The Indianapolis Star from Indianapolis, Indiana • Page 24

C-1 -THE INDIANAPOLIS STAR- TUESDAY, APRIL 19, 1988 Heileman confirms closing plan; miion leader remains optimistic Finns keeping closer eye on credit-card payments fyi Jane Bryant QUINN cently created Evansville Brewing Co. can save Sterling and that brewery workers will be back at their jobs sometime in May. John Thames, the Heileman vice president who told Evansville workers in January that the Evansville brewery would be closed, said Monday the company is proceeding with the closing plans. He said the last day for production would be Friday. The brewery is to complete its last production run and finish close-up operations during the next few weeks, he said.

A spokesman for Central Bev UNITED PRESS INTERNATIONAL Evansville. Ind. G. Heileman Brewing Co. reaffirmed Monday it will cease production Friday at Sterling Brewery, but the 89 members of Brewery Workers Local 1153 hope they will have Jobs again in the next few weeks.

Union business manager Tom Mulherin said the union workers have been notified that Heileman will begin shutting down the brewery after Friday, as announced nearly three months ago. But Mulherin said he still is optimistic that efforts by the re Batesville State Bank, Merchants agree in principal to merger Merchants National Corp. and BSB Bancorp, holding company for Batesville State Bank, announced an agreement in principle on Monday to merge. In an all-cash transaction. Merchants will pay $262 for each outstanding share of BSB Bancorp common stock for a total price of $12 million.

The agreement is subject to approval by the boards of direc you might see dunners on the doorstep after only one missed payment. In the severest cases, a store might not let you use your card until your overdue bills are paid. What are the banks and stores on the lookout for? Here are some more of the warning signals: How long It takes you to pay your bill. What percent of the balance Is paid off every month. Whether you pay only the bare minimum every month.

How soon you fall behind on payments after opening the account. How many times you have been delinquent, and the length of times between delinquencies. Whether you have taken the maximum cash advance. Whether you let the balance grow over time, or pay it off every now and then. Each lender will score these and other factors In different ways, giving some more weight than others.

And not every customer will be tracked all the time: A bank might decide to give the closest attention to new accounts, accounts laid on during an advertising blitz, accounts recently granted larger credit lines, or accounts that have been delinquent previously. Campeau extends bid for Lazarus parent Insurance companies in financial trouble face harsh measures erage, the Evansville-area distributor of Heileman's Evansville beers, said the company has been notified to pick up its May supplies at Heileman's Belleville. 111., brewery. John Durnin. who has been heading local efforts to save the brewery, said earlier there were no new developments In the deal.

The Evansville Economic Development Council last week adopted a resolution approving a bond Issue that will allow Evansville Brewing to borrow $3.1 million on a tax-free basis, which means a saving In Interest costs. offer more services as a Merchants affiliate. In a prepared statement. Otto N. Frenzel III, chairman of Merchants National said "Batesville State Bank has a history of excellent performance" and would enhance Merchants' presence in southeastern Indiana.

Merchants National Corp. has 14 subsidiary banks. and financing required to complete one of the costliest and most bitter takeover battles In history. Federated had accepted takeover offers from rival bidder New York-based R.H. Macy Co.

but later embraced the Campeau proposal after the Toronto developer agreed Macy's could purchase two Federated divisions and have $60 million in expenses paid. "one insolvency could cause a lot more (Insolvencies)." The continued threat of insurance company failures, with the large ones causing ripple effects for years, also raises concerns about the capabilities of state departments of insurance, each of which approves rates and monitors companies' financial strength. A 1987 audit by the Indiana Legislative Services Agency, while generally positive, found the Indiana department handicapped in ensuring the soundness of the more than 180 companies under its watch. It cited Inadequate staff, a shortage of computers and financial examinations often coming too late to be helpful. According to the National As- 4 'What's common is poor management.

We're able to see it in hindsight to say, 'You didn't know what you were Harry E. Eakln Insurance commissioner sociatlon of Insurance Commissioners, the average 1985 budget for state Insurance departments, with authority over 106 companies and an average premium volume of $5 billion, was $6.8 million. The average staff numbered 144. By contrast, the Indiana department had a 1985 budget of $2.4 million, authority over 184 companies, premium volume of $6 billion and a staff of 92. Said a former executive of one bankrupt company who asked that his name not be used: "The insurance department's principal obligation Is to not allow insolvencies.

Nobody can guarantee that, but the department is In a very good position to do so. They've not been effective. They've been reacting after the damage is done." From his private-sector vantage point and as a former president of the National Association of Insurance Commissioners. Hudson contends that regulators have sufficient data to nip a financial crisis in the, bud. New York Getting a credit card today is the easy part.

Keeping it or keeping its handsome credit line is something else. Banks and retailers know that they're pumping out more credit cards than many people can handle. Yet they're afraid to stop, lest they lose business to the competition. So they're compensating for their carelessness on the front end by watching you more closely once they let you In the door. A growing number of credit granters are tracking your bill-paying reliability with a system called "behavior scoring." The concept Isn't new, but Its increased application is.

It is even filtering down to smaller users. First Data Resources, which handles the back-office work for credit-card Issuers, will soon offer a behavior-scoring service to Its 500 clients, mostly small and medium-size banks. and credit unions. A "behavior score" shows how you handle your account. No single thing Identifies a person who might not pay his or her debts.

"But missing a payment, partial payments and late payments are a large part of It." O.D. Nelson, a senior vice president of Fair, Isaac, which designs behavior-scoring systems, told my associate, Virginia Wilson. If you seem to be using the card irresponsibly, your credit limit might be chopped: you might be refused the right to add a major purchase to your card; the credit manager might Invite you in for a chat; "Today, you have all kinds of Information to allow detection of probable Insolvencies sufficiently early so that the guaranty funds don't have to be tapped," he said. "What bothers me is that every insolvency now Is tapping into the fund." One weapon in crisis prevention is the early-warning system developed exclusively for regulators by the National Association of Insurance Commissioners. If a company fails any of 1 1 tests, it warns the state to watch carefully and consider taking charge.

But the system is flawed because It can flag companies that are financially sound. That's why insurance commissioners protested when Professor Belth gained access to the material last fall and published it. Belth argues that anyone entrusting his money to an insurance company should be alerted to even the slightest possibility of problems. "They (the list of targeted companies) have been published again and again, and I haven't heard of a single run on an insurance company," said Belth, defending his actions. Despite the data on hand, keeping tabs on a giant insurance company with laws and accounting methods that differ from other corporations' is a Job that can confound even the experts.

But state regulators are pressed to attract and keep talent simply because they can't pay as much as private industry. "Most of them are good people, but you are not going to find the experts, the financiers, the kind of people who can ride herd on an Insurance company In financial trouble." Hudson said. "There are exceptions, but for the most part, the regulators aren't as experienced as the people they are trying to regulate." Short of seeking more money from the state, Eakln has Increased department revenues by hiking fees paid by companies. He has overseen the Installation of $300,000 in new computer equipment and requested more staffers. Further, the department has proposed examining companies on an as-needed basis, allowing it to spend more time with weaker companies and less with the strong ones.

Stevenson said the Indiana department does "an excellent Job of regulating and we therefore don't have nearly the number of Insolvencies that other states have." He might add that Indiana has relatively strict requirements for starting an Insurance company in the first place. Said Eakln, "In 1987. I am convinced we saved two companies. On New Year's Eve at 6:30 p.m. I was still here trying to get parties together to have some cash infused so it would show up on the year-end statement.

"Of course you never know what tomorrow will bring, but as far I as know, we're In good shape in Indiana. The last big one was Allied Fidelity. I think by good surveillance (we can prevent Besides warning the stores about who to go after, behav-lor scoring can tell them whom to leave alone. "I travel a lot." said one businesswoman at First Data Resources, "so I'm not always home when the bills come In. Sometimes I pay late.

But this scoring system will show that I always pay and don't overrun my credit, so the stores will see that there's no point In turning me over to collections." Behavior scoring might also help a credit manager decide whether to increase a customer's credit limit or approve a particular purchase over the limit. What retailers hope to stop, above all. is the customer who deciding to declare personal bankruptcy goes on a last-minute, plastic spending spree. If that person could be identified In advance, the store might be able to freeze his credit line. But this Is delicate busl--.

ness. and retailers will each respond differently to the credit risks they Identify. Nelson, for one. doubts that any lender would use behav- lor-scoring alone to deny or withdraw credit, as long as your payments are current and you're below your maxi- I mum credit limit. One point to remember: Be- havior scoring systems are subject to the federal credit laws, according to Federal Trade Commission attorney Sandra Wilmore.

You have to be informed by the creditor If your credit Is terminated or denied because of a bad behavior score, and given a chance to challenge the lnfor- matlon. Washington Pint Wrlttn Group accountant. "We have complete control. We take checkbooks. We change signature cards.

We dismiss people we think had re-sponsbillty." i. The experience Isn't always pleasant. As regulators. Tharp and his associates are bound to be viewed at times with resentment. "You have to watch It be-cause people think this guy fs trying to play the big-shot role.

You come In here and kick out the president, but you try to keep a low profile," he said. Eakln recalled the day the department took over Allied Fh delity Insurance an Indiana-polls property-casualty company whose collapse will ripple for years. "We gathered all the supervK sors around and told them the sad news, that their livelihood was on the line. Let alone the stockholders who lost millions of dollars. That really Is an unpleasant thing to have to do," he said.

Liquidation Is the final step. The department sells the company assets and converts them to cash. It pays debts In order of priority policyholders first, stockholders last. i After the liquidation, the regulators make claims with state guaranty funds. tigating the companies It" was backing, undercharging for the risk and not requiring collateral.

In short. Eakln said, "It Just insured every coal miner that came along." Kokomo National Life Insurance The principals of this company went to great lengths to convince then-Commissioner H. Peter Hudson that Its assets were sufficient to prevent supervision by the state. They included fake rubles and Tennessee real estate It didn't own. Underwriters National As surance What put UNAC In the record books was what happened after the Insurance department took it over.

Weakened by poor underwriting. It was placed in rehabilitation In 1976 under the supervision of Marlon Superior Court Judge Michael T. Dugan. Dugan. Today, Dugan and other company officials are under Investigation by local and federal authorities for their handling of the rpiatter.

tors of both banks, shareholders of BSB Bancorp and regulators. The second largest bank in Ripley County. Batesville State Bank has assets of about $72 million. It operates out of one location. L.

William Hisrich, president of the Batesville bank, said the bank would not change its name. He said it would be able to Bloomlngdale's and' other store chains was to have expired Wednesday. Under an agreement reached with Federated April 1 Campeau has the right to extend the bid to May 12. But Campeau said in a statement it did not expect a further extension and "anticipates that definitive financing commitments will be obtained by the end of this week." The offer was conditioned on obtaining majority of the stock lems than most and who has drawn some criticism from the industry, said these experiences and the patchwork systems of guaranty associations may suggest a demand for minimum federal regulation. "Since there is no FDIC.

when these things occur, what Is going to be the response? The traditional response is the state guaranty plans, which are really not very satisfactory," Florlo said. Indiana's propertycasualty fund, to which most of the assessments are being made, charges less of insurance companies than some other funds, largely because it sets lower caps on claims ($100,000 per claim, $300,000 per occurrence) and doesn't pay general damages. The fund does not cover title. surety, credit, ocean-marine or mortgage insurance. The life health fund does not cover health maintenance organizations or variable life policies not guaranteed by the insurance company.

Although Indiana's guaranty funds are not necessarily experiencing capacity problems, a recent legislative audit found that the increase in the number and size of insolvencies warranted Investigation. Indiana University Insurance Professor Joseph Belth. a well-known industry watchdog, questions whether the state guaranty associations are strong enough to support a major insurance company collapse, especially since they charge the healthy companies after the fact. "The idea of post-loss assessment I've just never been comfortable with that," he said. state guaranty associations may be OK for (the insolvency) of a small company, but If there is a major insolvency, it's Just not going to do it." In an extreme case, he said, 4 i I it Nta- When an Insurance company borders on bankruptcy, the Indiana Department of Insurance is forced to take harsh action: It fires the corporate management and changes the locks on the doors.

It Is a last-ditch move that comes only after the company has marshalled every asset and tried every strategy to ward off the regulators. The first step In the rehabilitative process, however, is supervision. In which a department staff member monitors the company on the premises until regulators are satisfied of its health or convinced of its demise. Examiners must approve every move, every signature and every incurrence of liability. To keep the public from panicking, supervision is kept confidential.

It lasts for as long as It takes the company to get on Its feet. The second degree of regulatory action rehabilitation is more omninous, because it nearly always leads to liquidation. Under rehabilitation, the officers are dismissed and the insurance department literally takes over. "From the day of the court order, the commissioner replaces the board of directors and they no longer exist," said liquidator Mark Tharp, a certified public UNITED PRESS INTERNATIONAL Toronto Campeau Corp. on Monday extended its $6.6 billion tender offer for shares of Feder- ated.

Department Stores Inc. to 5 April 28 and said it expected to complete financing ar- rangements by the end of this week. Toronto-based Campeau's bid for America's I fifth-largest retailer, the Cincln-i nati-based parent of Lazarus, Insurance Continued from Page 1 soaring health-care costs. Health maintenance organizations have been especially hard hit. Added to the 50 that went under in 1 987 was First Care of Indiana, was taken over by regulators last week.

It had assets of $738,000 and debts of $2.8 million. Beyond lax underwriting not charging enough to cover the risk audits of other failed insurance companies reveal managers diversifying outside their areas of expertise and practicing the kind of creative accounting that led one to report a $12 million surplus that was actually a $20 million loss. "There's always a day of reckoning," said Indiana Insurance Commissioner Harry E. Ea-kin. "The companies start exceeding the (safe) ratio to get the premium dollars In the door and to pay day-to-day expenses.

They may get themselves out of trouble today, but they get into deeper trouble down the road. "What's common Is poor management. We're charged with regulating these companies, but we'll never figure out how to regulate management. We're able to see it in hindsight to say. 'You didn't know what you were doing." Everybody pays the price of an insolvent insurance company.

As the Federal Deposit Insurance Corp. does for banks, industry-funded state guaranty associations protect consumers against the losses from most policies gone bad. But the money has to come from somewhere. Insurance companies pay into the state guaranty associations, but the state "refunds" companies' assessments through credits." on taxes. So.

the taxpayer ultimately foots the bill. 'Dale Stevenson, managing secretary of the Indiana Insurance Guaranty Association, highlights figures showing the extent to which the problem has grown: From the beginning of the Indiana Health Insurance Guaranty Association in 1978 to 1984. the assessments on health companies totaled $1 1.3 million. The charges were essentially the same for Just the past three years. 3 1972 through 1984, assessments on propertycasualty companies totaled $1.1 million, in the past three years, they were $5.6 million.

Of the $1.1 million, about half eventually was refunded from the assets that remained after liquidation. However, of the $5.6 million, only $370,000 was returned. "Part of that is the time lag, but it also appears that the companies that are going bankrupt today are really bankrupt." Ste- venson said. Florio, who comes from a state with more insurance prob Poor management helps lead to failures How do you bankrupt an Insurance company? Here are some notable failures from the past 1 5 years: Baldwin United Insurance An examiner of one of the country's largest life-health liquidations said in a report that "any devotee of baroque puzzles could find no happier pastime than losing himself In the endless maze of this company's intercorporate transactions." Baldwin's structure resembled a house of cards, a series of Interlocking companies In which one firm's livelihood depended on the operations of another. Guard Casualty and Surety Insurance The state of Indiana was one of the biggest losers In the collapse of this company that wrote bonds for coal-mine reclamation.

In exchange for premiums from coal companies, Guard promised property owners the miners would restore the property after they finished their work. Guard failed by not Inves.