June 21, 2000
The Honorable Alan Greenspan Dear Mr. Chairman: In the past, we have corresponded concerning our mutual concerns that insured banks should not be permitted to engage in insurance underwriting or reinsurance activities, either directly or through a subsidiary. We concur fully with your view that, "... allowing banks or their operating subsidiaries to engage in potentially volatile activities such as insurance underwriting or reinsurance activities would pose serious risks to the safety and soundness of banks and the deposit insurance funds." (See enclosure 1.) It is because of this concern that we are writing today. The Wall Street Journal reported on May 30th of this year (see enclosure 2) that Leucadia National Corporation, which owns an insured national bank (American Investment Bank, N.A., of Salt Lake City, Utah), will purchase Reliance Group Holdings, which is the parent company of Reliance Insurance Company. We request that you examine in detail the terms and conditions of this acquisition in order to ensure that the national bank owned by Leucadia, either directly or through a subsidiary, will have no financial, managerial, or other relationship with the insurance underwriting and reinsurance activities of Reliance Insurance Company. Reliance, itself, has already suffered greatly from its reinsurance activities. Over the last two years, Reliance has lost nearly $2 billion (more than 80%) of its market capitalization. As a participant in the failed Unicover Reinsurance Pool, Reliance has already agreed to pay $100 million to certain of its Unicover partners. Estimates are that Reliance may face $1 billion in losses if other Unicover participants refuse to pay their share of the reinsurance claims. In addition, Reliance is heavily in debt. It has outstanding loan obligations in excess of $700 million, $500 million of which is due to be repaid later this summer. Finally, Reliance’s current liabilities include unpaid claims and related expenses that amount to more than $8 billion. Clearly, American Investment Bank’s involvement with Reliance Insurance would be more than ill-advised; it would be dangerous. As a result, we look forward to seeing the results of your review of the proposed relationship between Leucadia and Reliance. We ask that you provide us your response in writing no later than close of business on Monday, July 24, 2000. If you have any questions regarding this matter, please contact us, or you may have your staff contact Bruce Gwinn of the Committee Minority staff at (202) 226-3400. Thank you for your cooperation and assistance. Sincerely, JOHN D. DINGELL RON KLINK
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