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Industry News
SPLITTING UP - Aetna has rejected a $10 billion, $70 per share takeover offer from Wellpoint Health Networks and ING. Instead, new Aetna CEO William Donaldson announced that the company would split into two: a new global financial services company (the part ING wanted), with the healthcare business (the part Wellpoint wanted) remaining with Aetna. Shareholders, however, were not happy and voiced their displeasure by sending the company's stock down to as low as $47 on Monday. ING has deep pockets and is eager to increase its U.S. market share, so don't expect it to go away anytime soon, even if it has to pay more for the financial services piece of Aetna. The same can't be said for Aetna's troubled healthcare business.
MORE FRACTIONS - With the July 3 deadline looming, the NASD is asking Congress and the SEC to delay decimal pricing for the securities markets until 2001. "In light of the explosion of transaction volume and quotations levels in both the equity and options markets, we believe the shift to begin trading in decimals this year would impose unacceptable risks," according to NASD Chairman and CEO Frank Zarb in a letter to SEC Chairman Arthur Levitt. At this point, the SEC has not agreed to an extension, but may decide to do so after reviewing industry plans for the conversion.
OTHER EXCHANGE NEWS - The NASD has launched the member vote on its proposed restructuring into a shareholder-owned company. The deadline for the 5,500 members to vote is April 14. Meanwhile, The Wall Street Journal reports that the NYSE and NASD have held discussions concerning a possible merger or alliance, quite a shift for the normally fierce rivals.
IT'S A MYSTERY - Metropolitan cut almost $2 billion off its IPO expectations due to lukewarm investor interest. They now expect to raise only about $4.6 billion, which will put the once projected biggest IPO in U.S. history well below the current champ...UPS's $5.5 billion offering last November. The mystery is how one of the nation's premier financial institutions can suffer from lack of investor interest, while the "new economy" tech IPOs are suffering from too much investor interest! Life insurance stocks, however, lost 19% of their value as a group over 1999, largely due to lower earnings and investors' fears that rising interest rates would cut investment returns from life insurers' bond-dominated portfolios.
DEMUTUALIZATION, PART TWO - Principal Financial Group is studying the potential benefits of converting Principal Mutual Holding Company into a stock company. According to J. Barry Griswell, president and CEO, "The time is right to study demutualization as a means to fully access the capital markets to enable growth and to continue to meet the needs of customers today and into the future." Perhaps the right time was in 1998 when Principal converted to a mutual insurance holding company for some of the same reasons.
INSURANCE REGULATION BLUEPRINT - The NAIC approved a blueprint for the future of state insurance regulation at its Spring Meeting. The blueprint is titled "Statement of Intent: The Future of Insurance Regulation" and covers such issues as the measures needed to implement last year's financial services legislation (streamlined licensing, consumer protections), the need to speed-up the approval of new products, market conduct reform and the facilitation of electronic commerce.
CNA SELLING - CNA has put its life insurance and life reinsurance units up for sale. The nation's second-largest commercial insurer plans to focus on its core, but money losing, property and casualty business. CNA, which recently sold its personal P&C business to Allstate, says it will continue to concentrate on insuring businesses rather than individual consumers. John Hancock is being mentioned as a possible buyer.
PARADOX - While only 10% of life insurance company CEOs feel prepared to address information/technology management issues, 51% of them would address distribution challenges with improved use of technology. This according to the latest Tillinghast-Towers Perrin survey of life insurance company CEOs. Only 25% of respondents think that their companies are "well prepared" overall to respond to the key strategic issues facing their companies, such as distribution effectiveness, increased competition and changing market/customer demands. Consider...
CORPORATE LESSON - A crow was sitting on a tree, doing nothing all day. A rabbit saw the crow and asked him, "Can I also sit like you and do nothing all day long?" The crow answered: "Sure, why not." So, the rabbit sat on the ground below the crow and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it.
Moral: To be sitting and doing nothing, you must be sitting very, very high up.
CONTINUING TREND - While emphasizing that insurance remains among the most financially strong industries in the U.S., S&P expects the trend of a rising number of insurance company failures to continue this year. The complete report can be found at http://www.standardandpoors.com/ratings/insurance/index.htm
DANGEROUS PLACE - Infections that patients catch while hospitalized for other health problems add almost $5 billion to the cost of U.S. healthcare every year...worse yet, almost 88,000 die from these infections. Cost and your own mortality are two very good reasons to not hang around the hospital any longer than necessary!
Extra! Extra!
STAYING IN TOUCH - Many good agents use a newsletter to stay in touch with clients. Have you considered the use of e-mail to help build your client relationships? Remember that you don't need to send just financial information. Consider sending your clients inspirational and/or motivational messages. Check out http://DailyInbox.com, where you can send your clients complimentary subscriptions to a variety of uplifting e-mail services. You may even find one or two you want to receive!
Marketing/Tax Update
LEVERAGING THE INTERNET - Planners can't stop the flood of investors going to the Internet to access their investment portfolios, but they can use the Net to leverage service to their clients. According to Dennis Passavoy, CEO of Amicus (http://www.amicus.com), planners should become "information portals" for their clients and provide quotes, news research and, most importantly, consolidated statements to them. "An adviser who doesn't give in to the Internet because they want personal relationships with their clients is going to find himself evolving out of business." According to Passavoy, reps today can service about 75 clients, but by using tools that are becoming available on the Net, they will be able to service 250 or more.
GROUP CARVE-OUT SPLIT DOLLAR - The IRS recently issued a somewhat surprising technical advice memorandum (TAM 200002047) concluding that a split dollar arrangement entered into as part of a group carve-out plan should be taxed under the group life insurance Section 79 rules. This means that the employee's economic benefit is measured by the lower Table I rates, rather than the PS 58 rates typically used with split dollar. In the particular case to which the TAM applies, the life insurance used in the group carve-out split dollar plan met the four requirements in order to be considered group term life insurance eligible for taxation under Section 79 (even though the individual policies used for the split dollar arrangement are cash value life insurance policies).
BROKER-DEALER GUIDE - Financial Planning Interactive has an extensive database of broker-dealers with historical and current information on virtually every B-D in the country. If you are considering changing your broker-dealer, this service could be very helpful. Check it out at: http://www.financial-planning.com/Surveys/broker/bd_survey.html.
TAX ACTION - In a rare show of bipartisan support, the House unanimously repealed the Social Security earnings limit on senior citizens between ages 65 and 69. The bill moves on to the Senate and, if passed, President Clinton has promised to sign it, assuming the legislation emerges unencumbered by tax cuts or other unacceptable changes. The House also passed legislation to increase the minimum wage by $1 over two years. This bill, however, also contains a $122 billion tax cut (much of it in estate tax cuts), probably dooming it to a presidential veto if it passes the Senate in similar form. The House is also considering pension law changes that would ease restrictions that employers and mutual fund companies face when they give workers investment advice. Unions and consumer groups, however, are expressing concern. Finally, the Senate passed legislation that would extend use of Education IRAs to elementary and secondary private school tuition, as well as increase the annual limit from $500 to $2,000. The bill's prospects in the House are uncertain and the Clinton administration has promised a veto.
VARIABLE LIFE QUOTES ONLINE - Prudential has become the first company providing free, instant quotes for variable life insurance products. Check out their variable life ad with FSO at http://fsc.fsonline.com/fsj/adverts/pru.html and then go to http://www.prudential.com for a VL quote.
TAX LOOPHOLE - The New York Times reports that congressional and administration officials are investigating a tax loophole that allows U.S. insurance companies to stop paying income taxes by moving their headquarters to Bermuda, something six U.S. insurers have apparently already done. According to E. Clay Shaw Jr., a Florida Republican on the House Ways and Means Committee, "This is an unintended consequence of the tax code." Well, we guess so!
LONG-TERM CARE AND REVERSE MORTGAGES - In an effort to help Americans purchase LTC coverage, a bill (H.R. 1776!) has been passed by the House Banking Subcommittee which, if enacted, would reduce the cost of financing a U.S. government insured reverse mortgage if a senior uses part of the proceeds from HUD's FHA Reverse Mortgage for a long-term care policy. The reduction would average from $2,500 to $4,400.
AFTER-TAX PERFORMANCE - Look for federal regulators to require in the not-too-distant future that all mutual fund companies report after-tax fund performance together with pre-tax returns. How to perform the after-tax calculation remains an outstanding issue.
FROM BEHIND BARS - Securities regulators have filed suit against a New York man accused of defrauding investors of about $8.7 million in a scam involving IPOs. Nothing really new there, except that Ira Monas was in state prison at the time on a larceny conviction. He's accused of hiring a man to run his investment company and directing the scam via telephone from prison.
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