2nd ‘Stanford’ Suit Targets Willis; Terrorist Bombs Kill 9 in Indonesia; Insurance Fraud on the Rise in UK; Lloyd’s ‘Fli

Willis has been named in a second lawsuit stemming from its relation with indicted financier Allen Stanford. A Venezuelan investor, Reinaldo Ranni, filed a class action in U.S. federal court in Miami on July 17, accusing Willis of fraud, negligence, misrepresentation and violations of U.S. and Florida securities laws.

According Reuters, he alleged that he had relied on assurances from Willis that Stanford was sound. A similar lawsuit was filed against Willis in federal court in Dallas earlier this month by a group of Mexican investors.

Stanford Financial was put under the control of a receiver in February when the U.S. Securities and Exchange Commission sued for civil fraud. Prosecutors brought criminal charges against founder Allen Stanford and others in June, charging that the firm enticed investors with promises of higher-than- normal returns on certificates of deposit. Investigators say the bank ran a $7 billion Ponzi scheme in which early investors were paid with money from new investors.

The lawsuit alleges that Willis “played an instrumental role in enabling Allen Stanford and his companies to perpetrate a massive multi-billion dollar fraud against scores of investors, largely Venezuelans and other South Americans.” The suit claims investors relied on phony assurances their CDs were insured and Stanford’s bank could be trusted.

The lawsuit claims “Willis supplied the proof for Stanford” by issuing “safety and soundness” letters to Stanford agents on Willis letterhead and signed by a Willis executive that identified the insurance policies underlying operations at Stanford International Bank (SIB) in Antigua and Barbuda.

“The letter proclaimed SIB’s employees to be first class business people and claimed that SIB had undergone a stringent Risk Management Review by an outside audit firm,” the suit said, adding that, “none of it was true.”

Willis has so far refused to comment on the allegations contained in either lawsuit.

Indonesian terrorists set off simultaneous bomb blasts in two of Jakarta’s luxury hotels. According to police reports, the blast killed nine people and wounded 42 others including foreign businessmen, at the JW Marriott and the Ritz-Carlton hotels in Jakarta’s business district on July 17.

Reuters reported that, according to police, a car bomb had also exploded along a toll road in North Jakarta, killing two people. Windows were shattered at both hotels, which are close to each other in the Kuningan business area.

The bomb attacks, the first in several years, could badly dent investor confidence in Southeast Asia’s biggest economy. The Indonesian government has made considerable progress in tackling security threats from militant Islamic groups in recent years, bringing a sense of greater political stability to the country.

Indonesia’s parliamentary elections in April and recent presidential elections both passed peacefully, underscoring the progress made by the world’s most populous Muslim nation since the chaos and violence that surrounded the downfall of ex-autocrat Suharto in the late 1990s.

Islamist militants from the regional Jemaah Islamiah (JI) organization were blamed for numerous attacks between 2002-2005 in Indonesia, including bombings on the island of Bali in 2002 that killed 202 people. Many militants have since been arrested. But an Australian security report said JI could be poised to strike again.

According to Reuters, a report by the Australian Strategic Policy Institute said “leadership tensions in JI and recent prison releases of JI members raised the possibility that splinter groups might now seek to re-energize the movement through violent attacks.”

The report said JI was now a splintered group which may not be capable of replicating mass casualty attacks, but warned there was evidence that JI members released from prison “are gravitating towards hard line groups who continue to advocate al Qaeda-style attacks against Western targets.

UK insurers are fighting back against fraud. A report published by the Association of British Insurers (www.abi.org.uk) revealed, “the cost of insurance fraud is now estimated to be £5.2 million [$8.48 million] every day,” as more cases of fraud are being detected.

The report highlighted the following:

• The cost of undetected fraudulent general insurance claims is now £1.9 billion [$3.1 billion] a year, up 24 percent from £1.6 billion [$2.61 billion] two years ago.
• Insurers are detecting more of the fraud being committed. Last year, frauds worth £730 million [$1.2 billion] were detected and prevented — a 30 percent increase on 2007.
• Insurance fraud now adds, on average, an extra £44 [$71.77] a year to every household’s general insurance costs.
• More people are being caught lying or withholding relevant information in attempts to get cheaper insurance.

Nick Starling, the ABI’s Director of General Insurance and Health, commented: “There is no hiding place for insurance cheats. Honest customers should not have to pay for the fraudsters.” He added that the “tough approach taken by insurers to protect honest customers means that they are detecting more of the fraud committed. Closer scrutiny of proposal forms and claims, as well the exchange of information through industry-wide databases, is tightening the net on the cheats. Getting a criminal record, as well as difficulty in obtaining and more expensive insurance and credit problems await anyone who sees insurance as a soft touch.”

The ABI cited a study it commissioned on public attitudes towards insurance fraud. The survey of more than 3,000 adults revealed:

• 16 percent would not rule out making an exaggerated insurance claim.
• Just over four in 10 (44 percent) think it acceptable or borderline behavior to increase the value of an item when claiming. Three in 10 feel the same way about overstating the extent of any damage being claimed for.

Best affirms Lloyd’s ‘A’ ratings; “flight to quality” continues. “We’re seeing renewed interest in Lloyd’s, and the percentage of business has gone up,” said Sue Langley, Lloyd’s director, Market Operations and North America. “Personally I’m confident, but I’m still wary of the economy.”

Although Langley described the current economic climate as “crystal ball territory,” she really has less to worry about these days. Lloyd’s has two substantial advantages going for it in the current market: 1) It’s a subscription market, so risks are shared by several syndicates, and 2) Lloyd’s has never been in better financial shape, meaning that a failure to pay claims is virtually non-existent. It offers certainty in an uncertain world, and profits from a “flight to quality.”

A.M. Best recently affirmed its “A” (Excellent) financial strength ratings (FSR) and its “a+” issuer credit rating (ICR) on Lloyd’s. Best said it “believes Lloyd’s will maintain a solid and flexible capital base through 2009 and into 2010.” In addition, Best expects “future draw downs on the Central Fund to diminish, owing to a further decline in run-off liabilities and the reduced likelihood of future insolvencies as a result of increased oversight of syndicates by Lloyd’s.”

Fitch ratings also reaffirmed Lloyd’s “A+” rating, as well as affirming the Society of Lloyd’s “A” rating, Lloyd’s Reinsurance Co. (China) “A+” rating and Lloyd’s subordinated debt issues at “A-.” According to Fitch Lloyd’s is now the second largest reinsurer by net earned premium.

All in all Lloyd’s seems to have weathered the economic crisis rather well, and can even be expected to continue to profit from it.

Topics Lawsuits Catastrophe Trends USA Natural Disasters Fraud Excess Surplus Lloyd's