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International News Digest - February 2004

Parmalat's $50mn D&O cover may be voided by insurers
At around $50mn, Parmalat's D&O cover will have little impact on an estimated EUR7-10bn hole. Written by AIG, Chubb and XL Capital, there is also a possibility that insurers may seek to void coverage. Most attention concentrated on insurers’ investment exposures to Parmalat. AM Best estimated $1.17bn.

Aioi ups earnings forecast on Fortress Re gain
Japanese insurer Aioi Insurance Company revealed its 2003 profits should be 35 percent higher following Fortress Re's defeat in a December arbitration against Sompo. Aioi was the largest backer, with a 48 percent stake, of the notorious North Carolina based aviation pool.

Silverstein hit by WTC decision
WTC leaseholder Larry Silverstein suffered a setback when a judge ruled that a jury could hear a court ruling unfavourable to him. The trial is set for 9 February. The judge also criticised both parties for generating too much acrimony. The bile was in danger of "lapping at the top of my shoes" warned Federal Court Judge Michael Mukasey.

Benfield boldly goes down under
Reinsurance brokers Benfield Group built a majority stake in the world's only dedicated space insurance intermediary, International Space Brokers (ISB) last month while its Australian arm acquired rival Airs Re Pty Ltd.

AXA's revenues fall on strong Euro and reinsurance withdrawal
AXA's 2003 revenues fell 4.1 percent to EUR71.6bn as a result of the strong Euro, the sale of overseas businesses in Australia, Austria and Hungary and the firm’s retrenchment from reinsurance.

But P&C gross written premiums increased 4 percent to EUR17.09bn on the back of rising rates and growing personal lines market share. AXA said commercial lines rates grew 10 percent for French property and 13 percent for French liability, while in the UK rates grew 17 percent.

Credit Lyonnais agrees settlement over Executive Life scandal
French and US regulators released details of a compliance programme for French bank Credit Lyonnais to finally settle the long running investigation into alleged breaches of American and California state banking laws in the 1990s.

Under the settlement terms, the bank and its parent bank Credit Agricole will be monitored for compliance with US banking regulations by an executive level office and will be subject to an audit programme. The bank accepted limited criminal liability in return for averting a trial that could have cost the bank its US banking licence. Controversial French businessman Francois Pinault - a personal friend of French president Jacques Chirac - was left unscathed despite involvement in the transaction.

Aspen expands US property reinsurance
Newly floated Bermudian headquartered reinsurer Aspen expanded its US property reinsurance underwriting with a new team based in Connecticut. Former XL Re man Brian Boornazian becomes president and chief underwriting officer of the new property reinsurance operation of Aspen Re America, which underwrites on behalf of the UK insurer Aspen Insurance UK Ltd.

XL $694mn charge prompts downgrades
Bermudian giant XL Capital followed its third quarter $184mn pre-tax reserve charge with a higher than expected $694mn pre-tax charge in the fourth quarter prompting ratings downgrades from Moody's and Standard & Poor's. Under-priced US casualty business - principally written between 1997-2001 through NAC Re - was blamed. In the same month, XL revealed a number of changes to its management team including the imminent retirement of Nicholas Brown, chief executive of the company's insurance operations, and his replacement with Clive Tobin, the current ceo of XL Insurance Global Risk. Brown arrived via the 1999 take-over with NAC Re.

Employers Re returns to profit
General Electric revealed that its insurance arm, Employers Re, returned to black in 2003 with a handsome $2.1bn profit as the giant conglomerate revealed its fourth quarter earnings. Employers Re was one of eight out of 13 of GE's operating units which revealed double-digit growth in the fourth quarter.

D&O rates at all time high
Rates for directors & officers cover in the US climbed to an all time high last year as insurers continued to increase rates, according to Tillinghast's 2003 Directors and Officers Liability survey.

On average, US rates increased 33 percent in 2003. The survey also found that in many cases claimants are as likely to be aggrieved employees as angry shareholders. Tillinghast found that for larger companies, employees are responsible for a quarter of all claims while for smaller companies this rises to half of all claims.

Algerian gas explosion may cost $500mn
The explosion at the Skikda gas plant, Algeria could cost the industry $500mn. (Re)insurers are thought to include the Algerian insurer Compagnie Alegerienne des Assurances Transports, Partner Re, AIG, Munich Re and Ace. Partner Re estimated that its costs would be between $27-$30mn.

Chinese pioneers
January saw two notable developments in Western insurers relationships with China. Reinsurance broker Benfield revealed it had placed a $5bn reinsurance programme for the China Export & Credit Insurance Corporation, SINOSURE, with Munich Re leading key players from the London, Bermuda and US reinsurance markets. And US insurer Liberty Mutual became the first foreign property casualty insurer in Western China, opening an office to provide private car cover.

EU delays high noon over controversial accounting initiative
In a move that will be welcomed by many European insurers, the EU's chief financial regulator Frits Bolkenstein revealed on 2 February 2004 that unresolved issues over the implementation of new accounting standards should be postponed until 2005. The EU is set to introduce two new accounting standards, IAS 32 and IAS 39, which are based on a "fair value" approach to accounting. They threaten, however, to knock holes in insurers' and banks' balance sheets but as yet the International Accounting Standards Board has refused to bow to industry demands.

Deutsche bank set for WTC settlement
Days before the eagerly awaited trial between World Trade Center leaseholder Silverstein Properties Inc and insurers led by Swiss Re came news that Deutsche Bank may be close to settlement with two of its property insurers over a total loss property claim relating to the 9/11 attacks. Deutsche is embroiled in a $1.05bn dispute with Allianz and AXA over their alleged refusal to pay the claim. The parties have been given until the end of the month by mediator George Mitchell.

Berkshire demoted to equal weight
Berkshire Hathaway shares have performed so well that Morgan Stanley analysts reduced their rating from overweight to equalweight, last month. The bank also referred to the "inherent problem" of Berkshire's succession issue because of Warren Buffett and Charlie Munger's veteran years.

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