberg, said last month that renegotiating compensation for some AIG employees was a "top priority.''

On Wednesday, Benmosche sent a letter to employees to downplay any concerns that his frustrations over compensation had reached a breaking point. "Let me be clear: I and the Board remain fully committed to leading AIG,'' he said in the letter.

While Chartis has suffered a number of high-profile departures since AIG's bailout last year, Schimek said employee departures had not weakened the insurer, but created room for others to take bigger roles.

Chartis employs about 34,000 around the world, and with a net worth of about $40 billion, is one of AIG's largest divisions. "We are as determined a competitor today as we were in August 2008, before the AIG event,'' he said.

For Schimek the biggest concern is no longer being dragged down by AIG's reputation but what Chartis can do to buck challenging economic headwinds and preserve profitability.

He said where rivals undercut Chartis at unprofitable rates to win business, the company cuts its losses rather than provide coverage. "There are pockets of the business that we think are too aggressive,'' said Schimek."We will walk away from the business ... to preserve bottom-line profitability.''

Insurers have been grappling with the effects of continued unemployment and a contraction in spending. The problem has been compounded by an ongoing decline in policy pricing, driven by zealous players seeking greater market share.

Schimek said Chartis, contrary to competitors' claims, is not guilty of such destructive business practices.

AIG nearly collapsed more than a year ago because of risky investments within its financial products unit, necessitating a massive taxpayer bailout, including more than $80 billion in loans from the U.S. Federal Reserve and Treasury.

Benmosche Denies He Might Leave AIG; 'Totally Committed' Says CEO

American International Group Chief Executive Robert Benmosche said on Wednesday he remains "totally committed'' to staying at the company, countering an earlier report that he was considering stepping down.

In a letter to employees obtained by Reuters, Benmosche said he and the company's board are "frustrated'' about restrictions on pay and are in discussions with the U.S. government about them.

AIG, which has received up to $180 billion of federal aid, including more than $80 billion in loans, and is now 80 percent-owned by U.S. taxpayers, posted its second straight quarterly profit last week, helped by a recovery in the value of its investments.

Benmosche said compensation restraints present a "barrier that stands in the way of restoring AIG's value.''

The Wall Street Journal reported that Benmosche was so frustrated that he told the company's board last week he was considering stepping down. The newspaper cited people familiar with the matter.

The giant insurer's chief executive said in his letter that he is particularly concerned with the pay of the company's top 100 executives, which are under the purview of Kenneth Feinberg, the U.S. government's pay czar.

Benmosche told AIG directors that he was "done'' but agreed to think it over when they reacted with shock, the people told the paper.

Aha! Mutual of Omaha and Winfrey Settle Lawsuit

Mutual of Omaha may have had its own "aha moment." The Omaha, Neb.-based insurance company has decided to settle its lawsuit against Oprah Winfrey's production company over rights to the phrase.

Jim Nolan, a spokesman for Mutual, and Angela DePaul, a spokeswoman for Winfrey's Chicago-based Harpo Productions Inc., would only say that the case was resolved amicably. Documents filed last month in U.S. District Court in Omaha do not outline details of the settlement.

Mutual and Harpo began sparring earlier this year after Mutual starting using the slogan "official sponsor of the aha moment" in a national advertising campaign.

Harpo asked Mutual in a letter to stop using "aha moment" to promote its insurance and financial products because it didn't want confusion about whether there was a relationship between Mutual and Winfrey. Winfrey's representatives argued in April that the phrase was synonymous with Winfrey and her show.

Mutual responded with the lawsuit and documents showing it had obtained preliminary approval of a federal trademark.

The insurance company said it conceived its slogan in February 2008 and unveiled the Web site www.ahamoment.com a year later. It began researching trademark rights to "aha moment" in July 2008 and filed an application with the U.S. Patent & Trademark Office that August. Mutual said no opposition was made to its trademark application, and preliminary approval was granted in April.

Mutual originally asked the court for a legal declaration allowing it to use the slogan and pronouncing that Mutual has not infringed on Harpo's or Winfrey's rights. Harpo never filed a formal response to Mutual's lawsuit.

Mutual asked for the lawsuit to be dismissed last month, and the judge entered his ruling Oct. 22.

As part of its ad campaign, Mutual sent a crew on a 25-city tour to collect video stories of people describing a turning point in their lives when they realized something important. Visitors to Mutual's Web site helped the insurance company pick ten of the "aha" stories to appear in television commercials starting next year.

Moody's: AIG Likely Able to Repay Government Bailout Funds

American International Group Inc. has made tangible progress on its restructuring plan and will likely be able to repay the government's loan and much of its preferred equity stake, Moody's Investors Service said on Monday.

The restructuring plan still relies heavily on government support, but if AIG's operations and global financial markets continue to stabilize, the company can likely generate enough value to repay the government, Moody's said in a statement.

AIG, the giant insurer bailed out by the U.S. government, posted its second straight quarterly profit last week, helped by a recovery in the value of its investments, though its underlying business remained weak.

The quarterly results "show continued stabilization of the core insurance operations despite challenging market conditions,'' Moody's said.

With the government now likely to recoup its investment, it has incentive to continue supporting AIG and its various creditors, Moody's said. The agency affirmed AIG's long-term rating of A3, the seventh-highest investment grade, with a negative outlook.

IRS to Audit Large Companies on Tax, Independent Contractor Issues

U.S. tax authorities will start to audit 6,000 randomly selected companies to focus on employment tax issues ranging from executive compensation to fringe benefits, Internal Revenue Service officials said.

The audits will begin in February 2010 and stretch across all types and sizes of companies. The exams will be deeper than typical audits, and also look at the use of independent contractors and other worker classification issues, a spokesman for the IRS said on Friday.

IRS Commissioner Douglas Shulman has said the agency will focus on the wealthy and large corporations as it seeks to recover billions that go unpaid in taxes each year.

About $345 billion goes uncollected from individuals and corporations from U.S. tax authorities each year, according to the U.S. government.

"A significant portion'' of this so-called tax gap comes from unpaid employment taxes, Faris Fink, an IRS deputy commissioner told an accounting conference this week.

Asked how many years the IRS would look at when conducting an audit, Fink said there was no defined time period.

The IRS has not zeroed in on employment tax issues for two decades, according to Anne Batter, an attorney who previously worked in the office of chief counsel at the IRS.

Although the program has not officially started yet, Batter says some of her clients who are large employers have begun to get document requests from the agency.

"The first round of questions we got in this last audit involved deferred compensation, equity, all these fringe benefits,'' said Batter, now with law firm Miller Chevalier, defending clients before the IRS.

"We have definitely had some taxpayers out of the blue (who) have gotten these really big, cumbersome requests for information about their compensation,'' she said.

The Hartford Reports 3Q Loss

The Hartford Financial Services Group reported a third quarter net loss of $220 million, compared with a net loss of $2.6 billion in the year-ago period.

Written premiums for The Hartford's property/casualty operations in the third quarter were $2.4 billion, down 6 percent from the third quarter of 2008 largely as a result of weaker economic conditions, the company said. The Hartford, however, did say it is seeing momentum in new business submissions in all segments, but particularly in personal lines and small commercial.

The property/casualty operations saw a net income of $190 million for the third quarter, compared with a net loss of $774 million the year-ago period.

The combined ratio for ongoing operations in the third quarter of 2009, excluding catastrophes, was 93.8, compared with 91.8 in the prior-year period. The third quarter of 2009 included $135 million, or 5.5 points, of net favorable prior year development primarily related to small commercial and middle market workers compensation, professional liability, personal lines auto liability and middle market general liability claims.

Personal lines written premiums for the third quarter of 2009 grew 2 percent to $1 billion. Written premiums in the company's agency business rose 4 percent in the third quarter. New business premium increased 26 percent over the third quarter of 2008, while the number of policies in force grew 2 percent year-over-year as investments in new products and increased consumer shopping continued to drive new business submissions.

During the quarter, the company continued its successful launch of its AARP product through agents, with the product already in 14 states, and 6 additional states rolling out in the fourth quarter.

The third quarter 2009 current accident year combined ratio, excluding catastrophes, was 94.5, compared to 88.3 in the prior-year period. The increase in the combined ratio was largely due to current accident year reserve strengthening, in response to an uptick in auto frequency and lower average premium. The third quarter of 2009 included 9.1 points of current accident year catastrophes related to significant hail and windstorms in the Midwest and Colorado.

Written premiums for small commercial were $626 million for the third quarter of 2009, compared with $652 million in the prior-year period. New business premium was up 20 percent over the prior-year period as product enhancements made in 2009 had a positive impact and the company capitalized on policyholder shopping.

Third quarter 2009 profitability continued to be very strong, with a current accident year combined ratio, excluding catastrophes, of 86 as compared to 87.7 in the third quarter of 2008. The third quarter of 2009 included 2.9 points of current accident year catastrophes.

Written premiums for middle market were $496 million for the third quarter of 2009, compared with $571 million in the year-ago period. The third quarter 2009 current accident year combined ratio, excluding catastrophes, was 97, compared with 98.4 in the prior-year period. The third quarter of 2009 included 1.2 points of current accident year catastrophes and $52 million, or 10.1 points, of net favorable prior year development largely related to workers' compensation and general liability.

In specialty commercial, written premiums for the third quarter of 2009 were $266 million as compared to $345 million in the year-ago period. Premiums were driven lower by a combination of the effects of the economic downturn, the sale of First State Management Group, which contributed $14 million of premium in the third quarter of 2008, and lower net premiums resulting from changes in a reinsurance treaty.

The third quarter 2009 current accident year combined ratio, excluding catastrophes, was 102.6 as compared with 99 in the third quarter of 2008. The third quarter of 2009 included $39 million, or 13.0 points, of net favorable prior year development primarily related to professional liability.

IRS to Audit Large Companies on Tax, Independent Contractor Issues

U.S. tax authorities will start to audit 6,000 randomly selected companies to focus on employment tax issues ranging from executive compensation to fringe benefits, Internal Revenue Service officials said.

The audits will begin in February 2010 and stretch across all types and sizes of companies. The exams will be deeper than typical audits, and also look at the use of independent contractors and other worker classification issues, a spokesman for the IRS said on Friday.

IRS Commissioner Douglas Shulman has said the agency will focus on the wealthy and large corporations as it seeks to recover billions that go unpaid in taxes each year.

About $345 billion goes uncollected from individuals and corporations from U.S. tax authorities each year, according to the U.S. government.

"A significant portion'' of this so-called tax gap comes from unpaid employment taxes, Faris Fink, an IRS deputy commissioner told an accounting conference this week.

Asked how many years the IRS would look at when conducting an audit, Fink said there was no defined time period.

The IRS has not zeroed in on employment tax issues for two decades, according to Anne Batter, an attorney who previously worked in the office of chief counsel at the IRS.

Although the program has not officially started yet, Batter says some of her clients who are large employers have begun to get document requests from the agency.

"The first round of questions we got in this last audit involved deferred compensation, equity, all these fringe benefits,'' said Batter, now with law firm Miller Chevalier, defending clients before the IRS.

"We have definitely had some taxpayers out of the blue (who) have gotten these really big, cumbersome requests for information about their compensation,'' she said.

Small Business Owners See Their Firms Leading Recovery Next 2 Years

Looking out 12 to 24 months, small business owners say their companies will emerge from the recession strong and well positioned for growth over the next two years, leading the U.S. to economic recovery.

According to new study, The Guardian Life Index: What Matters Most to America's Small Business Owners, small business owners are confident even in the face of the significant challenges of the economic downturn. The study says this optimism is the result of their passionate, confident focus on three core pillars of business success: their customers, their employees and their own self-dependence.

Overall, 92 percent of small business owners expressed optimism about their enterprises, with 54 percent expecting to maintain business as usual and 38 percent confidently looking forward to expanding their businesses over the next 12 to 24 months.

The Guardian Life Index examined small business owners within 13 key industry sectors. Optimism varied across these sectors with respect to revenue projections for 2009. Sectors with the highest number of owners who anticipate stable or increased 2009 revenues are traditional health care (72 percent), financial services (68 percent), high tech products/services (66 percent), dining and accommodations (66 percent) and manufacturing (57 percent).

From a regional perspective, the South has the highest percentage of owners (62 percent) who project stable or increased revenues for 2009, followed by the Northeast (61 percent), the Midwest (59 percent) and the West (56 percent).

Texas is the state with the highest percentage of owners (69 percent) who project stable or increased revenues for 2009. That optimism contrasts with California (51 percent), New York (49 percent) and Florida (49 percent).

The study, which was commissioned by the Guardian Life Small Business Research Institute and fielded in May 2009, used a 21-point scale (from +10 to -10), to measure the positive and negative intensity of responses to issues.

Small business owners in the aggregate build and sustain some 20 million individual small businesses that collectively account for 50 percent of U.S. gross domestic product and 44 percent of the nation's payroll.

"Small business owners are the backbone of the U.S. economy," said K. Rone Baldwin, executive vice president and chief operating officer, Guardian Life Insurance Co. of America. "Their deep, intensely personal focus on customers and employees, coupled with their strong self-reliance and determination bode well for a national economic recovery."

In the Guardian Life Index, customers are small business owners' number one concern. Exemplifying small business owners' deep commitment to customer satisfaction and loyalty are their very positive responses to: "Having customers who appreciate what I do" (5.8), "keeping the customers I have from leaving" (5.6) and "making my customers into friends" (3.9). Positive intensity numbers above three are highly significant, according to the researcher who designed the methodology and conducted the study, John Krubski, a former Yankelovich research executive and futurist.

Small business owners are similarly passionate about their employees. At an intensity level of 5.5, "my employees" ranks nearly as high as customers in importance. Other evidence of the deep commitment small business owners have to their employees is illustrated by their positive responses: "Giving my employees reasons to feel good about being part of our team" (4.3) and "helping others to have income and opportunities" (3.9). At the opposite end of the scale are issues that matter least. Even slightly negative numbers indicate strong passions, according to Krubski. In the study, small business owners reacted very negatively to "cutting back on employee benefits" (-0.1), "reducing the number of employees" (-0.2) or "moving full-time employees to part-time schedules" (-0.9).

Finally, the third pillar for what matters most to small business owners is their personal freedom and independence, as these positive intensity metrics underscore: "personal freedom" (5.3), "being able to make my own decisions" (4.9) and "doing something for a living that I love to do" (4.2).

Contrasting the metrics associated with customers, employees and self, small business owners' feelings about financial matters are about half as intense: "being able to add significantly to my retirement funds" (2.5), "making enough money to pay my family's personal expenses" (2.4) and "being able to pay myself as much as I should" (2.3).

The Guardian Life Index: What Matters Most to America's Small Business Owners polled more than 1,100 respondents representing 13 small business industry sectors, nine geographic regions, four key states (California, Texas, New York and Florida) and two major DMA's (New York and Los Angeles). It was fielded in May, 2009.