Reporting by Ben Berkowitz; Editing by Derek Caney, Dave Zimmerman

The recapitalization of bailed-out insurer American International Group Inc. is likely to close next week, a person familiar with the matter said Friday, as AIG shares touched fresh highs on news it was getting closer to the deal.

But the rally lost some steam by midday, as the prospect of a large share sale as soon as March revived dilution fears.

AIG said Thursday night its board had approved the issue of warrants to buy 75 million shares of common stock, which are conditioned on all the parties to the recapitalization agreeing it can close by Jan. 14.

While that does not in itself guarantee the deal will close next week, it was one of the last key steps to finish the transaction. AIG said it will issue a statement on Jan. 12 disclosing whether all the parties have agreed the deal can close by Jan. 14.

A person familiar with the situation, who was not authorized to speak publicly on the matter, said the board’s approval of the warrant issue showed the highest degree of confidence the deal will close next week.

Under the terms of the deal, the Federal Reserve Bank of New York will be repaid in full and the U.S. Treasury Department will be left with a 92.1 percent stake in AIG.

The government is contemplating two stock offerings this year to sell most of that stake, people familiar with the plan told last year. The rest would then likely be sold in 2012.

AIG received the largest bailout of the credit crisis, at one point owing the U.S. government just over $182 billion.

DILUTION FEAR

AIG shares have typically retrenched in recent months whenever there is news on the size or timing of a potential government share sale, given the massive dilution it will cause for existing shareholders.

The source said Friday the company is targeting this March for the first share sale, but due to the complexity of the situation a sale in May was more likely. The amount to be sold is yet to be determined and will depend on AIG’s share price at the time.

Linus Wilson, a professor of finance at the University of Louisiana at Lafayette, estimated on Friday the taxpayers’ paper profit on the AIG deal could come to $35.6 billion if the warrants trade at the price he expects.

AIG shares were up 1.7 percent at $61.45 in late-morning trade, off earlier highs of $62.86. Through Thursday’s close the shares were up 34 percent since the Sept. 30 announcement of the recapitalization.

The company has been busy on multiple fronts in the last 24 hours, in addition to the warrant issue.

Late Thursday AIG said it had agreed in principle to pay $450 million to settle a lawsuit with rival insurers over workers’ compensation premiums. On Friday, Taiwanese insurance regulators promised a swift review of AIG’s pending sale of insurer Nan Shan Life.

- reuters.com -

Business Insurance

This year Business Insurance expanded the program to take in additional categories of businesses in the commercial insurance industry. This year’s program honors top employers from the following types of companies serving risk and benefits managers:

• Agents/brokers
• Property/casualty insurers
• Group life/health insurers
• Reinsurers
• Third-party administrators

Within each of those categories, companies were broken down by size for ranking purposes into three groups: small companies-those with 25 to 249 employees; medium-size companies-those with 250 to 999 employees; and large companies-those with 1,000 or more employees.

While the companies were broken down by category and size for ranking purposes, to make the Best Places to Work in Insurance list each company had to demonstrate that it meets or exceeds a minimum standard of excellence in a variety of employment-related metrics, measured against other employers in this industry as well as other companies nationwide. This information was drawn from a two-part survey conducted of all participating companies. One part of the survey evaluated employees’ workplace experience and company culture, and the other gathered information on the employer’s benefits, policies, practices and other information.

Business Insurance conducts the annual Best Places to Work in Insurance program in partnership with Best Companies Group, an independent workplace excellence research firm that manages numerous similar regional and industry programs in the United States and Canada.

- businessinsurance.com -

The Insurance Institute for Highway Safety revealed on Dec 20th  its picks for the safest vehicles of 2011.

Sixty-six models — including 40 cars, 25 sport utility vehicles and one minivan — earned the Top Safety Pick award. Only 27 vehicles received that distinction last year after the Insurance Institute added a roof-strength parameter to its test criteria.

As 2010 progressed, 58 vehicles were ultimately named Top Safety Picks. Owing to automakers’ efforts to strengthen roofs and make changes to air bags, 2011 begins with a much larger list.

Hyundai (including Kia) and Volkswagen (including Audi) are the most heavily represented brands, with nine awards each. General Motors (Buick, Cadillac, Chevrolet and GMC); Ford (including Lincoln) and Toyota (including Lexus and Scion) each have eight winners. Subaru, with five awards, is the only automaker with a winner in each of the categories in which it competed.

The award recognizes vehicles that do the best job of protecting passengers in the institute’s crash testing. These are vehicles that earn the highest rating of Good (on a scale of Good, Fair, Marginal, Poor) in the institute’s front, side, rollover — which measures roof strength — and rear-impact tests. They also must be equipped with or offer electronic stability control as an option.

In 2009 more than 12,000 people in the United States died in frontal crashes, more than 6,000 in side impacts and more than 8,000 in rollovers, according to the institute.

Hyundai and Chrysler made marked improvements in ratings following the redesigns of some popular models.

The Hyundai Tucson and its twin, the Kia Sportage, earned the Poor rating for roof strength in 2009, but their redesign helped them become Top Safety Picks for 2011.

The previous-generation Jeep Grand Cherokee, though equipped with head side-curtain air bags, was rated Marginal for side-impact protection, but the 2011 model, now with torso air bags, earned a Good rating and is a 2011 Top Safety Pick.

“The good news for consumers is how quickly automakers are responding to new information about how to make vehicles safer,” said Adrian Lund, the institute’s president.

“We are very pleased with the progress that is being made, especially this latest round with roof strength,” he continued. “The stronger you make the package, the easier it is to protect the fragile contents inside of it.”

- nytimes.com -

Also this year, of the eight catastrophes that individually caused insured losses of more than $1 billion, five were related to severe weather and storms in the US, Australia and Europe.

The only man-made event to incur losses in excess of $1 billion in 2010 was the Deepwater Horizon oil rig explosion in the Gulf of Mexico, with the expectation that BP and its captive will cover most of the expenses, capping insured losses at approximately $3.5 billion.

Despite one of the most active Atlantic hurricane seasons on record, no hurricane made US landfall and insured losses in the US generally matched those of 2009, adding up to $11.2 billion in the first nine months of 2010, according to Guy Carpenter’s reckoning.

On the other hand, floods accounted for significant insured losses of $955 million in France and Central and Eastern Europe.

The firm’s head of global business intelligence, David Flandro, comments: “Large losses in the first half of the year, coupled with low interest rates and depressed valuations, created a challenging environment for carriers in 2010.”

He adds: “Moreover, the active nature of this year’s hurricane season reinforces the fact that catastrophe risk remains elevated as the reinsurance sector prepares for 2011 renewals.”

- insurancedaily.co.uk -

WASHINGTON_Wall Street executives said Wednesday they underestimated the severity of the 2008 financial crisis and apologized for risky behavior and poor decisions. They also defended their bonus and compensation practices to a skeptical commission investigating what caused the collapse.

Americans are furious and “have a right to be” about the hefty bonuses banks paid out after getting billions of dollars in federal help, the commission’s chairman told chief executives of four major banks, all survivors of the deepest and longest recession since the Depression.

As the hearings opened before the Financial Crisis Inquiry Commission, chairman Phil Angelides pledged “a full and fair inquiry into what brought our financial system to its knees.”

The panel began its yearlong inquiry amid rising public fury over bailouts and bankers’ pay.

“We understand the anger felt by many citizens,” said Brian Moynihan, chief executive and president of Bank of America. “We are grateful for the taxpayer assistance we have received.”

With Bank of America having repaid its bailout money, he said “the vast majority of our employees played no role in the economic crisis” and do not deserve to be penalized with lower compensation. Moynihan said compensation levels will be higher next year than they were in 2008 _ but not at levels before the financial meltdown.

Jamie Dimon, chief executive of JPMorgan Chase & Co., said most of his employees took “significant cuts in compensation” in 2008. He said his company would continue to pay people in a “responsible and disciplined manner” to attract and retain top talent.

Still, Dimon said, “We did make mistakes and there were things we could have done better.”

John Mack, chairman of Morgan Stanley, said the crisis was “a powerful wake-up call for this firm.” He said he didn’t take a bonus in 2009 and that his bank has overhauled its compensation practices to discourage “excessive risk-taking.”

Angelides, a former Democratic treasurer of California, questioned Goldman Sachs’ Lloyd Blankfein about packaging soured assets into bond-like securities and selling them to investors _ even as Goldman Sachs was “shorting” the same securities, or making bets they would fail. These included risky mortgages that were extended to borrowers with poor credit records and helped cause the home-loan bust.
“It sounds like selling a car with faulty brakes and then buying an insurance policy on that car,” Angelides said.

Responded Blankfein: “I do think the behavior is improper. We regret the consequence that people have lost money in it.”

Like the other witnesses, Blankfein acknowledged lapses in judgment in some practices leading up to the crisis.

“Whatever we did, it didn’t work out well,” he said. “We were going to bed every night with more risk than any responsible manager would want to have.”

The commission’s vice chairman, former Rep. Bill Thomas, R-Calif., said the inquiry would try “to get to the bottom of what happened and explain it in a way that the American people can understand.”

Thomas, a former chairman of the tax-writing House Ways and Means Committee, said one important question is, “If you knew then what you do now, what would you have done differently?”

Dimon said a crucial blunder was “how we just missed that housing prices don’t go up forever.” Added Mack: “We did eat our cooking and we choked on it.”

Commissioner Heather Murren, a retired Merrill Lynch director, raised questions about banks that insisted on being paid in full by failed insurer American International Group Inc. on financial contracts that went bad.

She asked Blankfein why Goldman Sachs didn’t offer to take less than 100 percent in payments from AIG, given the severity of the financial crisis and knowledge of the taxpayers’ stake. “It didn’t come up in any conversation that I can recall,” Blankfein said.

The bipartisan, 10-member commission was handed the job of writing the official narrative of what went wrong before the financial system nearly collapsed in the fall of 2008.

The commission is modeled on the panel that examined the causes of the attacks of Sept. 11, 2001. But the prototype could be the Pecora Commission, the Senate committee that investigated Wall Street abuses in 1933-34. It was named after Ferdinand Pecora, the committee’s chief lawyer.

Congress has instructed the current commission to explore 22 issues, from the effect of monetary policy on terms of credit to bank compensation structures.
- www.fcic.gov -

A professor at the University of Illinois at Chicago says it would be feasible for insurance companies to offer divorce insurance.

J. Christopher Westland, a professor of information and decision sciences, says he began sketching out the actuarial tables for such insurance as an exercise, prompted initially by watching a friend go through a messy divorce and its financial consequences. After a little work, he says he found the idea is possible.

He says such tables would not have been possible before the 2000 U.S. Census. But in 2000 the census asked the detailed questions that allow one to compute a person’s risk of divorce. Research at the National Marriage Project at the University of Virginia has also helped to quantify the risk.

“It’s basically a workable business,” Westland says.

About two million Americans get married every year, and the chance that their marriage will not last is a toss up. According to the census data and other research, couples have a 20 percent chance of getting divorced within the first five years of marriage. They have a 30 percent chance of divorcing within 10 years. Overall, it is said that half of American marriages end in divorce.

The process can take years sometimes. During that time, the joint assets often are tied up. But, suddenly, there are two households to support and attorney fees to be paid. Moreover, financial pressures raise stress levels. They are already an issue in many marriages that come apart.

The insurance Westland envisions would cover those divorce costs, not the settlement or the living costs afterward. The average policy would have a $2,500 annual premium for coverage worth $200,000. But, of course, people could vary their level of coverage, he says.

From the census data, Westland identified several risk factors associated with divorce including age (younger is riskier); race (Asian is the lowest risk); whether a woman had forced premarital sex (a woman who has been raped has about a 50 percent higher risk of divorcing in the first five years of marriage), and income and education (those with more have less risk).

Some other factors that research has identified as conferring higher risk are the wife’s working and living in an urban environment. A wife with a high level of education is associated with a lower probability of divorce early in a marriage, but a higher probability later.

Westland freely admits there are problems with his product idea. For one, not all the risk factors could be used in rating. Also, the main problem is that divorce is not a fortuitous event. Divorce is a choice, which means there is a moral hazard.

But, he says that the moral hazard, and the temptation some might have to divorce early to capitalize on the policy, can be dealt with by creating a blackout period.

But, David Hoffman, a law professor at Temple University and an expert in contract law, who has written about divorce insurance, says he is not sure there is any way around the moral hazard and that is the idea’s undoing.

No insurance company is likely to touch it, he says. In some states, it may not be legal to offer insurance with a moral hazard.

“Given the moral hazard, I just don’t see it as an insurance product,” he says.

Betrothed couples might not be very interested in it either, he said. If most divorces occur within 10 years of the wedding, and 50 percent of marriages end in divorce, a company that offers such insurance is going to have to charge a premium that will come pretty close to covering the policy amount. That means it is likely to be expensive, and, if it is working just like a savings account, couples will want a better investment vehicle for their money.

John Logan, a North Carolina-based entrepreneur, however, says he will soon begin offering a divorce coverage product that gets around the problem of moral hazard.

Logan’s company, Safeguard Guaranty Corp., intends to offer coverage whereby if a couple gets divorced and files a claim, they will collect an amount based on the amount of premiums paid. But, the payout will be much less than they can collect if they stay married and do not divorce for 25 years, at which time there would be a big payout with a return.

Some have contended that Logan’s planned product is more of an investment vehicle than true insurance. But, he says it is insurance–insurance against the potential for financial loss as a result of divorce proceedings. He says that makes it a legal product, because no one can predict the potential for financial loss.

Logan has checked with a number of state departments of insurance, and only three have had any objections to the product.

Logan says he cannot at this time be specific about the amounts and the amount of return. But he says it will be something like this: If a couple buys a $100,000 policy, and then divorces after five years, they will collect $12,500; if they divorce after 24 years, they collect $64,500. But, if they stay married for 25 years, they collect the full $100,000.

“We will blow the doors off of other investments, that much I am sure,” he says.

Logan’s proposed product, which he intends to launch next year, though he has been saying that for a few years, would offer different levels of coverage, ranging from $20,000 to $2 million. He expects that for $20,000 worth of coverage the premium would be about $360 a year.

Both Westland and Logan say their idea is not so outlandish or distasteful. After all, prenuptial agreements are extremely popular. This is no different in their eyes.

Logan points to a number of statistics showing the need for such insurance. Those include:

The average family has about $8,000 in credit card debt, which means the average divorcing family has $8,000 in credit card debt, and they suddenly have to set up a second household.

An Ohio State study showed that the average person who divorces loses 77 percent of their net worth.

And, finally, the divorce rate currently is about 50 percent of marriages and research suggests that those who come from divorced backgrounds are three times more likely to divorce themselves. The divorce rate, therefore, appears more likely to go up than to go down.

“Better tools for managing divorce are both possible, and increasingly attractive to individuals and society,” Westland says.

- insurancejournal.com -

What makes a company a great place to work? In the case of the 33 companies among Business Insurance’s 2009 Best Places to Work in Insurance, the answers go well beyond pay and benefits.

The companies among this year’s 33 Best Places to Work in Insurance also earned high marks from their employees in areas such as leadership and planning, corporate culture and communications, role satisfaction, work environment, relationship with supervisors, and training and development.

In the area of leadership and planning, for example, employees surveyed by Best Companies Group at companies on the list were strongly positive about understanding the long-term strategy of their organizations.

At small companies—those with 249 or fewer employees—94% of those on the list responded positively—”agree somewhat” or “strongly agree”—that they understand their company’s strategy. Meanwhile, at companies with 250 or more employees, 95% responded positively to that statement.

Of the smaller companies among this year’s Best Places, 95% of employees responded positively regarding their confidence in their organization’s leaders, with 93% of employees at large companies on the list offering a positive response.

In the area of corporate culture and communications, employees at companies on the Best Places list are strongly positive about the frequency and content of their company’s corporate communications. At the smaller companies, 94% responded positively to statements that their company’s communications were frequent enough and detailed enough; at the larger companies, 93% of employees were positive about frequency and 92% about the level of detail.

Employees were positive about understanding how their companies are doing financially 95% of the time at small companies among the Best Places to Work and 94% of the time at the large companies.

Positive responses were somewhat less frequent to the statement, “Changes that may affect me are communicated to me prior to implementation,” with 86% of employees surveyed at smaller organizations responding positively and 83% at the large companies on the list.

In terms of role satisfaction, employees at smaller companies feel slightly more secure about their jobs than those at larger companies, with 88% of employees at small companies responding positively vs. 83% at large companies that made the ranking.

Some of the lowest levels of satisfaction can be found in the area of training and development.

The statement, “My company clearly tells me what is expected for advancement,” drew positive responses from 79% of employees surveyed at smaller companies on the Best Places to Work in Insurance list, and from 77% of those at companies with 250 or more employees.

And at small companies on the list, only 72% of employees responded positively regarding room to advance within the organization, with 73% at larger companies providing a positive response.

Across statements gauging overall employee engagement—employer satisfaction, willingness to give extra effort, intention to remain at the company, and willingness to recommend the company to friends, the companies on the Best Places to Work in Insurance list averaged high positive scores: 94% for small companies and 93% for those with 250 or more employees.

That high level of employee engagement is particularly significant in a tough economy, said Peter B. Burke, president of Harrisburg, Pa.-based Best Companies Group.

Despite the difficult economy’s effect on businesses, “The companies that are doing it right are doing it really right,” Mr. Burke said.

“Great places to work aren’t immune to bad things happening to them,” Mr. Burke said. “But the high-quality workplaces are able to handle it better because of the high level of employee engagement.”

Marie Clements, assistant vp for human resource strategies at Unum Group, said a high level of employee engagement at the Chattanooga, Tenn.-based company and the quality of the company’s communications have had a major benefit.

“I think our employees do have a pretty good understanding of what’s happening, they understand the situation and they’re willing to give that extra effort,” she said.

Looking at the data from the 33 companies making the 2009 Best Places to Work in Insurance, Mr. Burke said insurance industry companies compared quite favorably with other industries. “The employee data was stronger than average as industries go,” he said.

Of the companies recognized, 16 of the 33 “had an average positive response of 90% or better” on the employee survey, Mr. Burke said. “That’s really strong to have half the companies on the list with 90% or more. The average is usually in the mid-80s.”

- businessinsurance.com -