T H U R S D A Y ,   J U L Y   2 1 ,   2 0 0 5

McGavick Steps Down from Safeco, Steps Up to Possible Senate Run |  Greenberg Speaks Up on So-Called ‘Error’ |  Annuities: We Hate to Say We Told You So… |  Big "I" Takes Fed Terrorism Backstop Push to the Press |  The Client Next Door | Big "I" National News

O N   T H E   H I L L
McGavick Steps Down from Safeco,
Steps Up to Possible Senate Run

Safeco CEO Mike McGavick’s announcement that he will step down Aug. 31 is fueling serious discussion that he  will seek a Senate seat from Washington state in 2006. His formation of an exploratory committee Tuesday did nothing to dampen the speculation.

McGavick made clear he was stepping down to consider "the possibility of public service." There has been talk for months that McGavick would seek the Senate seat currently held by first-term Democrat Maria Cantwell. Cantwell was narrowly elected in 2000, after a lengthy recount, when she edged then-Senator Slade Gorton (R). McGavick was chief of staff and a campaign adviser to Gorton.

McGavick’s political stock, always considered high, soared when Republican Dino Rossi definitively stated he would not seek Cantwell’s seat. Rossi, who lost the closest governor’s race in American history in 2004 after a controversial recount and failed court challenge, had been considered a leading candidate if he had chosen to run, but he never veered from his stance of disinterest in the Senate race. On the same day that McGavick announced he was leaving Safeco, another potential GOP challenger, former Congressman Rick White, announced he would not run for the Senate. The Associated Press reports that state GOP Chairman Chris Vance is also unlikely to run. 

Big "I" CEO Bob Rusbuldt calls McGavick "one of the most charismatic and dynamic business leaders in the country. Mike is a visionary who brings a pragmatic approach to problem solving. He will be an excellent senator for Washington state and our nation. He will have an immediate impact for his constituents in the Senate." 

If McGavick enters the race, his prospects appear promising. Although Washington is marginally a Democratic state and hasn’t voted Republican at the presidential level since 1984, its state legislature in recent years has been close to a 50-50 split, with party control changing several times. Its statewide officeholders are a roughly even split between the two parties in recent years. It is widely reported in the nation’s capital that many political insiders see this seat as one of the GOP’s top targets in the 2006 off-year elections.

McGavick joined Safeco in 2001 and led the company’s financial turnaround—the carrier’s home and small-business insurance lines have again becoming profitable.

Cliston Brown ( cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations. 

T O P

P R O D U C E R   C O M P E N S A T I O N   I S S U E   U P D A T E
Greenberg Speaks Up on So-Called ‘Error’
Spitzer, Fed Regulators Investigations Not Cooperating

Uncharacteristically quiet for months, former American International Group CEO Maurice "Hank" Greenberg made his feelings regarding AIG’s financial restatements known last week.

While addressing about 50 shareholders at the annual C.V. Starr & Co. shareholders’ meeting in New York City, Greenberg said that at least one accounting "error" singled out by AIG was made following "sound legal and accounting advice," according to the Wall Street Journal.

Greenberg told the shareholders that last year, when AIG board members questioned the company’s use of Starr International as a vehicle for compensation, he proposed putting it to a shareholder vote, but the board declined to do so.

He further said that "a 2003 letter from law firm Cahill Gordon & Reindel LLP told AIG that its disclosure of the Starr International plan in regulatory filings was appropriate," the WSJ reports.

Additionally, Greenberg said that he is working on "a series of white papers" rebutting the need for AIG’s restatement to share with regulators, according to Reuters.

In related news, The Washington Post reports that state and federal regulators are no longer cooperating with one another in their investigations, causing complications for all the probes.

Citing unnamed sources, the Post says that, "New York Attorney General Eliot L. Spitzer and federal officials have stopped cooperating with each other in parallel probes of the U.S. insurance industry, and each has made separate deals with witnesses that render the witnesses less useful to the other side."

The regulators had been cooperating until late April or early May when they conducted joint interviews of insurance executives, the Post says. So what changed?

"Everyone is all smiles when it comes to cooperation between the agencies," Jacob S. Frenkel, partner at Shulman, Rogers, Gandal, Pordy and Ecker PA, told the Post. "But in truth, the competition for convictions and civil settlements is so intense that each regulator is putting its interest ahead of the public good."

Meanwhile, federal regulators are looking at what—and when—General Reinsurance Corp. CEO Joseph Brandon knew about the much-scrutinized AIG-Gen Re transaction, according to the WSJ.

"The Department of Justice and the Securities and Exchange Commission are examining e-mails and notes and asking about conversations between Mr. Brandon, Mr. (Warren) Buffett and current and former General Re and Berkshire Hathaway executives," the WSJ article says.

Also making news in the past week:

Jennifer Sikorski ( jennifer.sikorski@iiaba.net) is IA’s associate editor.

T O P

 V I E W :   P & C   T R E N D S
Annuities: We Hate to Say We Told You So…

As the old adage goes, "the worm has turned" and the oft-cited senior who put $300,000 into an equity indexed annuity with a surrender period longer than he is likely to live may be on his way to be the next poster child for the plaintiff’s bar.

Several past IN&V articles highlighted potential problems for independent agents associated with annuities’ spectacular growth and growing commissions (see " Annuities are Growing by Leaps and Bounds—Are You Selling Them?" and " Annuities: No Free Lunch"). Along with representatives from Big "I"-endorsed agency E&O provider Westport/GE Insurance Solutions (GEIS), we felt it wise to point out what looks to be a dangerous mix for agents who sell these products.

Source: U.S. Census Bureau and American Council of Life Insurers (ACLI)

Danger…danger…danger, the drum-beat is steady and increasing. Articles about allegedly deceptive sales practices and "rooked" seniors are all over the press recently. The New York Times ran the article "Who is Preying on Your Grandparents," and the AARP Bulletin published "Deviled Nest Eggs," implying that everyone over 65 should avoid purchasing annuities. Just this week, BestWire discussed an increasing interest shown by the NAIC, state insurance departments and even federal securities regulators in possibly deceptive annuities sales practices. Best also reports that its investigations indicated plaintiff’s attorneys across the country are filing lawsuits concerning annuities and suitability of the product and the buyer.

Is a round of insurance department letters or subpoenas for agencies’ documents far away? Never mind that not all annuities are bad and very few complaints are ever registered—all things annuity are being heaped together as evil (see below). With the number of individual annuity holders in the United States now at 34 million, some agents probably sold more than one in 10 of their customers an annuity!

Anticipating more scrutiny, I repeat the advice that Sabrena Sally, head of agency E&O underwriting at GEIS, offered in the June 23 issue of IN&V: "Any agency manager with an annuity sales operation should sit down with their annuity production staff and start off by asking for a report of the average compensation as a percentage of the average deposit."

According to Sally, agencies with average commissions on deposits exceeding the average (about 6% of deposits) should dig deeper and discuss customer value where higher commissions are evident. Sally also notes that prudent agency managers might look at other product suitability issues like average age of depositor, average size of deposit, average deposit divided by average person’s income, etc.

If you’re insured through your state association and the national E&O program, you should know that you have excellent coverage for any problems that might arise. Consult with your state association advisor if you have any questions concerning lawsuit and even regulatory and subpoena coverage in place with most Westport/GEIS policies.

Resources:

Paul Buse ( paul.buse@iiaba.net) is a licensed agent and president of Big "I" Advantage, IIABA’s for-profit subsidiary. 

T O P

O N   T H E   H I L L
Big ‘I’ Takes Fed Terrorism Backstop Push to the Press

In addition to its nonstop lobbying on Capitol Hill, the Big "I" also has been making a major push in the press in recent weeks for a federal backstop for terrorism insurance. The Big "I" was the only insurance association quoted in this week’s New York Times story on this important issue. Times reporter Joseph B. Treaster, one of the leading insurance reporters in the nation, quoted Big "I" CEO Robert A. Rusbuldt in the July 16 article " Compromise May Extend Terrorism Insurance Aid."

Additionally, the Big "I" has run three ads in The Hill newspaper, the leading political publication on Capitol Hill, in support of a federal backstop to replace the existing Terrorism Risk Insurance Act (TRIA), which expires Dec. 31. The stark and powerful visual shows the outline of an urban skyline and quotes former Homeland Security Secretary Tom Ridge on his assessment of the likelihood of another terrorist attack in America: "I don’t think it is ‘if.’ I think it’s a matter of ‘when.’" The Big "I" Communications Department timed the most recent edition of the ad to run in The Hill—which is read by many federal legislators and their staffers—the same day the House Financial Services Committee held a hearing on the backstop issue last week.

The Big "I" efforts have been making progress. At last week’s Financial Services Committee hearing, Chairman Mike Oxley (R-Ohio) was quoted as saying he is "committed" to delivering a bill to the House floor this year, and Secretary of the Treasury John Snow reportedly pledged to work with Chairman Oxley and committee staffers to develop acceptable legislation.

Coordinating the efforts of our government affairs staff and our communications team’s outreach to the press, the Big "I" will continue to utilize all resources at its disposal to push for enactment of a federal backstop for terrorism insurance before TRIA expires.

Cliston Brown ( cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations. 

T O P

L & H   T R E N D S
The Client Next Door

I live in a small town where, like most small towns, you get to know and build relationships with the folks who provide services like dry cleaning, haircuts, car repairs and other necessities. Recently one of these folks asked me for some financial advice as she had come into an inheritance. I learned a long time ago that piecemeal advice can be very dangerous, so my standard response is to equip people with questions to ask their financial advisors.

In this case, a divorced person of modest means was named executrix of her father’s modest out-of-state estate (basically a house with a mortgage and some assets). In addition, the property is held in trust, not in joint title like most property. Since there are a few legal details to straighten out, I advised her to seek a competent local attorney.

This woman then asked me to review her retirement account—a simple IRA funded by her contributions and an employer match. I reviewed her asset allocation and asked her about her goals. Then I told her that her investments seemed reasonable given her retirement objectives.

Because her accounts were in order, I was surprised that she expressed a dubious opinion of her advisor. When I asked why, she said it was because he never asked her about goals or spent any meaningful consulting time with her. And, she said that she realized that he never would because her account was not very large.

Her situation dictates that she now needs to buy an umbrella liability policy to compliment her homeowners and auto insurance coverages. Soon, she’ll have some additional assets to invest after distributing the estate. The lesson for the independent agency: While the investment advisor could only look to a small revenue stream from her retirement assets, an independent agent that provides auto, homeowners and life-health services could spend the necessary time to learn all of her objectives and develop a complete risk management and retirement plan for her—and receive adequate compensation.

Because independent agents can holistically offer an array of services, they can really invest the time to know their customers. An investment advisors looks only at the assets under management or might have to charge a separate out-of-pocket fee to develop a plan. Take advantage of all your service offerings and you'll find that there are many people in your own backyard looking for someone to help them meet all of their financial goals.

Dave Evans ( dave.evans@iiaba.net)  is a certified financial planner and IA l-h contributing editor.

T O P