SPITZER'S TARGETS – The New York Attorney General's opening salvo was against insurance brokerage giant, Marsh & McLennan in mid-October for "bid rigging" and allegedly steering unsuspecting clients to certain insurers in exchange for lucrative payoffs. The lawsuit, which alleged the manipulation had been going on since the late 1990s, also implicated Hartford, AIG, Chubb, Bermuda-based ACE and Munich Re. AON, National Financial Partners and St. Paul Travelers were subsequently added to the list. MetLife, ING, Aetna and other major insurance carriers were also subpoenaed.  Reuters is reporting that Aon, the world's second-largest insurance brokerage, will probably be the next to face an Eliot Spitzer lawsuit.

MARSH SUSPENDS QUESTIONABLE FEES – After Marsh found out it would not face criminal charges (although individuals at the company might be charged) and one day after the forced resignation of CEO Jeffery Greenberg, the company announced it will stop accepting fees that New York's attorney general said amounted to bid-rigging. The company will ban all the "contingent compensation" fees that insurers pay to brokers in exchange for more business. The fees totaled $845 million in 2003...about 50% of Marsh's profits for the year. Marsh and rival brokers Aon and Willis had already said they would stop taking the so-called contingent commissions paid by insurers.

MARSH FINE - While the Wall Street Journal is reporting that Marsh & McLennan may have to pay at least $500 million to settle the bid rigging charges, NY Attorney General Eliot Spitzer has stated that the fine may far higher. 

EXPECT INDUSTRY CHANGES - Industry analysts call the suit bad news for the whole industry and believe Marsh and other brokers might have to materially change their business models for the future.  Property and casualty insurers were already experiencing shrinking margins because of increased competition, and these lawsuits against the companies will certainly add to their problems. 

MARSH & MCLENNAN STOCKS, BONDS AND THE BIG PAYOFF – Marsh's stock dropped nearly 50% when the probe was announced and bond values have also taken a hit. However, shares rose after Jeffrey Greenberg resigned and the threat of criminal charges against Marsh was removed. All is not lost for Jeffrey Greenberg, however.  On the day of his resignation, he exercised options to buy 540,000 shares of the company's stock at depressed prices ranging from $14.48 to $20.64 each.  With the rise in share prices after the announcement of his resignation, Mr. Greenberg is projected to benefit to the tune of some $6.8 million.

LEGAL FEEDING FRENZY – The Marsh & McLennan investigation has, predictably, created a feeding frenzy in the "class action" legal community. No less than four major law firms have already filed suits against Marsh and issued their customary press releases. Hartford, AIG and others have also been hit with a "class actions."  In addition to opening the lawsuit floodgates, some experts predict the investigations will also reopen discussion about the 1945 McCarren-Ferguson Act, which exempts insurance companies from federal antitrust laws and puts the industry under state regulatory control.

GREENBERG FAMILY AFFAIR? – Part of the civil lawsuit against Marsh is for rigging bids and colluding with AIG. Jeffrey Greenberg, the former CEO of Marsh, is the son of AIG Chairman Hank Greenberg. Jeffrey was once expected to take over AIG, the world's largest insurer from his father, but Jeffrey quit AIG to join Marsh in 1995. Younger brother Evan is chief executive of Ace, a Bermuda-based insurer also cited in the investigations. 

MONEY CAN'T BUY YOU LOVE – OR CAN IT? - The new CEO of Marsh, Michael Cherkasky, has made $14,500 in political contributions to Spitzer since 2002, New York state election records show. Cherkasky replaced Jeffrey Greenberg after Greenberg resigned following Spitzer's lawsuit against Marsh & McLennan. Cherkasky was Spitzer's boss 10 years ago when he (Cherkasky) was chief of the investigations division at the Manhattan District Attorney's office. Looks like that experience will come in handy in his new job.

SUBPOENAED BY CONNECTICUT - Connecticut Attorney General Richard Blumenthal jumped into the fray by issuing 35 subpoenas to insurance companies and brokers doing business in the state in connection with the state's probe into health insurer broker fees. Companies cited include Anthem, Cigna, and Aetna. Some other states looking into insurance brokerage practices are Massachusetts, New Jersey, Pennsylvania, Minnesota, Florida, California and Illinois.
 

FITCH COMMENTS - Fitch believes that Marsh & McLennan and other insurance brokers will be negatively affected by these events. Fitch also believes that there remains a strong likelihood that other brokers will face similar allegations as the investigation continues, including charges related to 'tying' arrangements in which a broker agrees to place primary insurance policies with an insurer only if the insurer's reinsurance cessions are placed through the broker as well. Fitch believes that Marsh's announcement will force other brokers that have not already renounced contingent commissions to follow suit. This change could have a significant adverse effect on insurance broker revenue growth and operating profitability going forward. 

NAIC MOVES TO PREVENT INDUSTRY ABUSE – The train may have left the station, but "State insurance regulators are actively pursuing all of the facts, assessing the adequacy of current laws or regulations, and will determine appropriate collaborative action involving all states in a very short period of time," said Diane Koken, NAIC president and Pennsylvania Insurance Commissioner. "Brokers and insurance companies that have been abusing the system for personal gain will be identified and appropriate actions will be taken to see that all consumers' concerns are addressed. We intend to coordinate directly with law enforcement officials in identifying and terminating this activity, as well as developing new regulations as needed to better monitor all sales activities."

JUST A MINUTE! – The Big "I" (Independent Insurance Agents & Brokers of America) is stepping into the fray by "addressing the growing mischaracterizations being disseminated about insurance agents' business practices, including incentive compensation."  The complete IIABA statement is available here.

DANCING TO A DIFFERENT TUNE – Not one to sit still for too long, New York Attorney General Eliot Spitzer is reportedly investigating the music industry's "time-honored practice of paying independent promoters hundreds of millions of dollars a year to help secure valuable radio airtime for songs." 

PENSION CURE MAY BE WORST THAN THE DISEASE – As reported several times, underfunded pensions may become the next multibillion-dollar bill for taxpayers. While lawmakers are working on a long-term fix for struggling traditional retirement plans, some experts say the defined benefit pension is already in its death throes and the best thing for the lawmakers to do is to let it die. 401(k) plans now dominate the work force, but traditional pension plans still cover some 44 million U.S. workers and retirees. Many companies (airlines in particular) are finding they can no longer afford the plans and are seeking to shed them to the Pension Benefit Guaranty Corp. (PBGC). The problem is that the PBGC has a $9.7 billion deficit that could be nearly doubled by just the airline industry plans. In a nutshell, many experts feel that attempting to make all these troubled plans whole is simply "throwing good money after bad."

GRAND JURY PROBE FOR AIG? – After paying a $10 million fine to the SEC over products AIG sold that companies might have used to massage earnings, the company is being probed by a federal grand jury for the practice. AIG also faces separate investigations by the SEC and the Justice Department about special purpose entities it helped create to keep bad loans off the bank's books. 

COURT BACKS TOBACCO COMPANIES – New York's top state court has overturned a jury decision that awarded nearly $18 million to Empire Health (formerly Blue Cross) as "recovery of medical loss under consumer protection laws." This ruling will probably prevent other insurers from suing tobacco companies on similar grounds.

COMMON SENSE UNDER ARREST – This from Common Good, the legal reform folks. "Zero tolerance leaves no wiggle room for rationality," argues editorialist Philip Terzian. In Pine Bush, N.Y., Joshua Phelps, a seventeen-year-old high school student and civil war re-enactor, "made the mistake of driving to school one Monday morning after participating in a weekend Union Army reenactment. ... Young Phelps left his replica musket (which fires blanks only), uniform, bayonet and rolled cartridge on his car seat, where a security guard spotted the evidence of interest in Ulysses S. Grant."  But Phelps was not only summoned to the principal's office, he was also arrested. 
 

ASSISTED LIVING SURVEY - Assisted living in the U.S. costs an average of $2,524 per month, or $30,288 per year, according to the newly released 2004 MetLife Market Survey of Assisted Living Costs. The highest monthly average base cost was reported in Stamford, Connecticut at $4,327, while the lowest was Miami, Florida at $1,340.  According to the 2003 MetLife Market Survey of Assisted Living Costs, the average monthly cost of an assisted living facility in the U.S. was $2,379 per month, or $28,548 per year. To see figures for your area, click here.

LIFE INSURANCE VALUATION AND FINANCIAL PLANNING - In the past, advisors had only one way to measure policy value, the surrender value dictated by the policy carrier. All this has changed; in the recent past, a secondary insurance market has evolved because banks, hedge funds, and institutional funding companies have seen the value and stability of purchasing life insurance policies. As a result, advisors can access the secondary insurance market using an established system to perform insurance valuations. In many cases, insurance valuations result in a fair market value 3 to 4 times the (cash) surrender value of the policy. You may want to check out the Life Insurance Valuation Proposal from 1st Life Settlements. See it at http://www.1stLifeFinancial.com 

UNPREPARED FOR UNEXPECTED LIFE EVENTS – An MDRT study finds that one in four Americans do not have life insurance, nearly half are without disability coverage and two out of three do not have long-term care insurance. Americans are putting themselves and their families in a vulnerable position financially by not planning adequately for such unexpected life events as disability, long-term illness or death. Respondents identified cost and confusion as the two principal reasons they do not have such coverage. Additional information about this survey, as well as financial planning tips, can be found at http://www.SoundFinancialPlan.com.  Consider this an editorial comment, but it's not surprising that consumers are confused by the plethora of insurance products they're advised to purchase.  Too bad some smart actuary somewhere can't come up with "life event insurance," a single policy covering life's insurable events, such as disability, long-term care and death.

EGGS IN ONE BASKET – The probes of the insurance industry have reminded mutual fund holders of the risks of investing in a single sector. The Fidelity Select Insurance fund declined about 9.5% in four days after Spitzer sued Marsh. 

SOCIAL SECURITY BENEFITS/WAGE BASE UP - Social Security benefits for about 47 million Americans were increases by 2.7% for 2005. About half of the increase will be needed by seniors to offset the recent rise in Medicare premiums, but it is still a "net gain" for seniors.  The 2005 Social Security wage base will be $90,000, a $2,100 increase.

METLIFE STOCK REPURCHASE PROGRAMS – The MetLife board has approved the repurchase of another $1 billion of MetLife common stock. This program will begin after the completion of an earlier $1 billion repurchase program that was announced on February 19, 2002.

RETIREMENT SURVIVORS - According to an Allstate survey, Retirement Reality Check, "When it comes to preparing for retirement, Americans see themselves as survivors - they believe they'll ultimately overcome challenges and learn to live with the tradeoffs to win their financial battle."  More information on the survey is available here.

CITIGROUP GETS RECORD FINE - The NASD has fined Citigroup Global Markets a record $250,000 for distributing inappropriate hedge fund sales literature.

HEALTH CONFIDENCE SURVEY - The Employee Benefit Research Institute has released the findings of its 7th annual Health Confidence Survey.  The results are available at www.ebri.com.  Not surprisingly, health care costs continue to be a concern, with over 75% of working Americans preferring increased healthcare coverage to an increase in pay.  There are also strong indications that the rising cost of health care is impairing Americans' ability to save for retirement.

LIFE INSURANCE ACTIVITY OFF - Applications for life insurance in North America declined -3.2% in September year-over-year. Activity for the third quarter 2004 lagged that of Q3 2003 by -1.5%; it was the third straight year where Q3 activity lagged that of the prior year (http://www.mib.com).