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Too-Big-To-Fail — Prudential Gets Some Relief

Posted By Staff Reporter, Tuesday, October 23, 2018

MetLife fought the too-big-to-fail designation and won. So did AIG. Now Prudential is off the hook, too.

Some background. As part of 2010’s Wall Street Reforming Dodd-Frank Act, all large banks were automatically given the Systemically Important Financial Institution (SIFI) designation. It’s also called too-big-to-fail. That means their failure could be very destructive to the U.S. economy so they are now subject to more regulation and increased financial scrutiny.

Other financial institutions are targeted in Dodd-Frank as well. Among the targets are insurance companies. AIG automatically — and rightfully — received the designation. So did MetLife and Prudential.

MetLife fought the designation in court and won. As noted at the beginning of this story, the Financial Stability Oversight Council (FSOC), headed by Treasury Secretary Steven Mnuchin, dropped AIG’s designation and now has dropped Prudential’s.

The reasoning of Mnuchin, the Trump administration and FSOC, is to move away from specific companies and to instead focus on broader risks. “The Council’s decision today follows extensive engagement with the company and a detailed analysis showing that there is not a significant risk that the company could pose a threat to financial stability,” Mnuchin said. “The Council has continued to act decisively to remove any designation that is not warranted.”

Prudential — who almost fought the designation when it was first given but decided against taking action — is happy to lose the SIFI moniker.

In a statement, Prudential said, “We are pleased with this decision, which affirms our longstanding belief that Prudential never met the standard for designation. This outcome reflects Prudential’s sustainable business model, capital strength and comprehensive risk management, which have and continue to enable us to fulfill our promises to our customers, deliver consistent performance and meet regulatory obligations.”

The National Association of Insurance Commissioners (NAIC) has fought the FSOC and the SIFI designations for insurers behind the scenes. The association — and other insurance groups and individual insurance commissioners — has said all along that the state regulations insurance companies are under is sufficient to monitor what they are doing financially. 

During the Obama administration those arguments fell on deaf ears. Now things have changed. And changed for the better. Current NAIC President and Tennessee Insurance Commissioner Julie Mix McPeak put it in perspective and said, “This action reflects a greater appreciation of the state insurance regulatory regime and enhancements made to our group supervisory tools.”

Maine Insurance Commissioner Eric Cioppa is the NAIC president-elect. He also agrees with the decision. “The rationale justifying the de-designation reflects a revised analytical approach that is consistent with the insurance business model and its regulation,” he said. “My predecessors have done an excellent job educating the Council on how insurance is regulated and the tools state insurance departments employ to address any potential risks.”

Not everyone is happy with the FSOC decision. Gregg Gelzinis of the Center for American Progress said the decision makes no sense. He contends Prudential’s financial footprint is larger today than it was when the company received the SIFI designation.

 

“Under Secretary Mnuchin’s watch, the number of nonbank financial companies facing enhanced scrutiny has dwindled to zero. If another such company triggers or aggravates the next financial crisis, decisions such as this will be to blame,” he said.

 

Last. The other non-bank SIFI designation was given to GE Capital. The company did some restructuring and its SIFI label was removed in 2016.

 

Source links: Insurance Journal, NAIC

Tags:  AIG  insurance content  insurance industry  metlife  PIA Western Alliance  Prudential 

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AIG Takes Another Hit — The Pain Continues

Posted By Administration, Tuesday, August 14, 2018

AIG continues to struggle.

The used to be world’s largest insurance company is now worth about the fifth what it was in the glory days. The value then was $240 billion. Today it’s — as noted — significantly lower and the company just posted a second quarter general insurance business loss of $89 billion.

 

On one hand it’s a shock but on the other, it’s not much of a surprise. The company has struggled mightily since the government bailout of 2008. Struggle or not, AIG Chief executive Brian Duperreault says he remains optimistic.

 

“We continue to work with a sense of urgency as we take actions designed to establish a culture of underwriting excellence and to leverage the strength and flexibility of our diversified businesses,” he told stockholders on an earnings call.

 

Net income in the second quarter of this year fell from $1.1 billion in the same period last year to $937 million. The adjusted after tax income fell, too and went from $1.4 billion last year to $961 million.

 

“Looking ahead to 2019 and beyond, our goal is to deliver top quartile financial performance relative to the industry,” Duperreault said as he promised an underwriting profit by the end of 2018.

 

That profit could come from the purchase of Validus. “I remain confident in our team’s ability to deliver improved operating and financial performance as we continue to execute against our strategic priorities and importantly, reinforce AIG’s position as a leading global insurer, a responsible corporate citizen, and a rewarding place for our talented and committed colleagues,” Duperreault said.

 

The bottom-line according to Duperreault is patience. “It’s not a straight line but it is an improving line,” then he added, “It is a market that is dynamic and prices are in movement all the time. You have to continually address what you’re doing on a daily basis. That could mean you buy more reinsurance, it could mean volumes go down. It is an actively managed portfolio [and] that actively managed portfolio will continue to improve.”

 

The one thing that needs more emphasis he noted is expense levels. Duperreault said there have been some improvements but not enough.

Source links: Insurance Business America, Carrier Management

Tags:  AIG  Insurance Content  PIA Western Alliance  Weekly Industry News 

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AIG, Prudential Get Short Too-Big-to-Fail Reprieve

Posted By Administration, Tuesday, July 11, 2017

The Federal Reserve and the Federal Deposition Insurance Corporation (FDIC) are charged with making sure banks and the insurance companies designated as significantly important financial institutions (SIFI) put together a plan to unwind safely if they get into deep financial waters.

Eight of the nation’s largest banks submitted what the Fed and the FDIC are calling living wills. Now regulators from both will look at those documents to make sure the plans will really work. That’s not a given. Since the implementation of the Dodd-Frank Act, several banks have had their plans returned as unworkable.

They were called “unrealistic” or “overly optimistic.”

At the same time that those plans were submitted, the Fed and the FDIC told AIG and Prudential — two of the three insurance firms locked into the too-big-to-fail system (as we will note later, MetLife is the other and it sued its way out) — were given an extension. Their deadline was the end of 2017 but they’ll be given an extra year to comply.

The president and his administration want to relax some of the too-big-to-fail regs and reduce the frequency in which these banks must submit plans from once a year to every other year.

MetLife is the only insurance company or bank to sue and get out of the SIFI designation. One of the ways MetLife is using to get out from under the Dodd-Frank Act’s too-big-to-fail and SIFI designation is to spin off its life insurance division.

The Delaware Insurance Department has approved the spinoff. That’s an important first step and it is notable that at least one state insurance department approves. But the real, final approval must come from the Securities and Exchange Commission (SEC).

Once it is approved — and no one doubts it will be — the new company will be called Brighthouse Financial and will have most of MetLife’s life insurance business. In fact, the spinoff will put MetLife — currently the nation’s largest life insurer — behind Prudential Financial in life insurance asset size.

Brighthouse Financial will begin its existence with $223 billion in assets and 1.3 million policyholders and 1.5 annuity owners. That’s about a quarter of MetLife’s assets.

Experts think approval will likely happen by the end of August or in early September.

 

Source links: Insurance Business America, Insurance Journal 

Tags:  AIG  Insurance Content  Insurance Industry  Insurance News  Prudential Get Short Too-Big-to-Fail Reprieve  Weekly Industry News 

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Brian Duperreault: AIG’s New CEO

Posted By Administration, Wednesday, May 24, 2017
Brian Duperreault

AIG convinced — with $20 million — Hamilton Insurance Group to let its CEO Brian Duperreault go. Two other firms were involved in a complex contractural unwinding that includes AIG’s purchase of Hamilton.

The Insurance Journal link at the end of this story outlines the details of how Duperreault was acquired by AIG.

In accepting the position, Duperreault said he has not been hired to break up the company. “I recognize the value of the company’s multiline structure. I didn’t come here to break the company up. I came here to grow it,” he told shareholders.

His predecessor Peter Hancock faced tremendous pressure to turn AIG into three separate entities and to return more money to shareholders. Hancock balked at the three entities but did return equity to shareholders.

“This company has met its tremendous commitment to return capital to shareholders. Going forward, capital will also be deployed to expand and grow our businesses with the goal of building long-term shareholder value. While technology is an essential component of long-term strategy, let me be clear: I am here to grow AIG. This company has the substance in its businesses and people to pursue organic growth and inorganic growth opportunities,” he said.

And how?

“Through the right combination of underwriting discipline, diversification and growth, we will build a more balanced commercial business that can deliver consistent underwriting profits. The improvement in our commercial property/casualty business will be judged by the growth in our bottom line. Growth in profitability and book value are the measures of success in our business,” Duperreault said.

He added that financial targets — while important — need to be put into perspective, “Loss ratios are important, but so is a mix of business and the level of expenses.”

Once he completes his second year as CEO Hamilton will get another $20 million. With other restrictions and compensation, the total cost for AIG to get Duperreault will be something like $110 million.

And that’s even if the 70-year old Duperreault no longer heads AIG due to death or disability.

As for his salary. Duperreault will have a salary of $1.6 million per year with a short-term incentive target that could net him another $3.2 million. Long term he could pick up $11.2 million more.

 

Source links: Insurance Journal, Carrier Management — link 1, link 2

Tags:  AIG  Brian Duperreault  Brian Duperreault: AIG’s New CEO  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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Greenberg Appeals AIG Ruling to Supreme Court

Posted By Megan McGreevy, Tuesday, May 16, 2017
Updated: Thursday, May 18, 2017

*** Caption: Maurice “Hank” Greenberg

AIG founder and former firm CEO Maurice “Hank” Greenberg sued the U.S. government and said it had no right in 2008 to bailout AIG. Though AIG’s board ousted Greenberg in 2005, he remained — along with his other company Starr Insurance Holdings — the firm’s largest stockholder.

In the original suit and in the 2015 court case, Greenberg claimed he and other stockholders had their stock value diminished and it cost them millions in losses. Greenberg and Starr won the case when a federal judge agreed the government overstepped its bounds. However, the judge refused to award them compensation saying it would bankrupt AIG.

Greenberg and Starr appealed the financial ruling.

The Federal Circuit Court of Appeals has now ruled and it tossed out the ruling that the government acted illegally and said Greenberg and Starr have no standing in any court challenge.

Only AIG can challenge and AIG decided not to sue.

In the ruling Chief Judge Sharon Prost wrote, “While punitive measures against a corporation may ultimately be borne by its shareholders, a finding that those measures targeted shareholders directly is a wholly different matter. The alleged injuries to Starr are merely incidental to injuries to AIG, and any remedy would go to AIG, not Starr.”

Starr and Greenberg attorney David Boies said, “we respectfully disagree.” He indicated that they will appeal to the U.S. Supreme Court.

Source link: Insurance Journal

Tags:  AIG  David Boies  Greenberg  PIA Weekly Industry News  PIA Western Alliance  Starr Insurance 

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Peter Hancock Out at AIG

Posted By Administration, Tuesday, March 14, 2017

Peter Hancock’s turbulent times as AIG’s Chief Executive Officer (CEO) are over. Four of the last six quarters say the company post huge losses. With that he — or was it the board? — decided enough is enough. Those losses hurt investors. Most notably, one must point out those losses impacted billionaire — and Hancock critics — investors Carl Icahn and John Paulson.

Both — by the way — are also on the board.

Hancock said he will stay at his post until the AIG board finds a successor. In tending his resignation, Hancock said, “Without wholehearted shareholder support for my continued leadership, a protracted period of uncertainty could undermine the progress we have made and damage the interests of our policyholders, employees, regulators, debtholders and shareholders.”

Leader after leader of AIG have struggled since founder Maurice “Hank” Greenberg was forced out in 2005. Some also had to battle the company’s near collapse in 2008. Hancock is the sixth CEO, and his replacement will be number seven since Greenberg left.

AIG board chairman Doug Steenland said Hancock “tackled the company’s most complex issues, including the repayment of AIG’s obligations to the U.S. Treasury in full and with a profit, and is leaving AIG as a strong, focused and profitable insurance company.”

Insurance watchers say Hancock’s departure is a positive for AIG. Meyer Shields of Keefe, Bruyette & Woods told his clients, “Of course, there aren’t too many candidates with the skills needed to turn around this troubled global company.”

Paul Newsome of Sandler, O’Neill & Partners put the change in perspective. “The broader question is how is the management team totally going to change. I suspect that the strategy will change, we just don’t know how yet,” he said.

 

Source link: Carrier Management

 

Tags:  AIG  Insurance Content  Insurance Industry  Insurance News  Peter Hancock Out at AIG  Weekly Industry News 

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AIG & Too-Big-to-Fail — Not a High Priority?

Posted By Administration, Tuesday, August 16, 2016

Three insurers — so far — have been designated too-big-to-fail by the Financial Stability Oversight Council (FSOC). Those receiving the non-bank systemically important financial institution (SIFI) designation are AIG, MetLife and Prudential.

 

MetLife sued and got a federal court to overturn the designation. The U.S. Treasury is appealing. Meanwhile, MetLife is shedding assets to put itself under the radar if the appeal goes against them. General Electric — another non-bank SIFI designee — also sold assets to have the designation removed.

 

AIG could do the same thing but CEO Peter Hancock says that’s not a high priority right now. He’s more interested in pumping up the company’s returns. Of all of the strategic issues that we face as a leadership team, this doesn’t even make the top 10,” he said.

 

Working now on a reversal of the designation would be — as he put it — hugely distracting to management and is based on a flawed premise that the binding constraint holding us back from returning more capital to shareholders is the regulatory framework that we have from the Federal Reserve.”

 

After a lot of pushing from billionaire investor Carl Icahn to break AIG up into three parts to avoid the designation, Hancock refused to budge. Without naming names, the most recent court challenges and events have demonstrated staying focused on the fundamentals is perhaps the right thing to do. So we’re going to stick to our guns.”

 

And guns in this case means job cuts and selling assets to simplify the company.

 

Plus, Hancock says the designation removal is overrated. It’s not like you remove this label and suddenly you’re an unregulated company. We’re constantly navigating these multiple constraints in a way that keeps us focused on our true north, which is being really well capitalized to serve our customers,” Hancock concluded.

 

Source: Insurance Business America

 

Tags:  AIG  AIG & Too-Big-to-Fail — Not a High Priority?  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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Update: MetLife, AIG, the Government & Systemically Important

Posted By Administration, Tuesday, April 19, 2016
Jack Lew
The U.S. Treasury and its Dodd-Frank Act financial regulating Financial Stability Oversight Council (FSOC) were dealt a blow a couple of weeks ago when U.S. District Judge Rosemary Collyer said MetLife and its financial condition are not a threat to the U.S. economy.

 

Judge Collyer criticized the FSOC’s secretive decision-making process and its analysis of the facts. Her written decision said the FSOC’s reasoning is fatally flawed.

 

This court cannot affirm a finding that MetLife’s distress would cause severe impairment of financial intermediation or of financial market functioning — even on arbitrary-and-capricious review — when FSOC refused to undertake that analysis itself. Predictive judgment must be based on reasoned predictions; a summary of exposures and assets is not a prediction,” she wrote.

 

So the systemically important financial institution (SIFI) designation is null and void. At least so far.

 

The government — via Treasury Secretary Jack Lew — is going to appeal the decision in the United States Court of Appeals for District Columbia. He strongly disagrees with the judge’s decision and said the FSOC council’sauthority to designate nonbank financial companies is a critical tool to address potential threats to financial stability, and it has made our financial system safer and more resilient. This decision leaves one of the largest and most highly interconnected financial companies in the world subject to even less oversight than before the financial crisis.”

 

The International Monetary Fund (IMF) agrees. It is urging putting more regulations on insurers. The IMF says the pose a greater threat to the world’s economy today than they did before and during the Great Recession.

 

The Global Financial Stability Report says life insurers pose the greatest risk.

 

Meanwhile, MetLife is gearing up for the fight says spokesman Chris Stern. We plan to vigorously defend Judge Collyer’s carefully reasoned opinion.”

 

And since MetLife won the big one and has — at least temporarily — lost its too big to fail moniker, AIG and Prudential are considering an appeal on their designation as well. AIG’s CEO Peter Hancock said the decision certainly opens that opportunity.”

 

In a statement Prudential said it continuously review[s] developments that impact our company, and we are evaluating what is in the best interests of the company and our stakeholders.”

 

Source links: Two from Insurance Journal, link 1 and link 2, Carrier Management, Insurance Business America


Tags:  AIG  Insurance Content  Insurance Industry  Insurance News  the Government & Systemically Important  Update: MetLife  Weekly Industry News 

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AIG: Founder & Former CEO on Icahn & More

Posted By Administration, Tuesday, February 23, 2016
 
 Maurice “Hank” Greenberg

AIG did not have a good fourth quarter in 2015 and that — and pressure from billionaire investor Carl Icahn — has founder and former CEO Maurice “Hank” Greenberg commenting. Here’s what happened in the fourth quarter of 2015:

 

  Poor underwriting and equally poor investment returns led to an operating loss of $1.3 billion.

  Operating income hit $1.4 billion.

  P&C losses were $2.3 billion.

 

That leads to a net loss of $1.4 billion and compares to a profit of $655 million in the fourth quarter of 2014.

 

Looking at all of 2015:

 

  After tax operating income — $2.9 billion.

  That’s down from $6.6 billion in 2014.

  Net income dropped more than 70%.

  It went from $7.5 billion in 2014 to $2.2 billion in 2015.

 

AIG’s leadership promised changes and results. It started with a cut of 400 senior positions toward the end of the year and last week cut two more major positions. Brian Schreiber — who ramrodded a bunch of billion dollar deals from 1997 to 2008 and then in 2008 helped shrink the company — has decided to move on. So has Seraina Maag who ran regional operations since 2013.

 

“I have served AIG with dedication and distinction for nearly two decades, With AIGs strategy developed and moving forward, I now have decided to pursue new opportunities,” Schreiber said.

 

And Hancock said the blood-letting isn’t done. He’s going to do away with 20% of the company’s top 1,400 execs.

 

Hancock is also doing some reorganizing and named some changes last week. Jeff Hurd is the new COO and he will be responsible for transformation, administration and human resources. He’ll also oversee marketing and communications and global business services.

 

“The outcome of this effort is a new organizational design structured around clients, capabilities and market opportunities. It gives business leaders at different levels of the organization much greater end-to-end accountability for results and greater transparency into those results,” Hancock said.

 

Much of this has come about since billionaire investors — and major stockholders of AIG — Carl Icahn and John Paulson started calling for the splitting of the company into three entities:

 

  P&C

  Mortgage

  Life

 

As to the fourth quarter losses and the so-so 2015, Hancock said, “Were working to become our clientsmost valued insurer and have a clear plan to maximize shareholder value that balances the interests of all of our stakeholders, including shareholders, debt holders, rating agencies, customers, employees and regulators.”

 

He noted the company has returned close to $12 billion to shareholders from share repurchases and dividends.

 

All this leads back to Greenberg. He said the short-term relief stressed by Hancock puts longer-term challenges at risk. And with Hancock letting Icahn and Paulson deeper into AIG’s decision-making is a huge negative.

 

“By doing that, he let a fox in the henhouse” Greenberg said. And he did it to stay out of a proxy fight. “I think thats a mistake.”

 

Greenberg also agrees with Hancock that AIG needs to stand pat and stay diversified. A diversified company — he notes — has more advantages.

 

Source links: Insurance Journal, Carrier Management, Insurance Business America




Tags:  AIG  AIG & Greenburg  AIG: Founder & Former CEO on Icahn & More  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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Citigroup: Google & AIG are a Marriage Made in Investment Heaven?

Posted By Administration, Tuesday, February 23, 2016

Analysts at Citigroup think Google’s Alphabet Inc. should buy AIG, expand into financial services and that — they say — would make AIG the perfect laboratory for insurance innovation.

 

The thought has a lot of insurance investment experts in titters but it was a serious enough idea that it generated some press.

 

One of the analysts — Todd Bault — wrote, “We realize it is a very low-probability event, while maintaining that it is still a very good idea. There is a perfect convergence of reasons why it might be exactly what AIG and the insurance industry needs. And the tech community could help solve what could well be one of the most challenging problems it could tackle.”

 

Most of you haven’t heard of Alphabet. It’s now Google’s corporate name. and Alphabet has been investing in self-driving cars, health technology and forms of artificial intelligence. And it took a shot and started an auto insurance price comparison website.

 

Last year such ventures — the analysts note — produced $2.65 billion in venture capital and equity funding. That’s three-times the amount raised in 2014.

 

The analysts point out that AIG seems to be in flux and this might be a good direction to go. “Many investors think AIG needs a major shakeup. We think insurance as a whole needs a shakeup. Neither AIG nor insurers generally seem to want to take the big steps needed, except incrementally. The time is right to attempt something big, and the candidates are here.”

 

Neither Google nor AIG cared to comment on the suggestion.

 

Source links: Insurance Business America, Insurance Journal


Tags:  AIG  citigroup  Citigroup: Google & AIG are a Marriage Made in Inv  Google  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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