News from RIMS: The trend continues to be a friend to corporate risk managers

Insurance trends continued the decline in the first quarter of 2007, reflecting the abundance of capital and increased competition between carriers for business, according to the RIMS Benchmark Survey for the first quarter of 2007. Insurers continue to undercut each other in the directors and Officers (D&O) coverage. “D&O rates decreased 7.7% year over year in the current quarter, 5.1% year-over year in the fourth quarter of 2006 and 2.8% year-over-year in third quarter of 2006,” says Dave Bradford, editor in chief of Advisen Ltd., which collects and analyzes RIMS data. “We’re seeing an acceleration of a trend.” Of course, the current rates remain significantly higher than they were at the start of the decade, before all the corporate scandals. Will D&O premiums fall to those low levels? “Anecdotally, beginning in March, we’re starting to see the bottom fall out of the D&O market and rates are on a toboggan right down the hill,” says Bradford, who adds that the insurance industry is awash in capacity and with companies reallocating surplus capital from the catastrophe exposed property business, some of that capital is ending up in the D&O pot. So supply is increasing rapidly. The other factor is that loss factor has improved dramatically. The number of securities class action suits claims against public companies has been slashed in half. “In 2006 there were fewer 114 or 118 class action suits as opposed to an average of 215 over the prior five years,” says Bradford. “No one knows exactly why that is so but Sarbanes-Oxley might actually be doing what it was meant to do in improving transparency and corporate governance.” Workers’ compensation declined by 3.8%; and according to the survey, premiums will continue to fall. Also declining were general liability premiums, which have been on the decline for the past five quarters, although at 0.8%, the decline in the current quarter was a modest one.

In fact, the only area where premiums increased was property insurance, reflecting jitters among carriers and underwriters over the upcoming hurricane season, which some forecasters predict will be a severe one, following on the heels of last year’s mild hurricane season. But Bradford believes that even here we may be at the end of that bump up in premiums. “We’re more than a full year past the first anniversary of Katrina and the rise in natural catastrophe premiums. And we’re getting anecdotal information that even in the catastrophe area, pricing is starting to come down,” says Bradford. “All signs are that this is a light year for natural catastrophes and we’re going to see these trends [of lower insurance premiums] pick up over the course of a year.”

Pension underfunding is turning into a thing of the past

Pensions at the Standard &Poor’s 500 pension plans took on a healthy glow in 2006 thanks to strong equity returns and lower bond yields. The S&P 500 managed to slice nearly 75% of their underfunded status in the year just ended, closing out the year with $36.4 billion in underfunded liabilities vs. $140.4 billion at the end of 2005. The funding ratio status is expected to stand at 98% by yearend 2006, vs. the 90% funded status at the end of 2005, estimates Howard Silverblatt, senior index analyst at the Standard & Poor’s, thanks to the run-up in equities that began at the end of the fourth quarter and the mild up-tick in interest rates. The current run-up in funding, however, is still a long ways off from the heady days of 1999, when the funded status at S&P 500 pensions reached 128.2%. Still, the number of fully funded plans nearly doubled to 82 by yearend, from 47 in 2005. “Sometime this year, S&P 500 pensions will again be overfunded—on paper,” says Silverblatt, based on S&P’s current projections for the equities and interest rates. S&P is forecasting that the S&P 500 stock index will end 2007 at around 1510 and that interest rates will remain below 6%.

Nevertheless, cautions Silverblatt, some dark clouds remain, particularly other post-employment benefits such as prescription drug benefits to retirees, or OPEB. OPEB was underfunded in 2005 by $321 billion; in 2006, it was $292 billion. While the assets backing the OPEB liabilities barely budged, remarks Silverblatt, OPEB obligations declined from $412 billion to $385 billion. “Companies moved over to Medicare Part D plans to provide drug coverage to their retirees, and companies capped their expenditures,” says Silverblatt. “Liabilities are down—but then again so are the benefits [being provided to retirees]. But the bottom line is that that combined amount of both pension and OPEB underfunding was $461 [billion in 2005], down to $329 [billion in 2006].” Still, Silverblatt points out that companies are not out of the woods yet, especially when it comes to their OPEB obligations. But at the bottom, he adds, the issue is as much a political issue as it is an economic one. “Ultimately the pension crisis [is likely to] be resolved in Washington and on the campaign trail, where healthcare is a hot topic.”

People on the Move

Wyeth, a $20.4 billion pharmaceutical and healthcare company based in Madison, N.J., has announced that vice chairman and CFO Kenneth J. Martin will leave the company to pursue personal interests. Martin, 52, joined Wyeth in 1984 and was named CFO in 2000. Wyeth plans to name a successor prior to Martin’s departure at the end of June.

Sunrise Senior Living Inc., with $1.8 billion in revenues, announced the termination of CFO Bradley B. Rush, who previously was suspended with pay while an independent committee was reviewing insider sales of the company’s stock. The company has appointed chief accounting officer Julie A. Pangelinan to assume the role of acting CFO. Pangelinan joined the company in April 2006 as chief accounting officer. Prior to joining Sunrise Senior, she spent over six years with Marriott International Inc., where she served as vice president of accounting and policy and then as senior director of accounting policy.


Krispy Kreme Doughnuts Inc., the $461 million doughnut retailer, with headquarters in Winston-Salem, N.C., has announced that Douglas R. Muir, currently the chief accounting officer, will add the responsibilities and title of CFO after the resignation of CFO Michael C. Phalen. Phalen, 36, plans to return to investment banking. Muir, 52, joined the company in December 2004 and played a significant role in bringing the company current with SEC filings.   

ADC Telecommunications Inc. has named James G. Matthews CFO of the $1.3 billion telecom network equipment provider, which is based in Eden Prairie, Minn. Matthews, 56, replaces Gokul V. Hemmady who had announced his resignation in order to pursue an opportunity with NII Holdings Inc. Matthews joined ADC in December 2005 as vice president and controller. Prior to joining the company, he served as vice president of finance and chief accounting officer at Northwest Airlines Corp. from 2000 to 2005. He also assumed the role of CFO and Administrative officer with CARE USA. Matthews also held various positions including corporate controller and corporate treasurer at Delta Air Lines Inc.

CF Industries Holdings Inc. has elected Anthony J. Nocchiero senior vice president and CFO of the $1.9 billion producer and distributor of nitrogen and phosphate fertilizer products, with headquarters in Deerfield, Ill. Nocchiero, 56, succeeds Ernest Thomas, who resigned in order to accept a senior financial position with another company. Prior to joining CF Industries, Nocchiero was CFO and vice president of finance at Merisant Worldwide Inc. Earlier, he held various financial and planning positions at BP Amoco PLC, including corporate controller at Amoco and CFO of BP Chemicals.    

Charlotte Russe Holding Inc. the San Diego-based $681.5 million specialty retailer of apparel and accessories aimed toward young women, named Patti Johnson executive vice president and CFO. Johnson, 49, replaces Dan Carter who had previously announced his resignation. Prior to Charlotte Russe, Johnson served as executive vice president and CFO of Old Navy, a division of the Gap Inc., and CFO of Kohl’s Corp. from 1998 to 2003. From 1995 to 1998, Johnson served as vice president of finance and controller of Disney Stores Inc.

ECI Telecom Ltd. has named Itzik Zion executive vice president and CFO of the $656.3 million global provider of networking infrastructure equipment, based in Petah Tikva, Israel. Zion, 43, succeeds Giora Bitan, who has resigned to pursue a career in venture capital. Prior to joining the company, Zion served as CFO for Motorola Israel Ltd. as well as CFO for Super-Sol Ltd. and CFO of New Dimension Software, until is was acquired by B.M.C. Software Israel Ltd.

Pharmaceutical Product Development Inc., the Wilmington N.C.-based $1.2 billion global contract medical research company has announced the resignation of CFO and chief accounting officer Linda Baddour. PPD has appointed Peter Wilkinson to vice president of finance and chief accounting officer and Brian Tuttle vice president of finance and corporate controller. Wilkinson joined PPD as executive director of finance and internal audit in 2003. Tuttle has served as corporate controller since 1999. He had joined the company in 1998 as corporate tax manager. The company has initiated a search for a new CFO.

Suburban Propane Partners LP, the $1.7 billion U.S. retail marketer of propane gas, based in Whippany, N.J., announced that vice president and CFO Robert M. Plant plans to retire on September 29, 2007. The partnership named Michael A. Stivala, the company’s controller and chief accounting officer, as his successor. Stivala, 37, joined the partnership in December 2001 as controller and was named chief accounting officer in May 2005. From 1991 to 2001, Stivala held various positions with PricewaterhouseCoopers LLP.

Business intelligence gets personal

Business Objects S.A. has introduced a series of new business intelligence (BI) offerings that allow BI users access business intelligence anywhere, any time and on a variety of devices. BusinessObjects Mobile makes BI available from any mobile device, allowing users to view and interact with the full range of reports and metrics that they get from their BusinessObjects XI Release 2 enterprise environment. The advance is at the vanguard of what some call BI 2.0. While the industry has had some mobile access, BusinessObjects Mobile allows users to completely interact with the data information. Mobile workers can take direct action based on what they see, changing underlying data or impact process directly from their mobile device. The service-oriented architecture (SOA) of BusinessObjects XI Release 2 allows for low-cost deployment of mobile BI.

Business Objects, based in Levallois-Perrett, France, has also released BusinessObjects XI Release 2 Productivity Pack, which simplifies the effort needed by users to find the information they need to improve decision-making and optimize business performance. In particular, the Productivity Pack extends the BusinessObjects XI platform with enterprise search capability; the search capability enables users to intuitively navigate and retrieve critical information. Users can also generate new BI documents by entering a set of words into a search box to initiate a new query. Also among the company’s offerings is BusinessObjects Xcelcius Enterprise, which allows users to combine secure BI with visualizations and “what if” scenario analysis. BO’s Query as a Web Service functionality allows users to have a personalized dashboard in whichever environment they prefer. Finally Business Objects On Demand BI Connectors gives users access to their data anywhere, inside or outside the firewall, through an on-premise or Web-based application.

Fee disclosure is no longer a nicety but a necessity

Given the growing number of lawsuits filed by 401(k) plan participants against plan sponsors over excessive 401(k) fees, improved and more transparent disclosure is no longer a nicety but a necessity. Now SaveDaily.com Inc., a record-keeping technology provider, has introduced its improved 401(k) Statement Extraction Tool, which posts vesting and reflects all plan fees on participants’ statements in accordance with the requirements of the Pension Protection Act (PPA) of 2006. Among its many provisions, the PPA requires that quarterly participant statements reflect all costs that are associated with their 401(k) plan, including subsidies. With SaveDaily’s revised statement extraction tool, all subsidies are posted to the plan and fees are fully disclosed on participant statements. Among the extraction tool’s new features, SaveDaily can post vesting in the 401(k) plan to participants. SaveDaily now also offers flexible fulfillment options that can be selected per plan, including electronic and mail distribution. The extraction tool is part of SaveDaily’s LiquidFinance Platform, a full-service, open-architecture record-keeping platform that provides the health savings account (HAS), defined contribution and asset management markets with a low-cost, easy-to-deploy platform. The platform can be privately labeled and is customizable.