INSURANCE COMPANIES Appear Determined to Create Another Bubble With Bailout Bucks!

AIG, who's future is still in doubt, is wasting money on "employee
retention" packages.

While the entire industry wants to reduce its financial worth, but
still do business as usual.

So -- which group needs the most monitoring -- the government, or the
business?

Or are we gonna get the business from both sectors?

-------------------------
"AIG: Bailed Out but Trying Not to Sink"

"Some Lawmakers See Plan to Retain Key Workers as Wasteful"

By Brady Dennis
Washington Post Staff Writer
Friday, January 30, 2009; D01


Becoming a ward of the U.S. government has been a blessing for
insurance giant American International Group -- and a curse.

The massive federal bailout unveiled in September saved the company
and its worldwide business partners from collapse. But by taking a
huge stake in AIG as part of a federal rescue initiative worth up to
$152.5 billion, the government has created a painful set of dilemmas
as the company tries to repay its debts and assure its survival.

To keep competitors from poaching valuable employees, AIG has promised
nearly a billion dollars in retention pay, only to be scolded by
lawmakers for wasting taxpayer money.

AIG chief executive Edward M. Liddy has vowed to sell a majority of
the company's assets to pay back government loans, in particular a $60
billion loan due within five years. But the sale of those assets could
deprive the company of its largest revenue-generating operations, and
the lackluster market for those assets means they are now going for
what some critics call fire-sale prices.

Despite the government's backing, even the task of retaining clients,
who once flocked to AIG for its sterling reputation and pristine
balance sheet, has proven difficult as customers look elsewhere amid
the uncertainty.

In recent months, scores of AIG veterans have departed for jobs at
competitors around the world. Companies such as Ace Limited and Zurich
Financial Services have snatched up AIG executives with increasingly
regularity. Other companies, such as New York-based Allianz Aviation
Managers, continue to receive résumés from employees at AIG.

"We did not hire any recruiters. We didn't solicit. We didn't initiate
any of the contacts," said Allianz chief executive Harold Clark, who
at last count had hired at least seven former AIG employees for
positions ranging from administrative assistant to managing director.

The brain drain at AIG has persisted, though sources familiar with
company operations say it has committed as much as $1 billion to hold
on to key staff, a measure that would hardly have raised eyebrows two
years ago.

But now, because the government owns nearly 80 percent of the company,
some lawmakers have denounced that spending as a waste of taxpayer
money.

"In a climate where daily we hear about people in the financial sector
being laid off, you mean to tell me we can't find folks to replace
some of these people?" said Rep. Elijah E. Cummings (D-Md.), a vocal
critic of the retention pay program. "The other question is, where are
they going to go?"

AIG publicly disclosed its plan to offer retention pay in September,
days after it became the recipient of the most expensive rescue of a
private company in U.S. history. It said at the time that the program
would apply to approximately 130 executives and would consist of cash
awards payable in two installments, one at the end of 2008 and the
other at the end of 2009. According to Liddy, the base salaries for
those involved in the payments ranged from $160,000 to $1 million a
year, and the retention awards from $92,500 to $4 million.

"These employees are highly specialized and/or are part of businesses
that control billions of dollars of revenue and value that will be
needed to repay the U.S. taxpayer," he wrote in a letter last month.
"Our competitors understand how valuable our top executives are, and
we are acutely aware that they would like to siphon off our most
talented leaders."

Over time, both the amount of retention pay and the number of
recipients have grown. Officials say more than 4,200 employees are on
the list for payments, including some at AIG Financial Products, the
Connecticut-based unit whose portfolio of financial derivatives called
credit-default swaps essentially sank the company.

AIG spokesman Nicholas J. Ashooh said the company is trying to do the
right thing. "What we're trying to do is sell a lot of our
businesses," Ashooh said. "And they are worth a lot more if they have
good, experienced people with them. If you're selling the Cleveland
Cavaliers, they are worth more with LeBron James. You want your
stars."

Liddy said in the letter last month that he plans to sell businesses
that constitute 65 percent of AIG's assets and employ 70,000 people.

So far, the process has been both slow and contentious. AIG has sold a
handful of entities, including a Canadian life insurance subsidiary, a
Swiss bank and a company called HSB Group, which insures businesses
against equipment breakdown. But those sales amount to a drop in the
bucket of AIG's debt.

"We're just scratching the surface," Ashooh said. But he added that
"big-ticket" sales are still to come. The company has made clear that
it wants to sell its Alico foreign life insurance business, numerous
domestic life and retirement businesses and a worldwide aircraft
leasing operation, as well as a large stake in its AIA life insurance
operations in Asia.

No one has been a more vocal critic of the sell-off plan than AIG's
former chief executive and largest shareholder, Maurice "Hank"
Greenberg, who left the company in 2005.

"Tearing apart AIG by selling pieces at less than value, how do you
ever pay back the taxpayer?" Greenberg said yesterday. "The current
plan doesn't work. It doesn't take a rocket scientist to figure that
out. It wasn't designed to work. It was designed to liquidate AIG, and
that was a fundamental mistake. The government's large role was not
thought through very well."

Ashooh said the company will press forward with the current plan.
"What alternatives do we have?" he said. "We owe the taxpayers a lot
of money, and we intend to pay them back."

In the meantime, AIG's insurance businesses are trying to keep clients
from fleeing amid the company's uncertain future. Ashooh said that
despite a "fair amount of defections" in the wake of the bailout,
business "has stabilized and improved."

"It could have been worse without" federal intervention, said Bill
Bergman, a senior analyst with Morningstar and former policy analyst
for the Federal Reserve Bank of Chicago. But Bergman said he doesn't
think the government's efforts will save AIG. "There's a possibility
that they will survive," he said. "But I don't expect that to happen."

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/29/AR200901290
3999.html


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"Relief Denied For Life Insurers"

"Industry Must Keep Financial Cushion"

By David S. Hilzenrath
Washington Post Staff Writer
Friday, January 30, 2009; D01


A national panel of insurance regulators yesterday voted down a plan
that would have propped up life insurers by allowing them to operate
with thinner financial cushions.

The life insurance industry had pleaded for the relief, saying some
companies need help urgently to weather the economic crisis.

Opponents said the plan would have weakened insurers' ability to keep
promises to policyholders and would have made it harder for consumers
to know how much confidence to have in any individual insurer.

"This will pull the wool over the eyes of millions of Americans," J.
Robert Hunter, a former regulator who now focuses on insurance issues
for the Consumer Federation of America, said at a hearing Tuesday on
the proposals that comprised the plan.

In effect, the proposals would have served as a cashless bailout. They
would have changed the way companies and regulators measure life
insurers' financial strength, making them look healthier than they
otherwise would appear.

The nearly unanimous vote by leaders of the National Association of
Insurance Commissioners marked a sudden turnabout since Tuesday, when
an NAIC committee chaired by D.C. Insurance Commissioner Thomas
Hampton voted overwhelmingly to support modified versions of several
industry proposals.

During yesterday's meeting, which was conducted by phone, some members
of NAIC's executive committee said they saw no evidence that insurers
face a crisis. "Simply put, the industry has not made a credible case
for why we need to make changes on an emergency basis, and why those
changes should be limited to the specific proposals made by the
industry," NAIC President and New Hampshire Insurance Commissioner
Roger Sevigny said in a statement issued after the vote.

The proposals had been on a fast track at the NAIC since the American
Council of Life Insurers, an industry lobbying group, submitted them
in November. The rejection of the plan yesterday was striking because
NAIC officials had devoted considerable time and effort to the matter.

Some regulators, legislators and consumer advocates protested that the
NAIC was using a secretive and rushed process to grant the industry's
wishes, and they called for a more measured approach. Granting the
emergency relief could have damaged the NAIC's credibility and
undermined public faith in the industry, critics argued at Tuesday's
hearing.

NAIC Vice President and Iowa Insurance Commissioner Susan Voss seemed
to address that criticism in a statement after yesterday's vote,
saying, "Any future consideration of changes to regulatory
requirements will follow the NAIC's open, transparent and deliberative
process."

The proposals would have made it easier for companies to meet capital
and reserve requirements, which are meant to ensure that insurers have
sufficient funds to withstand financial setbacks and pay benefits to
policyholders. For example, insurers could have assumed that certain
policyholders would live longer, and they could have included in their
capital a larger amount of unused tax credits that might ultimately
prove worthless.

The ACLI argued that current capital requirements are too
conservative. Without relief, ACLI Chairman Pat Baird testified
Tuesday, some companies might have immediate difficulty meeting the
standards. Failure to do so can trigger government intervention.

Insurers hoped the relief would help them avert downgrades by the
agencies that rate their credit. Downgrades can make it more expensive
for them to borrow and can shake consumer confidence, leading to a
loss of business.

Insurers also hoped the plan would help companies avoid having to
raise capital from investors when doing so could be costly, difficult
and highly dilutive to the value of stockholders' shares. The ACLI had
urged regulators to adopt the proposals retroactively and in time for
the year-end 2008 financial reports that companies must file by March.

Maine's insurance superintendent, Mila Kofman, said in an interview
before the vote that the proposals would have increased the risk of
insurers failing. If insurers are in trouble, "we need to go in and
make sure that companies take steps to shore up in real ways their
financial condition," Kofman said. "Playing around, allowing companies
to have less money on hand . . . is exactly what we don't want to do."

The ACLI estimated that altogether the changes would have increased
insurers' reported capital by 6 to 7 percent from 2007 levels. The
NAIC estimated that just one of the several elements of the ACLI plan
would have increased life insurers' apparent financial cushions by 6.4
percent.

In an e-mail to other state regulators yesterday, New York Insurance
Superintendent Eric R. Dinallo threw down a gauntlet, saying his state
would vote against the plan "and will not implement any changes that
are approved."

Hampton, who had shepherded the proposals to the brink of adoption,
said he was "a little disappointed" by the outcome. He said that if
any insurers need regulatory relief, state regulators have the
authority to grant them forbearance on a case-by-case basis.

The only member of the NAIC executive committee to vote for the
package was Connecticut Insurance Commissioner Thomas R. Sullivan.
Sullivan was an executive with a subsidiary of The Hartford Financial
Services Group. The Hartford, based in Connecticut, is one of several
life insurers that have taken the extraordinary step of trying to buy
savings and loan institutions in order to qualify for federal bailout
funds.

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/29/AR200901290
2858.html
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