GUY CARPENTER & CO. ACQUIRES BROKER'S REINSURANCE BOOK

LOS ANGELES-Guy Carpenter & Co. Inc. has acquired nearly all the reinsurance business of California brokerage G.J. Sullivan Co. Inc.

The price was undisclosed, but in 1996 G.J. Sullivan handled about $340 million in premiums. The sale was completed last week.

Gerald J. Sullivan, president and chief executive officer of Los Angeles-based parent company The Sullivan Group, said the sale marks G.J. Sullivan's recognition that in the future, small reinsurance brokerages will struggle to compete with larger rivals.

"If you look at the treaty reinsurance intermediary business today, major clients require access to things like earthquake and windstorm analysis tools, financial modeling and other things that require very large organizations," he said.

About half of G.J. Sullivan's 50 employees will join Guy Carpenter; the remainder will be laid off. Proceeds from the sale of the reinsurance book will be invested in other insurance-related companies in The Sullivan Group, Mr. Sullivan said. G.J. Sullivan's future is undecided, he added.

Meanwhile, Guy Carpenter, a unit of J&H Marsh & McLennan, will be able to expand its business, said Brandon W. Sweitzer, president and chief executive officer. "The purchase of the G.J. Sullivan accounts provides us with a solid opportunity to increase our presence on the West Coast and in Atlanta. . . .Furthermore, this move will help Guy Carpenter expand its surety business," he said.

G.J. Sullivan handled broad-based property/casualty treaty reinsurance business, including surety and fidelity, Mr. Sullivan said.

Prudential may face tough sell

NEWARK, N.J.-The Prudential Insurance Co. of America may have trouble finding a buyer willing to pay the more than $1 billion it is reportedly seeking for its unprofitable health care business, analysts say.

Problems several other health care insurers are suffering will likely limit the amount anyone would be willing to pay for Prudential's health care business, estimated to have lost more than $100 million on a $6 billion premium base last year. Prudential HealthCare covers 4.7 million lives under its managed care products and another 2 million under its indemnity program.

Only the handful of largest health care insurers will have the resources to buy the Prudential business, and many of them already are facing problems integrating previous purchases, said Mark Jamilkowski, an HMO analyst at Conning & Co. in Hartford, Conn.

For example, both CIGNA Corp. and Aetna Inc. are not expected to meet analysts' profit expectations because of difficulties with their health care businesses.

"The list of the usual suspects is the same, but most of the suspects have an alibi for the time being," he said.

If the sale does go through soon, it will likely be for $1 billion or less, Mr. Jamilkowski said.

Although many insurers still are anxious to increase their HMO business, the price they are willing to pay could be lower today than previously, agreed Clifford Hewitt, an analyst at Sanford Bernstein & Co. in New York. "Because of some of the integration problems, people might be a little more conservative on what they will pay, but it doesn't change their appetite," he said.

Newark, N.J.-based Prudential would not comment on the speculation that the health care business is for sale.

"Our sole focus is on fixing the business," a spokesman said.

To that end, Prudential appointed a new president and chief executive officer of the health care unit in April, Steve Shulman, to turn the business around, he said.

EMLICO critic pleads guilty

BOSTON-A state senator and vocal critic of the Massachusetts Insurance Division's handling of the Electric Mutual Liability Insurance Co. case has pleaded guilty to federal charges of failing to file personal tax returns.

State Sen. Dianne Wilkerson, Senate chair of the Massachusetts Legislature's Joint Committee on Insurance, admitted last month that she failed to file federal tax returns from 1991 to 1994. During that time, she had annual income ranging from $51,624 to $81,558 and owed the government $52,086, prosecutors said.

Prosecutors said they will ask U.S. District Judge Edward F. Harrington to sentence Sen. Wilkerson to four months in jail and four months house arrest. Sen. Wilkerson said she will seek a term of probation. Sentencing is scheduled for Dec. 16.

Meanwhile, the state Senate voted to have the Legislature's Committee on Ethics investigate the matter. A report is not expected until after the sentencing.

The Committee on Insurance and the Legislature's Post Audit and Oversight Committee are investigating the Insurance Division's handling of EMLICO, a General Electric Co. liability insurer that collapsed soon after moving to Bermuda in 1995.

Tobacco settlement OK predicted

WASHINGTON-Approval of the $368.5 billion global settlement between state attorneys general and the tobacco industry will occur sometime next year, according to a panel of experts.

The experts, which included Mississippi Attorney General Mike Moore, White House adviser Bruce Reed and tobacco industry attorney and

former North Carolina Supreme Court Justice J. Phil Carlton, made

that prediction during a symposium on the proposed settlement in Washington last week. But Mr. Carlton said flatly that the tobacco industry could not afford to pay more than the $368.5 billion agreed to last

June as the price for settling with the attorneys general over tobacco-related Medicaid costs in return for immunity against class-action liability lawsuits (BI, June 23). "The bottom line is they have milked this cow dry as far as money is concerned," he said.

Meanwhile, in the first suit of its kind, a former asbestos manufacturer has sued the tobacco industry to recover at least part of the money it paid out to asbestos victims who smoked cigarettes.

Raymark Industries Inc. of Bountiful, Utah, filed suit in state court in Duval County, Fla., and in the U.S. District Court for the Northern District of Georgia in Atlanta last month against five tobacco companies.

Norwood S. "Woody" Wilner, the Jacksonville, Fla., attorney representing Raymark, said the company has paid out more than $400 million in asbestos claims and that "a fraction of that" is attributable to tobacco. Mr. Wilner said Raymark estimates that fraction to be between 20% and 50%. No trial dates have been set.

Jury favors Hoechst-Celanese

WILMINGTON, Del.-Hoechst-Celanese Corp. can tap insurance coverage in paying its share of a $950 million class-action settlement related to polybutylene plumbing systems, a Delaware jury has ruled.

After an eight-week trial, the jury rejected the allegation by the North River Insurance Co. that Somerville, N.J.-based Hoechst-Celanese failed to provide timely notice of the claims. North River is a Morristown, N.J.-based unit of Crum & Forster Insurance Co. and one of eight insurance companies to which the ruling applies.

The jury also rejected the insurer's argument that Hoechst-Celanese failed to disclose material facts in order to obtain policies in 1984 and 1985 and expected property damage to occur from the sale of its Celcon material to be used in plumbing fittings. Meanwhile, the jury held that the manufacturer's coverage was triggered on a consistent basis "from installation until leak and/or replacement" of the plumbing systems.

The plumbing claims against Hoechst-Celanese and other manufacturers sought recovery for damages that thousands of property owners across the country claimed resulted from defects in polybutylene piping installed in new homes from the late 1970s through the mid-1980s. The settlement resolving those claims was reached last year in Tennessee.

Hudson under federal probe

ROGERS, Ark.-Federal prosecutors are conducting a grand jury investigation into Hudson Foods Inc.'s actions surrounding last month's recall of 25 million pounds of its frozen ground beef.

Tom Monaghan, the U.S. attorney for the District of Nebraska, confirmed that he received a criminal referral from the U.S. Department of Agriculture and that a "vigorous investigation is under way." He declined to comment further on what has become the largest U.S. food recall made in cooperation with the USDA.

Hudson Foods said in a statement that the company had received a subpoena for documents and that it will "continue to cooperate fully and completely with the government's investigation." It said it "is confident that a thorough and fair investigation of the facts will confirm that it has violated no laws."

Hudson Director of Risk Management Kent Doss said last Thursday that Hudson had not filed a claim with its general liability insurer, a unit of Old Republic General Insurance Group.

Colorado health officials in July found Hudson beef patties tainted with the dangerous E. coli bacteria, and 17 illnesses have been linked to the contamination (BI, Aug. 25). Hudson has since shut down the Columbus, Neb., plant and is selling it to IBP Inc. of Dakota City, Neb.

Meanwhile, Great Valu Supermarket in Emporia, Va., recalled 200 pounds of ground beef last month after it determined some beef was contaminated with the E. coli bacteria.

Briefly noted

NovaCare Inc., a King of Prussia, Pa.-based provider of physical rehabilitation services, is acquiring Liberty Mutual Group's Atlantic Health Care unit, a provider of occupational health services, such as drug testing and drug screening programs. Terms were not disclosed. . . .Catastrophes caused an estimated $510 million in insured property damage during the third quarter of the year, according to the Property Claim Services division of the American Insurance Services Group. Gary Kerney, assistant vp of the PCS, called the quarter "unusually quiet" compared with similar periods of recent years. . . .CNA Surety Corp. began trading on the New York Stock Exchange last week. CNA Surety comprises CNA Financial Corp.'s surety business and the newly acquired surety operations of Capsure Holdings Corp. Capsure shareholders approved the merger with CNA Sept. 23. CNA Surety has net written premiums of $238 million and market capitalization of $600 million. . . .Patrick Gawrysiak, a New Jersey businessman, has been sentenced to 48 months in prison and five years' probation for trying to sell worthless securities to an insurance investor group. Mr. Gawrysiak, who used the alias Patrick Gray, pleaded guilty in May to multiple federal fraud charges stemming from a scheme in which he provided $5.5 million in bogus corporate bonds to an investor group trying to acquire a 49% interest in Texas-domiciled Gulf Atlantic Life Insurance Co. The investors were unaware the bonds were fake, according to the Texas Insurance Department, which stopped the transaction after discovering the forgery. . . .Adrian Tocklin, senior vp of CNA and president of its Diversified Operations department, will retire from CNA Feb. 1, 1998, to "pursue the legal and entrepreneurial career that has so often called to me," she said in a release. Ms. Tocklin formerly was president and chief operating officer of Continental Corp. before it was acquired by CNA in 1995. Diversified Operations includes seven CNA businesses with more than $2.5 billion in annual revenues, including Marine Office of America, CNA Surety and CNA International. Ms. Tocklin will continue as a board member of CNA Surety Corp. after her retirement.