Bond insurer MBIA is circling the toiled, and management is getting bonuses and pay raises.
The system or remunerating senior executives in the US is broken.
Category: Insurance
Economics Update
We have bad news on income and spending. If you go to the link it says that they are both up slightly, 0.3% and 0.4% respectively, but this is less than inflation, which means that it is a real drop.
We also have oil at or near all time highs, and the dollar at or near all time lows.
We have a new estimate of total losses among financial firms from the meltdown, $600 billion. I think that they are off by at least one zero.
Insurance is continuing to unwind in a most unpleasant manner.
MBIA is not doing much in the way of business, because bond issuers don’t trust them to be solvent in the future.
Perhaps of more concern is that this is beginning to effect the reinsurance market, with Swiss Reinsurance Company posting an 87% drop in profits.
If this market goes south, it takes most of the insurance market with it.
Of course, we have the Fed shoveling out more money to the investors. It will auction off another $60 billion in March.
I don’t even want to think what the money supply is doing right now.
The credit crunch is also interfering with things like reorganizations, with Delphi unable to find the loans necessary for it to reorg under bankruptcy.
Finally, earnings fell across the market, with the S&P 500 companies’ earnings falling 4.2%, as opposed to the 10% increase forcast at the beginning of 2007.
Economics Update
In local finance, we have King County, Washington potentially losing all of a $207 investment, the county claims that they will “only” lose 83 million, the state says all of it.
This will be repeated, and given that the auction rate bond market has collapsed, and localities are fleeing that instrument, their ability to issue bonds will be significantly diminished.
Don’t expect any new money to spent on roads, schools, water, sewer, fire, or police for the next 5-10 years.
In real estate we should note that 8.8 million homeowners, or 10.3% of all home owner are under water. They owe more than they can sell their houses for.
Gas prices hit are way up, which is an ill wind for consumer spending, which counts for 70% of the US economy.
Analysts are warning of risks to Fannie Mae and Freddie Mac, which makes the decision to allow them to finance even larger mortgages appear even stupider.
Fitch Ratings is saying that life insurance companies may take an $8 billion dollar hit on subprime and alt-A real estate investments.
It also looks like we will be seeing downgrades on the monoline insurers within a week or so.
And in hedge funds, we have D.B. Zwirn & Co. seemingly on the path to shutting down. It has shuttered its Special Opportunities Fund, a $4 billion hedge fund. Once it unwinds this, and it may take a while, they have less than $1 billion under management.
We also have Clifford Asness’ AQR Capital Management showing that mathematics based strategies are not working:
Asness’ AQR Capital Management has notified investors that its Absolute Return Fund, long one of Wall Street’s most stellar performing quantitative hedge funds, lost 15 percent of its value through mid-February. The slide follows an 11.9 percent drop through the end of November.
Bloomberg reported Friday that AQR flagship hedge fund now manages $2.9 billion, down from $4 billion.
I think that its clear, and should have been clear after LTCM went belly up nearly a decade ago, that these model based hedge funds don’t work.
The models break down when you get significant swings.
Economics Update: Insurance Edition
Bond insurer FGIC has asked regulators to break it up into two separate divisions/a>, one which insures minicipal bonds, and the other that insures the structured finance deals (aka the big sh$#pile).
This is likely a reflection of their dire position following Moody’s down grade of them from AAA to A3.
UBS is saying that banks are at risk of an additional $203 billion in losses from the bond insurance crisis.
Harry and Louise and Barack Obama
Well, in the annals of right wing memes embraced by Obama, I come across this, care of Paul Krugman and Ezra Klein.
Here is the Obama ad:
Look familiar?
Just to jog your memory, here is the 1993 Harry and Louise ad:
Yep, it’s the same damn thing.
So we have his health plan, which eschews mandates, which means that adverse selection will make it a failure, and he’s campaigning in a way that will provide ammunition to enemies of healthcare reform.
This is crap. When people talk about scorched earth campaigning, there is nothing more scorched earth, or sodden earth in the case of Hurricane Katrina, than the Republican side on all of this.
We need the Republicans out of the white house, and increasingly it looks like Obama wants to be another Republican.
House 15 Votes Short on SCHIP Veto Override
Not great, so change a period to a comma, and send it back for another veto and another override vote.
Make Republicthug congressmen vote against the fabulously popular SCHIP program again, and again, and again.
Make them cut their own throat.
Economics Update
According to “reliable sources”, Ben Bernanke thinks that the downturn will be very severe, and that’s why there was the very large, unscheduled rate cuts.
Additionally, as reported by Calculated risk the market is expecting another 50 basis point rate cut at the regular meeting next week.
This would leave the Fed at a 3% discount rate, and I think that beyond that point, they are pushing on a string. Monetary controls of the economy are pretty much at their limits now.
In the real estate world, Merrill Lynch is saying that nationwide U.S. home prices could decline 25% to 30% over the next three years.
I think that they are optimistic.
Then we have student loan giant Sallie Mae reporting a $1.6 billion quarterly loss, which raises the obvious question, “How the hell do you lose money on GSLs?” These are government guaranteed loans, and the fact that borrowing costs have shot up so much that they cannot profit on them is …ominous.
There are indications that Bank of America’s deal to buy Countrywide may be getting into trouble. At least that what the market is saying, literally. BoA is offering the equivalent of $7.1058, but Countrywide is trading at $5.54.
This spread is a measure of the market’s opinion that the deal won’t actually be consummated, this spread implies that “there is roughly a 77.9 percent consensus among Wall Street’s risk arb desks and their hedge fund brethren that the deal goes through at the agreed upon terms. That also means that more than 22 percent of risk arbitrageurs don’t think the deal will go through”.
You also have Capital One taking a major earnings hit, both from the closing of its GreenPoint Mortgage arm, and from higher credit card losses.
Finally, you have talks between New York Insurance Superintendent Eric Dinallo and major US banks about a bailout of bond insurers. There is an implication that there will be some sort of government involvement, if not outright government sponsorship of such a bailout.
California Court Rules That Health Insurance Company Cancellations Frequently Illegal
This is good news for our friends in California.
The substance of the ruling:
- Insurance companies must check the accuracy of the applications before accepting the people for coverage.
- That the insured must be shown to have wilfully misrepresented their health status.
- That the low rescission rates upon application implied a deliberate policy of waiting until the claims rolled in to cancel.
A health plan, the court went on, “may not adopt a ‘wait and see’ attitude after learning of facts justifying rescission.” The court said companies could not continue to “collect premiums while keeping open its rescission option if the subscriber later experiences a serious accident or illness that generates large medical expenses.”
On the Death of Nataline Sarkisyan
My condolences on the Death of 17 year old 19 year old Nataline Sarkisyan.
She died of liver failure resulting from complications of her bone marrow transplant for leukemia, after having a transplant denied (the decision was reversed yesterday) by CIGNA.
That being said, I do not see this indicative of the failure of the health insurance.
Let’s be clear, I do see private health insurance in the US as the primary cause of escalating health care costs, and a reduction in the availability of reasonable health care of a more basic nature.
Unfortunately, the pre and neonatal deaths from lack of prenatal care, and the injuries from things like lack of immunizations do not have faces, but they kill more, and cost us more than this one case.
In any realistic competent healthcare system, she should not have gotten a liver transplant. It was simply too expensive, and the potential to save her life, given that she had leukemia, and her immune system had been largely destroyed by the bone marrow transplant procedure.
Her case actually strikes relatively close to home to me.
From 1982 through 1987, I was actively treated for chronic non-A Non-B hepatitis*, first with steroids, and then with immune suppressants†.
Based on this, I believe that my chance of experiencing liver failure over the course of my life is significantly more than that of the general population.
I do not believe that many of these high tech interventions, and I would include liver transplantation, are an efficient or effective way to spend a limited healthcare dollar.
*I have been regularly tested since, but my numbers have been fine, and so, apart from not giving blood and having annual liver function tests, I am now unaffected by this. I’m allowed to drink.
†Basically, it was treated as an immune system/connective tissue problem, my ANA was at one point 4,000,000:1 (IIRC). It appears that my body was attacking my liver. Except for weight loss, I was asymptomatic, though the steriods (40mg prednisone) was no fun while I was on it.
Blue Cross Calls a Miscarriage an “Elective Abortion” and Denies Claim
We need socialized medicine now, but first, lets kill all insurance executives.
Here are the last few paras of the story from the Consumerist:
On, Sep, 21 2007 I received a statement for BCBS that they were denying all of the claim. I called them and asked why they were denying the entire claim, and was told by Jane, “We do not cover ELECTIVE abortions. If you chose to terminate your pregnancy for non-health threatening reasons, BCBS will not cover it.” WTF!!!??? I asked her, “Are you saying that my records state that I had an ELECTIVE abortion, in an ER at 12 o’clock in the morning?” It was then, I think it clicked in Jane’s mind what she was dealing with and told me how sorry she was. I lost my cool and even started crying. I had a miscarriage not an abortion, and being treated in such a condescending way by BCBS really ticked me off. Thinking what an incredibly huge screw up, BCBS will be right on it trying to fix this, well you would be wrong. I was told to call the hospital and have them fax over my records stating I didn’t have an elective abortion. Who the heck can get an elective abortion in a busy ER at 12am, anyway?
Mind you we have had Blue Cross and Blue Shield of Kansas City for less than three months, they have denied every claim we have submitted to them. EVERYONE! Even though all claims are clearly covered under our policy, is this the going to be the norm dealing with BCBS? Any help would be very much appreciated!
-Tonya Gullino
Bush wants American Children to Die
Or, more accurately, he wants it more than his he wants to disappoint his campaign contributors in the US insurance industry, because he’s doing his level best to make sure that children don’t get medical care.
First, he threatens to veto improvements to SCHIP, and now he’s crippling the existing program.
No More Dead Bloggers
I’m not a professional blogger. Heck, I’m not likely ever to even be semi-pro.
In fact, if I pay for my anniversary dinner with my wife, I’ll count myself lucky.
That being said, there are pros out there, and a lot of them are VERY good and one of them, Jim Capozzola of the Rittenhouse Review, just died because he did not have health insurance. Go to Suburban Guerrilla, and read No More Dead Bloggers.
State Farm accused of Katrina racketeering
Ordinarily, I’m concerned about a misuse of the RICO statutes, but I think that “criminal enterprise” is a good description of insurance companies.
State Farm accused of Katrina racketeering
Federal lawsuit claims insurance company manipulated damage reports
The Associated Press
Updated: 5:39 p.m. ET June 20, 2007NEW ORLEANS – State Farm Fire & Casualty Co. engaged in a “pattern of racketeering” by manipulating engineering reports on Hurricane Katrina damage so the company could deny policyholder claims, lawyers for a group of Mississippi homeowners allege in a lawsuit filed Wednesday.
The federal suit against State Farm represents a new legal strategy for attorney Richard “Dickie” Scruggs, who has played a prominent role in challenging the insurance industry for its handling of Katrina claims.
Hundreds of homeowners in Mississippi and Louisiana have sued their insurers for denying their claims after the Aug. 29, 2005, storm. The suits typically accuse insurers of bad faith and breach of contract for refusing to pay for damage from Katrina’s storm surge.
Wednesday’s lawsuit on behalf of Mississippi Gulf Coast homeowners is the first in which Scruggs and his legal team accused an insurer of violating the civil Racketeer Influenced Corrupt Organization Act, commonly known as RICO.
Scruggs, who helped negotiate a multibillion dollar settlement with tobacco companies in the mid-1990s, said he had filed similar civil RICO suits against tobacco companies. They are tougher cases to build, but can carry stiffer penalties, he added.
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