IIE GETS VOTE OF CONFIDENCE WITH NEW DIRECTORS, SYNDICATES

CHICAGO-The Illinois Insurance Exchange may face a brighter future after its 13-member board was reconstituted last week with industry heavyweights, including four members with ties to Kemper Insurance Cos. and one from Aon Group.

In addition, Kemper announced it will establish three IIE syndicates to write its first surplus lines polices.

Despite the IIE's recent syndicate insolvencies, Kemper was attracted primarily by the exchange's ability to write surplus lines coverages in 34 states, said new board member William A. Hickey, vp of Kemper Insurance Cos. in Long Grove, Ill.

Kemper will specialize in excess casualty coverage and environmental casualty coverages as well as a third line that is expected to be determined later, Mr. Hickey said. The three new syndicates, which will be operational by year-end, will be capitalized with $20 million each, or a total of $60 million, he said.

"After taking a good hard look at the facility, its full potential is clear," said William D. Smith, Kemper's president and chief operating officer, who was elected IIE board chairman last week. "Properly regulated and prudently governed, the exchange can provide a virtually limitless range of programs," including risk securitization, specialty programs and agency captives, he said.

Jim Tait, IIE president and chief executive officer, said: "The exchange will be immeasurably strengthened under its new leadership. With some of the premier forces in the insurance and finance arenas on board, we have the talent, vision and commitment to move the exchange into a new era."

Earlier this year, IIE executives sought increased oversight by state insurance regulators as a way to restore the exchange's credibility, following three syndicate insolvencies in eight months (BI, March 10). A new law was approved this summer, though most provisions take effect Jan. 1.

In addition to Messrs. Hickey and Smith, the newly elected board members with ties to Kemper are: Kemper board director Daniel R. Toll; and Steven H. Lesnik, chairman and CEO of Lesnik & Co., a public relations firm.

In addition, Aon Group President and Chief Operating Officer Michael D. O'Halleran also was elected to the board.

Meanwhile, the Chicago Board of Trade continues to study the feasibility of establishing a second insurance exchange that would essentially allow it to write risks and offset them through insurance futures contracts, according to a CBOT spokesman (BI, Oct. 13).

Bill targets Year 2000 exposure

WASHINGTON-Publicly traded companies would have to disclose specific information about their exposure to Year 2000 computer problems if a bill in Congress becomes law.

"To delay our efforts to address this problem is to be inexcusably reckless," said Sen. Bob Bennett, R-Utah, chairman of the Senate Banking Committee's Subcommittee on Financial Services and Technology.

The Bennett bill would require the Securities and Exchange Commission to amend its disclosure requirements to add many new requirements, including two specifically related to insurance. Under the measure, companies would have to disclose whether they have insurance to respond to Year 2000 problems and to give an estimate of their expected litigation costs and financial liability related to Year 2000 lawsuits. The Bennett bill also would require corporations to reveal such things as how much they are spending to remedy the Year 2000 problem and their contingency plans for keeping their businesses running if their computers fail.

Hearings on the measure are expected next year.

Superfund bill introduced

WASHINGTON-Congress is expected to take up a new bipartisan Superfund reform bill when it returns from its year-end recess.

Although the bill, introduced last week by Reps. Mike Oxley, R-Ohio, Commerce Committee Chairman Tom Bliley, R-Va., and 36 others, would not repeal Superfund's controversial imposition of retroactive liability in most cases, it would provide more liability relief than a measure introduced recently by Rep. Sherwood Boehlert, R-N.Y., said Taylor Caswell, senior federal affairs representative for the Alliance of American Insurers.

Small businesses, recyclers, generator-transporters, contributors of minimal amounts of Superfund waste and local governments all would enjoy at least limited immunity from retroactive liability under the bill.

The measure, which has support from conservatives and liberals in both parties, calls for "rational remedy selection" at Superfund sites and would allow states rather than the federal Environmental Protection Agency to conduct cleanups of Superfund sites if they so wished.

"This gives us new reason for optimism, because this is a bipartisan bill that has common sense reform in it," said Mr. Caswell.

Royal underwriting manager

CHARLOTTE, N.C.-Royal Insurance U.S. is establishing a new surplus lines underwriting management company that initially will offer casualty and professional liability coverages and is expected to generate $35 million in business its first year.

RSA Surplus Lines Underwriters Inc., which will underwrite on behalf of Royal Surplus Lines Insurance Co., is expected to begin operations in January, said its president and chief executive officer, John Kinsella.

Mr. Kinsella, formerly president and CEO of Cherry Hill, N.J.-based Admiral Insurance Co., said RSA also will be headquartered in Cherry Hill, with another office in Los Angeles County planned.

Errors & omissions

German marine insurer Darag A.G., in cooperation with Gerling A.G., is offering shipowners liability limits of up to $100 million, not 100 million deutsche marks as Business Insurance incorrectly reports on page 29 in this issue. Darag also began writing nationwide business in Germany in 1990, not 1994.

Larger tobacco deal sought

WASHINGTON-The chairman of the Senate Judiciary Committee wants the tobacco industry to pay nearly $400 billion over 25 years in return for immunity from smoking-related class action suits.

Sen. Orrin Hatch, R-Utah, last week unveiled his bill designed to implement the proposed settlement between cigarette makers and 40 state attorneys general. Although the proposed settlement would require tobacco companies to pay $368.5 billion, Sen. Hatch's measure sets a price tag of $398.3 billion because of increases in punitive damages, which the initial proposal set at $50 billion (BI, June 23).

The increased punitive damages would go to the National Institutes of Health for the study of tobacco-related diseases. The Hatch bill also spells out that states would not have to return any of the settlement to the federal government to compensate Washington for the portion of Medicaid bills it picks up. A recent letter from the Health Care Financing Administration reminding states of their legal obligation to reimburse the federal government for its Medicaid share drew angry protests from the states involved in the proposed settlement (BI, Nov. 10).

The Hatch bill is one of three major tobacco bills introduced in the Senate during the past few weeks. A bill unveiled by Sen. John McCain, R-Ariz., would implement the settlement as drafted with the exception of adding the requirement that tobacco companies pay into a special trust fund for tobacco farmers for their loss of livelihood. A third bill, introduced by Sen. Edward M. Kennedy, D-Mass., would slap a new $1.50 per pack tax on cigarettes but would not settle any suits.

No action will be taken on any of the bills until early next year, when Congress returns from its year-end recess.

Bank will appeal judgment

RICHMOND, Va.-Signet Banking Corp. will appeal a federal judge's decision that it must pay $10 million to a financial institution that Signet unwittingly drew into a fraudulent loan scheme.

In the scheme, Edward J. Reiners in late 1995 represented to Signet that he was a Philip Morris Cos. Inc. employee charged with conducting secret offshore nicotine research. Mr. Reiners sought hundreds of millions of dollars in loans for several companies so they could secure computer equipment that Philip Morris would lease for use in the research project.

There was no such project, and Philip Morris had not asked Mr. Reiners-a former employee-to arrange any computer leasing agreement. But, based partially on a bogus document Mr. Reiners produced, Signet extended the loans and enlisted the support of several banks, including Hitachi Credit America Corp. In total, Signet disbursed more than $300 million in loans. The banks soon discovered the fraud, and Mr. Reiners was apprehended. But, about $100 million of the loan proceeds remain missing.

Hitachi sued Signet for breach of contract and fraud. In a July 21 summary judgment, a U.S. District Court judge in Richmond, Va., found Signet liable under the breach of contract claim. On Nov. 6, the judge ordered Signet to pay Hitachi approximately $10 million in unrecovered loan amounts, attorney fees and interest.

A Signet spokeswoman would not comment, but the bank previously said it is covered for its losses. USF&G Corp., Signet's financial institution bond underwriter, is disputing coverage in litigation in Baltimore County Circuit Court in Maryland.

Until recently, such bonds did not cover losses from fraud, said bank and broker sources. But, as the market has softened, some underwriters may have agreed to cover that risk, the sources said.

Briefly noted

The U.S. Supreme Court agreed Friday to hear a sexual harassment case that will help clarify exactly when an employer can be held responsible for a supervisor's harassment of an employee. The case, Faragher vs. Boca Raton, involves a female lifeguard's suit against the city of Boca Raton, Fla., after two supervisors subjected her to sexual harassment

. . . .The Supreme Court heard oral arguments last week in an age bias case, Dolores Oubre vs. Entergy Operations Inc., revolving around the question of whether workers over 40 who think they were illegally pressured to quit their jobs must return any severance they received before filing a suit under the Age Discrimination in Employment Act

. . . .The California Supreme Court has agreed to review Lane vs. Hughes Aircraft Co., which involves an $89 million 1994 jury award, most of it punitive damages, in a racial discrimination case (BI, Nov. 21, 1994)

. . . .The Pension Benefit Guaranty Corp. will guarantee an annual benefit of up to $34,568.16 to participants of underfunded pension plans that terminate next year and are taken over by the PBGC. The 1997 maximum benefit guarantee was $33,136.32. . . .Ambac Assurance Corp., a unit of New York-based Ambac Financial Group Inc., will pay $124.4 million to acquire the College Construction Loan Insurance Assn. and its operating company, Washington, D.C.-based Connie Lee Insurance Co., according to terms announced last week of the definitive merger agreement between the two financial guarantee insurers (BI, Oct. 27; Oct. 13). Ambac will pay $106 million for the company's outstanding shares and retire $18.4 million of the holding company's debt obligations. . . .Financial guarantee insurers MBIA Inc., based in Armonk, N.Y., and New York-based CapMAC Holdings Inc. have signed a definitive agreement to merge in a stock transaction valued at about $607 million (BI, Nov. 3). The agreement calls for CapMAC shareholders to receive MBIA stock equal to $35 for each share of CapMAC stock. . . .The 3rd U.S. Circuit Court of Appeals has upheld a lower court's decision to dismiss a 1992 keyboard injury suit against IBM Corp. Schneck vs. IBM, which alleged IBM data entry and card-punching machines were defectively designed and that IBM had failed to warn of the hazard, was dismissed by New Jersey District Judge Garrett E. Brown Jr. in June 1996. . . .The U.S. Supreme Court has let stand without comment a federal appeals court ruling that consolidated all silicone breast implant litigation against Dow Corning Corp. under U.S. District Court Judge Page Hood in Detroit.