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UPDATES: Giant broker deal completed

after government's quick approval


NEW YORK-Marsh & McLennan Cos. Inc. has completed its $1.8 billion acquisition of rival Johnson & Higgins after getting early clearance on antitrust filings with the federal government.

Meanwhile, an M&M report filed with the Securities and Exchange Commission offers a few new details of the price paid for privately held J&H. Under the agreement:

$1.01 billion of the total, consisting of $335.3 million in cash and $670.6 million in M&M stock, will be paid to J&H shareholders, including its roughly 50 active directors and managing principals.

Roughly 150 J&H principals are also expected to share in the buyout, but the SEC filing does not specify whether their shares are coming out of the $1.01 billion.

About $500 million, including about $167 million in cash and $333 million in stock, will go to 600 key J&H employees who are not managing principals or principals.

$297 million, including $99 million in cash and $198 million in stock, will go to 45 retired J&H directors or to estates of deceased retirees.

The cash part of the deal is intended mainly to cover taxes the recipients will owe on the payouts. Sale of the M&M stock is subject to restrictions for various periods.

In addition to the $1.8 billion, a committee of three J&H directors will receive a pool of funds consisting of up to $175 million in "excess cash" plus 85% of J&H's first quarter 1997 earnings. The committee will distribute this money among current and former shareholders and employees as it sees fit, according to the report.

P/C insurers' income up 17%

NEW YORK-Property/casualty insurers enjoyed a 17% surge in aftertax income last year, according to a survey released last week.

Net income rose to an estimated $24.1 billion in 1996 from $20.6 billion a year earlier. The insurers' underwriting loss dropped 5.4% to $16.8 billion in 1996. Consolidated surplus grew 11.5% to $256.5 billion, according to the survey, released by the Insurance Services Office Inc. and the National Assn. of Independent Insurers.

Pretax income included $20.2 billion in operating income and $9.6 billion in realized capital gains. That was diminished by $5.6 billion in income taxes insurers paid.

Net written premium grew 3.5% in 1996 to $268.8 billion.

The ISO/NAII survey estimated that insurers realized capital gains of $9.6 billion in 1996, a jump of 59.5%. Net investment income, primarily stock dividends and bond interest, grew about 2.2% to $37.6 billion last year.

The industry's estimated combined ratio improved slightly to 105.9% for 1996 from 106.4% a year earlier.

The ISO/NAII survey bases its estimates for the entire property/casualty insurance industry on the reports of insurers that account for 96% of the country's property/casualty business.

"The outlook for the industry in 1997 will in part reflect forces external to the industry, like the stock market and catastrophes," said Sean Mooney, senior vp and economist of the Insurance Information Institute in New York.

"A decline in equity prices coupled with an increase in interest rates would severely reduce the industry's ability to record further advances in capital gains. As we move toward the hurricane season, insurers and their reinsurance partners can only keep their fingers crossed in hopes that 1997 will not be the year of the 'Big One,' " said Mr. Mooney in commentary accompanying the survey.

He added that there "is no sense in the marketplace," that prices for commercial lines products have reached "an unacceptable level" and that there "are no clear signs of a return to more adequate rates."

Health care quality panel forms

WASHINGTON-Drawing heavily from the ranks of medical providers and academia, President Clinton last week established a commission to examine and make recommendations by next March to better assure quality in health care plans.

So far, President Clinton has named 31 members of what will become a 34-member commission. Six members each are from academia and medical provider-related organizations. Other commission members include: Shelia Leatherman, executive vp of United HealthCare Corp., a huge managed care organization in Minneapolis; Philip Nudelman, president and chief executive officer of Group Health Cooperative of Puget Sound, which is an HMO in the state of Washington; L. Ben Lytle, president and CEO of Anthem Inc., a health insurer in Indianapolis; and Kansas Insurance Commissioner Kathleen Sebelius. President Clinton has not yet named any corporate benefit managers to the commission, though he is expected to do so.

The panel, formally known as the Advisory Commission on Consumer Protection and Quality in the Health Care Industry, is intended to advise the president on changes occurring in the health care system and make recommendations to ensure health care access and quality.

Bill would lift MSA cap

WASHINGTON-Legislation introduced this month by a trio of Democratic congressmen from Illinois would eliminate the 750,000 cap on the number of tax-favored medical savings accounts that can be established under a 1996 law.

The cap would be removed with enactment of the legislation, H.R. 1068. However, the measure introduced by Reps. Jerry Costello, William Lipinski and Glenn Poshard would leave intact the restriction of tax-favored MSAs to companies with 50 or fewer employees.

Statistics are not yet available on how many MSAs exist. The Internal Revenue Service will survey MSA administrators several times to determine how many accounts have been established. The first survey will report on MSAs set up as of April 30.

Several dozen health insurers sell MSA products linked to high-deductible indemnity plans, said David Lack, president of the Council for Affordable Health Insurance, an insurer trade group in Alexandria, Va., that actively supported the 1996 legislation. Much of the interest in MSA programs is believed to be coming from self-employed professionals.

Lloyd's preparing 1994 results

LONDON-Lloyd's of London this week will announce preliminary 1994 global results based on the accounts of 168 of the 179 syndicates underwriting that year.

The 11 remaining syndicates have been given extensions for reporting their results, which were supposed to be filed to Lloyd's by the end of last week, according to a Lloyd's spokesman.

These results will be the first to be released by the market since the signing of the reconstruction and renewal program allowing all syndicate liabilities prior to 1993 to be reinsured into Equitas Ltd.

Lloyd's predicted last year that it would report a profit equal to 9.3% of the market's 1994 capacity of 10.9 billion pounds ($16.13 billion), or 1.01 billion pounds ($1.73 billion). This would be slightly less than the record 1.08 billion pounds ($1.68 billion) profit the market earned in 1993. Lloyd's syndicates closed their 1994 accounts at year-end 1996, based on the market's three-year accounting method.

Last week, many of the syndicates released forecasts of their results to the London Stock Exchange. Based on these forecasts, syndicate analyst Syndicate Underwriting Research Ltd. estimated the market would post a 1.09 billion pounds profit ($1.87 billion) for 1994 and 958 million pounds ($1.49 billion) in 1995.

Charles Sturge, a director of syndicate analyst Chatset Ltd., last week predicted the 1994 profits will be slightly lower than the 1.18 billion pounds ($2.02 billion) his firm forecast in January (BI, Jan. 13).

The preliminary syndicate forecasts "are telling us that the marine market results are better than we expected, but the non-marine market is slightly disappointing," said Mr. Sturge.

Verdict won't derail settlement

INDIANAPOLIS-An Indiana state court jury's $2 million award to a couple whose son contracted AIDS from HIV-tainted blood-clotting products will not upset a settlement reached last year between a class of plaintiffs and four manufacturers.

John and Vicky Barnes, whose son John died in 1991 of AIDS contracted from a product sold by Bayer Corp., were among about 550 claimants who opted out of the settlement reached last year between plaintiffs-mainly individuals who used the product to counteract hemophilia-and the manufacturers (BI, Aug. 19, 1996).

But because the opt-out period has now passed, the 6,500 people who agreed to the settlement can't pull out and bring suit, said David Shrager with Shrager McDaid Loftus Flum & Spivey of Philadelphia, the lead attorney for the plaintiffs who settled and co-counsel in the Barnes case.

Under the settlement reached last year, the four manufacturers of the blood-clotting product-Baxter Healthcare Corp.; Bayer Corp., a unit of Bayer A.G.; The Armour Pharmaceutical Co., a unit of Rhone-Poulenc Rorer Inc.; and the Alpha Therapeutic Corp., a unit of the Green Cross Corp. of Japan-will pay $100,000 to each of the approximately 6,500 people who have agreed to the settlement.

The payments will be divided according to market share, with Bayer's 45% contribution the largest.

The Indiana verdict may be unusual. Mr. Shrager said Indiana law favors plaintiffs in product liability suits, and this case involved a child. Nevertheless, he said, "What it shows is that these cases, properly prepared, could be won."

A Bayer spokesman said the company is evaluating the Indiana verdict and has not yet determined the next step. Meanwhile, the settlement is scheduled to be approved by a judge in Chicago at a May 1 hearing, provided the four defendants are prepared to proceed. A spokesman for the defendants said that decision has not yet been made.

One point to finalize involves the group of claimants that has been asked to pay some of their settlement to the government or private insurers to repay the cost of health care. Mr. Shrager said an agreement has been worked out with the private insurers that allows each of the plaintiffs to keep the entire $100,000. He expects a similar agreement to be reached with the federal government.

Briefly noted

A state judge has postponed until May 6 a hearing on the Massachusetts Insurance Division's proposed settlement of issues related to Electric Mutual Liability Insurance Co.'s controversial redomestication to Bermuda. EMLICO reinsurers had sought to delay the hearing, originally scheduled for April 8. The judge did not rule on motions by Lloyd's of London underwriters and General Re Corp. units to intervene as parties in the settlement case. . . .Don D. Hutson, 60, president and chief operating officer of TIG Holdings Inc., plans to retire by the end of this year, according to the company. Jon W. Rotenstreich, the company's chairman and chief executive officer, will serve as acting president and COO until a successor is chosen. . . .Blue Cross of Washington & Alaska has received a downgrade in its rating from A.M. Best Co. In reducing the rating to B++ from A-, the rating organization cited Blue Cross' poor earnings in 1995 and 1996 and the problems it faces "as it migrates its enrollment base to managed-care products." A recently approved rate increase, however, could improve future earnings, A.M. Best noted. . . .The former Blue Cross & Blue Shield of Ohio cannot use the Blue Cross and Blue Shield trademarks and logo, a federal appeals court in Cincinnati said last week. Indianapolis-based Anthem Blue Cross & Blue Shield will take over as the only Blue Cross & Blue Shield organization serving Ohio. The court action stemmed from the Cleveland-based Blues' aborted merger with Nashville, Tenn.-based Columbia/HCA Healthcare Corp., and the national Blue Cross' efforts to remove its license. (BI, March 17). . . .Alabama will replace the Boca Raton, Fla.-based National Council on Compensation Insurance as the servicing carrier for its assigned risk plan, beginning June 1. Replacing the NCCI will be a team consisting of Zurich Insurance Group of Schaumburg, Ill., Alexander & Alexander Inc.'s workers compensation specialists in Kansas City, Mo., and third-party administrator Goff Group Inc. of Montgomery, Ala. . . .U.S. District Court Judge Charles Brieant last week approved the $176 million settlement Texaco Inc. agreed to pay to settle its racial discrimination suit brought by employees.