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SECURITIES CAPITALIZE REINSURER
ST. PAUL, Minn.-The St. Paul Cos. Inc. has completed the sale of $68.5 million in securities that will provide reinsurance capacity for its St. Paul Re subsidiary for up to 10 years.
Proceeds of the transaction, one of the first by a U.S. reinsurer, will fund a retrocessional reinsurance company called George Town Re whose sole purpose is to reinsure St. Paul Re. The new company will reinsure five classes of property excess-of-loss and property catastrophe coverage under a 10-year proportional reinsurance treaty.
Although there is sufficient capacity in the property catastrophe market at the moment, "this is a 10-year deal" and there may not be enough capacity in the future if there is a catastrophe as large as or larger than Hurricane Andrew, said a spokesman for St. Paul.
Approximately $44.5 million was raised in a private placement through the issuance of notes that will mature in 10 years. Of that $44.5 million, $23.3 million is invested in zero-coupon securities to provide for the full return of the principal of the notes at maturity. Another $24 million was raised in preference shares redeemable in the year 2000. Returns are dependent upon the cash flows from the reinsurance treaty and investments.
This is the first major transaction executed by Goldman Sachs' Insurance Products Group, a newly formed joint venture of the fixed-income and investment banking divisions of Goldman, Sachs & Co.
HCFA MULLS SURETY BOND RULE
WASHINGTON-The Health Care Financing Administration is considering requiring new durable medical equipment suppliers to post a surety bond as a way to help weed out fraudulent suppliers in the Medicare program.
HCFA plans to publish within the next six months a notice of proposed rulemaking establishing a surety bond requirement, HCFA Administrator Bruce C. Vladeck wrote in a letter last month to Rep. Fortney "Pete" Stark, D-Calif.
The National Assn. for Medical Equipment Services in Alexandria, Va., is "cautiously supportive" of a bond requirement to eliminate fraud and abuse, a spokesman said. The biggest problem is shell operators billing federal agencies for non-existent supplies, he added. However, the association is concerned that a surety bond requirement may make it more difficult for small suppliers to enter the market.
Suppliers expect that the HCFA proposal will call for a $50,000 bond, like that posted by Medicaid suppliers in a successful Florida program begun last year.
SITE COSTS PHELPS DODGE
NEW YORK-Phelps Dodge Corp. must pay $21 million to the U.S. Postal Service and take back a 37-acre polluted site it sold to the Postal Service 10 years ago, a U.S. District Court judge in Brooklyn has ruled.
The Phoenix-based mining and manufacturing company must now work with the New York State Department of Environmental Conservation to determine how it will clean up the site.
The original cleanup cost was estimated at $750,000, but if the original specifications are followed the cleanup would cost $275 million, said Judge John Gleeson of the Eastern District of New York.
Phelps Dodge has been in effective control of the site since 1875 and is currently determining whether its past insurance coverages will cover the pollution cleanup, a Phelps Dodge spokesman said.
The site in Maspeth, Queens, had been polluted after years of use as an industrial site.
Phelps Dodge sold it to the Postal Service for $14.7 million in 1987 but agreed to clean up the site by removing the contaminated soil to a landfill in Ohio. However after the cleanup began, it was discovered that the ground water had been contaminated and a much more expensive and extensive cleanup was necessary, court documents say.
After discovering the true extent of the pollution, Phelps Dodge ceased cleanup operations and suggested capping the site with asphalt or clay, but the plan was rejected by the DEC after opposition from the local community, court papers say.
Phelps Dodge breached its contract with the Postal Service by failing to clean up the site "with diligence and continuity to completion," Judge Gleeson said. "It has engaged in dilatory tactics ever since it became clear that there may well be no solution to the environmental problems affecting the Phelps Dodge site," he said.
Judge Gleeson awarded the purchase price plus interest to the Postal Service. Phelps Dodge is considering whether to appeal the decision.
OSHA CHIEF TO STEP DOWN
WASHINGTON-Joseph A. Dear will leave his job as head of the Occupational Safety and Health Administration at the end of this week.
Mr. Dear, the assistant secretary of labor credited with promoting a cooperative approach to solving workplace safety-problems, will become chief of staff to Washington state's Gov.-elect Gary Locke.
In announcing his resignation, Mr. Dear said that OSHA is "stronger and more focused on its mission." OSHA also is "more open to new ideas and better ways of working" than it had been previously, he said.
No successor to Mr. Dear has been nominated and no acting assistant secretary for OSHA has been named.
DOLL MAKER WARNS OF RISK
EL SEGUNDO, Calif.-Mattel Inc. is attaching warning labels to its Cabbage Patch Snacktime Kids dolls following several incidents in which the doll's mechanical mouth munched on hair and fingers as well as its intended plastic food.
Despite passing a battery of safety tests, including those set by the Consumer Product Safety Commission as well as state and federal guidelines, the toy manufacturer said it was aware of at least 35 incidents in which a child's hair or finger was caught in the doll's mouth. No serious injuries have been reported, however, and a Mattel spokeswoman said she is unaware of any lawsuits filed.
The CPSC is investigating other possible safety risks posed by the doll, and has the authority to order a recall if the risks are deemed "a substantial safety hazard," according to a commission spokesman.
Mattel is pursuing its own investigation on a case-by-case basis, the company's spokeswoman said. "At this point, we both still feel (the Cabbage Patch doll) is a safe product," she said.
Mattel has distributed 700,000 Snacktime Kids since August 1996. The new warning labels will be affixed on all the dolls still on store shelves and on all future production. The label not only warns that long hair and fingers can get caught in the doll's mouth, but also how consumers can stop the doll's chewing action by removing its backpack.
STEELCASE PAYMENT NOT INSURED
KALAMAZOO, Mich.-Steelcase Inc.'s $211.5 million payment that ends a 17-year patent infringement dispute with Haworth Inc. is not covered by insurance.
The payment, ordered by a special master in U.S. District Court in Kalamazoo, Mich., has been paid from cash reserves, a spokesman for Grand Rapids, Mich.-based Steelcase said last week. The judgment consists of $96.8 million in damages and $114.7 million in interest.
The dispute first arose in 1978 when Holland, Mich.-based Haworth claimed Steelcase copied its design for movable office panels that allow electrical routing. After settlement attempts failed, Haworth filed suit in 1985 and a federal court ruled in Steelcase's favor in 1988. An appellate court reversed that ruling in 1989 and the Supreme Court refused to review the case.
W. Marston Becker was named chairman and CEO of New York-based Orion Capital Corp., succeeding Alan R. Gruber, who remains chairman of the executive and investment committees. Mr. Becker previously was president and CEO of DPIC Cos., Orion's professional liability unit. . . .Dutch insurer AEGON N.V. is buying the insurance operations of Louisville, Ky.-based Providian Corp. for $3.5 billion. A banking unit, Providian Bancorp, was spun off prior to the Aegon acquisition. . . .The U.K. Director General of Fair Trading is reviewing Aon Corp.'s acquisition of Bain Hogg Group P.L.C. under the Fair Trading Act 1973 and is inviting comments on the deal until Jan. 15. Once comments and other information have been reviewed, the director general will decide whether to recommend that the deal be referred to the Monopolies and Mergers Commission for investigation. . . .James M. Skelton, who resigned late last year as president of the Illinois Insurance Exchange, and his son recently formed Equity Insurance Managers of Illinois L.L.C. Equity Insurance Managers purchased and plans to expand the operations of Irland & Rogers Inc., a 40-year-old wholesale agency in Chicago that will continue to do business under that name. . . .Humana Inc. will eliminate 700 to 900 jobs this year from its U.S. workforce of 18,000. The cuts, which will result in a charge of about $15 million before taxes for the fourth quarter of 1996, are needed to boost efficiency and cut administrative expenses, the company said. . . .Gregory V. Serio, first deputy superintendent and general counsel of the New York Insurance Department, has been named acting superintendent following the resignation of Edward Muhl last month.