Insurer AIG narrows 4th-qtr loss, as it continues restructuring, paying back government loan

FILE - In this Sept. 17, 2008 file photo, the AIG logo is shown in New York. AIG said Friday, Feb. 26, 2010, it lost $8.87 billion in the fourth quarter as it paid down some of the billions of dollars in bailout loans it received from the government.(AP Photo/Mark Lennihan, file) (Mark Lennihan, AP / September 17, 2008)

AIG said Friday it lost $8.87 billion in the fourth quarter as its general insurance business remained weak and the company ran up expenses from paying back government loans.

The troubled insurer also said in an annual regulatory filing that it may need additional support from the government. However, AIG has included such warnings in past filings with the Securities and Exchange Commission.

The fourth-quarter results were an improvement from the $61.7 billion AIG lost in the year ago period, but they were worse than analysts expected. They also followed two straight profitable quarters.

The company reported a 2.2 percent drop in new premiums in its Chartis general insurance business, compared with a year earlier. AIG attributed the slide in part to the weak economy. That was a better result than in previous quarters, as the company said it was able to hold on to current customers while also bringing in new business.

AIG also had lower sales of life insurance products, and it added $2.3 billion to its reserves against losses in its commercial insurance business.

CreditSuisse analyst Thomas Gallagher said the company would benefit from premium price increases, but he doesn't believe management will take "strong pricing actions."

Gallagher lowered his 2010 earnings outlook by $2.25 to $3 per share. Analysts, on average, forecast earnings of $7.28 per share.

AIG also reported $6.2 billion in expenses from repaying government loans.

Investors weren't happy with AIG's news, and bid its stock down $2.23, or 8.1 percent, in afternoon trading.

The concern in the market is that AIG's insurance business, which was not the cause of its near-collapse in 2008, needs to be stronger for the company to keep repaying the government and become independent again.

New York-based American International Group Inc. said Friday it lost $65.51 per share in the last three months of 2009. The compares to a loss of $458.99 per share in the fourth quarter of 2008.

On average, analysts surveyed by Thomson Reuters forecast a quarterly loss of $3.94 per share.

AIG was bailed out in September 2008 by the government as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of $182.5 billion from the government. In return for that financial support, the government received an 80 percent stake in AIG.

The company was undermined by underwriting risky credit derivatives contracts. A plunge in the value of those contracts was the primary driver of AIG's near-collapse.

AIG has been working for the past year and half to sell assets and streamline operations in an effort to repay government debt. Since receiving government bailout funds, AIG has completed 19 unit sales or asset transactions.

It reported Friday that it continues to unwind its Financial Products Group, the unit blamed for AIG's downfall.

"Clearly we will be a smaller and more focused company than in the past," CEO Robert Benmosche said in a prerecorded message. "The only way we can repay taxpayers is to divest parts of this organization."

Earlier this month, MetLife Inc. confirmed that it is in talks with AIG to buy one of AIG's insurance units. Media reports price the deal at as much as $15 billion. The two companies have been in discussions for months about a potential deal for AIG's American Life Insurance Co., known as Alico.

Alico is an international life and health insurance business that operates in more than 50 countries.

AIG spokesman Mark Herr would not comment on any ongoing discussions, or what other business units may be up for sale.

CreditSuisse analyst Gallagher expects AIG to repay the government loan through "large business sales," but did have any specifics.

On Friday, AIG said it is continuing to address funding needs and explore options for restructuring its aircraft leasing unit, International Lease Finance Corp., and its American General Finance Inc. division.

AIG also said it had decided with the agreement of its federal overseers not to use cash flows from life insurance policies to repay a $8.5 billion loan to the Federal Reserve Bank of New York.

The company said it now believes it can pay the loan through other means, and that the decision follows a market recovery over the past year that could improve the company's debts.

"We think the combination of strategic asset sales and reviving businesses will generate sufficient funds to repay the taxpayer," Herr said.

As of Dec. 31, AIG's outstanding assistance from the government totaled $129.26 billion, up 5.7 percent from the end of the third quarter. The higher total is due to accrued interest on the loans, the company said.

Of that outstanding assistance, AIG owes the government $94.76 billion in loans and interest, a 10.6 percent increase from the end of the third quarter. The remaining $34.5 billion in outstanding assistance is tied to the value of investments the government bought from AIG. As those investments pay off or rise in value, the government recoups more money.

American Oriental Bioengineering Announces the Inclusion of 158 Drugs in China's National Insurance Catalog

-- Jinji Capsule, Flagship Women's Health Product, Newly-Added --

-- 82 Class A Drugs and 76 Class B Drugs Selected --

NEW YORK, Dec. 18 /PRNewswire-Asia-FirstCall/ -- American Oriental Bioengineering, Inc. (NYSE: AOB), ("the Company" or "AOBO"), a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over the counter ("OTC") products, today announced that 158 of the Company's drugs have been included in China's National (Medical) Insurance Catalog (the "2009 NIC"). Of these, 82 are categorized as Class A drugs and 76 are categorized as Class B drugs. Most importantly, Jinji Capsule, AOBO's best selling national branded product, has been added to the 2009 NIC since its last publication in 2004.

The 2009 NIC was released by China's Ministry of Human Resources and Social Security on November 30, 2009 as part of China's healthcare reform. According to the Chinese government, ninety percent of China's citizens will be covered by a universal healthcare system by the end of calendar 2010. As China's official drug reimbursement list, the 2009 NIC features 2,151 drugs, which are categorized as Class A (fully covered) or B (partially covered). All drugs are classified into three categories: 1) Western Chemical Drugs (349A+791B); 2) modernized Traditional Chinese Medicine (TCM) (154A+833B); and 3) TCM decoction pieces. The implementation of the plan is required immediately for Class A drugs and by 3/31/10 for Class B drugs.

Mr. Tony Liu, Chairman and Chief Executive Officer of American Oriental Bioengineering, commented, "We are very honored that a total of 158 drugs produced by our five subsidiaries have been included in China's National Insurance Catalog. Of these, 82 products are fully reimburseable as Class A drugs and 76 qualify for partial reimbursement as Class B drugs. We are especially pleased about the inclusion of our best-performing and flagship women's health product, Jinji Capsule, in the NIC. Jinji Capsule is a widely recognized product to treat gynecological inflammation, including endometritis, annexitis and pelvic inflammations. Based on government data, 147 million women in China suffer from gynecological inflammation, and we believe that partial reimbursement for this drug will boost sales of Jinji Capsule nationwide."

Mr. Liu continued, "The 2009 NIC is a vital guideline for the expanding universal healthcare system, which aims to cover the vast majority of the population. The NIC will be fully implemented in 2010, making more drugs affordable and greatly expanding the addressable pharmaceutical market in China. We believe that the inclusion of our products in the NIC, in addition to further increasing brand recognition, will hasten our expansion into key therapeutic areas."

About American Oriental Bioengineering, Inc.

American Oriental Bioengineering, Inc. is a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over the counter products.

Statements made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. The economic, competitive, governmental, technological and other factors identified in the Company's filings with the Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2008, may cause actual results or events to differ materially from those described in the forward looking statements in this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.

RNs Praise Attorney General Move to Subpoena Insurance Plans

Move Follows Nurses Report on Patient Claims Denials -

NEW DATA - Denial Rates Averaged 26% Even After Public Uproar

OAKLAND, Calif., Feb. 25 /PRNewswire/ -- The California Nurses Association/National Nurses Organizing Committee today praised the announcement from California Attorney General Jerry Brown that he will subpoena records from seven of the state's biggest private insurance companies to review their policies that have led to public outrage over denials of claims and huge rate increases.

Brown began an investigation following release of research by CNA/NNOC last September, and extensive media reporting, that documented that since 2002 more than one of every five requests for medical claims for insured patients have been rejected by California's largest private insurers.

Today CNA/NNOC released new data from its research arm, the Institute for Health and Socio-Economic Policy – also based on publicly available data from the California Department of Managed Care. It shows that despite the public uproar following the initial reports last September, the high denial rates were actually higher for the last six months of 2009, averaging 26 percent for seven large insurers.

Claims denial rates by leading California insurers, second half of 2009, compared to the first six months of 2009:

• PacifiCare – 41.17 percent (up from 39.6 percent for the first six months of 2009)
• Cigna – 35.43 percent (up from 32.7 percent)
• HealthNet – 25.82 percent (down from 30 percent)
• Kaiser Permanente – 26.96 percent (down from 28.3 percent)
• Anthem Blue Cross – 24.5 percent (down from 27.9 percent)
• Aetna – 6.4 percent (no change)
• Blue Shield – 22 percent (Blue Shield had previously not reported separate denial data, and only began reporting after the media reports on denials)

For the reporting period of July 1, 2009 to December 31, 2009, the denials average 26.05 percent by the seven insurers.

"What we see over and over is an arrogant industry that is indifferent to the pain and suffering caused by routine care denials or economic catastrophe prompted by outrageous price gouging," said CNA/NNOC Co-President Geri Jenkins.

"The denials and pricing practices are both motivated by the prime directive that seems to surpass everything else for these companies – squeezing their patients and providers alike for profits and revenues regardless of who gets hurt along the way."

"We applaud the effort of the Attorney General to more carefully scrutinize the behavior and records of the insurers. They must be held accountable to the public for their disgraceful and potentially illegal behavior," Jenkins said.

Blumenthal Wants Rate Hikes For Health Insurance Kept "Reasonable"

States Push Ahead On Health Care Reforms And Policy Issues, Pre-Empting Some Provisions Of Congressional Efforts

Columbia Missourian: "The Missouri Senate spent nearly all of its session time Monday on resolutions that would urge the state's attorney general to sue the federal government for legislation that may never see the light of day in the U.S. Congress." The legislation would urge the state attorney general to join with "other state attorneys general in threatening a lawsuit against the federal government if a version of the health care reform is passed into law. The attorneys general, led by Henry McMaster of South Carolina, have said they would sue over a provision inserted into the U.S. Senate version of health reform that was designed to win the support of conservative U.S. Sen. Ben Nelson, D-Neb." That language would have exempted Nebraska on a permanent basis "from funding the expansion of Medicaid that would be required under the proposed bill" (Bushnell, 2/8).

Modern Healthcare, on the rise of uninsured residents in Minnesota: "Less than 60% of Minnesotans had health insurance through an employer in 2009, which contributed to a notable increase in the number of residents without insurance in a state that typically has rates of coverage higher than national averages, a new study indicates. Authors of the Minnesota Health Access Survey said the results likely will serve as a preview of other state and national surveys because Minnesota is one of the first states to report academic findings on the rate of uninsured people for 2009." The survey "found that the number of Minnesotans without insurance increased by 106,000 between 2007 and 2009, leaving the state's uninsured rate at 9.1%, compared with 7.2% two years earlier" (Carlson, 2/8).

The Philadelphia Inquirer reports on efforts by the "Law Enforcement Health Benefits Inc., which oversees health-care benefits for Philadelphia police. LEHB and its administrator, Thomas Lamb, are roundly praised for aggressively reining in costs. ... Even so, LEHB's efforts cannot offset city health-care costs that are high relative to other employers', mostly because Philadelphia employees pay little out of their own pockets. That leaves taxpayers shouldering health-care costs that jumped 123 percent from 2001 to 2008, a period in which city revenue rose only 38 percent. ... Starting in July, Lamb will be at the forefront of a new effort to control medical costs known as self-insurance. Instead of paying a premium to its insurer, Independence Blue Cross, LEHB, using city funds, will now pay claims as they come in. The city hopes to save about $5 million in fiscal 2001 because of the switch to self-insurance" (Hill, 2/9).

St. Paul Pioneer Press: A legislative effort "to rescue a state-run health care program for the poor took its first hesitant step Monday toward becoming law." The measure, advanced by Sen. Linda Berglin, DFL-Minneapolis, is estimated to cost roughly $320 million and "would restore coverage, now set to expire at the end of March, for those earning less than $7,800 a year." A companion measure is moving through the House. "The bill is on a fast track as one of the big early tests of the 2010 session. It passed out of the Senate's Economic Development and Housing Budget Division on Monday, will be heard in the Senate's Finance Committee today and is headed toward a vote Thursday on the floor of the Senate" (Hoppin, 2/8).

Kansas Health Institute: "Kansas is going to need more doctors to meet the growing needs of an aging population, officials here say. Meanwhile, the University of Kansas School of Medicine in Wichita has been successful training doctors who choose to remain in the state. Almost half its graduates have stayed in Kansas; the national average for retaining medical school graduates is 29 percent. With the aim of turning out more graduates, university officials here have long wanted to convert the Wichita campus to a four-year school. It's a two-year program, now" (Ranney, 2/9).

This information was reprinted from kaiserhealthnews.org with kind permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery atkaiserhealthnews.org.

© Henry J. Kaiser Family Foundation. All rights reserved.

Anthem Blue Cross 39 Percent Rate Hike Draws Ire Of Federal, Calif. Regulators

Los Angeles Times: "California insurance regulators asked Anthem Blue Cross to delay controversial rate increases of as much as 39% for individual policies, hikes that have triggered widespread criticism from subscribers and brokers -- and now from the federal government. In a rare step, the Obama administration called on California's largest for-profit insurer to justify its rate hikes, saying the increases were alarming at a time when subscribers face skyrocketing healthcare costs."

"In a letter to Anthem's president, Health and Human Services Secretary Kathleen Sebelius voiced serious concern over the higher premiums, which go into effect March 1 for many of the insurer's estimated 800,000 individual policyholders" (Helfand, 2/9).

Reuters: "Sebelius called for Anthem to offer the public a detailed explanation of the rate hike as well as other information about how much of consumers' premium dollars go toward medical care rather than other expenditures. ... While it was unclear what, if any, steps the U.S. health department could take, Sebelius said she was 'very disturbed' and was 'closely monitoring' the Anthem situation" (Heavey, 2/8).

The Associated Press: Sebelius "said the company should also make public what percentage of customers' premiums go to medical care versus administrative costs. ... Sebelius said Anthem Blue Cross' parent company, WellPoint Inc., 'has seen its profits soar.' ... WellPoint earned $536 million in the final three months of last year."

"President Barack Obama cited the Anthem rate hikes in an interview with CBS' Katie Couric on Sunday as a reason to move forward with his health overhaul legislation, which is stalled in Congress" (Mohajer, 2/8).

The Washington Post: "The unusual salvo offers a reminder that, even as health-care legislation lies in limbo in Washington, the battle over surging health care costs continues in other venues."

"'We regret the impact this has on our members,' the company said in a statement. 'It highlights why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors. As such, it is important to go back to the beginning and get health care reform done right'" (Macgillis, 2/8).

This information was reprinted from kaiserhealthnews.org with kind permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery atkaiserhealthnews.org.

© Henry J. Kaiser Family Foundation. All rights reserved.

INSURANCE

The basics of insurance are simple - one company offers a guaranteed future payment for a contracted event. The company offering the guarantee charges a premium for insuring against the event's occurence - in doing so, the insurance company is protecting the client against certain circumstances, say physical capital loss due to a natural disaster. The insurance company assumes all financial responsibility associated with the client’s losses.

Where the business gets complicated is in the calculations of premiums. This involves the use of complex stochastic probabilty models meant to simulate the likelihood of a given event’s occurrence. Not all events are created equal, from an insurance perspective - for some types of insurance a company can accurately predict the probability of occurence (say, automobile insurance, which has such a large sample to study that companies can make accurate predictions and judgments about demographic groups). For events that are harder to predict (say, the future value a Mortgage-Backed Security (MBS)) insurance companies take on greater risk when they issue policies.

The insurance sector itself is segmented into four distinct sub-sectors: Life Insurance, Property & Casualty Insurance,Accident & Health Insurance, and Miscellaneous Insurance.

Insurance Industry Sub-Sectors

Life Insurance

Life insurance deals with policies that are written to hedge against the risk of death, accidental death, and in some cases, sickness. In many cases, liability to the insurer is limited based on cases dealing with suicide, war, riot, and fraud.

Companies within the Life Insurance Sub-Sector:

Property & Casualty Insurance

Casualty insurance deals with policies that are written to hedge against the risk of unforeseen accidents. Some examples are insurance policies for auto accidents or losses incurred at sea (Marine Insurance). In general, casualty insurance hedges against risks associated with liability and crime.

Companies within the Casualty and Property Insurance Sub-Sector:

Accident & Health Insurance

Health insurance deals with policies that are written to hedge against the risk of unexpected or unexpectedly high health costs. Interestingly, the insurer of health insurance policy can either be from the private sector or the public sector, subsidized by taxes.

Companies within the Accident and Health Insurance Sub-Sector:

Financial Guarantors/Assurance

Assurance/guarantor companies provide insurance against default on credit instruments. They collect premiums to insure bonds against defaults and/or losses in value through insurance policies generally called "insurance enhancement products". Some examples are:

Miscellaneous Insurance

Companies within the Misellaneous Insurance Sub-Sector:

Whats Moving the Insurance Sector

Retiring Baby Boomer Generation/Convergence of Insurance Sector and Financial Industry

As the first of the baby boomers are set to retire within the next few years, financial and insurance firms remain pitted in a battle to provide them with financial funds to fuel their retirement. The traditional methods of retirement finance such as social security, 401ks, and corporate pension plans are becoming increasingly riskier as government legislature struggles to find a solution to social security deficits and companies find it harder and harder to meet the promises of current pension plans. Since the lines between financial institutions and insurance institutions has been blurred with the repeal of the 1999 repeal of the Glass-Steagall Act, which restricted the ability of insurance companies to provide financial services, aging baby boomers have become an increasingly attractive market to insurance companies.

Changing Interest RatesTo compete with the corporate pensions plans provided by the company, insurance companies are offering annuities to retirees. Annuities come in many, often complex, forms and packages. However, the underlying concept remains the same: purchase of the annuity is made with an upfront lump sum, with the promise of a steady periodic income as long as the contract requires.

Generally speaking, interest rates will affect any firm involved in any type of investment or firm that issues corporate debt or equity. Changes in the interest rate will invariably change the fundamental values of both equity and debt, since the fundamental value of debt is determined by the time weighted average of payments discounted by current short or long interest rates, and the fundamental value of equity is determined by the value of a firm today along with any projects in the future discounted by some factor over the risk free interest rate.

Systematically, the interest rates are roughly set through the supply and demand of money in the economy, most of the time with help from the Federal Reserves’ monetary policy.