Binge-Worthy Insurance Insights: 3 Must-Read Articles for Financial Institution Underwriters

The three best articles I’ve read in the past week (or so):

1.      Heartland Tri-State Bank’s Failure: A Crypto Scam Saga:

·         In the realm of financial institution insurance, underwriters and brokers are examining the lessons learned from the failures of the three major banks this spring.  However, it’s important not to overlook the less-publicized collapse of Heartland Tri-State Bank, a true community bank in tiny Elkhart, Kansas, specializing in agricultural lending with $139M in assets.  Its rapid downfall in July 2023 was due to a cryptocurrency scheme resembling a recent Treasury Department alert  

Linked here: A $12 Million Request to Cover a Crypto Scam Sank a Bank CEO 

• Crypto Scam Hits Community Bank – As reported by Bloomberg Businessweek, Shan Hanes, the bank’s CEO, sought a $12M loan from a wealthy customer to recover losses from a cryptocurrency investment.   Despite Mr. Hanes’ commitment to repay the loan with $1M in interest, complications with wire payments and the involvement of an entity from Hong Kong led the client to decline, suspecting foul play 
• Bank’s Collapse & Impact – The article said subsequent investigations revealed that the bank’s money, not Mr. Hanes’, was involved in the crypto scam.  Regulatory authorities quickly intervened, declaring the bank insolvent, resulting in a $54M loss to the FDIC insurance fund.  Shareholders, including Mr. Hanes and his family, now face potential losses concerning the bank’s stock.  An FBI-led investigation is ongoing   
• Community Impact – The bank’s sudden collapse significantly impacted the small rural community of 1,884 residents.  While investigations continue, Mr. Hanes, who held a prominent position as the head of the Kansas Bankers Association just a year ago, has not faced accusations of wrongdoing.  However, he has resigned from his bank management positions and is under investigation
• The “Pig Butchering” Scheme: Although the details are still unclear, the cryptocurrency scam at Heartland Tri-State Bank resembles a “pig butchering” scheme highlighted in a Treasury Department alert to financial institutions in September.  These scams derive their name from their likeness to the process of fattening a hog before slaughter.  U.S. law enforcement agencies estimate these scams have siphoned billions of dollars from unsuspecting victims.
• More information is available in a Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN) alert issued on September 8th, which can be found here

 2.      Is Property Insurance Becoming Unaffordable?

·            While there’s been a lot of discussion about high interest rates impacting the real estate industry, not nearly enough attention is being given to the rising costs of property insurance:

Linked here: Americans Are Bailing on Their Home Insurance

• Homeowners Skipping Property Insurance Due to Rising Costs: Property insurance costs surged by a substantial 20% in 2023, creating challenges for homeowners. These rising costs are attributed to factors such as increased natural disaster risks, inflation (leading to higher material and labor expenses), past insurance losses, and regulatory changes
• Risks of Going without Insurance: Property insurance costs surged by a substantial 20% in 2023, creating challenges for homeowners.  These rising costs are attributed to factors such as increased natural disaster risks, inflation (leading to higher material and labor expenses), past insurance losses, and regulatory changes
• Impact on Homebuyers and Lenders: Soaring insurance costs also impact prospective buyers.  Mortgage lenders now factor in insurance expenses when evaluating a borrower’s eligibility for a loan.  This, combined with sudden high interest rates, may discourage many from the housing market due to affordability concerns, ultimately reshaping the real estate landscape for all stakeholders

3.      The Unconventional Work-Life Balance of a Hedge Fund Titan:

·         Running a major hedge fund may sound exciting (and lucrative), but it could lead to sleepless nights:

Linked here: CEO of secretive hedge fund Renaissance Technologies says he has spent 2,000 nights sleeping in office

• Sleepless Nights – Peter Brown, the 68-year-old CEO of Renaissance Technologies, has spent  approximately 2,000 nights sleeping in his office, highlighting the demands of running a major hedge fund
• Balancing Act – Mr. Brown’s unusual work-life balance involves dedicating four consecutive days (and nights) at Renaissance Technologies’ Long Island office, followed by three regular days at his family home in Washington, DC.  This schedule allows him to maintain a successful marriage and spend quality time with his time
• Enhanced Focus – Sleeping in the office provides Mr. Brown with an uninterrupted and collaborative work environment, enabling intense focus and productivity in his role as CEO
• Renaissance Technologies Success: Under Mr. Brown’s leadership, Renaissance Technologies has become one of the world’s most successful quantitative hedge funds, managing assets exceeding $130B.  The firm’s employee-only Medallion Fund, described as the Greatest Money-Making Machine of All Time, “generated 62% annualized returns (before fees) and 37% annualized returns (net of fees) from 1988-2021”

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