In November 1998, ABIG achieved agreement with 39 states resolving various market conduct issues. Incident to the adoption of the Comprehensive Compliance Plan, the Company agreed in a Consent Order, to pay up to $15 million pre-tax which will be allocated among the participating states. (Thirty-nine states joined initially in the multi-state Consent Order, and since November 1998, four additional states have also executed Addenda joining in the Consent Order.) This is included in the other lines segment. See discussion in Regulations.
The increased percentage in the Short-term and Other investments is principally a result of the receipt of the $400 merger termination fee from Cendant in October 1998. ABIG does not hold significant investments in equity securities, mortgage loans or real estate.
In early 1997, a Corporate project team was created and included Executive Management. At this point the Company began its Awareness phase.
As in the case of other types of insurance, state regulators, directly and through the NAIC, have begun a greater focus on the regulatory, licensing and disclosure issues related to market conduct of credit insurers, including the Company. A component rating approach which allows state regulators to take into account factors other than losses in determining the reasonableness of credit insurance rates was made part of the National Association of Insurance Commissioners (NAIC) Creditor-Placed Insurance Model Act that was adopted in 1996. The NAIC is anticipated to consider in 1999 issues related to credit insurance due to concerns about excessive profits earned by credit insurers
The investments of the insurance subsidiaries are limited as to type and amount by the insurance laws of the state of domicile. During 1996, the NAIC adopted the Investments of Insurers Model Act that provides a well-capitalized insurer more discretion and flexibility in its investing practices.
A substantial portion of the Company's reinsurance activities are related to agreements to reinsure premiums generated by certain clients to the clients' own captive insurance companies, or to reinsurance subsidiaries in which the clients have an ownership interest. Therefore a substantial portion of income in this area is derived from fees paid by the captive insurance companies for processing and other services performed by the Company. Collateral is obtained in the amount equal to the outstanding reserves when these captive companies are not authorized to operate in the Company's insurance subsidiary's state of domicile as required by statutory accounting principles. The Company's reinsurance receivable and prepaid reinsurance premiums at December 31, 1998 and 1997 totaled $977.1 million and $835.9 million respectively. The Company's reinsurance was placed with numerous client reinsurers including the following significant reinsurers: (1) Montgomery Ward Insurance Company, (2) Great Lakes Insurance Company and (3) Viking Insurance Company, Ltd. The Company historically has not experienced any material losses in collection of reinsurance receivables.
While none of the Company's remaining cases are necessarily significant in terms of financial risk to the Company, the judicial climate in Alabama and Mississippi is such that the outcome of these cases is extremely unpredictable. Moreover, class action lawsuits to which the Company is a party do not lend themselves to potential damage calculation. There are still a number of cases pending, and it is expected that more suits alleging essentially the same causes of action are likely to continue to be filed during 1999. The Company denies any wrongdoing in any of these suits and believes that it has not engaged in any conduct that would warrant an award of punitive damages or that the class allegations have merit. The Company has been advised by legal counsel that it has meritorious defenses to all claims being asserted against it. The Company believes, based on
The Company is involved with a number of cases in the ordinary course of business relating to insurance matters, or more infrequently, certain corporate matters. Generally, the Company's liability is limited to specific amounts relating to insurance or policy coverage for which provision has been made in the financial statements. Other cases involve general corporate matters which generally do not represent significant contingencies for the Company.
AMERICAN BANKERS INSURANCE GROUP, INC. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)