Aon, Insurance Information Institute and Swiss Re join Advisen on Webinar

We're going to hold a webinar tomorrow (Wed May 13th) at 3pm EDT (sorry to our friends overseas, scheduling all panelists mandated this time). Early registration means attendance will likely exceed the most popular webinar of the year which was Madoff. We might hit our max of 1,000 on the conference call, who knows.

The discussion will revolve Advisen’s latest briefing "The Insurance Market in 2009: A Market Poised for a Change" that examines the forces at work on commercial insurance premiums, claims and investment income in 2009. Download this new Briefing, free of charge, at http://corner.advisen.com/reports_topical_hard_market_2009.html.

Register for free here.

While the briefing groups together findings of several recent Advisen reports, there are several points that are new - see the breakout of trends by coverage on page 4, a discussion of broker consolidation to come - on page 5 (we are going to publish a full piece on this soon), and the implications of the new Obama administration on page 7.

Jim Blinn of Advisen will moderate a panel including:

• Eric Andersen, CEO-Aon US Retail
• Dave Bradford, co-founder and EVP of Advisen
• Bob Petrilli, Head of Swiss Re’s IRI Americas
• Steven Weisbart, Chief Economist for Insurance Information Institute

Buyers, brokers and underwriters of all major lines will learn from the report and the webinar discussion. If Property, D&O, GL or Workers Compensation insurance are important to you, we urge you to register for the free webinar here.

We'd love to see you on the call and answer your questions. The best way to get your question answered is to submit them to jblinn@advisen.com in advance.

Climate Change, a D&O Loss Event?

Firms on the wrong side of the environmental movement have seen an enormous amount of suits filed against them, and plaintiffs have sought compensation from many forms of insurance policies, including directors & officers insurance.

Advisen Front Page News (here) carried an interesting article this week from the Chief Counsel to ACE Professional Risks, Carol Zacharias, who recapped the state of play in climate change litigation and how it increases the exposure to companies and their directors and officers.

Excerpting from the article:

The new cases address the adequacy of a company’s assessment of the financial
consequences of climate changes and the adequacy of disclosures to shareholders
of that financial impact. Since questions regarding disclosures to shareholders
raise the prospect of management liability exposure, these developments present
liability risks to directors and officers that should be considered.

Click here for the full article.

So I searched Advisen's large loss database for "climate change disclosure" and found a match on a case where Xcel Energy settled with the Attorney General of New York. Excerpting from our case profile:

Attorney General Andrew M. Cuomo today announced the first-ever binding and
enforceable agreement requiring a major national energy company to disclose the
financial risks that climate change poses to its investors. Cuomo's agreement
with Xcel Energy (NYSE: XEL) ("Xcel") comes as many power companies, including
Xcel, are investing in new coal-burning power generation that will significantly
contribute to global warming emissions.

Certainly climate change disclosure is not going to decrease under the Obama administration.

To get your hands on this case or other cases you want to follow, click here and indicate you want everything we have on climate change or whatever search criteria fits your needs.

And You Thought the Plaintiffs Bar Couldn't Get More Busy

Insurance executives ask their heads of claims the same thing: "How many Securities Class Action Cases (SCAS) were filed?" There's no industry standard definition and Advisen, our friend Kevin LaCroix at the D&O Diary (blog here), and other service providers like NERA or Cornerstone have varying counts.

NERA and Cornerstone make their money by serving as expert witnesses during trial and pre-trial stages. NERA and Cornerstone collect data as a byproduct of this business.

Advisen makes its money collecting data and licencing access to this data on a one-time or continuous basis. Data and predictive models are our core business and we are dedicated to the commercial insurance industry so our output is tailored to their specific needs.

So the answer to the executive's question is "Depends on what you define as a SCAS" but, more importantly, SCAS is only one part of the exposure to liability insurers. In fact, in Q1 2009, SCAS dropped to less than 40% of all securities filings. Advisen tracks shareholder and other derivative suits and cases involving breach of fiduciary duty and securities fraud.

Advisen tracks filings in US federal and state courts and collective actions and other cases filed in overseas courts against US and non-US companies.

In summary, there is no standard definition of "securities class action suit." But for management liability professionals, the more important question is"How many and what types of lawsuits are likely to result in claims under D&O, E&O or fiduciary liability policies?" Advisen tracks and reports on all manner of suits, filed in state, federal and foreign courts, that are likely to result in losses to companies and their management liability insurers. The Advisen database is the most complete, accurate and timely of its kind.

Today Advisen released the findings of its quarterly securities litigation review and the report is available free of charge here. The headline is that filing activity was up significantly from 2008 rates, but the pace can't be sustained and will likely level off over the year.

The executive's follow up questions are "how many of these companies do we write policies for" and "what do we need to reserve". Reserving capital erodes profit so frequency is not popular, but frequency of filings is only part of the picture.

The elephant in the D&O room is whether these cases will yield insured loss. Advisen has already written (see here) about how defense costs are going to eat significantly into the policy limits but that for many reasons, this increased frequency is unlikely to result in an increase in claims paid.

D&O and E&O professionals would benefit from reading the report (here) and seeing if their clients are on the list (here).

Why Say Yourself What a Client Can Say Better?

One of our retail broker subscribers posted a note internally to colleagues about why they should use Advisen - because it helps them make money. I have excerpted in the below for weekend reading - on the flight to RIMS?

Ready to Close that Deal?
Advisen may be the solution!

Whatever happened to the good old days of loyalty coupled with an insurance broker who provides better value than their competitors? In these tough times as all sectors of the economy struggle to tread water, many of us are probably wondering why accounts that we have had ten or twenty years are heading for the door. There is one answer: The bottom line. Do not give up quite yet! There is a software tool that can:
1) Increase the ratio of your sales
2) Provide your client or prospect with valuable information about their industry and insurance policy
3) Clearly put the term “value” back into the minds of the consumers

Advisen is fueling global business insurance with the industry’s first ever online knowledge marketplace.

Advisen’s wealth of information resources, combined with a sophisticated search engine, data mining, and analytical tools provide strategic information services to the insurance industry. By aggregating information relevant to the business insurance industry, Advisen has created a workspace where insurance underwriters, brokers and business managers assess, quantify and evaluate risk within and across domains, benchmark performance against best practices, and track regulatory developments.

Recently, a colleague asked me if I could check what the self-retention average for a company who specializes in real estate management with revenue over $100 million dollars would be. After filling out the brief search engine questionnaire on the software, I was able to create a graph which illuminated the average retention of similar companies across the country. Based on this information, we were able to determine that the retention was right where it needed to be.

We didn’t stop there. I used Advisen to do a policy form comparison between the incumbent broker’s policy form and the carrier’s form that we were planning to use. We were able to show the prospect where the norm in terms of retention fell for their industry, the difference in wording between policies, and also how that could affect the payout of a claim in the event of a loss. To say the least, the prospect was very impressed.

What's 30,000 Reference Resources Between Friends?

I had a caller from Willis in Oklahoma today call about a client who wanted to be insured against liability for problems at their Italian restaurant chain in the mid-west. The broker wanted a loss run to compare to the clients' own claims experience.

I checked out our MSCAd Large Loss Database (see info here) and since we cover the largest cases first, we covered the infamous "Why didn't you tell me your coffee was hot?" suit against McDonald's (and another one where a Mom sued for a kid falling out of its high chair at McDonald's - my 2yr old son does that at least twice a meal, he must have been born with a steel plate in his skull). But this wasn't going to do - the client had 100 claims last year and we didn't have enough of this granular loss data.

So I turned to our catch-all database called rmLibrary which contains links to 30,000 pages on the web and other resources and found the four links below. I love that in addition to preventing them (the best scenario) there are resources devoted to investigating and proving the damages!



Anyway, this is why Advisen partners with Libraries & Directories and carries their rmLibrary product for all of our subscribers. (See details about expanded partnership here). They don't have loss runs for this either but they have killer content at your fingertips.

The fellow in Oklahoma should subscribe soon and I couldn't resist asking him what caused most of the clients' 100 claims: overwhelmingly it was "chicken bones in the spaghetti". GROSS.

Workers Comp Costs: A Price of Doing Business?

Insuring your workforce is a tricky task. Our staff at Advisen has grown older this year as we've changed some faces and, sadly, we all seem to get older every year despite trying hard not to behave accordingly.

So our benefits renewal was not pretty - the older the staff the higher the premiums. Definitely not something we considered when making hiring decisions - but material to the expense line.

Looking at Workers Compensation insurance, there are a few main drivers for success. One of them is productivity - can you get your staff utilization up and the other is cost - can you keep your fees down and lower your workers comp coverage.

Recently we met Rebecca Shafer who's had a distinguished career at Marsh (pioneering Injury Management Consulting) and at Aon (CEO of the workers' compensation consulting unit of Aon Risk Services, Aon Management Institute (AMI) in Glastonbury, CT, and was responsible for the development of "Comp Camp.").

An attorney, Rebecca retired from Aon and must not have read enough about how hard it is to start up a company from scratch - she founded Amaxx to build the Workers Comp Kit to manage workers comp and her site at ReduceYourWorkersComp.com - also note her blog in my Blogroll to the right.

From her site "Many of her clients have experienced cost reductions of 20 to 50 percent. Her clients have included Rite Aid, Warner Lambert, Continental Airlines, U S Airways, Universal Orlando, New York Times, TV Guide, CVS, Knight-Ridder, New Haven Terminal, Centerplate, Simpkins Industries, American Tourister, and numerous other national, mid-market accounts and small accounts."

From our joint press release today comes the following pithy comment full of good keywords to get unsuspecting Google searchers to discover us at Advisen:

“Companies typically spend 30% of their risk management dollar on workers’ compensation, according to the RIMS 2008 Benchmarking Survey, but most managers are unsure how they can reduce these costs,” said Mason Power, GM of Advisen. “While companies buying workers comp and their brokers are a key part of the 100,000 industry professionals who subscribe to Advisen, the Workers’ Comp Kit® also offers a predictive analysis enabling insurance companies, state funds, captives and reinsurers to establish a threshold risk profile for underwriting purposes. This partnership further demonstrates Advisen’s commitment to providing invaluable insight to the commercial insurance marketplace.”

Beyond the salesy stuff (the WC Kit is for sale through our store), it's clear that our subscribers find Rebecca's work relevant, particularly how it helps them benchmark workers comp producitvity and cost. We ran a series of seminars with hundreds of attendees on each session and the feedback has been terrific. ReduceYourWorkersComp is a welcome addition to our Partners (see here for further info about the partnership). Rebecca and Advisen will be at the upcoming RIMS conference in Orlando starting this Sunday.

Stanford Ponzi and D&O / E&O Insurance Coverage

The Chief Investment Officer of Stanford is the only one against whom criminal charges have been filed...so far. Her assets and the assets of Stanford being frozen, she isn't finding takers for legal representation on contingent fees.

In today's news (story here) she sues Lloyd's for coverage under Stanford's D&O and Company Indemnity policy seeking $5m in actual damages and to get the media to cover the story and try to embarrass the Lloyd's Managing Agents involved, $40m in punitive damages.

Paraphrasing from what I've been told by law firms involved in bankruptcy protection and unwinding these matters, the following is how I understand it to go. Do you the readers agree with what I've been told?

The law firm defending the Stanford group in its bankruptcy goes to court and as the first act, asks for estimated legal fees (big sum) to be set aside in escrow.

That law firm then discusses all of the claims for money against Stanford with the claimants to do an off-the-record assessment of the merits.

The cases are ranked by the anticipated outcome (from must pay to no chance) and then the lawyers for the claimants are notified of their standing (again off the record). The lawyers for the claimants have their own assessment of the merits and they either proceed to settlement or an actual review of the merits through court. But guiding the discussions is the fact that the assets available (net of legal fees) is always a small fraction of what's been claimed in lawsuits.

The D&O or E&O insurance firms are in very close contact with the bankruptcy law firm and when the cases are ranked, they act. If these insurance companies are to pay the legal fees and then not get anything returned if fraud is proven, they are wasting money so they wait for the first assessments of the merits.

The tough part for everyone involved (including information outlets like Advisen) is that there is no transparency to the real horse-trading here. And because everyone knew that Lerach was straightforward and predictable as a deal-maker, the D&O or E&O guys could reserve accordingly. But with the new bumper crop of Lerach wannabes, it's anybody's guess.

Ponzi Schemes

This week the Insurance Insider wrote about D&O insurance exposure in Lloyd's and the London insurance market to the ponzi schemes in the US.

Quoting from the recent Advisen report on Securities Litigation and the D&O Market, the article lists the proliferation of 2009 litigation (433 Madoff and 9 Stanford not to mention another 70 subprime and credit crisis-related cases). You can buy a list of this litigation here.

Apparently the law firm which represented Enron in its bankruptcy made almost as much as Milberg who brought the class action. This means both sides are racking up big legal bills before even getting to a judgment on the merits of the case.

Therefore these cases are going to lead to use of D&O coverage for mounting legal fees and when merits are judged, it's more likely that significant E&O or Professional Indemnity claims are paid. Core D&O claims are less likely to be paid as the losses were so "systemic" - how could any D or O be more culpable?

Similarly with the ponzi schemes, if you're bringing a case against the Ds&Os, where's the money to go after? Ruth Madoff only has so much jewelry and the rest of the Madoff business isn't worth $50b. Instead and in addition, go after the funds and pros that fed Madoff.

On this point, I remember a ponzi scheme that raced through UVM while I attended. The guys at the top of the pyramid fully knew that it would collapse under its own weight but that so long as they got out at least twice they would be playing with other people's money until the inevitable collapse.

While I'm happy to see Madoff's staff and family (was there really a distinction?) getting indicted like his accountant (all of these people had to be in on it), I am waiting to see how the scheme can be unwound to find the people who gave Madoff money at the beginning of the Ponzi scheme. These are the crooks Madoff is pleading guilty to protect.

On the insurance coverage of ponzi litigation, there could be negligence in due diligence on the part of feeder funds and investment professionals who put their clients into Madoff recently, and that could be covered under E&O insurance. But criminal charges will be overwhelming when they unearth Madoff's true accomplices - those with Madoff at the top of the pyramid. I doubt any insurance company would honor their E&O.

Volume Discounting

Having established at least a beachhead with 500+ insurance companies, brokers, buyers, law firms and others I'm focusing our sales, marketing and customer service on moving beyond 1 login:1 user to corporate licenses with our accounts.

The goal is to provide what clients want, when they want it and the way they want to consume the information.

Our clients are overwhelmingly receptive to this approach as they want to find the path of least resistance to get our information to their staff in the cheapest and easiest route.

Our service has expanded in breadth and depth so that many clients are canceling other services to accommodate a greater spend with Advisen within existing budgets.

2009 customer implementations have all been solutions-oriented rather than one-size-fits-all.

As we get set to publish our rate card for this solutions-oriented approach, I'm researching how best to reward customers for doing more business. Any comments from readers would be much appreciated to mpower@advisen.com. How do you volume discount in your business?

Notes from the PLUS D&O Conference

Always good to see clients, friends and even some folks who admitted to being readers of this blog. We're in the process of redesigning www.advisen.com and will be featuring blog posts from Dave Bradford and me among others and pull in from other favorite commentators.

Dave presented at PLUS about the correlation of bankruptcies and D&O loss and the audience really seemed connected to this important topic. The findings Dave presented were a small part of the research Advisen can conduct and we are looking for equity partners in the project.

This means firms with interest in getting a securities litigation risk score for all U.S. public companies based on their risk of bankruptcy should contact me. By joining others in the initial funding partners will be the only recipients of these risk scores. mpower@advisen.com if interested.

VJ Dowling who I enjoyed meeting at the Allied World party (they have a company rock band which did some good covers), provided a bit of color to Dave about the performance of Odyssey Re (see earlier post about trailing twelve month market cap performance for commercial insurance companies).

Apparently Odyssey's CEO has said he'd love to claim underwriting genius but it was the brilliance of their chief investment officer who foresaw the credit crisis and bet accordingly. If you look at the chart he must have been selling what Joe Cassano at AIG was buying.

D&O Liability: Beyond Class Action Lawsuits

Advisen has just published a 38-page report on securities litigation and new challenges to Boards of Directors and the D&O insurance market. Securities class action suits – which were a minority of securities suits filed in 2008 – no longer are a reliable barometer of public company D&O insurance trends.

Methodologies used by the D&O market to price trends in the past are no longer relevant. The Advisen report goes well beyond anything published by other researchers to break out all forms of securities litigation that might trigger Directors & Officers or Errors & Omissions coverage and details shortcomings in D&O claims management that are contributing to higher defense costs.

To help readers track potential exposure by company, Advisen’s report includes the list of companies facing lawsuits in 2008 and the list of companies facing multiple lawsuits over the past thirteen years.

The information contained in Advisen’s report is not freely available on the web or in any other source and is more complete and relevant than reports from other sources which charge far more for their reports.

Click here to purchase your copy.

Among my favorite quotes in the report from an Advisen customer is “We miss Bill Lerach”.

The Advisen report contains new research but follows a series of Advisen research papers detailing the impact of the subprime and credit crisis on the D&O market. The running tally by Advisen now shows more than 660 major lawsuits from this global economic trauma including 148 securities class actions.

Notes from the RIMS NY Chapter Meeting on D&O

Chad Roth has done a terrific job getting to know the markets and market players and below are Chad's notes from today's NY chapter meeting which touches on new and interesting hot topics in the D&O market with some comments in CAPS about ideas we have. Feel free to share your ideas or needs in this area so we can help. Thanks, Mason

I attended this morning's RIMS Chapter Meeting focusing on D&O. The moderator of this session was Brian Wanat (Aon). The panelist were Mike Price (HFP), Tony Galaban (Chubb), Mike Smith (AIG), and Scott Meyer (ACE).

Here are a couple of thoughts / notes I jotted down during the session.

- With all the FI issues out there, portfolio management seems to be a big topic. Making sure your book is diversified is necessary to weather subprime. I was thinking Advisen should try and put together some type of e-mail that describes some of the off-line work we can do w/ to help senior management at carriers better understand their book and explain it to their superiors. Taking some of the data Advisen can provide and then tying it in with their loss info could be kind of powerful. Any thoughts?
TWO THINGS WE CAN DO: (1) WE CAN RUN THEIR POLICYHOLDER LIST AGAINST OUR VARIOUS INDUSTRY/FINANCIAL FIELDS TO IDENTIFY THOSE CLUSTERS OF COMPANIES MOST LIKELY TO REPRESENT ACCUMULATION RISKS. I'M NOT EXACTLY SURE OFF ALL THE KEY INDICATORS WE SHOULD BE LOOKING FOR, BUT I SUSPECT OUR CLIENTS HAVE SOME IDEAS. (2) LOOKING ACROSS LOBs, MSCAd's RELATED CASE FEATURE CAN BE USED TO MODEL ACCUMULATION RISK.

- Red Flag: A red flag that the markets seem to be looking at is large debt payments due in 2009. Typically in the past a company might refinance their debt before these large payments.
Given the current credit environment, they might not be able to refinance or it may be it a higher rate. It may be a fun little exercise to create a list of the companies with the highest debt payments due in 2009. Maybe release that list in conjunction with the PLUS D&O Symposium.

- Counter Party Risk: They were saying how some risk managers are starting to ask more questions about the carriers they use. They want to make sure that those carriers will be around to pay their claims. It seems like they have lost faith in the rating agencies.

- Defense cost is still a hot topic. Underwriters are curious as to who the outside counsel is on their risk and the relationship. I'm not sure what we can do here, but this topic is not going away. It would be interesting if we could do some analysis of the counsels involved in MSCAD cases.
DEFENSE COST IS GOING TO BE A MAJOR PART OF OUR FORTHCOMING REPORT ON 2008 SCAS ETC. IN THE NEW ENVIRONMENT, PLAINTIFFS FIRMS ARE BRAINSTORMING NOVEL NEW THEORIES AND ARE FILING MORE CASES IN STATE COURTS, WHICH WILL MAKE IT MORE DIFFICULT TO CONSOLIDATE CASES INTO LARGE CLASS ACTIONS. AS A RESULT, DEFENSE COSTS ARE LIKELY TO SKYROCKET.

Chad M. Roth
Advisen Ltd.
+1.212.897.4792 desk
+1.917.428.8966 cell
croth@advisen.com

Another Measure of D&O Risk?

My grandfather never believed in the efficacy of reforming the criminal mind, "once a crook..."

I don't know Barry Minkow beyond reading the story in the WSJ today (here and on pg1 of Marketplace) but after serving time for a "stock swindle" he seems to have won the praise of the FBI according to the article and is trying to (profit from) pointing out corporate fraudsters.

This reminds me of the early days when Howard Schilit (who never served time) used business school students to demonstrate manipulation of corporate earnings and wrote his book "Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports" (description on Amazon here).

Advisen reached out to Howard, we had a great breakfast meeting listening to how he took some reports on a handful of companies from the grad school lab to an actual business. I always enjoy hearing these stories from entrepreuners like Howard, the courage to start a business using your own family money can't be appreciated enough.

Howard started CFRA in 1994 and sold it on to what is now the RiskMetrics Group (see press release here). Howard brought in an executive from Goldman Sachs to institutionalize his models such that there would be indicative scoring on thousands of public companies while deep forensic due diligence might only be completed on a few hundred public companies.

To provide commercial insurance underwriters with an important measure of risk, especially to those in the D&O market, Advisen has carried the indicative scoring, the full reports and a dashboard of CFRA scores to make risk analysis quicker and more complete. This measure of risk is incorporated into our company exposure look-up pages, available in our risk & insurance search engines and in our configurable underwriting work-ups.

I'm curious whether readers would find Mr. Minkow's research worthy of being included in our risk profiles. His company is the Fraud Discovery Institute here.

Please let me know in the comments or by e-mail.

Thank you

The Professional Lines Market Speaks

Yesterday Advisen published a report on how D&O losses will be $5.9 billion from subprime and the credit crisis, the report is here.

Today we published a report on E&O losses - an additional $3.7 billion. We are the only player to publicly forecast this figure - because we have data that others don't have. The report is here.

In today's press release we also called for the end of the soft market. Not just in D&O or E&O for financial institutions, but broadly. See the release here.

We've had a ton of feedback on this. Tomorrow we're publishing comments from the following: Ryan Collier, Kevin Lacroix, Christopher J. Cavallaro, Peter Taffae, Joe O’Donnell, Chris Warrior, Brian Wanat, Gary Dubois, Paul Schiavone, Chris Duca, Nick Conca, Chris Hewitt, Tim Kelly, Jason White, Larry Goanas, Dennis Donovan and Dennis Gustafson.

I just wish we'd hooked up a chat board around this.

$9.6 billion in Insured D&O and E&O Loss from the Credit Crisis

The PLUS International conference expects over 1,600 attendees in San Francisco this week including 4 from Advisen.

Timed for the start of this conference Advisen has launched a special edition newsletter (see here) to publish news stories about professional liability and most importantly, to publish unique and groundbreaking research by Advisen.

Today we started with a revised forecast (upwards) as a result of the meltdown of the subprime mortgage market and the ensuing credit crisis. for D&O insured loss. In February, Advisen forecast $3.6 billion of insured losses but as the credit crisis has mushroomed into a global financial calamity, we have revised the forecast to $5.9 billion.

The free report on D&O losses is available here.

Advisen is the first to forecast the insured loss for E&O from the credit crisis saying that E&O losses will be centered around mortgage brokers who will see thousands of smaller lawsuits and around mortgage lenders who will see fewer, but higher value suits, the total being $3.7b.


The free report on E&O losses is available here.

AIG has had top market share in both financial institution D&O (19%) and E&O (34%) and Advisen expects new insurers to enter the market. To prepare buyers, brokers & insurers for operating in the new world order in the financial services sector, Advisen has published a comprehensive 38-page study of the changed industry landscape and how it impacts on risk and insurance.

The full report on the financial services industry is available here.

Commercial Insurance Brokers Speak out about AIG

Below is a summary of our report on what 611 commercial insurance brokers had to say about the AIG situation. For the full report click here.

I thought it noteworthy that 47% of brokers said they believe the AIG commercial insurance units will be broken up and they had concerns such as one broker saying "AIG's book of multinationals needs all the the p&c Companies to stay in place worldwide."

AIG uses its marketshare as leverage and this isn't always appreciated, as one broker said, "Couldn't have happened to a more appropriate carrier! As you sow, so shall you reap!"

Others disagreed: "The knee jerk reaction by some brokers to replace AIG is insane. This is not the revenge of Kemper or Reliance, and it's unfortunate that there are so many ignorant brokers out there."

With AIG's stock down over 90% and shareholders diluted 79.9%, AIG employees with stock compensation and stock in their retirement accounts are hurting and other carriers are poaching talent as quickly as they can. One broker summed up their concern as follow "It will be difficult to continue doing business with AIG as in all probabliity the personnel at AIG will change with good people finding new positions with more promise then a wounded AIG can offer.

Some brokers thought they would be comedians: "If AIG fights to to pay claims for/to its insureds, what logic says that AIG will repay its loans to the federal government?"

Some showed appreciation for Advisen which I appreciated, "Thanks for conducting this survey -- I've been curious about what other insurance executives think."

Below is the press release. Contact me if you have questions or trouble getting the full report.

SECOND ADVISEN SURVEY SHOWS THAT BROKERS ARE MORE CONFIDENT THAN RISK MANAGERS IN FINANCIAL SECURITY OF AIG COMMERCIAL INSURANCE UNITS

HOWEVER 47% OF BROKERS BELIEVE AIG WILL HAVE TO SELL SOME UNITS; CONCERN EXPRESSED


New York. October 7, 2008 – Advisen Ltd., the leading provider of content, analytics, and technology to the global commercial insurance industry, today released a special report based on a survey of brokers following the American International Group (AIG) liquidity crisis. On the heels of a similar survey of risk managers, Advisen sought to measure brokers’ confidence in AIG after the $85 billion loan by the federal government. “Wary” was how the vast majority of brokers characterized the attitude of their clients towards the unfolding situation at AIG, but with only one respondent claiming that clients are “panicked”, most brokers of commercial insurance are confident in AIG after the federal loan and few are recommending clients switch from AIG.

The Advisen survey of risk managers found that about two thirds intend to get quotes from AIG’s competitors at policy renewal, but according to the broker survey, few buyers have yet given their broker firm instructions to replace AIG. Brokers also opined in survey results about the potential impact the insurance pricing cycle and the potential impact on their fee and brokerage income.

“Survey results show that brokers have communicated to policyholders that AIG’s insurance subsidiaries are secure,” said David K. Bradford, EVP and Chief Knowledge Officer of Advisen. “However, while brokers have been a force for calm in the marketplace, survey responses indicate that brokers don’t yet know how much diversification clients will seek, or whether this crisis will impact overall market pricing or brokerage income.”

This Special Report is based an exclusive survey conducted by Advisen from September 26th-30th with 611 respondents Almost 65 percent of respondents described themselves as “executive management.” Eleven percent classified themselves as “producer,” and a similar number as “marketer/broker.” Almost 20 percent of participants worked for one of the four largest brokers.

“In conversations with brokerage firm executives attending this week’s CIAB Insurance Leadership Forum the story lines are the same as when we surveyed brokers a week ago” said Thomas P. Ruggieri, CEO of Advisen from the conference in Las Vegas. “Execution risk of the asset sales has been cited as a common concern among brokers. They also worry about potential of breaking up the commercial P&C units. While brokers are watching ratings actions carefully, they are comfortable with the present security of AIG’s property & casualty subsidiaries.”

The eleven-page Advisen Special Report on the Broker survey results is available here:
https://www.advisen.com/downloads/BrokersSpeakOutonAIG.pdf.

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What Risk Managers are Saying about AIG

In the wake of AIG's near collapse, there were a lot of rumors about a mass exodus of corporate policyholders of the AIG insurance subsidiaries.

Advisen had 1,000 buyers of commercial insurance complete a survey. Having a 15% response rate means they were dying to speak up.

Most commercial insurance buyers reported to Advisen that, while they are confident in the financial strength of AIG following the $85 billion loan by the federal government, two thirds of AIG commercial lines policyholders plan to get quotes from AIG’s competitors when their policies renew. Excerpting from Advisen’s Special Report, one likely outcome is that AIG will compete vigorously to retain business, potentially intensifying price competition in an already-soft insurance market.

The full report is available by e-mailing corner@advisen.com.

The AIG Liquidity Crisis and It’s Impact on the Insurance Market

Advisen has just published a QuickNote (find it here) which explains how AIG is set up, how one of the smallest of its 4 divisions (less than 10% of overall revenue) got involved in derivatives based on mortgage back securities, including subprime securities.

These securities don't trade on exchanges like stocks and they don't have daily pricing from many sources and as the subprime market collapsed, AIG was forced to show lower value for these securities and the derivatives. This led to the market asking AIG to put up cash collateral (over $40b) and AIG the parent didn't have the cash.

AIG has 2 divisions with many subsidiaries writing insurance policies, 1 division for commercial lines and 1 division for personal lines. Together they are 88% of the parent's total revenue and nearly all of the positive value of the balance sheet. AIG can't take cash from these subsidiaries because state regulators require cash on hand to cover claims. Therefore AIG was forced to announce a plan to sell assets (non-core businesses).

AIG wasn't able to do this quickly enough to provide cash collateral so the government provided an emergency loan, fired the CEO for not averting this crisis and brought in a new CEO to get the assets sold to pay back the government.

Meanwhile the insurance subsidiaries are profitable and have lots of cash to pay claims.

AIG staff have seen their stock wealth disappear, risk managers are getting questions from their officers and directors, the ratings downgrades didn't help. and generally this may lead to a reduction of market share by AIG.

These are the issues in the marketplace and this paper gives buyers and brokers the facts they need to separate the problems in the one division that nearly bankrupted the parent from the sound health of the insurance subsidiaries.

Below is the executive summary of the briefing by Advisen on AIG. The full report is available here.

Liabilities incurred under sophisticated financial instruments ravaged American International Group. As AIG teetered on the verge of bankruptcy Monday and Tuesday, brokers were flooded with calls from nervous AIG policyholders. However, the financial strength of AIG’s insurance subsidiaries was not threatened: insurance regulations insulated the insurance entities from the losses. Tuesday evening the U.S. government announced an $85 billion loan to the company, averting a collapse. Assuming AIG’s customers don’t abandon the company in large numbers, the long-term impact of the crisis on the insurance pricing cycle should be minimal.

This Briefing was written by David Bradford, Executive Vice President and Editor-in-Chief, dbradford@advisen.com, 212.897.4776.

Advisen M&A ?

I was asked recently by Mergermarket about whether Advisen would be interested in M&A activity. Here's the relevant excerpt from the published article (which is for their subscribers only so I don't provide a link):

New York-based insurance data group Advisen ... although US-based, ... operates in Europe, through its London office. Advisen's managing director for Europe Mason Power ... said the group could engage in M&A activity if there was a "two plus two equals six type of concept". "We are always looking for third parties we can work with. If it made more sense to our clients to do M&A, then we would look at it," he added. Advisen has some 100 employees, and provides information into underwriting, marketing and purchasing commercial insurance. The group is privately-funded and independently-owned.

Advisen has partnered with dozens of firms (clients and third parties) to aggregate the leading database and set of analytics in the commercial lines insurance industry. Where we can work with any third party to deliver value to our customers, we are very interested. Contact me to discuss.

Marsh stock, 4 years later

As a follow-up to my earlier post today about Marsh, the following stock price shows the dramatic fall in prices in late 2004 after the Spitzer investigations were announced. The market took out nearly $1b from Marsh in reflection of the projected lost revenues from contingent commissions. Since then both Willis and Aon have outperformed Marsh with Aon up close to 75% from its 2004 share price.