The Shadow of 9/11: Since her brother’s death, Suzanne McCabe has watched over his children
Suzanne McCabe was on a commuter ferry when the first plane struck the north tower, where her brother was at work on the 104th floor
Millions of people around the world watched the twin towers fall, but only New Yorkers lived through the full horror. From Staten Island to Ground Zero to Brooklyn, they witnessed an apocalyptic scene. The National Post‘s Kathryn Blaze Carlson has returned with four onlookers to the very place where they watched the buildings collapse. How has their life changed in the past 10 years? Below, she takes a ferry with Suzanne McCabe.
MONMOUTH COUNTY, N.J. — Suzanne McCabe has steamed across these murky waters many, many times before — “10 years multiplied by, well … hundreds of times,” she estimates.
Each and every time, she takes the 15—minute drive from her mother’s home to the Atlantic Highlands marina, pulls into the seaside parking lot, and leaves her car behind. Whenever she is in Rumson visiting her family she does this, walking the planks of the boardwalk, ascending the rickety metal ramp and boarding the SeaStreak ferry.
She sits in the lower cabin, sips her coffee, and looks out the window. Traffic streams along Brooklyn’s Belt Parkway on the starboard side, and the sun disappears only as the vessel crosses under the Verrazano—Narrows Bridge, halfway to her office in Manhattan.
We embarked on this 50-minute commute together last weekend, drawing nearer and nearer to Manhattan as the white wake broke behind us.
On Tuesday, Sept. 11, 2001, Ms. McCabe — then in her early 40s and already grieving the imminent death of her father, who died two months later from brain cancer — boarded the 8:45 a.m. ferry.
One minute and 40 seconds later, the technicolour horizon revealed what looked like a toy plane T—boning into the World Trade Center’s North Tower, miles and miles away.
On this similarly warm, but somewhat smoggier Saturday, Ms. McCabe recalls the ferry captain’s announcement: “As you can see, a plane has just crashed into the World Trade Center.”
Standing in the same spot at the bow of the rocking ship, and feeling the same frigid air-conditioning on her body, Ms. McCabe described the mental gymnastics that ensued after the plane hit.
Her 42-year-old brother, Mike, had just started work at Cantor Fitzgerald, but where, exactly, were the trading firm’s offices?
Mike’s best friend, Tuck, had brought him over to Cantor. Tuck was in the 1993 World Trade Center bombing. Mike was with Tuck. Mike was with Tuck in the North Tower.
And there was nothing she could do. Nowhere she could go. Despite the tragedy, or perhaps because of it, the ferry plowed on, and on and on, bound for Pier 11 in Lower Manhattan.
She dialled Mike’s new cellphone, praying to hear his voice, but he did not answer. She then dialed his wife, Lynn, to find out what floor he worked on, but it rang until the line grew jammed.
She remembers trying to calculate how long Mike and Tuck — both fit men who loved to surf — would need to barrel down the stairs to safety. She knows now they had no chance. That they had worked on the 104th floor.
“Mike was returned to us in pieces,” Ms. McCabe said, her brown hair whipping in the wind as we stood together on the upper deck.
His wife finally asked the morgue to stop calling with news of retrieved body parts, Ms. McCabe said as she placed her hand over her heart as if to comfort it.
Her hand is bare. She does not wear a wedding band and she has no children.
“For the past 10 years, I have been living for another person — I’ve been living for Michael,” the Junior Scholastic magazine editor said. “I’m being there for his children in the way he would’ve wanted me to be there, in the way he would’ve been there for them.”
There are rumours among her brother’s surviving Wall Street friends that Mike and Tuck ran up the stairwell to the roof, only to find the door locked. Ms. McCabe’s brother, Gene, is still trying to determine what actually happened that day.
Neither thinks their brother jumped, she said. “We just don’t.”
Mike was father to Cassidy, then 12, Regan, then eight, and Liam, then seven. And he loved that New York skyline.
It was “pure gold” as far as Mike and his four siblings were concerned. Gene, Nick, Mary Ellen, Mike, and Suzanne had stared across the bay in awe as children, watching as the 110-storey buildings were constructed. They could see the towers from Monmouth beach, where Mike liked to bodysurf when the waves were worthy.
“To look out there now, and not see those towers — to not see that skyline we loved as little kids — that really hurts,” she said. “I’ve spent the past 10 years trying to forget that day.”
When she speaks of that day, her voice is mostly firm, but there are moments of breathlessness. Her hands tremble slightly. Her eyes do not water but they become glazed, and she admits they are tired these days.
The anniversary, which comes three days after Mike’s birthday, is approaching for the 10th time. “It’s always such a stressful time,” she said. “But this year has been particularly hard.”
Mike’s 18—year—old daughter, Regan, graduated from high school in June, and had been tasked with writing a reflective essay. She asked her aunt to tell her everything about the Tuesday her father died — about where he was in the tower, about his funeral. About her dad.
What Ms. McCabe said she remembers most is being focused on one thing: the burning North Tower and its metal casing, unfurling like a giant can of tuna fish.
As the ferry lumbered toward Pier 11, she scanned the shell—shocked survivors for her brother’s face. The captain told passengers to remain aboard, that they were only there for evacuation’s sake.
Part of her wanted desperately to disembark and run into the smouldering melee, to burst into the North Tower, at the time still standing, and rescue Mike. To save Regan from buckled knees and tears. To save Lynn from raising children whose “childhoods were blown up.”
“I really only remember one man next to me on the ferry, a man in his 60s or so, saying, ‘Damn bin Laden,’” she said. “I’m amazed looking back on that moment now.”
For the next 10 years, she could not stand to see photos or footage of the burning towers. She soon became sickened at the sight of Osama bin Laden’s face, too.
So when the mastermind of her brother’s death was captured and killed this year, Ms. McCabe could not escape. Images of the towers and the terrorist bombarded television screens and the ubiquitous Manhattan newsstand.
“Sure, bin Laden’s death brought relief, but there’s still an empty seat at the dinner table,” she said.
Ms. McCabe’s mother, Eleanor, still lives in the same Monmouth County home. Ms. McCabe still lives in her Upper West Side apartment. She still works at the magazine. Little has changed, including her desire for one last embrace.
“I just want to hold his hand, to hug him and say goodbye,” Ms. McCabe said. “I can’t even hear the Bruce Springsteen song Bobby Jean without crying: ‘I miss you baby, good luck, goodbye. I wished I could have talked to you.’ “
The first time she got back on the SeaStreak ferry was one month before her father passed away, about three weeks after the attack. It was the morning of Tuck’s funeral; his body was never found.
She was aboard the ferry hours later, bound for her job in Manhattan, when a crew member approached her and said he saw her at Tuck’s funeral.
“He asked me how I knew Tuck, and I told him he was good friends with my brother, Mike McCabe,” she recalled.
When she told him Mike had also died in the attack, the crew member cried, for he knew her brother and had brought him to and from Manhattan many times before.
http://news.nationalpost.com/2011/09/06/the-shadow-of-911-since-her-brothers-death-suzanne-mccabe-has-watched-over-his-children/
Memo to the Democrats - Welcome to the NFL
There is a great video clip from NFL Films (you can view it below) that shows Jerry Glanville of the Houston Oilers in 1989, questioning a call from the back judge. When he finds out from the referee that the back judge is a first-year, former college official, he calls him over and says, “This isn’t college… this is the N-F-L, which means ‘not for long’ when you make those [expletive] calls…”
The Democrats would do well to listen to the sage wisdom of Mr. Glanville. With a majority in the House, a bulletproof Senate, and the White House, the Democrats had an opportunity to make some real changes. Unfortunately, the party let their ideology get in the way of their Magical Misery Tour, and it has caught up with them in Massachusetts. Massachusetts?
Arrogant? Absolutely.
Elections have consequences, and the Obama administration has set a course on a far-left agenda, despite the warnings of the people. In one year, this administration has succeeded in doing the unthinkable — it has ticked off the left, the right, and the middle. How did they do it? Ideological myopathy is the key, and Chicago-style politics that don't play well on the national stage.
Inexperienced? Yes.
Inept? You make the call.
President Obama has little experience running anything, much less a really big country, and it shows. Reading terrorists their rights, arresting military because they allegedly punched a terrorist in the stomach. The president makes nice with the folks who want to kill us, and what happens? They try to kill us. Ft. Hood and the underwear bomber are stark reminders that another attack may well be hatching as we speak.
He’s zero for two in Copenhagen. The failed Olympic bid is one thing, but who goes to a global summit to get an agreement, and does not have the details worked out in advance. Politics 101.
When Martha Coakley conceded to Scott Brown this week, she thanked Bill Clinton and Vicki Kennedy for their support. No mention of the president, who flew in on the eve of the special election to campaign for the Democratic candidate. Ouch! Brown won the Commonwealth by 26% of the vote. The Dems are gonna need Teflon to try and explain this away.
Now health care is dead, and it is at the hands of the voters who put Ted Kennedy in the seat for 47 years. Having grown up in New England, I was mildly amused at the platitudes when he died. Teddy was an embarrassment. Chappaquiddick and his nephew’s rape trial showed the true character of the man. These two incidents were 21 years apart. Like Robert Byrd, he became a force in American politics because he outlived all of his colleagues.
Joe Biden? Second string. This is the best gig he will ever have.
Harry Reid? Sorry, I didn’t mean what I said, Mr. President.
That’s okay, Harry. It’s your job not to mean what you say. Just don't mean what you say to not advance the cause and we're cool...
Someone asked Nancy Pelosi about the weather the other day. Her response: “Yellow”. She then retracted her statement, indicating that she actually meant to say "bird seed".
Look, we know these guys are smart. Unfortunately, they have never done much of anything. They did not lose their way because of ideology. They lost their way because they have treated the American people like they are idiots. When Grandma rose up out of her wheelchair on the farm, we called it a miracle. When she rose up at a town hall meeting, they called her a misguided ass.
It looks like Grandma, and a lot of other people (including 22% of Democrats), got up off their asses, went to the polls in Massachusetts, and sent a message to the country. Coakley’s percentage of the popular vote is right where the president’s approval rating is now. Go figure.
My advice comes from Jerry Glanville, in the same clip: “Is he a college guy? …I hate college guys… Is he a boolah-boolah official?”
Throw out the theoreticians, Mr. President. Let the people who have done this before do it again, without having to answer to a czar or some other political crony who doesn’t have a clue how it’s all put together. Once you get that under control, go back to Congress and talk… to everyone.
Then go to step two… listen.
Listen to the “tea-baggers” and the far left. If you do, you may find that middle ground. And it’s that middle ground where you could find your base.
Mr. Obama, you are my president, and I am rooting for you. I don’t agree with most of your views, but I respect the office. I also respect the political process. In the United States, the people will be heard, and they have articulated wisely in Massachusetts. So heed the warning of this special election. Our safety, security and economy depend on it.
Welcome to the NFL. See you in November.
Volkswagen Risk Manager Named '2009 Risk Innovator'
RISK INNOVATOR
The Risk Innovator Award recognizes winners across different industries who have demonstrated innovation and excellence in risk management. These key individuals see risk differently and have resolved risk-related problems in a unique or innovative way. They view risk not only as a threat, but also as an opportunity for their organizations.
About Risk and Insurance ® magazine
Risk & Insurance® provides business executives and insurance professionals with the insight, information and strategies they need to mitigate challenging business risks. We keep our readers current on a wide variety of business risks and mitigation strategies — from insurance, employee benefits and alternative risk transfer to emerging risks and the strategies for addressing them.
Risk & Insurance® is published monthly and semi-monthly in April, September and October.
Manufacturing
Richard G. Vassar
General Manager, Risk Management
Volkswagen Group of America Inc.
Herndon, Va.
Laughter and creativity guide Volkswagen's risk manager, who knows how to bring risk management to those around him.
Given the title of a nicely selling book about giving the insurance industry a little comeuppance you might think it was written by Public Citizen, a public advocacy group started by Ralph Nader.
The title of the book, "Hide! Here Comes the Insurance Guy: Understanding Business and Risk Management" in fact, belongs to Richard G. Vassar, general manager, risk management at Herndon, Va.-based Volkswagen Group of America Inc.
The journey of Vassar's book from idea to rolling off the press is a real saga. After Vassar talked to more book publishers than he cares to remember, he decided to take a bold step: enter the world of print-on-demand, wherein he would foot the bill for every book sold, title by title.
It was a good gamble. With some promotional help from RIMS and speaking engagements, as well as a number of favorable reviews, he knew his approach of simplifying substantial insurance concepts with touches of humor here and there was catching on. That was July of 2006.
Within a year or so about 1,200 print-on-demand copies had been sold.
So in November of last year, in addition to the print-on-demand title, Vassar's publisher, iUniverse, launched a traditional title of the same name and has sold about 300 copies since then. The books are available through the publisher and Amazon.com.
Vassar wrote the book principally for midsize and smaller companies at which the risk manager often wears other hats as well.
Said Vassar: "I wrote the book because most organizations lack the basic knowledge of risk management and insurance. Many look at insurance as a 'necessary evil' and do not know how to take a proactive approach to reducing losses, which in turn reduces insurance costs.
"I also recognized that insurance has its own language, and the book was aimed at being a translator for those with business acumen but who find insurance much too technical to warrant its study."
Vassar said the current target reader for "Hide!" is a larger business audience. "What I've learned working in Corporate America is that when you walk into the CFOs office you've got to speak like they do--in numbers. If you go in talking insurance language then you're not going to get buy-in."
--------------------------------------------------------------------------------
BREAKING IT DOWN
Several people who know Vassar well said he is the ideal person for breaking down insurance speak into understandable business terms.
Joe Donnelly, senior vice president at Kansas City-based Lockton Companies LLC, a construction services business manager, said of Vassar: "Rick is a creative risk manager. Many risk managers will sit back and let things run themselves. Rick is more of a mind to take positive action.
"He works very closely with his broker. Then he takes a very aggressive role in dealing with the market. He can be a challenge to work with at times--but for all the right reasons. I enjoy working with him."
Added Donnelly: "Rick is well versed in his field. He knows what he wants, but at the same time he is easy going. In a business/social situation he is very comfortable; he is well spoken and a genuinely nice guy."
"When working with Rick there was never an easy solution," noted Jim Misselwitz, senior account executive and part owner at ECBM, a very large independent broker in the Philadelphia area. "You always had to keep working a project until everybody was fully satisfied but Rick had a way of dissecting a problem that left everybody feeling comfortable."
"Rick is one of those guys who, when bombs are going off all around you, has a way of being calm, of staying focused on the end game. He had a level of knowledge such that he could communicate at any level in the corporation. Rick also knew how to stay on task. If somebody came and said, 'We've got to this and we've got to do it now,' he would put it in a place it belonged and come back to it at the appropriate time. He always served the company first."
Throughout the years, Vassar has consistently realized a 20 percent first-year cost improvement and maintained or improved on those numbers for every corporation where he's worked more than 20 years: 15 years at Thrifty Car Rental, Inc.; five years at Valcourt Building Services and in the past year at Volkswagen Group of America.
--By Steve Yahn
Rick Vassar Named ‘2009 Risk Innovator’ by Risk and Insurance Magazine
NewswireToday - /newswire/ - Sterling, VA, United States, 09/16/2009 - Risk and Insurance Magazine, an LRP Publication has announced that Richard G. Vassar, General Manager, Risk Management for Volkswagen Group of America, has been named a 2009 Risk Innovator.
The Risk Innovator Award recognizes winners across different industries who have demonstrated innovation and excellence in risk management. These key individuals see risk differently and have resolved risk-related problems in a unique or innovative way. They view risk not only as a threat, but also as an opportunity for their organizations.
Mr. Vassar is recognized as a guiding force in the risk management community. In 2006, he published his book Hide! Here Comes the Insurance Guy. The book provides business insurance and risk management strategies in an easy to read style that simplifies the process.
Says Vassar: "I … recognized that insurance has its own language, and the book was aimed at being a translator for those with business acumen but who find insurance much too technical to warrant its study."
Several people who know Vassar well said he is the ideal person for breaking down insurance speak into understandable business terms.
Joe Donnelly, senior vice president at Kansas City-based Lockton Companies, LLC, a risk services business manager, said of Vassar: "Rick is a creative risk manager. Many risk managers will sit back and let things run themselves. Rick is more of a mind to take positive action.“
When working with Rick there was never an easy solution," noted Jim Misselwitz, senior account executive and part owner at ECBM, a very large independent broker in the Philadelphia area. "You always had to keep working a project until everybody was fully satisfied but Rick had a way of dissecting a problem that left everybody feeling comfortable."
"Rick is one of those guys who, when bombs are going off all around you, has a way of being calm, of staying focused on the end game. He had a level of knowledge such that he could communicate at any level in the corporation.”
Risk & Insurance® (riskandinsurance.com) provides business executives and insurance professionals with the insight, information and strategies they need to mitigate challenging business risks.
The Risk Innovator Award recognizes winners across different industries who have demonstrated innovation and excellence in risk management. These key individuals see risk differently and have resolved risk-related problems in a unique or innovative way. They view risk not only as a threat, but also as an opportunity for their organizations.
Mr. Vassar is recognized as a guiding force in the risk management community. In 2006, he published his book Hide! Here Comes the Insurance Guy. The book provides business insurance and risk management strategies in an easy to read style that simplifies the process.
Says Vassar: "I … recognized that insurance has its own language, and the book was aimed at being a translator for those with business acumen but who find insurance much too technical to warrant its study."
Several people who know Vassar well said he is the ideal person for breaking down insurance speak into understandable business terms.
Joe Donnelly, senior vice president at Kansas City-based Lockton Companies, LLC, a risk services business manager, said of Vassar: "Rick is a creative risk manager. Many risk managers will sit back and let things run themselves. Rick is more of a mind to take positive action.“
When working with Rick there was never an easy solution," noted Jim Misselwitz, senior account executive and part owner at ECBM, a very large independent broker in the Philadelphia area. "You always had to keep working a project until everybody was fully satisfied but Rick had a way of dissecting a problem that left everybody feeling comfortable."
"Rick is one of those guys who, when bombs are going off all around you, has a way of being calm, of staying focused on the end game. He had a level of knowledge such that he could communicate at any level in the corporation.”
Risk & Insurance® (riskandinsurance.com) provides business executives and insurance professionals with the insight, information and strategies they need to mitigate challenging business risks.
How the Bottom Fell Out? Now We Know Why Banks and Insurers Shouldn’t Be Allowed to Play Together
By Rick Vassar CPCU ARM
Author of the #1 Insurance Liability Book on Amazon.com Hide! Here Comes the Insurance Guy
CHICAGO, Dec 17, 2008 (BUSINESS WIRE) -- Fitch Ratings downgrades XL Capital Ltd (XL) and its property/casualty (re)insurance subsidiaries, including the Issuer Default Rating (IDR) for XL to ’BBB+’ from ’A’, and the Insurer Financial Strength (IFS) rating of its core operating companies to ’A’ from ’A+’. (See the full list below.) The ratings remain on Rating Watch Negative.
The rating action follows XL’s announcement that the company anticipates the estimated mark-to-market decline in its investment portfolio through November 2008 to be largely in line with the $1.1 billion of unrealized losses, other than temporary impairments and realized losses on sales the company incurred in the third quarter of 2008 and the $200 to $220 million in net investment fund affiliate losses from its alternative investment portfolio for the fourth quarter of 2008.
Rick Vassar’s insurance/Financial Interpretation – “Sorry, man, my bad…”
NEW YORK--Dec. 17, 2008--American International Group, Inc. (AIG) has issued the following statement regarding an article published today by Bloomberg:
"AIG reports all its derivatives at fair value in accordance with US GAAP including AIGFP’s credit derivative portfolios. In accordance with US GAAP, in its determination of fair value for its credit derivatives, AIG considers all available information including but not limited to market available data, dealer provided prices, prices used for collateral posting and recent trades including early terminations initiated by counterparties. In evaluating fair value for its Regulatory Capital portfolio, AIG also considers factors relating to the individual underlying portfolios including, but not limited to, asset type and seasoning, default history, loss history and attachment point.
"AIG has clearly described its valuation approach including key assumptions used for AIGFP’s super senior credit default swap portfolio in its Form 10-Q for the quarter ended September 30, 2008."
Rick Vassar’s Insurance/Financial Interpretation:
“Face it. You [screwed] up! You trusted us.”
-Eric ‘Otter’ Stratton from the motion picture Animal House (1978)
I have been asked on numerous occasions in the past few months how this could happen to a big insurance company like AIG.
Why are they investing money in sub-prime mortgages?
How could they not see this coming?
You see, the general public believes that insurance is quite a simple process. You charge premiums, you pay claims, and you keep the money that’s left over.
It’s sort of like that, except that there’s one component left out. The insurance companies charge premium, put some of it aside to pay claims, and invest the rest. The insurance industry as a whole loses money on the spread of premium to losses, but makes it up handsomely on the investment returns. The industry has been doing this for hundreds of years.
So what’s the problem, Rick?
The problem was outlined in my book Hide! Here Comes the Insurance Guy in early 2006:
“I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.
The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.”
In other words, instead of insurers going to the bank to invest their money, they became the bank. Insurers found that by going to themselves to invest their money to be much easier and much more profitable.
I mean, who is going to ask questions of you if you are borrowing from you.
Sarbanes-Oxley only expanded the problem, because the transactions were being reported. No one understood the investments, but they were being reported. And don’t worry, it’s mostly our money.
Then, the bottom falls out, and the bank turns back into an insurance company and tells us that they don’t know what these swaps and stuff are all about, because this isn’t our core area of expertise.
Exactly.
One needs to look only at the insurance industry’s combined ratio, which is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The industry average has been hovering around 102%, which means for every $100 collected in premium, $102 is paid out in claims and expenses.
The combined ratio is conservatively estimated to be around 104% in 2008, with some experts saying that it could be as high as 108%.
So, what has this taught us?
Insurers began to rely on investment income to offset poor premium pricing and underwriting decisions in reaction to increased competition brought about after Gramm-Leach-Bliley. Insurers lowered qualifications to bring in more income to invest. Once claims cost began to rise due to poor underwriting, there was more pressure on the investment side to make up the difference.
The pressure for increased investment income led to lower standards in the underwriting of investments. The greater the risk, the greater the return, unless the bottom falls out
If there is transparency in financial transactions that no one understands, are they really transparent? SarBox gives the impression of accountability without accountability, which is okay, unless the bottom falls out.
It makes me chuckle to hear insurers tell me that the insurers are actually in good shape. My question is: How good would they be if that $100 billion or so didn’t come to the rescue? The insurance subsidiaries are being kept alive to sell off from the banks – I mean holding companies.
Let’s go back to banks being banks and insurers selling insurance. When they’re apart, they work pretty well. When they got together, it was real good for awhile. Premiums came down, insurance was available, investments were plentiful. When the bottom fell out, the fall was swift and severe, and there was no place to go.
Too good to be true is all well and good, unless the bottom falls out.
Author of the #1 Insurance Liability Book on Amazon.com Hide! Here Comes the Insurance Guy
CHICAGO, Dec 17, 2008 (BUSINESS WIRE) -- Fitch Ratings downgrades XL Capital Ltd (XL) and its property/casualty (re)insurance subsidiaries, including the Issuer Default Rating (IDR) for XL to ’BBB+’ from ’A’, and the Insurer Financial Strength (IFS) rating of its core operating companies to ’A’ from ’A+’. (See the full list below.) The ratings remain on Rating Watch Negative.
The rating action follows XL’s announcement that the company anticipates the estimated mark-to-market decline in its investment portfolio through November 2008 to be largely in line with the $1.1 billion of unrealized losses, other than temporary impairments and realized losses on sales the company incurred in the third quarter of 2008 and the $200 to $220 million in net investment fund affiliate losses from its alternative investment portfolio for the fourth quarter of 2008.
Rick Vassar’s insurance/Financial Interpretation – “Sorry, man, my bad…”
NEW YORK--Dec. 17, 2008--American International Group, Inc. (AIG) has issued the following statement regarding an article published today by Bloomberg:
"AIG reports all its derivatives at fair value in accordance with US GAAP including AIGFP’s credit derivative portfolios. In accordance with US GAAP, in its determination of fair value for its credit derivatives, AIG considers all available information including but not limited to market available data, dealer provided prices, prices used for collateral posting and recent trades including early terminations initiated by counterparties. In evaluating fair value for its Regulatory Capital portfolio, AIG also considers factors relating to the individual underlying portfolios including, but not limited to, asset type and seasoning, default history, loss history and attachment point.
"AIG has clearly described its valuation approach including key assumptions used for AIGFP’s super senior credit default swap portfolio in its Form 10-Q for the quarter ended September 30, 2008."
Rick Vassar’s Insurance/Financial Interpretation:
“Face it. You [screwed] up! You trusted us.”
-Eric ‘Otter’ Stratton from the motion picture Animal House (1978)
I have been asked on numerous occasions in the past few months how this could happen to a big insurance company like AIG.
Why are they investing money in sub-prime mortgages?
How could they not see this coming?
You see, the general public believes that insurance is quite a simple process. You charge premiums, you pay claims, and you keep the money that’s left over.
It’s sort of like that, except that there’s one component left out. The insurance companies charge premium, put some of it aside to pay claims, and invest the rest. The insurance industry as a whole loses money on the spread of premium to losses, but makes it up handsomely on the investment returns. The industry has been doing this for hundreds of years.
So what’s the problem, Rick?
The problem was outlined in my book Hide! Here Comes the Insurance Guy in early 2006:
“I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.
The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.”
In other words, instead of insurers going to the bank to invest their money, they became the bank. Insurers found that by going to themselves to invest their money to be much easier and much more profitable.
I mean, who is going to ask questions of you if you are borrowing from you.
Sarbanes-Oxley only expanded the problem, because the transactions were being reported. No one understood the investments, but they were being reported. And don’t worry, it’s mostly our money.
Then, the bottom falls out, and the bank turns back into an insurance company and tells us that they don’t know what these swaps and stuff are all about, because this isn’t our core area of expertise.
Exactly.
One needs to look only at the insurance industry’s combined ratio, which is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The industry average has been hovering around 102%, which means for every $100 collected in premium, $102 is paid out in claims and expenses.
The combined ratio is conservatively estimated to be around 104% in 2008, with some experts saying that it could be as high as 108%.
So, what has this taught us?
Insurers began to rely on investment income to offset poor premium pricing and underwriting decisions in reaction to increased competition brought about after Gramm-Leach-Bliley. Insurers lowered qualifications to bring in more income to invest. Once claims cost began to rise due to poor underwriting, there was more pressure on the investment side to make up the difference.
The pressure for increased investment income led to lower standards in the underwriting of investments. The greater the risk, the greater the return, unless the bottom falls out
If there is transparency in financial transactions that no one understands, are they really transparent? SarBox gives the impression of accountability without accountability, which is okay, unless the bottom falls out.
It makes me chuckle to hear insurers tell me that the insurers are actually in good shape. My question is: How good would they be if that $100 billion or so didn’t come to the rescue? The insurance subsidiaries are being kept alive to sell off from the banks – I mean holding companies.
Let’s go back to banks being banks and insurers selling insurance. When they’re apart, they work pretty well. When they got together, it was real good for awhile. Premiums came down, insurance was available, investments were plentiful. When the bottom fell out, the fall was swift and severe, and there was no place to go.
Too good to be true is all well and good, unless the bottom falls out.
Finance and Insurance: How a Change in Focus Led to an Economic Crisis
By Rick Vassar CPCU ARM
We’ve all heard the children’s story about the emperor and his new suit. The emperor ordered some clothes from some con men that had passed themselves off as weavers. These grifters convinced the king and his court that the clothes were “made of material that possessed the wonderful quality of being invisible to any man who was unfit for his office or unpardonably stupid.”
So, they pretend to dress the emperor, and as he stands there naked, all of his advisors and associates begin to comment on the beauty of the suit, since each feared that not being able to see this beauty would validate his unworthiness for his high position.
As each of the emperor’s confidantes spoke glowingly about the clothes, the emperor began to believe that he could be seen as unfit for his high place because he could not see the suit. As he stands there naked, he makes a really bad decision:
Hey — let’s have a parade so I can show off these wonderfully beautiful clothes!
So he parades through the street, and all marvel at the exquisite suit of clothes, until a small child calls out, “But he has nothing on.…” The crowd begins to chant this as well, while the emperor lifts his head higher and the chamberlains proudly hold higher the emperor’s nonexistent train.
What does this tale have to do with risk management and the current financial crisis? Read on.
The Rise of Enterprise Risk Management
The enterprise risk management (ERM) movement began to take hold of the risk management and financial community following two significant events shortly after the turn of the century. These events set the stage for the risk management community to step forward and make itself known to the business community as a vital element of the financial system, necessary to protect the assets of the organization.
The Attacks of September 11, 2001
In 2001, the attacks of September 11 forced businesses, governmental entities, and the general public to take a serious look at the risks they faced on a daily basis. On any given day, the walls could literally fall down, and life as we know it can be changed forever. After September 11, all of the securities we took for granted needed to be reevaluated. Our personal, financial, and infrastructural security all took a hit that day, and businesses were forced to look at risk as an important factor affecting the continuity of business activities as well as factors that could result in the actual demise of the entire organization.
Survivors Faced a Hardening Insurance Market
Some businesses failed. Ones that survived faced a hardening insurance market, a market in which insurers used the events of September 11 to divest themselves of risks they had taken on after the Gramm-Leach-Bliley Act of 1999 opened up the insurance markets to financial institutions that flooded the market with an increased supply of insurance choices while demand stayed fairly stable.
When the United States was attacked, the financial chaos that ensued gave the insurance industry the opportunity to tighten its underwriting requirements. The policies that were written for less favorable risks from 1999–2002 were summarily dropped, and those businesses that did not lose their coverage faced renewal increases as high as 150 percent.
Sarbanes-Oxley Act of 2002
In the early 2000s, the increase in defined contribution retirement plans and 401(k) plans flooded Wall Street with funds from smaller investors, and it became apparent to some that publicly traded companies needed to be more accountable to protect these small investors who were completely detached from the management of the organization.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act, after it was overwhelmingly approved by both the U.S. Senate and the House of Representatives. Sarbanes-Oxley set up strict financial and accountability standards for publicly traded companies. Coming on the heels of corporate accounting scandals at large companies such as Enron and Adelphia, the Act set a uniform standard for financial accountability to ensure that the assets of an organization and, therefore, the interests of stockholders would be protected.
The accounting standards, along with the civil and criminal penalties for noncompliance, set the stage for a codified infrastructure not only for publicly traded companies, but also for those companies that aspire to evolve from private ownership. To do so, these private firms would need to prove that they could withstand the scrutiny imposed by Sarbanes-Oxley before “going public."
An Opportunity Lost
The risk management community had success all laid out for them, and it cannot be denied that risk management is much more visible today than when I started in the discipline over twenty 20 years ago. Instead of being able to grasp the opportunity presented, the ERM profession is mired in uncertainty that stems from an inability to define itself in the business community. In fact, if you polled 100 risk managers and asked them the difference between traditional risk management and enterprise risk management, you would come up with at least 90 different answers, if not more.
The culmination of this lack of clarity was the publication by the Risk and Insurance Management Society (RIMS) of Enterprise Risk Management for Dummies, in an attempt to explain ERM to its own members. In fact, the book was given free to all members of RIMS in 2007 and is given to all new members who have enrolled since April 2007.
And Here Is Where the Emperor and His New Suit Come In:
Why is it so difficult to distinguish the difference between traditional risk management and enterprise risk management? Because they’re the same thing! The emperor has no new suit.
Why the ERM Initiative Will Not Work
Enterprise risk management collapses under the weight of its own expectations and the expectations of the risk management community. I cannot see ERM as anything other than a repackaging of traditional risk management practices. It is an attempt to market risk management to the business community, and the business community sees right through it.
Here’s why enterprise risk management will not work in its present state.
1. The inability to adequately define ERM — There is very little to distinguish ERM from traditional practices. Why, then, do we choose to call it something else?
2. Loss of focus — Sarbanes-Oxley defines a process for financial accountability. If there is one major difference between ERM and traditional risk management, it is ERM’s focus on risk financing as the primary vehicle for success. Any good businessperson will tell you that only when you control your losses can you control your bottom line.
3. The risk manager’s accountability standard — An organization’s appetite for risk should not be a green light for a risk manager to try a risk financing option that may not be in the overall best interest of the company. Most companies, once they become comfortable that their risk management staff knows what they are doing, will lean heavily on the expertise on that staff, and the risk manager needs to fight the power and ego that go along with that level of comfort.
4. Credibility in the insurance community — Like it or not, the major role of the contemporary risk management department is the purchase of insurance. Yet, ERM, with all of its emphasis on the risk financing aspect of risk management, downplays the need for insurance expertise. This is foolish. A risk manager who leans on a broker for insurance expertise instead of leaning on him or her to teach the manager about the insurance process will not serve the organization well. A risk manager needs to need to know what he or she is buying, and more importantly, what the insurance industry is selling.
5. Where risk management resides in the organizational chart — In smaller companies, risk management has to fight to be considered a full-time job. In larger entities, the challenge is to elevate risk management to a board position (chief risk officer [CRO]). Risk management is neither a parttime job nor a board level position, and any attempt to sell it as more than an executive-level position diminishes credibility in the business community.
How ERM Can Work
The ERM concept is not a total loss. Here are some suggestions to make it work.
1. Return to risk management roots — Get back to the basics. The traditional model of identifying, analyzing, examining, selecting, implementing, and monitoring has worked really well in many ways; this process should remain the core of any risk management program. Completely changing the focus, the approach, and the model without fully defining the plan is — well — poor risk management.
2. Adjust the focus — Enterprise risk management focuses primarily on risk financing as the core tool to risk management success. Yet, if you have been in this line of work for a period of time, you know that the best way to reduce costs is to reduce the frequency and severity of losses through solid risk control techniques. If your organization will commit resources to safety initiatives, employee screening, and customer qualification, you will create an environment for business success AND save money on insurance costs. You can’t get creative with risk financing unless you have proper risk control techniques to mitigate the losses you are self-insuring. Risk control always comes before creative risk financing, and Sarbanes-Oxley does not change that.
3. Define the profession — In the minds of many in the business community, risk management is not a full-time job. This perception must change. It is not a part-time job, nor is it a board position. Increase the responsibilities of the risk manager, perhaps to include an expanded role into benefits management. In a smaller organization, this would sell the position as a true management position; if you hire a risk manager, you get a benefits expert as well. In a larger company, the risk manager would take on a more strategic role, and the position can be elevated to an executive level position.
The risk management community should focus on promoting the risk manager position as being, at the very least, a management position, and at the most, an executive-level position. This will allow the business community to better define the role and to make better use of risk managers when they are hired. I believe the risk management profession loses the most talent within the first six months of new risk managers’ careers — not because risk management is a bad job or profession, but because most new risk managers don’t know what to do when they get the job, and the companies who hired them don’t know what to do with them once they’re there.
4. Learn the insurance business — Regardless of any evidence presented to the contrary, risk management's primary responsibility is to purchase and maintain insurance. Why do I say this? When a major loss occurs in any organization I have been involved in, the bosses do not come around and ask if we did all we can do to mitigate this loss using solid risk control and risk financing techniques. No, it’s always the same three words: “Are we covered?” You can save all the money in the world on premium and creative financing, but you always want to make sure that when a loss occurs, the organization is aware ahead of time of the ramifications of such a loss. To do so, you need to learn about what you are purchasing. It is only then that you can determine if what you are buying is really what you need.
5. Get more involved in the insurance purchasing process — Did you know that the insured that uses a broker is not even considered a party in the insurance purchasing process? In this process, the underwriter is the seller and the broker is the buyer. The insured is merely the financing source, and the underwriting process is a financial capacity evaluation in which the underwriter determines the insured’s capacity to pay and the amounts the insurer will potentially pay out to settle and administer losses. If you as risk manager fail to interject yourself into the process, you will find that the lack of communication will lead to higher costs. To get involved, though, you need to understand the language, the process, and the goals of each of the players.
6. It’s all about the business — The number one piece of advice I can give risk managers is to learn how business works. Then learn how your business works, and adapt your program to that business. It is the job of others within the organization to make the ultimate business decisions. It is the risk manager’s responsibility to make sure that those making the decisions have all of the information they need from your area of responsibility to make those decisions. If the decisions made are not what you would have done, bite down hard and ensure that the organization is protected. If you provide the best information, and the company decides to go down a slippery slope anyway, management will not come back and tell you that you were right. The question will be “Are we covered?”
Conclusion
I firmly believe that enterprise risk management can be saved, but only if there is a commitment to return to the traditional roots of risk management. The emperor continued to believe in spite of overwhelming evidence to the contrary. When the small child yelled out that the emperor had on no clothes, the emperor and his men stood taller, as if the ignorance of the crowd outweighed any and all common sense.
It’s the same with risk management. ERM can work, but not until it can be defined. In the meantime, let’s step back and see if we can marry the two approaches: traditional risk management with its risk control focus, and ERM with its risk financing core. This will advance the discipline and bring the profession the respect it desires and deserves.
Until then, remember:
Listen to the child — the child is right.
We’ve all heard the children’s story about the emperor and his new suit. The emperor ordered some clothes from some con men that had passed themselves off as weavers. These grifters convinced the king and his court that the clothes were “made of material that possessed the wonderful quality of being invisible to any man who was unfit for his office or unpardonably stupid.”
So, they pretend to dress the emperor, and as he stands there naked, all of his advisors and associates begin to comment on the beauty of the suit, since each feared that not being able to see this beauty would validate his unworthiness for his high position.
As each of the emperor’s confidantes spoke glowingly about the clothes, the emperor began to believe that he could be seen as unfit for his high place because he could not see the suit. As he stands there naked, he makes a really bad decision:
Hey — let’s have a parade so I can show off these wonderfully beautiful clothes!
So he parades through the street, and all marvel at the exquisite suit of clothes, until a small child calls out, “But he has nothing on.…” The crowd begins to chant this as well, while the emperor lifts his head higher and the chamberlains proudly hold higher the emperor’s nonexistent train.
What does this tale have to do with risk management and the current financial crisis? Read on.
The Rise of Enterprise Risk Management
The enterprise risk management (ERM) movement began to take hold of the risk management and financial community following two significant events shortly after the turn of the century. These events set the stage for the risk management community to step forward and make itself known to the business community as a vital element of the financial system, necessary to protect the assets of the organization.
The Attacks of September 11, 2001
In 2001, the attacks of September 11 forced businesses, governmental entities, and the general public to take a serious look at the risks they faced on a daily basis. On any given day, the walls could literally fall down, and life as we know it can be changed forever. After September 11, all of the securities we took for granted needed to be reevaluated. Our personal, financial, and infrastructural security all took a hit that day, and businesses were forced to look at risk as an important factor affecting the continuity of business activities as well as factors that could result in the actual demise of the entire organization.
Survivors Faced a Hardening Insurance Market
Some businesses failed. Ones that survived faced a hardening insurance market, a market in which insurers used the events of September 11 to divest themselves of risks they had taken on after the Gramm-Leach-Bliley Act of 1999 opened up the insurance markets to financial institutions that flooded the market with an increased supply of insurance choices while demand stayed fairly stable.
When the United States was attacked, the financial chaos that ensued gave the insurance industry the opportunity to tighten its underwriting requirements. The policies that were written for less favorable risks from 1999–2002 were summarily dropped, and those businesses that did not lose their coverage faced renewal increases as high as 150 percent.
Sarbanes-Oxley Act of 2002
In the early 2000s, the increase in defined contribution retirement plans and 401(k) plans flooded Wall Street with funds from smaller investors, and it became apparent to some that publicly traded companies needed to be more accountable to protect these small investors who were completely detached from the management of the organization.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act, after it was overwhelmingly approved by both the U.S. Senate and the House of Representatives. Sarbanes-Oxley set up strict financial and accountability standards for publicly traded companies. Coming on the heels of corporate accounting scandals at large companies such as Enron and Adelphia, the Act set a uniform standard for financial accountability to ensure that the assets of an organization and, therefore, the interests of stockholders would be protected.
The accounting standards, along with the civil and criminal penalties for noncompliance, set the stage for a codified infrastructure not only for publicly traded companies, but also for those companies that aspire to evolve from private ownership. To do so, these private firms would need to prove that they could withstand the scrutiny imposed by Sarbanes-Oxley before “going public."
An Opportunity Lost
The risk management community had success all laid out for them, and it cannot be denied that risk management is much more visible today than when I started in the discipline over twenty 20 years ago. Instead of being able to grasp the opportunity presented, the ERM profession is mired in uncertainty that stems from an inability to define itself in the business community. In fact, if you polled 100 risk managers and asked them the difference between traditional risk management and enterprise risk management, you would come up with at least 90 different answers, if not more.
The culmination of this lack of clarity was the publication by the Risk and Insurance Management Society (RIMS) of Enterprise Risk Management for Dummies, in an attempt to explain ERM to its own members. In fact, the book was given free to all members of RIMS in 2007 and is given to all new members who have enrolled since April 2007.
And Here Is Where the Emperor and His New Suit Come In:
Why is it so difficult to distinguish the difference between traditional risk management and enterprise risk management? Because they’re the same thing! The emperor has no new suit.
Why the ERM Initiative Will Not Work
Enterprise risk management collapses under the weight of its own expectations and the expectations of the risk management community. I cannot see ERM as anything other than a repackaging of traditional risk management practices. It is an attempt to market risk management to the business community, and the business community sees right through it.
Here’s why enterprise risk management will not work in its present state.
1. The inability to adequately define ERM — There is very little to distinguish ERM from traditional practices. Why, then, do we choose to call it something else?
2. Loss of focus — Sarbanes-Oxley defines a process for financial accountability. If there is one major difference between ERM and traditional risk management, it is ERM’s focus on risk financing as the primary vehicle for success. Any good businessperson will tell you that only when you control your losses can you control your bottom line.
3. The risk manager’s accountability standard — An organization’s appetite for risk should not be a green light for a risk manager to try a risk financing option that may not be in the overall best interest of the company. Most companies, once they become comfortable that their risk management staff knows what they are doing, will lean heavily on the expertise on that staff, and the risk manager needs to fight the power and ego that go along with that level of comfort.
4. Credibility in the insurance community — Like it or not, the major role of the contemporary risk management department is the purchase of insurance. Yet, ERM, with all of its emphasis on the risk financing aspect of risk management, downplays the need for insurance expertise. This is foolish. A risk manager who leans on a broker for insurance expertise instead of leaning on him or her to teach the manager about the insurance process will not serve the organization well. A risk manager needs to need to know what he or she is buying, and more importantly, what the insurance industry is selling.
5. Where risk management resides in the organizational chart — In smaller companies, risk management has to fight to be considered a full-time job. In larger entities, the challenge is to elevate risk management to a board position (chief risk officer [CRO]). Risk management is neither a parttime job nor a board level position, and any attempt to sell it as more than an executive-level position diminishes credibility in the business community.
How ERM Can Work
The ERM concept is not a total loss. Here are some suggestions to make it work.
1. Return to risk management roots — Get back to the basics. The traditional model of identifying, analyzing, examining, selecting, implementing, and monitoring has worked really well in many ways; this process should remain the core of any risk management program. Completely changing the focus, the approach, and the model without fully defining the plan is — well — poor risk management.
2. Adjust the focus — Enterprise risk management focuses primarily on risk financing as the core tool to risk management success. Yet, if you have been in this line of work for a period of time, you know that the best way to reduce costs is to reduce the frequency and severity of losses through solid risk control techniques. If your organization will commit resources to safety initiatives, employee screening, and customer qualification, you will create an environment for business success AND save money on insurance costs. You can’t get creative with risk financing unless you have proper risk control techniques to mitigate the losses you are self-insuring. Risk control always comes before creative risk financing, and Sarbanes-Oxley does not change that.
3. Define the profession — In the minds of many in the business community, risk management is not a full-time job. This perception must change. It is not a part-time job, nor is it a board position. Increase the responsibilities of the risk manager, perhaps to include an expanded role into benefits management. In a smaller organization, this would sell the position as a true management position; if you hire a risk manager, you get a benefits expert as well. In a larger company, the risk manager would take on a more strategic role, and the position can be elevated to an executive level position.
The risk management community should focus on promoting the risk manager position as being, at the very least, a management position, and at the most, an executive-level position. This will allow the business community to better define the role and to make better use of risk managers when they are hired. I believe the risk management profession loses the most talent within the first six months of new risk managers’ careers — not because risk management is a bad job or profession, but because most new risk managers don’t know what to do when they get the job, and the companies who hired them don’t know what to do with them once they’re there.
4. Learn the insurance business — Regardless of any evidence presented to the contrary, risk management's primary responsibility is to purchase and maintain insurance. Why do I say this? When a major loss occurs in any organization I have been involved in, the bosses do not come around and ask if we did all we can do to mitigate this loss using solid risk control and risk financing techniques. No, it’s always the same three words: “Are we covered?” You can save all the money in the world on premium and creative financing, but you always want to make sure that when a loss occurs, the organization is aware ahead of time of the ramifications of such a loss. To do so, you need to learn about what you are purchasing. It is only then that you can determine if what you are buying is really what you need.
5. Get more involved in the insurance purchasing process — Did you know that the insured that uses a broker is not even considered a party in the insurance purchasing process? In this process, the underwriter is the seller and the broker is the buyer. The insured is merely the financing source, and the underwriting process is a financial capacity evaluation in which the underwriter determines the insured’s capacity to pay and the amounts the insurer will potentially pay out to settle and administer losses. If you as risk manager fail to interject yourself into the process, you will find that the lack of communication will lead to higher costs. To get involved, though, you need to understand the language, the process, and the goals of each of the players.
6. It’s all about the business — The number one piece of advice I can give risk managers is to learn how business works. Then learn how your business works, and adapt your program to that business. It is the job of others within the organization to make the ultimate business decisions. It is the risk manager’s responsibility to make sure that those making the decisions have all of the information they need from your area of responsibility to make those decisions. If the decisions made are not what you would have done, bite down hard and ensure that the organization is protected. If you provide the best information, and the company decides to go down a slippery slope anyway, management will not come back and tell you that you were right. The question will be “Are we covered?”
Conclusion
I firmly believe that enterprise risk management can be saved, but only if there is a commitment to return to the traditional roots of risk management. The emperor continued to believe in spite of overwhelming evidence to the contrary. When the small child yelled out that the emperor had on no clothes, the emperor and his men stood taller, as if the ignorance of the crowd outweighed any and all common sense.
It’s the same with risk management. ERM can work, but not until it can be defined. In the meantime, let’s step back and see if we can marry the two approaches: traditional risk management with its risk control focus, and ERM with its risk financing core. This will advance the discipline and bring the profession the respect it desires and deserves.
Until then, remember:
Listen to the child — the child is right.
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