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International News Digest - June 2004

Artemis payout brings resolution to Executive Life fiasco
The California Insurance Commissioner said it had received $110mn as part of a settlement in the five-year investigation into the Executive Life saga.

The settlement, paid by Artemis SA, the holding company controlled by billionaire French businessman Francois Pinault, was transferred on 25 May, 2004, to end the dispute over the 1991 acquisition of failed California insurer Executive Life by French bank Credit Lyonnais.

Greenberg: Marsh will continue to receive PSA compensation
Marsh & McLennan chief executive Jeff Greenberg told investors that the group will continue to receive compensation for its broker services, despite New York attorney general Eliot Spitzer's investigation into the practice. Speaking at the Sanford C Bernstein Strategic Decisions Conference, Greenberg said: "One way or another, Marsh will be compensated for its services."

Separately, Spitzer has widened his probe to include payments made to employee benefits firms. In June, US insurers Aetna, Cigna, Hartford, UnumProvident and MetLife all confirmed that they had received subpoenas from the attorney general, in addition to Chubb Corp.

The world’s three largest brokers - Marsh, Aon and Willis - who are all under investigation by Spitzer, all operate sizable employee benefits consultancies.

SCB considers suing co-founder
Brokers Stirling Cooke Brown (SCB) - now renamed AlpahStar Insurance Group - is considering suing co-founder Nicholas Brown for his involvement in the group's collapse.

Details of the possible action were published in the industry newsletter KYC News, which revealed that AlphaStar had targeted Nicholas Brown as one of nine parties it may sue in a 21 April filing at the US Bankruptcy Court for Southern New York. AlphaStar - which has filed for Chapter 11 bankruptcy protection - claimed these contingent claims form part of its assets and identifies one of them as "Nicholas Brown for claims arising out of the management of the Debtors prior to October 1999".

Buffett takes 16% White Mountains stake
Investment giant Berkshire Hathaway took a 16 percent stake in fast growing (re)insurance group White Mountains, while subsidiaries Folksamerica and recently acquired Sirius were subject to positive ratings actions from Moody's.

The Bermudian (re)insurer said that Warren Buffett-led Berkshire Hathaway had agreed to exercise warrants it bought with the financing of White Mountains' 2001 OneBeacon acquisition.

Xchanging's Deutsche Bank deal approved by EC
British outsourcing company Xchanging announced EC regulatory approval for its Eur40mn acquisition of Deutsche Bank subsidiary the european transaction bank.

Best known in the insurance industry for its joint venture with the London market to process claims and premiums, Xchanging will now see its employee base grow by almost 50 percent with the addition of 900 new staff, most of whom will be based in Frankfurt.

Swiss Re CFO slaps lapdancing writ
The chief financial officer of Swiss Re's Americas division began proceedings against a US strip club, alleging it overcharged him for a night on the town.

The lawsuit, filed by Mitchell Blaser in Manhattan Supreme Court, alleges that New York strip club Scores overcharged him by at least $4,000 while he was entertaining a friend and a friend's girlfriend on 11 December, 2003.

Rates falling say brokers
There is growing evidence that the hard market is at an end, according to brokers on both sides of the Atlantic.

In the United States, the Council of Insurance Agents and Brokers (CIAB) warned rates were easing across most lines during the first quarter of 2004, with average premium increases returning to levels they were at the end of 1999 when the last soft market cycle was coming to an end.

In the UK, brokers at the annual British Insurance Brokers Association (BIBA) conference heard the results of survey that concluded the hard market was coming to an end. Fifty three percent of survey respondents said the market was already softening, while a further 19 percent concluded the current hard market would last no more than a further 12 months.

Hannover Re profits rise as premiums fall
Germany's Hannover Re announced a "vigorous surge in profitability", despite a year-on-year fall in gross premiums of more than 20 percent. The reinsurer said it was on track to beat its 2003 result.

The fall was partly due to Hannover Re's life and health division being hit by the loss of British life insurer Britannic plc from its book.

Eleven more German insurers under price fixing spotlight
Germany's federal cartel office revealed that it wrote to a further 11 German insurers last month accusing them of price fixing in the wake of the 9/11 terror attacks.

According to a statement from the watchdog, the insurers now have an undefined period of time in which to respond to the accusations, which also include the fixing of policy terms and conditions. Investigations by the federal cartel office can result in the companies being fined.

Zurich Australia probed
Australian regulators get-tough approach to reinsurance following the HIH debacle has led to investigations over transactions made by Zurich Financial Services Group. The Australian Prudential Regulation Authority, and the Australian Securities & Investment Commission, confirmed that it was examining transactions made in 2000 to see whether they involved risk transfer.

US analysts mixed on P&C prospects
Despite continuing strong results in the US property casualty (p/c) sector, recent pronouncements from insurance stock analysts offered a mixed message on investment prospects for coming years.

Morgan Stanley's team of insurance analysts, led by Vinay Saqi, announced it had changed its view on the p/c industry from "In Line" to "Cautious".

The move, explained Saqi, was based on falling prices, reserves that "don't appear as redundant for recent years as thought", interest rate risk, and less than compelling valuations that could be further pressured by the supply of stock on the market.

In contrast, Todd Bault of equity house Bernstein warned investors: "Do NOT miss the upside of the post-cycle!" He said the 2003-2006 period was likely to look like 1988-92, "a very good period for the stocks". "The combination of relatively low price/book multiples and strong book value growth leads to a high level of mathematical certainty for upside," he explained.

But Chris Winans at Lehman Bros was less upbeat. On 10 June, he reduced his outlook on the US P&C sector from positive to neutral explaining "evidence of a softening market is even more compelling today than what we detected only months ago".

Although Winans remains fairly positive on the personal lines sector, he observed: "commercial insurers are showing increasing signs of willingness to cut prices and lighten up on some terms and conditions". He continued: "Price reductions to gain market share in one of the toughest lines - directors and officers' liability - are becoming fairly commonplace".

In his note, he pointed the blame at the increased competition provided by the start-ups, predominantly based in Bermuda.

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