Quotes of the Day

The Stock Market's sickness made life insurance companies look decidedly mortal last week, as sliding share prices dragged the value of insurer assets dangerously close to what they potentially owe policyholders — the point at which they're technically insolvent.

The problem is especially critical in Germany, where the bull market had bestowed "quiet reserves" — unrealized and unrevealed gains — upon insurers, enabling them to entice new policyholders with offers of 6% annual returns. Now most of Germany's 130 or so mutual insurers are carrying "quiet liabilities." "They're sort of in a trap," says Commerzbank analyst Marc Thiel. "They need cash for their maturing policies, but they can't cut the bonuses they offer customers or they'll lose business." Switzerland's insurers face a similar problem, and the government there responded by lowering the mandatory payout from 4% to 3%. German law says insurers can reduce payouts to policyholders to 3.25%, but that still leaves many of the smaller mutuals — which didn't boost their equity game until late in the bull run — in trouble.

Now industry groups are pressuring the big boys, like Allianz and Ergo, to bail out their little brethren. It's a global dilemma: State Street Bank analyst Brian Garvey says American insurers have pumped $526 billion into stocks since 1997, "creating the risk of a vicious circle of price declines and forced liquidations." U.K. regulators have a similar fear, and they've responded by lowering the amount of assets insurers need to hold above their liabilities to policyholders — and crossing their fingers.

CORPORATE ACCOUNTABILITY
Making Scandals Add Up to Reform
Faster than a plunging Enron share, tougher than a bear market, the U.S. Congress last week whisked through the biggest changes to business oversight in 60 years, creating harsh penalties for fraud and an independent board to regulate accounting. But the legislation is silent on one controversial accounting trick, treating stock options as expenses when companies do their taxes but not when they report profits. It's a sleight-of-hand, critics say, at the heart of many recent corporate scandals. "CEOs have paid themselves huge amounts through stock options to wreck their companies," says Peter Montagnon, Investment Manager at the Association of British Insurers. "It would hit a number of companies, but those options should be charged as losses." Tom Jones, the vice chairman of the International Accounting Standards Board in London, agrees, but notes that "in fairness, there are no standards on stock options in Europe either." The IASB is working to change that. And paradoxically, many investors hope America's new accounting board will prove its independence by following the IASB lead.

THE BOURSE
Merging The Seven Seas
In a dramatic about-face, the European Commission allowed Carnival's $5.5 billion hostile takeover of P&O Princess cruise lines. This reversal comes one month after an E.U. court made it more difficult to block deals.

Engine Doubles
Germany's BMW and France's Peugeot joined in a ?750 million alliance to develop and build motors for their smaller cars. The venture could turn out 1 million engines annually.

Spanking The Banks
U.S. Senate investigators testified that Citicorp, the top U.S. bank, and J.P. Morgan Chase helped Enron hide more than $8.5 billion in debt.

Canal Plus (Or Minus)
In his first move to reduce Vivendi's ?19 billion debt, new CEO Jean-René Fourtou will separate Canal Plus into a new company and sell the rest of its pay-TV unit.

INDICATORS
A Family Affair
Think your family reunions are stressful? John Rigas, founder of Adelphia Communications, was arrested in New York City with his two sons and two other former executives for allegedly committing hundreds of millions of dollars in fraud at the bankrupt cable company.

The Doll Takes A Fall
Happily, most of us forgot about Danish pop group Aqua and its 1997 hit Barbie Girl long ago. But not Barbie's makers at Mattel. They sued, saying the song sullied Barbie's image. A U.S. judge last week ruled that, as a cultural icon, Barbie is fair game.

Europe Gets Defensive
So much for the moral high ground. Despite European opposition to the U.S. missile-defense program, European Aeronautic Defense and Space (EADS), Italy's Alenia Spazio and Britain's BAE signed deals to work on the project.

Last Things First
Russian businesses paid up to $33.5 billion in bribes last year, but Prime Minister Mikhail Kasyanov is determined to modernize the economy — by ordering businesses to comply with international accounting standards by 2004.

BOTTOM LINES
"Women invest with their heads and men with testosterone."
Angela Knight, CEO of the Association of Private Client Investment Managers, on why female investors outperform males by 9.5% in Germany

"If these are the opinions you honestly hold, call me collect. We can do business."
Warren Buffett, CEO of Berkshire Hathaway, on executives who claim stock options cost nothing

"I always thought it was good for you."
Caesar Barbar, one of seven Americans suing McDonald's and other fast-food restaurants for making them fat

• BLAINE GRETEMAN and STEVE ZWICK
• Stock market slides put life insurance companies in peril