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STAMFORD, Conn. -- GE Capital Corp. will acquire Eagle Star Reinsurance Co. Ltd., U.K., from Zurich Financial Services, with the London-based reinsurer becoming part of GE Capital's Employers Reinsurance Corp.
Eagle Star Re primarily provides property, casualty and marine reinsurance to clients around the world. According to Sarah Hibler, a vp and senior analyst at Moody's Investors Service Inc., the acquisition enhances the position of Overland Park, Kan.-based Employers Re in the U.K. broker market, while further diversifying its book of business and broadening its customer base.
Donald S. Watson, a director in the reinsurance group at Standard & Poor's Corp. in New York, called the acquisition an "opportunistic" one for GE Capital and said, "It really solidifies their presence in the U.K., and it certainly puts them up there in terms of premium volume."
"GE Capital is a company that can afford to make a transaction in the market when prices are low, and they don't need to use their stock to do it, because they can pay cash," Mr. Watson said.
Terms of the transaction, which is subject to regulatory approval and is expected to be completed by year's end, were not disclosed. Under generally accepted accounting principles, Eagle Star Re had net assets of L232.8 million ($384.3 million) at the end of 1997.
For Zurich, the transaction was one of the final moves in the strategic reorganization of its London market reinsurance companies. That effort also included linking the specialty insurance business currently written by Zurich Re (London) Ltd. with the company's New York- based Zurich American Specialties operation into a unit to be named Zurich Specialties (London) Ltd. Meanwhile, the reinsurance business written by Zurich Re London will be transferred to Zurich Financial Services underwriting operations in Zurich, Switzerland; New York; or Cologne, Germany.
M&M extends Sedgwick offer
NEW YORK -- Marsh & McLennan Cos. Inc. last week extended until Oct. 20 the acceptance period for its roughly $2 billion tender offer to acquire Sedgwick Group P.L.C.
The offer, announced in August, was expected to be declared unconditional last Monday, but relevant regulatory and other conditions have not been satisfied. Both the European Commission and the Federal Trade Commission must approve the deal. The European Commission has until Oct. 23 to make its ruling.
An M&M spokeswoman confirmed that the FTC recently made a second request for more information, but she discounted a recent published report that the request was to help determine if the acquisition would violate federal antitrust laws.
"It's normal procedure," she said of the FTC's second request.
M&M reserves the right to extend the offer further beyond the Oct. 20 closing date but is not obligated to do so.
M&M still anticipates completing the deal in the fourth quarter, the spokeswoman said.
Pilots flock to early retirement
FORT WORTH, Texas -- Thanks to a lucrative retirement option, more pilots than anticipated are bailing out at American Airlines.
Under their contract, American's 9,000 pilots, when reaching the mandatory retirement age of 60 -- or upon early retirement -- are entitled to collect lump-sum retirement payments consisting of mutual fund assets. How much the pilots receive is tied to the stock value of the parent company, Fort Worth, Texas-based AMR Corp. The stock price has dropped significantly since July. Because pilots have a three-month window in which to choose the retirement offer, many are taking early retirement in the summer or fall and are receiving parting sums based on the July stock price, an American spokeswoman said.
About 65 pilots were expected to leave the airline this month, and a similar number left last month, the spokeswoman said. Sixty-five more could retire next month. Pilots on administrative duty were being contacted to fill in for retirees, and a small number of flights, mostly to Latin America, were being canceled due to pilot shortages, she said.
"The bottom line is, we'll deal with the cancellations and we'll deal with the pilots we lose," the spokeswoman said.
Medicare HMO exits continue
The exodus of HMOs from the Medicare market is continuing, with the latest withdrawals pushing to more than 400,000 the number of beneficiaries in HMOs that have announced they are ending their contracts with Medicare.
Amid the turmoil, the Clinton administration says it will cut red tape for HMOs that want to enter markets where there is no other Medicare HMO.
However, American Assn. of Health Plans President Karen Ignagni warned that the exodus of risk HMOs from Medicare will worsen next year unless the administration and Congress work to address certain structural problems in the program.
The latest withdrawals include:
* Woodland Hills, Calif.-based Foundation Health Systems Inc., which is withdrawing risk HMOs in additional counties in four Western states.
About 7,100 members are affected, according to a Foundation spokesperson.
These pullouts follow earlier announcements of withdrawals.
After all the withdrawals, Foundation health plans will serve more than 292,000 Medicare beneficiaries in 96 counties in 10 states.
* Norwalk, Conn.-based Oxford Health Plans Inc., which will exit the market in four New York counties, nine New Jersey counties, six Connecticut counties and five Pennsylvania counties. These plans cover 26,500 retirees, or 17% of Oxford's Medicare risk HMO enrollees.
Anthem Blue Cross & Blue Shield, which announced in May that it would exit the market in 19 mostly rural Ohio counties and parts of three other Ohio counties, has decided to stay in six of those counties, where no other Medicare risk HMO operates, and in parts of three other Ohio counties where it originally announced it would not offer the product.
Between 12,000 and 13,000 beneficiaries will be affected by the counties Anthem is exiting. After the withdrawals, Anthem will serve roughly 45,000 Medicare beneficiaries.
Currently, about 6 million of Medicare's 38 million beneficiaries receive coverage through risk HMOs.
Surcharge exemption ended
BOSTON -- Massachusetts regulators have eliminated an exemption that now allows "infrequent payers" to escape -- by paying a small fee -- a state law that imposes a 5.06% surcharge on hospital bills.
Currently, a health care payer, such as third-party administrator located outside the state, whose Massachusetts hospital bills totaled less than $300,000 in 1996, is able to escape the surcharge if it registered with the state's Division of Health Care Finance and Policy as an infrequent payer by Jan. 15 and paid a $2,400 fee.
If, in any calendar year, an infrequent payer were to make at least $300,000 in payments to Massachusetts hospitals, though, it would be liable for the surcharge in the next year.
The infrequent payer exception will be eliminated beginning next year. State officials earlier said they wanted to eliminate the exemption because of low demand -- just 250 payers applied for infrequent-payer status -- and to ensure the surcharge system would be more equitable.
Drug mandate suits combined
BOSTON -- A federal court in Boston will hold a hearing Oct. 30 and possibly decide then whether HMOs in Massachusetts have the right to scale back prescription drug benefits to retirees eligible for Medicare.
Earlier, the Division of Insurance sued one of the HMOs -- Harvard Pilgrim Health Care -- charging that its plan to cap prescription drug benefits at $800 a year runs afoul of a state law and regulation that says Medicare HMOs must offer either unlimited or no prescription drug benefits.
At the same time, the Massachusetts Assn. of Health Maintenance Organizations sued the Division of Insurance, contending that a 1997 federal budget law pre-empts the state law and gives HMOs the authority to cut benefits (BI, Sept. 28).
The two suits were joined last week into one case in U.S. District Court in Boston.
FDA to change proposed rules
WASHINGTON -- The Food and Drug Administration is overhauling a set of proposed guidelines that would have held drug companies responsible for the advertising and marketing campaigns of prescription benefit management companies.
As a step to rein in the marketing statements of PBMs and other health care companies either owned by drug manufacturers or closely allied with them, the FDA issued draft guidance early this year (BI, Jan. 12). The proposal resulted in fierce opposition from PBMs, which argued that the rules would interfere with the drug discounting process and send drug prices soaring.
The FDA extended the public comment period in July. In August, however, the administration announced it was planning on a wholly revamped approach to marketing regulation and would eventually issue rules that were "more tightly written, so the intention of the guidance (would be) clearer," an FDA spokesman said.
Guarantee insurers forming
HAMILTON, Bermuda -- EXEL Ltd. and financial guarantee insurer Financial Security Assurance Holdings are entering into a joint venture to form two new Bermuda-based financial guaranty insurers that each will be capitalized with a minimum of $100 million.
Financial Security Assurance International Ltd., a subsidiary of FSA that will be 20% owned by EXEL, is expected to carry FSA's AAA rating. It will reinsure FSA domestic business and may write primary business on international risks, said Robert P. Cochran, FSA chairman and chief executive officer.
X.L. Financial Assurance Ltd., a subsidiary of X.L. Insurance Co. Ltd. that will be 20% owned by FSA, is expected to carry X.L.'s AA rating and will write business that has a "slightly higher risk profile," Mr. Cochran said. It also will reinsure FSA business on a selected basis.
In conjunction with the venture, which is subject to regulatory approval, FSA and EXEL will swap $80 million of each other's shares.
The insurers are expected to start writing business almost immediately after they are formed, which will be in several weeks, said Mr. Cochran. There are no premium volume estimates.
Swissair has paid out 4.35 million Swiss francs ($3.3 million) to 145 families of victims of the fatal crash last month of a Boeing MD-11 off Nova Scotia, said SAirGroup Chief Executive Officer Philippe Bruggisser. By the end of this month, Swissair aims to have contacted all the victims' families to offer them a further payment of up to 100,000 Special Drawing Rights ($142,840), less any payments made so far. . . .A Bermuda Supreme Court judge on Friday ordered Belvedere Insurance Co. Ltd. into liquidation and appointed two partners of KPMG Peat Marwick L.L.P. as joint provisional liquidators. The move followed a Sept. 22 arbitration settlement between GTE Corp. and a Belvedere subsidiary that effectively rendered Belvedere insolvent, KPMG announced. . . .Zurich, Switzerland-based Swiss Reinsurance Co. is expanding in Latin America with the completion last week of its purchase of Mexican reinsurer Reaseguros Alianza S.A. The deal had been announced in May. . . .California Gov. Pete Wilson has vetoed several workers comp bills. S.B. 324, which was joined with S.B. 557, and A.B. 332, targeted HMO utilization review practices and were considered anti-managed care bills. Also vetoed was S.B. 924, which related to penalties against employers who do not have workers comp insurance. . . .Citigroup Inc., the new company formed in the merger between Citicorp and Travelers Group Inc. (BI, April 13), began trading on the New York Stock Exchange last week. The deal was consummated with the expectation that Congress would lift the current ban on combinations between banks and insurers. Under current law, Citgroup now has a two-year grace period on that ban; the grace period could be extended to five years with the permission of the Federal Reserve Board.