The Obama administration on Tuesday dropped a major bribery prosecution that had been part of a campaign to crack down on corruption after the government suffered several setbacks in court in a case involving military equipment sales.

Federal prosecutors moved to dismiss charges against the remaining 16 defendants rounded up in a “sting” operation to root out corruption under the U.S. Foreign Corrupt Practices Act (FCPA), which makes it illegal to try to bribe officials of foreign governments.

Just over two years ago the Justice Department swooped in at a gun show in Las Vegas to arrest 21 executives – and one more in Miami – on charges that they tried to bribe a supposed African defense minister and his representatives by padding their bids to supply military equipment to his country.

In fact, the defense minister and the representatives were FBI agents who were part of the first large-scale undercover operation related to the U.S. anti-bribery law.

The executives were told they were bidding to equip the military of Gabon and that they would have to add a 20 percent “commission” to price quotes – with the extra money to be split between the purported defense minister and others.

The group, which included a former Secret Service agent and a Smith & Wesson Holding Co. executive, were charged with violating U.S. anti-bribery laws, conspiracy to violate anti-bribery laws and conspiracy to commit money laundering.

However, over the last two years since the arrests, the Justice Department’s case has fallen apart because prosecutors were unable to convince two juries during lengthy trials that what the defendants did was in fact illegal.

Of the 22 charged, three have been acquitted, three pleaded guilty at earlier stages of the case and the remaining 16 were awaiting trial or re-trial. It was not immediately clear whether those who pleaded guilty would seek to have their pleas voided.

Explaining the reasons for dismissing the charges, prosecutors cited the two hung juries, rulings during those cases about what evidence could be used at trial and the “substantial governmental resources, as well as judicial, defense and jury resources” needed to continue the case.

The decision came after a review by the head of the criminal division, Lanny Breuer, and the U.S. Attorney for the District of Columbia Ronald Machen.

Cracking down on bribery and corruption in business contracts has been a big priority of the Obama administration’s Justice Department. Most cases have resulted in settlements or plea agreements, with large penalties, rather than trials.

Since 2009 when President Barack Obama took office, there have been more than 40 guilty pleas, deferred or non-prosecution agreements and more than $2 billion in criminal penalties.

The Justice Department marshalled significant resources to pursue the undercover case over 2 1/2 years, using 250 FBI agents and executing search warrants in the United States and Britain.

Prosecutors also used an informant they caught on unrelated bribery charges, Richard Bistrong. He pleaded guilty in 2010 to charges he conspired to bribe officials to win contracts from the United Nations and other foreign entities.

One of those arrested in the sting was a former U.S. Secret Service agent, R. Patrick Caldwell, who was at one time in charge of the division responsible for the vice president’s protection. He worked for a body armor company when arrested and was acquitted last month of the charges.

DECISION COULD LEAD TO MORE FIGHTS

One expert on the FCPA law said the setbacks the Justice Department encountered could embolden others to fight charges in the future rather than going down the more usual path of entering settlements or plea agreements.

“I think this could result in more individuals, who of course have their liberty on the line, but also more companies feeling that they can fight these cases successfully,” said Alexandra Wrage, president of TRACE, which helps companies comply with anti-bribery laws.

The decision by the Justice Department, coupled with a handful of other setbacks, could also raise more questions about the anti-bribery law that the business-friendly Chamber of Commerce has lobbied to have amended to provide more clarity.

The Justice Department has eschewed efforts to amend the 1970s-era law, but last year pledged to provide greater guidance. One case in Texas was dismissed by a judge before it went to a jury and a federal judge in California threw out the conviction in another bribery case.

“I think any time the Department of Justice fails to achieve what is considered perfect success in a case, people will use that as an opportunity to seek whatever advantage they can,” said Paul Pelletier, who was a senior official in the Justice Department’s fraud section and now at the Mintz Levin law firm.

The case is USA v. Goncalves et al, No. 09-cr-335, in U.S. District Court for the District of Columbia.

 

Allied World U.S. has expanded its professional lines operations through the launch of a new mergers and acquisitions division that will be headed up by Jeff Anderson, vice president, in the company’s New York office.

The new division will initially offer representations and warranties insurance, loss portfolio transfers, loss mitigation insurance/litigation buy-outs, tax opinion liability and specific contingency insurance.

“Despite current economic conditions, M&A activity has been on the rise in the U.S. over the past several years and the demand for adequate coverage is growing,” said John McElroy, president, Professional Lines. “Errors that occur during corporate financial transactions can be extremely costly to all parties involved. We have a seasoned M&A unit in the United Kingdom and Jeff will utilize our experienced domestic Allied World M&A resources to provide the same level of protection to our clients in the U.S.”

Anderson has more than 16 years of experience in the insurance industry and a juris doctorate degree from William Mitchell College of Law in St. Paul, Minn.

Before taking on this role, Anderson was vice president, Professional Lines, and responsible for the underwriting, marketing, production and distribution for public company directors & officers insurance, fiduciary liability insurance and employment practices liability Insurance.

A Massachusetts judge has upheld a $20 million jury award to the family of a Colorado woman who died after a Toys `R Us inflatable pool slide partially collapsed.

In October, a jury ordered Toys “R Us to pay the award to the family of Robin Aleo after attorneys argued that the slide was not tested to determine if it met certain safety standards.

Aleo was visiting family in Andover in 2006 when she slid head-first down the slide and it partially collapsed. She suffered fatal injuries when she struck her head on the pool’s deck.

Toys “R Us attorneys argued that the regulations did not apply to that inflatable slide.

On Thursday, Feb. 16, a Superior Court judge denied a motion for a new trial and verdict reduction filed by Toys “R Us.

 

There aren’t very many rooms in the world that can successfully reproduce the devastating effects of an earthquake. But come May 1, a laboratory on the University of Alabama campus may be able to do just that.

Work is under way to outfit the laboratory within UA’s South Engineering Research Center with what is called a shake table to subject building design codes and materials to nature’s wrath in a controlled environment.

“In essence, the table is a large piece of steel that moves back and forth and represents the motion of the earth. This particular table is designed to be used to collapse structures,” said John van de Lindt, professor and endowed chair of UA’s civil construction and environmental engineering program.

“We want to know the margin against structure collapses. We can’t know that unless we know exactly how these structures collapse.”

Some might argue that Alabama is an odd place for an earthquake lab. However, van de Lindt left Colorado State University, a place with a lot more seismic activity, to work at UA.

“We’re doing this work here because, from an educational standpoint, we’re educating global engineers,” he said. “The engineers we put out into the world are ready to go out and meet anything, and this is a global problem.”

Van de Lindt said once the lab is outfitted with the table, it will be one of a kind in the Southeast and one of no more than 10 similar laboratories nationwide.

With such capability, it should come as no surprise that the lab has such an imposing appearance. The ceiling of the lab reaches some 30 feet up, and just below it are twin cranes capable of lifting 15 tons, not to mention two more cranes capable of lifting 5 tons.

The 3-foot thick concrete floor of the lab is actually porous. Every 3 feet in all directions there is a hole in the floor that can be uncapped in order to anchor the shake table and other equipment used in the lab with long rods that descend into the basement of the facility.

Lining the walls of the lab are pipes capable of funneling 720 gallons of hydraulic fluid into the shake table each minute.

Van de Lindt said he designed the shake table himself. The system is composed of several steel blocks placed on rails attached to the floor. Those blocks are then fastened to actuators, the large rods that do all the shaking.

The table itself is solid steel, measuring 17 feet long by 17 feet wide and weighing in at 32,000 pounds, van de Lindt said. It hasn’t arrived at the lab yet, but will be placed atop the steel blocks.

Once the table is in place, UA researchers can begin building structures and parts of structures atop it for testing. Van de Lindt said the table is capable of supporting structures of upwards of 50,000 pounds.

Van de Lindt said that what makes UA’s shake table system so unique is that it’s capable of doing hybrid testing that other labs can’t do.

A few yards away from where the shake table will be built is a pit measuring 10 feet deep, 10 feet wide and 10 feet long. Called the “soil pit,” it will allow UA researchers to not only test the effects of an earthquake on structures but also to measure its effects on soil or other foundations that lie beneath structures.

Researchers will build a foundation within the soil pit and attach an actuator to apply motion to it. Once the test begins, van de Lindt said researchers can measure the response of both the structure atop the table and whatever is inside the soil pit, all while changing the motion of the shake table accordingly.

“It’s an extremely different test and something that hasn’t been done before,” he said.

Van de Lindt said this hybrid testing is important because it would shed light on whether or not design codes in earthquake engineering have been too strong or not strong enough.

“These design codes have been calibrated without the information of such a test that includes the soil information. It’s possible that these codes could be conservative. We could be building structures that are too strong. Some might ask how is that a bad thing, but that’s potentially a waste of money,” he said.

“But what is more likely is that we are not designing structures as safe as we could be.”

 

Fairfax Financial Holdings, the property and casualty insurer run by investment guru Prem Watsa, said on Thursday that its fourth-quarter loss widened by 56 percent due to catastrophe claims and losses on the company’s equity hedges.

The Toronto-based company lost $771.5 million, or $38.47 a share, in the fourth quarter of 2011. That compared with a year-before loss of $494.4 million, or $24.77 a share.

Net losses from investments rose to $914.9 million from $887.9 million, which Fairfax attributed to a “non-correlation between the performance of the company’s equities and its equity-related hedges”, which, Fairfax said, should reverse in future periods.

Watsa hedged the company’s equity position in 2010 and took investment losses in that year’s fourth-quarter because stock markets rose.

For the quarter, the insurer took an underwriting loss of $292.8 million due to higher claims. For the full-year, Fairfax took $1 billion in catastrophe losses related to events, which included the Japanese earthquake, flooding in Thailand, U.S. tornadoes, New Zealand earthquakes and Hurricane Irene.

Since taking over the company in 1985, Watsa has build a reputation as a shrewd contrarian investor by moves such as betting against the U.S. housing market in the last decade and reaping billions when the market collapsed.

Recently, he has taken a substantial position in Research In Motion and was appointed to the BlackBerry maker’s board last month as part of a front office shakeup in which co-CEOs Jim Balsillie and Mike Lazaridis stepped down.

 

Five Star Healthcare, a division of Crump Insurance Services, has added an insurance facility to provide coverage for managed care service providers.

The product consists of a single-policy solution providing multiple coverage options. Available coverages include miscellaneous E&O, directors & officers coverage, fiduciary, privacy and network security, media E&O, employment practices liability and technology E&O. Coverage can be written as standalone or in combination with separate or aggregate limits.

“A managed care solution is of primary importance to clients of our Healthcare Practice,” said Dave Obenauer, president of Crump P&C. “We are starting to see ripples of change in the professional lines industry with regard to appetite.”

Torus Specialty Insurance Co. and Torus National Insurance Co. will back the coverage for eligible managed care service providers. Some of the targets include organizations such as independent physician associations, physician’s hospital organizations, managed care organizations and administrative service organizations.

“The expertise available from both companies is very complimentary,” said Michael Phillips, senior vice president of the Torus’ Commercial Errors & Omissions Division. “Knowledge of the healthcare industry in general and insurance coverage available is unique within 5Star. Combining that expertise with the ability to underwrite and distribute specialty products, makes 5Star a key strategic partner for Torus and enhances the market capabilities for the managed care program.”

A major highlight of the program is its broad Description of Operations Endorsement, available only through 5Star Healthcare. The Managed Care Program is available nationwide with low minimum premiums and deductibles.

This is the third program in a line of healthcare products for Five Star. The company also provides coverage for senior living programs and for kidney dialysis centers.

The California-based Five Star works with licensed and insured retail property and casualty agents and brokers.

Penn State has filed a countersuit against its primary general liability insurer, Pennsylvania Manufacturers’ Association (PMA) Insurance Co.

PMA had filed for declaratory judgment on Jan. 31, arguing that the Blue Bell, Penn.-based insurer should not have to pay for the university’s defense costs in a civil lawsuit regarding the alleged misconduct of Jerry Sandusky, a former university football coach.

PMA argues that it is not obligated to pay out on policies written after 1991 because of exclusions for “abuse or molestation,” “intentional acts” and “known loss.”

But in its countersuit filed on Wed., Feb. 15, at the Court of Common Pleas of Centre County, Penn State argues that its liability policy from PMA should provide a legal defense and coverage of the lawsuit.

“Despite substantial insurance premiums paid by the university to PMA over decades, PMA has refused to provide the coverage for which the university is entitled,” according to David Gray, Penn State’s senior vice president for finance and business.

“We are extremely disappointed that rather than act in good faith with its insured, PMA instead chose to file an anticipatory lawsuit against us.”

Penn State says that its lawsuit against PMA seeks to “enforce its rights under its PMA policies and is in sharp contrast to PMA’s tactical action.”

Penn State has sought coverage from PMA for a lawsuit filed last November by a young man who claims Sandusky sexually abused him as a boy and threatened to harm his family to keep him quiet, according to Associated Press reports.

Penn State has stated it has already spent more than $3 million in various legal, consultant and public relations costs related to the investigation of child sex-abuse charges against Sandusky.

 

Dave Anderson, founder of wholesaler Anderson & Murison Inc. in Southern California, who served several insurance associations in numerous capacities, will be remembered for his contributions to the insurance industry.

Anderson, a World War II veteran, died on Feb. 12 after a two-year battle with cancer. He is being remembered by family, employees, friends and insurance industry colleagues on Thursday. In lieu of flowers the family is asking that donations be made to the Cancer Support Center Pasadena.

Anderson founded Los Angeles, Calif.-based A&M, a privately-owned independent insurance wholesaler, in 1965. The firm offers commercial and personal lines coverage for virtually all risks. Anderson served as chairman of A&M until he died.

Anderson made several contributions to the insurance industry, twice serving as chairman of the Surplus Line Association of California.

He was a founder and the first president of the California Insurance Wholesalers Association and served on its board from 1991 until 2010.

Anderson was a past president of the American Association of Managing General Agents and served on AAMGA’s executive committee from 1976 to 1982. He served on the board of directors for the National Association of Surplus Lines Offices Ltd. from 1990 through 1992.

Anderson, who graduated from UCLA, served as a captain in the U.S. Army during WW II.

Anderson is survived by his wife, Marshalene, and daughter, Melissa, who serves as vice president of Anderson & Murison. He is also survived by his granddaughters Amanda and Megan.

During a two-year battle with melanoma, Anderson participated in clinical trials at UCLA to aid with research on the disease.

A visitation and funeral service is set for Thursday at 12:30 p.m. at Forest Lawn cemetery in Hollywood Hills, at 6300 Forest Lawn Dr. in Los Angeles.

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a” of Germany’s HDI-Gerling Industrie Versicherung AG (HGI) and its rated subsidiary, HDI-Gerling Welt Service AG (HG WS).

Best also affirmed the debt rating of “bbb+” on €250 million [$329 million] subordinated fixed to floating rate notes, due 2024 issued by the former, Gerling-Konzern Allgemeine Versicherung AG (GKA), which is now merged into HGI. The outlook for all ratings remains stable.

In a related action Best has affirmed the financial strength rating and the issuer credit rating of HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), the ultimate mutual parent company of Talanx AG, which in turn is the intermediate management holding company for all HDI V.a.G. companies.

The ratings of HGI and HG WS reflect “both the explicit and implicit support from their parent company, Talanx AG,” said Best. The explicit support from Talanx AG comprises “a profit and loss absorption agreement, although this agreement limits HGI’s ability to retain earnings.”

The ratings also reflect Best’s “expectation that HGI’s risk-adjusted capitalization is likely to remain solid in 2012, supported by its investment revaluation reserves, which have appreciated in line with unrealized gains on the company’s bond portfolio. HG WS’ risk-adjusted capitalization is likely to remain stable in 2012, supported by a profit and loss absorption agreement with HGI.

Best also pointed out that “HGI continues to maintain an excellent business profile in the German industrial market, with a high penetration of DAX and EURO STOXX 50 companies. HG WS is integral to HGI as it acts as a hub for the company’s international program business, which has become strategically important as the company looks to expand its international reach. In 2011, HGI’s gross premiums written (GPW) are likely to increase by 5 percent to approximately €2.6 billion [$3.4216 billion] driven by improved motor rates in Germany, increased property premiums in France and the contribution of Nassau Verzekering Maatschappi N.V., a professional indemnity and directors’ and officers’ insurance company acquired in April 2011. HGI also has made a strategic acquisition of 25 percent of the share capital of PVI Holdings, in August 2011,” which “complements its globalization strategy and expansion of its international network.

“HGI’s underwriting performance is expected to improve, which is reflected in a combined ratio of approximately 90 percent in 2011, following a combined ratio of 99 percent in 2010 (local GAAP figures), principally as a result of improved reserve development that offsets some significant catastrophe losses in the year, particularly in relation to the Japanese earthquake and tsunami. The company’s profit before tax is likely to improve to approximately €180 million [$236.88 million], despite falling investment income as the interest rate environment continues to remain challenging. HG WS is expected to achieve an underwriting result of approximately €0.5 million |$658,000] in 2011 purely reflecting the reinsurance commissions the company earns to cover management expenses.

“Upward rating actions could occur if the Group improves its risk-adjusted capitalization, operating technical performance and business profile within the Group’s target emerging markets. An improvement in the Group’s financial flexibility, through a possible initial public offering, may also put upward pressure on the ratings.

“Negative rating actions could occur if there were a significant deterioration in the Group’s risk-adjusted capitalization, possibly driven by large losses in its exposure to euro zone debt. Poor execution and integration of the Group’s mergers and acquisitions strategy may also put negative pressure on the ratings.”

Source: A.M. Best

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Germany’s HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), the ultimate mutual parent company of Talanx AG, which in turn is the intermediate management holding company for all HDI V.a.G. companies (collectively the Group).

Best also affirmed the FSR of ‘A’ (Excellent) and the ICRs of “a” of HDI-Gerling Industrie Versicherung AG (HDI-Gerling Industrie) and its subsidiary, HDI-Gerling Welt Service AG, the leading non-life direct insurance operation within Talanx AG and HDI-Gerling Lebensversicherung AG (HDI-Gerling Leben), the leading life insurance operation within Talanx AG.

In addition Best affirmed the ICR of “bbb+” of Talanx AG and affirmed the debt rating of “bbb” on the €350 million [$460.6 million] junior subordinated fixed to floating rate notes, due 2025 issued by Talanx AG.

Best has also affirmed the financial strength rating of ‘A’(Excellent) and issuer credit rating of “a” of HDI-Gerling Lebensversicherung AG (HG-LV), Talanx life insurance division, with stable outlook for both, as well as its ratings on the group’s U.S. operations, Gerling America.

The outlook for all of the ratings remains stable.

In a related action Best affirmed the financial strength rating and the issuer credit ratings of “a” of Germany’s HDI-Gerling Industrie Versicherung AG (HGI) and its rated subsidiary, HDI-Gerling Welt Service AG (HG WS).

Best said it expects Talanx AG “to continue to maintain excellent consolidated risk-adjusted capitalization in 2012 supported by significant unrealized gains on the company’s bond portfolio as well as retained earnings, which are expected to show an improvement on 2010.

“Talanx AG has a relatively low level of exposure to peripheral sovereign debt at approximately 15 percent of capital and surplus at third quarter 2011; however, total exposure to peripheral euro zone debt, including covered bonds, is higher at approximately 60 percent of capital and surplus.

“The Group also has a high level of exposure to euro zone financial institutions senior and subordinated debt at approximately 180 percent of capital and surplus at third quarter 2011. However, a significant portion of this debt is held in German and Dutch financial institutions of a good credit quality, with much of the debt also backing life liabilities with the potential for losses to be absorbed by policyholders. These negative rating factors are partly offset by the heavy bias within the portfolio towards German corporate and sovereign debt, which has appreciated markedly in recent months.”

Best also indicated that it “expects Talanx AG’s 2011 consolidated earnings after tax and minorities to increase to approximately €400 million [$526.4 million] from €220 million [$290 million] in 2010, driven by good underwriting results across all lines of business with the exception of non-life reinsurance, which suffered heavy catastrophe losses. The 2010 net profit of €220 million was affected by a number of one-off expenditures in relation to restructuring expenses as well as costs in relation to the merger of the Aspecta life operations into the Group.

The report pointed out that “Talanx AG benefits from an excellent business profile within the German and international reinsurance markets. The Group has made a number of strategic bolt-on acquisitions during the year that are expected to further enhance its business profile within the retail international division. The recently announced acquisitions of TU Europa SA (Towarzystwo Ubezpieczeń Europa SA and Towarzystwo Ubezpieczeń na Życie Europa SA) and TUiR Warta S.A. (Towarzystwo Ubezpieczen I Reasekuracji Warta S.A.) should improve the Group’s business profile in the targeted markets of Poland and Eastern Europe.

“Overall premium growth of approximately 5 percent is expected in 2012, with growth primarily driven by retail international lines (in particular Brazil and Poland) and non-life reinsurance (due to rate increases and new business gains). The retail Germany division is expected to remain flat as declining life sales offset increases in non-life premiums as a result of an improved rating environment, particular in motor insurance.

“Upward rating actions could occur if the Group were to improve its risk-adjusted capitalization, operating technical performance and business profile within the Group’s target emerging markets. An improvement in the Group’s financial flexibility, through a possible initial public offering, may also put upward pressure on the ratings.

“Negative rating actions could occur if there were a significant deterioration in the Group’s risk-adjusted capitalization, possibly driven by large losses in its exposure to euro zone debt. Poor execution and integration of the Group’s mergers and acquisitions strategy may also put negative pressure on the ratings.

Source: A.M. Best