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.