Travelers Forecasts 2008 Operating Earnings at Lower Range

Travelers Companies Inc., one of the largest U.S. property insurers, said Thursday that a a "fine tuning" of its investment outlook gives it a bias towards the lower end of a previous forecast for operating earnings.

On April 24, the company raised its 2008 outlook for operating earnings to between $5.55 and $5.85 a share from a range of $5.45 to $5.75.

On that basis, analysts, on average, expect earnings in 2008 at $6.01 a share, according to Reuters Estimates.

Chief Financial Officer Jay Benet said at an investor presentation the company had managed to largely skirt investments that have caused other financial services companies, including some insurers, to take large write-downs.

"We take risk on the right side of the balance sheet. We don't double up on the left side of the balance sheet," Benet said of the company's investment approach.

Running through a list of troublesome assets, Benet said Travelers had "negligible exposure" to subprime mortgage-backed securities and none when it came to collateralized debt obligations, auction-rate securities and asset-backed commercial paper, among others.

Chief Executive Jay Fishman said the insurer was keeping its "eyes wide open" for potential investment opportunities, but any acquisition would be measured by its ability to increase returns for shareholders.

"We know the risks, the balance sheet risk, the people risk, the culture risk (of acquisitions)," said Chief Executive Jay Fishman, adding that Travelers would only make a bid when an acquisition that had the potential to change the "shareholder value equation" for the better.

He declined to speak specifically to speculation that Travelers is in the running to buy Royal Bank of Scotland Group Plc's insurance business.

Fishman said Travelers' insurance business was holding up, amid market conditions he described as "softening" but not "soft."

He added that retention of customers at its commercial accounts business was strong, with a chart showing Travelers' rate of retention is on par with two years ago.

Fishman said that, while pricing was "deteriorating" the rates Travelers was able to charge to renew commercial policies was higher than for some peers.

Travelers shares were down 0.59 percent, or 29 cents, at $48.88 in afternoon trading on the New York Stock Exchange.

(Reporting by Lilla Zuill; editing by Jeffrey Benkoe and Andre Grenon)

FBI Says Fighting Financial Crimes a Priority; Insurance Cases Top 200

By Andrew G. Simpson

The Federal Bureau of Investigation pursued 529 financial crime cases in its most recent fiscal year, including 209 insurance fraud cases.

During it fiscal year 2007, the 209 insurance fraud cases investigated by the FBI resulted in 39 indictments and 47 convictions. The FBI says it realized $27.2 million in restitutions and $427,000 in fines from its insurance investigations.

The FBI said it expects the number of cases and subsequent arrest and conviction statistics to rise in the near future as more fraud is uncovered in the wake of Hurricane Katrina.

The insurance fraud cases are included in the FBI's Financial Crimes Report to the Public, Fiscal Year 2007. The report discusses corporate fraud, securities and commodities fraud, health care fraud, mortgage fraud, insurance fraud, mass marketing fraud, and asset forfeiture/money laundering.

"Financial crimes affect the economic security of millions of Americans, and the FBI is dedicated to working with our partners in industry and law enforcement to combat these offenses,"; said Assistant Director Kenneth W. Kaiser, FBI Criminal Investigative Division.

Some key findings presented in the report include:

As of the end of FY 2007, 529 corporate fraud cases were being pursued by the FBI, several of which involve losses to public investors that individually exceed $1 billion.

FBI securities and commodities fraud cases increased from 937 in 2006 to 1,217 in FY 2007, and resulted in $24 million in recoveries, $1.7 billion in restitution orders, and $202.7 million in fines.

The 2,493 health care fraud cases investigated by the FBI resulted in 839 indictments and 635 convictions of health care fraud criminals.

The 1,204 pending mortgage fraud cases in FY 2007 resulted in 321 indictments, 206 convictions, $595.9 million in restitution orders, and $21.8 million in recoveries.

The FBI investigated 548 money laundering cases in FY 2007, resulting in 141 indictments, 112 convictions, $66.9 million in restitution orders, $2.2 million in recoveries, and $11.4 million in fines.

Insurance Fraud
The report said the FBI considers insurance fraud an investigative priority, due in large part to the insurance industry's significant status in the U.S. economy.

The Coalition Against Insurance Fraud (CAIF) estimates that the cost of fraud in the industry is as high as $80 billion each year. This cost is passed on to consumers in the form of higher premiums. The National Insurance Crime Bureau (NICB) calculates insurance fraud raises the yearly cost of premiums by $300 for the average household.

The FBI goes after what it sees as the most prevalent schemes and the top echelon criminals defrauding the insurance industry, working with the National Association of Insurance Commissioners, NICB, CAIF, as well as state fraud bureaus, state insurance regulators, and other federal agencies. Currently, the FBI reports it is focusing a majority of its resources relating to insurance fraud on the following schemes:

Arson Fraud Related to Mortgage Industry Credit Crisis - Whether unable or unwilling to meet their mortgage obligations, it is believed that some number of distressed homeowners, property flippers, and/or other real estate investors have resorted to committing arson to avoid real estate foreclosure. The insurance policy holders for these properties are then able to extract otherwise unattainable proceeds/profits through the filing of false insurance claims. The FBI said that this illicit activity is being prioritized due to market forecasts calling for increasing numbers of real estate foreclosures.

Hurricane Katrina Insurance Fraud - In late August 2005, Hurricane Katrina caused approximately $100 billion in damages along the Gulf Coast. According to the CAIF, Katrina generated approximately 1.6 million insurance claims totaling $34.4 billion in insured losses. The destruction caused by the storm has resulted in a marked increase in insurance fraud in the area, according to the FBI report. Of the more than $80 billion in government funds appropriated for reconstruction efforts in the region, it is estimated insurance fraud accounts for between $4 and $6 billion. The FBI created the Insurance Fraud Task Force (IFTF) to investigate the spike in insurance fraud related to Katrina.

Insurance-Related Corporate Fraud - Although corporate fraud is not unique to any particular industry, there has been a recent trend involving insurance companies caught in the web of these schemes. The temptations for fraud within the corporate industry can be greater during periods of financial downturns. Insurance companies hold customer premiums which are forbidden from operational use by the company. However, when funding is needed, unscrupulous executives invade the premium accounts in order to pay corporate expenses. This leads to financial statement fraud because the company is required to "cover its tracks" to conceal the improper utilization of customer premium funds.

Premium Diversion/Unauthorized Entities - The most common type of fraud involves insurance agents and brokers diverting policyholder premiums for their own benefit. Additionally, there is a growing number of unauthorized and unregistered entities engaged in the sale of insurance-related products. As the insurance industry becomes open to foreign players, regulation becomes more difficult. Additionally, exponentially rising insurance costs in certain areas (i.e., terrorism insurance, directors'/officers' insurance, and corporations), increases the possibility for this type of fraud, according to the FBI report.

Workers Compensation Fraud - The Professional Employer Organization (PEO) industry operates chiefly to provide workers compensation insurance coverage to small businesses by pooling businesses together to obtain reasonable rates. Workers compensation insurance accounts for as much as 46 percent of a small business owners' general operating expenses, said the FBI report. Due to this, small business owners have an incentive to shop workers compensation insurance on a regular basis. This has made it ripe for entities that purport to provide workers compensation insurance to enter the marketplace, offer reduced premium rates, and misappropriate funds without providing insurance, the FBI says. The focus of these investigations is on allegations that numerous entities within the PEO industry are selling unauthorized and non-admitted workers compensation coverage to businesses across the U.S. This insurance fraud scheme has left injured and deceased victims without workers compensation coverage to pay their medical bills.

Viatical Settlement Fraud - A viatical settlement is a discounted, pre-death sale of an existing life insurance policy on the life of a person known to have a terminal condition. Viatical settlement fraud occurs when misrepresentations are made on the insurance policy applications, in effect, hiding the fact that the party applying for a policy has already been diagnosed with a terminal condition. On the investor end, the fraud occurs when misrepresentations are made to the investors by the viatical companies about life expectancies of insured parties and guaranteed high rates of return.

The FBI cites a case involving Mutual Benefits Corp. (MBC), a viatical settlement company, as among its most significant recent cases. More than 30,000 investors worldwide were defrauded of approximately $1 billion by the principals of MBC, who misrepresented the investment and failed to disclose prior regulatory actions. In October 2006, Peter Lombardi, former MBC president, pled guilty to securities fraud and received a 20-year sentence. In 2007, six additional subjects were charged as part of the scheme, and five have been convicted. Sentences for the additional subjects range between one and 10 years. The SEC and IRS are assisting with this investigation.

Spouse: Slain North Carolina Insurance Examiner Was 'a Joy'

By Mitch Weiss

The husband of a slain state insurance investigator said he felt sure his wife was dead from the moment he learned she was missing -- and that he's been going through a "living hell'' ever since.

Sallie Rohrbach's body was found May 20 in a wooded area in Fort Mill, S.C. Authorities charged the owner of an insurance agency she was sent to audit with killing her.

"I had known for a couple of days that that phone call was coming,'' Tim Rohrbach told The Associated Press in a telephone interview. "It wasn't a surprise to me. But you can never prepare yourself for something like this. I wasn't ready for it.''

"It's torturous,'' he said softly. "I can't describe it other than being a living hell.''

Prosecutors have charged insurance agency owner Michael Howell, 40, with first-degree murder. Rohrbach, a 44-year-old examiner with the state Insurance Department, was reviewing the books at Howell's business when she disappeared last week.

Tim and Sallie Rohrbach met while students at the University of North Carolina-Wilmington. Married for 24 years, they had no children, but Rohrbach said his wife took in three stray dogs and four cats.

"I'm not much of a people person, but she was,'' he said. "She was a joy to be around.''

Rohrbach said his wife was filling in for another insurance investigator when she left the couple's home in Angier, about 20 miles south of Raleigh, for the assignment in Charlotte. Rohrbach said his wife sent him an e-mail the night of May 13 and that was the last time he heard from her. She didn't suggest in the note that anything was amiss.

"We do a lot of landscaping and we have stuff going on all the time,'' he said. "Typically when we e-mail back and forth, that's usually what it's all about. Tuesday's (May 13) e-mail had more to do with resurfacing our driveway ... and I was updating her on what I was going to do next,'' he said.

When Rohrbach didn't hear from his wife during the next few days, he wasn't worried: He knew she was busy with the audit and had plans to visit with friends in Charlotte. Rohrbach said he expected her return May 16, so he took off from work early to greet her.

When he got home, he got a call from the Insurance Department.

"They asked if I had seen her or spoken with her. Then they told me the news,'' he said. "They said they usually communicated with her daily and had not heard from her, and they had already been worried a couple of days.

"At that point, I knew something was very very wrong.''

Rohrbach said he frantically called friends and then police. He said he couldn't sleep Friday night (May 16) before heading to Charlotte on the morning of May 17 to meet with police. They began a massive ground search and interviewed Howell, who said he last saw Rohrbach on May 14.

When police discovered her car in a fast-food restaurant on the morning of May 15, they knew there was trouble. Police told him they suspected something had happened to his wife, but at that point, "I had lost hope,'' Rohrbach said.

The cause of her death remains unclear, even after an autopsy. The Mecklenburg County medical examiner's office announced May 21 that she died from "homicide of undetermined means.''

Chrissy Pearson, a spokeswoman for the North Carolina Department of Insurance, said she couldn't discuss the complaint that prompted the audit of Howell's business. But two former customers said they paid Howell, who then failed to forward the money to their insurance providers.

"I didn't know anything until my insurance company sent me a notice that they were canceling my insurance for nonpayment,'' said Nicki Smith, 34, a home health care worker. "I tried calling him but he never answered my calls.''

Smith said she didn't file a complaint, but Pearson said such a report would have prompted an Insurance Department investigation.

Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

The History of Insurance

The insurance industry offer protection against financial losses resulting from a variety of perils. By purchasing insurance policies, individuals and businesses can receive reimbursement for losses due to car accidents, theft of property, and fire and storm damage medical expenses; and loss of income due to disability or death.

The insurance industry consists mainly of insurance carriers (or insurers ) and insurance agencies and brokerages. In general, insurance carriers are large companies that provide insurance and assume the risks covered by the policy. Insurance agencies and brokerages sell insurance policies for the carriers. While some of these establishments are directly affiliated with a particular insurer and sell only that carrier’s policies, many are independent and are thus free to market the policies of a variety of insurance carriers. In addition to supporting these two primary components, the insurance industry includes establishments that provide other insurance-related services, such as claims adjustment or third-party administration of insurance and pension funds.

Insurance carriers assume the risk associated with annuities and insurance policies and assign premiums to be paid for the policies. In the policy, the carrier states the length and conditions of the agreement, exactly which losses it will provide compensation for, and how much will be awarded. The premium charged for the policy is based primarily on the amount to be awarded in case of loss, as well as the likelihood that the insurance carrier will actually have to pay. In order to be able to compensate policyholders for their losses, insurance companies invest the money they receive in premiums, building up a portfolio of financial assets and income-producing real estate which can then be used to pay off any future claims that may be brought. There are two basic types of insurance carriers: direct and reinsurance. Direct carriers are responsible for the initial underwriting of insurance policies and annuities, while reinsurance carriers assume all or part of the risk associated with the existing insurance policies originally underwritten by other insurance carriers.

It all started with Property Insurance

Everyone knows what life insurance or property insurance is and usually knows something about how it works but not everyone knows the history and reasons for and behind insurance in general. In the most basic sense, insurance is the compensating of a person or business for a loss. There are many types of insurance to cover any situation including, auto insurance, health insurance, dental insurance, home insurance, personal insurance and even pet insurance.

A type of Property Insurance first became popular about 3000 BC in China. Chinese merchants, as well as their investors, wanted to ensure that they would see a profit from their goods that they shipped overseas. In the event that a ship was lost at sea or pirated, an insuring partner would reimburse the owners of the ship and goods. To pay for the loss the merchant would be sold into slavery to the insurer until the debt was repaid. This was a mutually beneficial arrangement since a merchant could not afford to pay for the lost goods or even to buy a ship unless someone invested. The merchant could become very rich and even own a fleet of ships if he was successful.

Of course property insurance wasn't just available in China. In Babylon merchants and investors devised a system of contracts in which the supplier of money for a trade venture agreed to cancel the loan if the trader was robbed of his goods. The trader who borrowed the money paid an extra amount for this protection in addition to the usual interest. As for the lender, collecting these premiums from many traders made it possible for him to absorb the losses of the few. This arrangement proved to be more appealing and sensible than the earlier one. Later this series of contracts was extended to include provisions for a family's home and even covered murder, the start of life insurance.

Of course news of a good idea spread fast. Soon the Phoenicians and to the Greeks, Hindus and Romans also had similar concepts in place. Each culture had it's own interesting twist on the laws. For example the Roman's had a "jettison" law which stated that if a ship's crew had to lighten the ship by throwing things overboard then the loss would be split between the merchant and the insurer. In fact, this law still exists today as part of our own laws for protection against losses at sea and the very word "insurance" is derived from the Latin word for "security."

Other forms of insurance terminology are also derived from ancient practices of Mediterranean commerce. The origin of the word "underwriter," for example, is Italian, from an old system of signing contracts on marine insurance. Those businessmen who had agreed to share in the profit or loss on a certain venture signed their names underneath the contract, writing at the same time the amount of risk assumed by each. It is possible that "policy" is also of Italian origin - derived from "promise" - although other sources have been claimed for this word.

Things changed dramatically in the 17th century. In 1666 the Great Fire of London finally and forcibly demonstrated the need for fire insurance. The primitive fire-fighting methods of the day were virtually helpless against the hungry flames that roared unchecked through narrow streets reducing timbered dwellings to ashes. The Great Fire of London burned for four days and nights. It razed 436 acres, devouring 13,200 houses, 89 churches (including Saint Paul's Cathedral), the Custom House, the Royal Exchange and dozens of other public buildings. Only six people perished in the flames, but hundreds died from shock and exposure.

Insurance protection as we know it today can be traced to the aftermath of that tragedy and a man call Nicholas Barbon. Profoundly shaken by the Great Fire, Barbon promptly opened an office "to insure buildings." This venture was apparently successful, because in 1680 he founded a partnership and established England's first fire insurance company, The Fire Office, to insure brick and frame houses.

The first mutual fire insurance company was established in 1696 with the cumbersome name of "Contributorship for Insuring Houses, Chambers, or Rooms from Loss by Fire by Amicable Contributions". This company was highly successful, eventually being absorbed by the Commercial Union Assurance Company, Ltd., of London in 1905. In 1704 the Lombard House inaugurated fire insurancefor household and business goods, and in 1762 the first mutual life insurance company was formed, The Equitable of London.

From this brief accounting of history we can see how insurance came to be. Fortunately for us we no longer have to sell ourselves into slavery if our car is stolen. However we can be confident that we will be compensated for our loss. Without people wanting to secure their investments and great tragedies throughout history we may not have insurance as we know it today and what a loss of peace of mind that would be.