this one is from IBNR Insurance Weekly
With the �press� looking to win a Pulitzer prize on the �insurance scandal� story, it�s clear that almost every �short seller,� competitor, or aggravated customer has a willing audience to pitch a story. Fortunately, most of the major publications do reasonable fact checking even as they fail to fully understand the nuances of (re)insurance. The recent story on Olympus Re (formed with the assistance of White Mountains, WTM, $654.00), by MarketWatch, was particularly weak and a new low for innuendo and inaccurate �facts� in (re)insurance. MarketWatch and Joseph Belth (editor of Insurance Forum) attempt to draw parallels between White Mountains relationship with Olympus Re and (1) the investigations of the ties between insurance brokers and other Bermuda reinsures, and (2) AIG and its relationship with Union Excess. For the record, and in the interest of full disclosure, we were original and are current investors in privately held Olympus Re, so we have a solid knowledge of the company�s history and operations.
Even after the multiple events in Florida last year, Olympus Re�s current NAV/sh is up 80%+ since YE 2001 (founded post 9/11). The reason Olympus Re was setup as a reinsurer of Folksamerica rather than as a standalone reinsurer (like DaVinci with RenRe, for example) was the stated intention for Olympus to be a temporary venture= it would be closed down once hard market opportunities waned (the strategy was not conducive to a strong rating or client confidence= write on Folksamerica paper and reinsure). Essentially Olympus Re allowed White Mountains/Folksamerica to participate in the improving property cat and large property risk business after 9/11 on a much larger scale without putting their own balance sheet at risk. It�s also important to know that (1) the assumed business from Folksamerica and White Mountain Underwriting is full risk transfer business= no safety net for the investors of Olympus Re. (2) White Mountains� ownership of Olympus Re is insignificant and indirect, brought about by having investments in entities that invested in Olympus= consolidating Olympus Re with White Mountains would not be allowable. (3) White Mountains does not get paid for placing business with Olympus Re (the implication it was the same as brokers & their founder position in startups), but rather for performing most of the underwriting functions. The majority of WTM�s profit is sharing in underwriting profits. White Mountains hasn�t been contacted by the SEC or Spitzer regarding Olympus Re.
deepvalue, can you help me understand your logic or emotion? Please explain how WTM can present Directors like Steinberg or Berkowitz as independent. Use history and relationships, not the WTM statement of 'according to NYSE' definitions. Don't forget that these 2 fellows run Olympus Re who gets their business from WTM, that WTM runs Olympus Re investments. Hundreds of $millions in that relationship. Don't forget that WTM execs invest in Olympus Re and that these Directors determine the salaries of those same WTM execs. Etc. ETc. Make your case for these Directors to be classified 'independent' and then I can better understand your big picture painting. In that way, I can understand if you have a grasp of the facts and how relationships determine the outcome of special entity accounting and regulation.
I didn't realise my responses were so imoportant to your equilibrium.
Please don't mix innuendo with facts, or justify your stance by claiming a quote "out of context" when the quotation so obviously went straight to the heart of the matter. An independent expert stated that the existence of a reinsurer with just one customer was problematical (and I am paraphrasing).
I never claimed to be an insurance or investment expert, nor did I indicate I have an 'inside track' into Olympus or White Mountains, nor is it my intention to assist or hinder White Mountains investors, I was simply quoting links to news articles. The facts are available to anyone who chooses to look.
Steinberg, Berkowitz, Fass, Zankel, Gilbert, Cavoores, and Byrne are all senior White Mountains people yet they also appear in Olympus as directors, or shareholders, or both. That FACT puts them on both sides of the vendor/buyer equation, and that's questionable behavior today.
It's also a FACT that Olympus does not have independence of action. For example, if Olympus decided on Monday it no longer wanted Folksamerica or Sirius business it would have no other option other than to liquidate.
It's also a FACT that by moving insurance risk around the same group of people, who just happen to be stakeholders in both White Mountains and Olympus, then there is no real transfer of risk; that fact was the partial subject of comments made by E. Spitzer in a Senate hearing last year.
There is sufficient interest in this issue, in places other than this message-board, that the opinions of people who count will probably be heard at some point.
Anyway, I don't want to get into a p*ssing contest; you have your strongly held beliefs, and that's fine by me. But please remember that, like you, I have the right to post messages on this message-board too. You may notice I don't provide 'Sentiment Disclosure' indications, as I don't believe my privately-held views relevant here.
Enjoy your weekend.
While you and I have come to the same conclusions at the moment, I think slb's questions are legitimate. The easiest one to answer is why O was created (see # 4028); my guess is that the idea for its creation came from WTM itself, as a way to temporarily expand its underwriting capacity after 9/11.
The other questions seem to be (1) whether the arrangement and relationships were adequately disclosed (at the moment you and I think so, slb thinks not--we'll see); and (2) whether the various interlocking relationships (at creation or now) are so extensive as to make the arrangement illegitimate (at the moment you and I think not, slb thinks so--we'll see). For example, if WTM already had all the underwriting capacity it needed when O was created, then the creation of O would be suspect.
In any event, whenever the hard market ends (which could be now), O's reason to exist will be gone.
Hey big picture man, you are not being of much help. No facts again. Just another generic quote out of context. If this is not innuendo, what is?
Looks to me like Olympus probably has hundreds of customers that they reach through White Mountains' reinsurance companies. It's clear that Olympus gave WTM a management agreement. It looks like this way they reach those customers through the licenses, relationships, expertise, etc. that WTM brings to the table. Olympus pays big fees to WTM for that but they have done pretty well according to the posting of Dowling's analysis. All pretty simple, obvious stuff if you have followed the insurance business and WTM over time.
I'm beginning to see a different big picture. Seems to me you don't know anything about Olympus other than what you read in WTM filings, you don't know WTM and you can't support your innuendoes other than by copying generic quotes from people who don't know anything more than you do about the 2 companies. The few people that have been quoted by the press or on this board who know the companies have been OK with the business. It would not take much effort on your part to find 1 or 2 people who know the answers to your supposed concerns if you really cared to find out. I guess you don't care. You are not trying to help WTM shareholders, you are not trying to help Olympus investors, you hardly come across as a public-minded citizen with a declared agenda. What is your agenda? Where's the pea?
Sorry you can't grasp the bigger picture and seem to feel this is just innuendo. Maybe this will help;
according to Mark Rouck, a senior director at Fitch Ratings in Chicago. "If there is a reinsurance company with only one customer, I think there are sometimes questions about why the reinsurer exists,"
Hmm, what was the rationale behind Olympus RE did you say? As for crimes and criminals I don't point fingers, that would be a job for others.
Hey shininglamp, you have been writing a lot of innuendoes that are loosely based on stuff you seem to have read in the White Mountains disclosures that you often imply did not disclose anything. Can you shine some light on what the crime is, who's the criminal, who's the victim and what are the damages? Too many words and no new facts.
It's OK then I suppose that Mr. Berkowitz is a director of White Mountains and deputy chairman of Olympus; in other words on both sides of a $500m vendor/client relationship, and sits on the audit committee of White Mountains, with the increased responsibilities that post carries.
Where was it made clear that Olympus was only to exist for a limited period? and who determines when a private company should voluntarily wind itself up, other than the 'independent' shareholders?
IMO you have the wrong idea about 'sinister' stuff. There is nothing sinister about failing to properly disclose pertinent relationships or improperly transferring risk; if accepted by regulators then such allegations could become breaches of various federal securities laws, just offences, not sinister offences.