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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Logain Ablar who wrote (5596)	2/14/2002 10:14:51 PM
From: John Pitera	Read Replies (3) \| Respond to of 33421

BRKA and Warren Buffett, Hi Tim, I had not seen that article thank you for mentioning it. I know you are right that the reinsurers ended up taking on business they should not have. It is an interesting environment now that they have much greater pricing power and have also just gone through a kitchen sink Quarter, of writing down everything that they can. what are some of the big reinsurers that might be of potential interest, and what about some of the big European ones, Like Swiss Re, AXA etc? ----------- February 6, 2002 EARNINGS February 6, 2002 Berkshire Hathaway's Earnings To Include Loss at General Re By PATRICIA CALLAHAN and CHRISTOPHER OSTER Staff Reporters of THE WALL STREET JOURNAL COPING WITH LOSSES • Buffett Admits Insurers Made 'Huge Mistake'3 11/12/01 Berkshire Hathaway Inc. said its fourth-quarter earnings will include a pretax underwriting loss of about $1.27 billion resulting from operations at its General Re global reinsurance unit. Berkshire said its other insurance units had a fourth-quarter underwriting profit that reduced the total underwriting loss to about $1 billion. The conglomerate run by billionaire investor Warren E. Buffett said about $570 million of General Re's fourth-quarter loss resulted from insufficient reserves taken in 2000 and prior years in its North American property casualty reinsurance operation. These prior-year loss estimates already had been increased by $206 million during the first nine months of 2001. "This under-reserving occurred in almost all areas of General Re's casualty business," the company said. bulk of the losses are unrelated to the Sept. 11 terrorist attacks. Analysts saw the disclosure of the loss -- released after the close of trading on the New York Stock Exchange -- as a housecleaning move after executive changes made last year. Joseph Brandon became chief executive officer of General Re Oct. 1, succeeding Ronald E. Ferguson. Mr. Brandon had been Gen Re's executive vice president. "I attribute this to a cleaning up of errors that were made prior to the management change," said Alice Schroeder, an insurance analyst at Morgan Stanley Dean Witter. The new management, Ms. Schroeder says, is trying "to get the balance sheet right." In a letter to shareholders in November, Mr. Buffett said General Re wasworking its underwriting practices "with a new urgency," uding avoiding business that involved moral risks or dealing with dishonorable or unethical clients. He also said an insurer should confine its underwriting to businesses that could withstand a significant loss and still report a profit, and it should limit the business it accepts to avoid numerous losses from a single event that could threaten the company's solvency. "All those rules were broken at General Re," Mr. Buffett said in the letter. The company said the fourth-quarter underwriting loss also included an increase of $170 million to the estimated World Trade Center losses reported in the third quarter and an extra $100 million related to other losses reported during the first nine months of 2001. An additional $46 million in losses comes from Enron-related coverage and $143 million from a large property loss in its international division. Ms. Schroeder has called the current reporting period kitchen sink" quarter for the industry because several insurers have reported losses that "a public company might be reluctant to make in a more normal quarter when investors would be less tolerant of misses." But Berkshire said that its just-announced underwriting loss "does not fall in this category but rather reflects information that General Re's management and actuaries have learned during the quarter that leads them to believe new reserve levels are required" to estimate its reinsurance liabilities as of Dec. 31, 2001. Since Sept. 11, investors have been forgiving of big losses and reserve increases reported by insurers, and have used more on premium-rate increases that are averaging nearly 30% in property and casualty insurance lines.se rate increases come er a decade-long price war in the industry that helped create the types of underwriting es Berkshire now faces. A smaller insurer, W.R. Berkley Corp. of Greenwich, Conn., said Tuesday that it would increase loss reserves by $55 million in the fourth quarter and that it expected to have a loss of $2.05 a share in the fourth quarter. Berkley said it will release its full earnings next week. Despite the announcement, in 4 p.m. New York Stock Exchange composite trading Tuesday, Berkley shares were up 22 cents to $50.82.

To: Logain Ablar who wrote (5596)	2/14/2002 11:20:51 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Commercial Paper Market closing down for Leveraged Debtors--- Commercial-Paper Market Slump Triggers Fears of a Credit Crunch By MICHAEL MACKENZIE DOW JONES NEWSWIRES NEW YORK -- The door to the U.S. commercial-paper market has slammed shut to some companies, raising fears of a potential credit crunch. Commercial paper is an important source of short-term funding for corporations needing a constant supply of working capital for such items as inventory investments and payroll expenses. Normally, such financing should be cheap now, thanks to the Fed's aggressive rate cuts. But since the collapse of Enron, which made investors reluctant to hold the debt of some companies, the commercial paper market has been under pressure, with certain borrowers effectively shut out. If the situation deteriorates, some economists warn, it could trigger a credit crunch that would offset the Federal Reserve's aggressive injection of liquidity last year. The latest victim of tight credit conditions in the CP market is Qwest Communications International, which has been linked to an investigation into the bankruptcy-court filing of Global Crossing. Thursday, Standard & Poor's downgraded Qwest's long-term credit ratings. It cited the company's inability to roll over its commercial paper, which forced the company to draw down $1.1 billion in bank credit lines. Qwest's problems follow those recently encountered in the CP market by Tyco International Inc. What concerns some analysts is that this selective risk aversion is spreading to a wider cross section of the market. CP rates for so-called Tier Two companies, which carry the lower P2/A2 rating for CP, as opposed to the P1/A1 ratings for Tier One issuers, have become prohibitively expensive. "The CP market is proving challenging for many issuers," said Joanie Genirs, vice president of credit strategy at Lehman Brothers. Without the ability to sell commercial paper, companies such as Qwest have had to tap bank-credit lines, which can be expensive. "Losing the ability to issue paper will almost always lead to a definite pickup in interest expense," said Bill Sullivan, economist at Morgan Stanley. There are ripple effects from this deterioration, because drawing down credit lines can undermine companies' balance sheets, putting overall credit ratings at risk and making it harder to access long-term debt markets. If the situation were to worsen significantly, the Fed would probably become concerned, because the effectiveness of monetary-policy efforts depends on the smooth functioning of credit markets. At the least, it would complicate any move by the agency to raise rates to combat inflation. The Fed "would be forced to leave policy on hold for the indefinite future," Morgan Stanley's Mr. Sullivan said. And in the event of any widespread credit squeeze, "policy makers may actually be forced to provide more liquidity and eventually reduce the funds target," he added. The CP market experienced a record number of downgrades from Tier One to Tier Two in 2001. Since the start of the year, when many investors seek to park funds in short-term money markets, nonfinancial CP issuers -- industrial companies -- have experienced a notable drop in issuance. According to Fed data, total outstanding CP issuance for nonfinancial companies fell about 7% to $209 billion by Wednesday, from $225 billion at the start of the year. There was sharp drop in the level of issuance in commercial paper in 2001, too. But that largely was offset by a record level of long-term corporate-debt issuance. The twin trends reflect the combined effect of recession and lower interest rates, which led many companies to take advantage of cheaper finance for long-term debt so as to restructure their balance sheets. In a report, Moody's Investors Service said the 2001 drop in CP issuance wasn't a credit crunch. Companies needed less short-term financing because inventories were lower. So far, the tightening of credit markets hasn't led economists to scale back economic forecasts, but some see risks to the bottom lines for businesses and to investor confidence.