AICI Capital Trust 9% Pfd (fka AICPQ)

[mrholty]

It may or may not. (Stupid answer I know)

At the end of the day we have two issues:

AICI is the holding co.

The only real asset of the holding co is AIC. AIC on a statutory basis has value A>L. However, the majority of the assets are pledged against liabilities in the idea that there may be addt'l/continuing claim. The major business was Worker's Comp which have very long tails. In fact they have not written any business since 2001. Each year that goes by should determine if there are payouts more that has been set aside (bad) or that we release reserves (good).

I expect that the trustee wants to sell the runoff business. There are plenty of insurance firms who will do this as they will buy the book at a discount and hope they can manage it better than the other company by being more efficient (duplication of staff), etc. If you look at the Trustee's history this is what he has done once before. From my limited fact checking (one public company I could find) these companies that buy the runoff pay 70-75% of the book. Think of it this way. Say you have assets of $29M (in cash and bonds) and liabilities of $20M based on what your actuarian tells you that you need to reseve for future payouts. That is a positive book value of $9M so they will give you $6.3M for it. This is what I am hoping for however there are two thing that I think is delaying this from happening.

Chevy mentioned the big one. Granite Re has a claim worth $16M against us yet they are bankrupt and owe a bunch of people. I would expect that their creditor want some money so they would agree to a lower amount. My guess is that the problem is do the creditors of Granite do they want to wait 10 years to see if they can get 100% of the $16M claim or do they settle for less to get something now. Time is money but for a trustee they may not have the same incentive to get something done now as they get paid irregardless of how long it takes. In fact they may want to simply stretch it out to get paid more.

The smaller part is that in AIC's books there are two transactions accounted for where part of the business was sold to someone else and they have assets pledged against potential liabilities. Again, just like above but the difficult part is if you sell the business you will need to get the other company to sign off. This may be nothing but who knows.

Insurance is a slow, glacial process. I think if we see news of a settlement with Granite Re the rest will go quick. Hopefully 2012 is the year but I said that last year too.