Institutional investors owning 9.5 percent of the publicly held stock of an insurance and/or reinsurance company needs their own independent director. Independent directors who possess unparalleled depth of technical expertise and experience, specifically to the operation of an insurance company, should be called upon by insurance rating organizations and insurance regulatory departments. In Vermont, for example, domiciled captives generate about 1,400 high paying jobs and $25 million in taxes; so it should be required that captives have independent directors.
Risk managers, who are busy finding new ways to closely monitor the financial health of their carriers, also should have a method to directly access independent directors. Ideally, risk managers should have direct access to independent directors of carriers like American International Group, XL Insurance or Hartford Insurance Group. Instead, they are cutting the amount of insurance they place with troubled carriers, and are also diversifying the number and range of the carriers in their directors and officers (D&O) insurance policies. The independent director of an insurance company can help the risk manager eliminate the concern about the company's financial viability.
The financial analyst at the investment management company should have access to the independent director at the publicly held insurance company. Reading insurance stock research reports and listening in on conference calls is not sufficient to understand the complexity of the insurance companies like ACE, XL, Liberty Mutual, Travelers, Chubb, Allstate and Hartford. The financial analyst needs direct access to the independent director, who should be able to explain the potential financial exposure of credit default swaps, the fixed income investments of insurance companies.
Take specific note that we have not heard from independent directors of L Capital, AIG, etc., but we do quietly learn of director resignations.
If we are to bring back faith in the investment community, we need a complete overhaul of the role of the independent director of an insurance company.
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