About Emily Holbrook

Emily Holbrook is a former editor of the Risk Management Monitor and Risk Management magazine. You can read more of her writing at EmilyHolbrook.com.
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CIT Following in the Footsteps of AIG

Though CIT Group, a New York-based commercial lender, provides loans to only small and medium-sized businesses, it is still a major player in the lending game, a major player with some major financial troubles. And apparently, the government doesn’t think it’s big enough to qualify for a government-initiated rescue.

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Because of this, it is likely the troubled firm will file for bankruptcy tomorrow, taking away a key source of credit for thousands of U.

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S. firms. On top of that, it appears J.P. Morgan (which recently posted surprising earnings) has a stake in CIT, just as Goldman Sachs had a stake in AIG. Let’s just hope J.P. Morgan’s interest isn’t quite as big.

The Reuters blog puts it most eloquently:

The pairing of almost certain bankruptcy of the little guy lender with the blow-out earnings of Wall Street giants, JP Morgan and Goldman Sachs, makes a strong argument for smaller financial institutions to beef up their operations so they, too, can be too big to fail.

Trading in CIT was halted yesterday and it remains to be seen exactly how its almost-certain failure will affect J.P. Morgan and the rest of the market.

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CIT Group — big, but not big enough.

Workers Plan to Blow Up Factory

If you’re facing unemployment and are trying to persuade your employer to ante up a payoff you feel you deserve, threatening to blow up your workplace may not be the best idea.

But for workers at New Fabris car parts plant in Chatellerault, France, it seemed like the only option.

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The workers gave a deadline of July 31 for Renault and Peugeot, the plant’s biggest clients, to pay ,000 to each of the 366 workers facing unemployment.

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Renault and Peugeot have refused to pay the workers, claiming it is not their responsibility.  So, employees have rigged up gas canisters inside and outside of the factory and are threatening to detonate unless their demands are met.

Guy Eyermann, member of the hardline CGT union that appears to be leading the protest, insisted that the battle would not be abandoned. “Are we capable of blowing up the factory? Yes we are,” he told a gathering of about 100 workers yesterday. “Renault and Peugeot have killed us.

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We want a share of the cake. They have been helped by the state.”

Government officials are skeptical as to if the canisters are actually full, but are taking the threat seriously nonetheless.

Bad News for the P/C Insurance Sector

Though the insurance industry as a whole has fared somewhat well during the current financial crisis, a report out today says P/C insurers haven’t been so lucky.

A.M. Best has reported a surprising drop in net income of 87% for the U.S. P/C insurance sector during the first quarter of 2009.

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The report states that:

  • Net income for commercial lines dropped 52.9% to $1.6 billion in the first quarter, compared to the same quarter last year.
  • Net premiums written for commercial lines fell 7.
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    8% to $46 billion in the quarter.

  • Underwriting losses decreased from .
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    5 billion in the first quarter of last year to $500 million in the first quarter of this year.

  • Policyholder surplus dropped 14.6% to $197.6 billion, according to the report.

Best stated that though the outlook for the U.S. P/C industry remains somewhat bleak for the remainder of the year, the projection for the commercial lines segment (barring mortgage guarantee and financial guarantee insurers) should post an underwriting profit.

The report is available for $65 (for nonsubscribers) at bestweek.com.

Storm Summary

Welcome to the first “Storm Summary” post of the hurricane season. Each Friday from now until the official end of the season (November 30) I will post an update on past and present storms, like the following:

NAME STATUS DATE LOCATION DAMAGE
Ana TD 5/28 Mid Atlantic None
Blanca TS 7/6 to 7/8 East Pacific None

In another interesting development, the National Oceanic and Atmospheric Administration has announced the arrival of El Niño, which is “the periodic warming of central and eastern tropical Pacific waters [that] occurs on average every two to five years and typically lasts about 12 months.” Although most people think of this phenomenon in negative terms for the damage it can spur on the West Coast, it is actually beneficial to the East Coast/Gulf Coast in the sense that warmer waters in the Pacific usually create conditions that suppress Atlantic hurricanes. Why exactly this occurs is not something I’m qualified to explain but, as I recall, it has something to do with warm and cool air mixing in a different way and creating a “wind shear” that helps prevent storms from developing. The International Research Institute for Climate and Society can probably explain it better.

NOAA breaks down some other benefits.

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El Niño’s impacts depend on a variety of factors, such as intensity and extent of ocean warming, and the time of year. Contrary to popular belief, not all effects are negative.

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On the positive side, El Niño can help to suppress Atlantic hurricane activity. In the United States, it typically brings beneficial winter precipitation to the arid Southwest, less wintry weather across the North, and a reduced risk of Florida wildfires.

El Niño’s negative impacts have included damaging winter storms in California and increased storminess across the southern United States. Some past El Niños have also produced severe flooding and mudslides in Central and South America, and drought in Indonesia.

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Hopefully this will help keep the 2009 Atlantic hurricane season mild.

For constant, up-to-date storm information, visit NOAA. And for breaking information on the insured losses the storms create, check out the Insurance Information Institute and the Insurance Services Office.

Most importantly, don’t forget to check back next Friday, July 17, for our second “Storm Summary” installment.
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