Bloomberg continues to turn in business journalism at its muckraking best, now with this superb/nauseating story of the hosing of the policyholders of Nationwide Mutual Insurance Co. for the benefit of chief executive, William “Jerry” Jurgensen.

The piece, by Zachary Mider, documents how Nationwide Mutual, seeking to deploy its “excess capital” (we’ll get to that in a minute), decided to buy the part of a financial services subsidiary it didn’t already own for $2.5 billion.

A JP Morgan Chase analyst is quoted as calling the price “excessive,” and Bloomberg makes the case.

One could reasonably ask, why would anyone buy, let alone overpay, for a financial services company, of all things, and do it now, of all times?

Here’s one clue:

The higher the price, the more the 57-year-old Jurgensen gets, because he is CEO of both companies and holds almost 1 million stock options in Nationwide Financial [the subsidiary] that convert to cash if a merger goes through.

The options and other stakes in the subsidiary will be worth $23.5 million to Jurgensen once the deal is complete.

Bloomberg breaks it down:

A buyout at $52.25 [the per share price that adds up to $2.5 billion] puts the stock at more than the exercise price of most of Jurgensen’s Nationwide Financial stock options, yielding him about $17.5 million, according to figures disclosed in two proxy statements filed with the U.S. Securities and Exchange Commission. The merger values his stock and restricted- stock holdings at $6 million. In addition to the $23.5 million cash payout, Jurgensen has a retirement package from Nationwide Financial with a present value of $1.7 million.

Nice. But that’s not all. It turns out Nationwide paid a 37 percent premium to the subsidiary’s price before it made this conflicted offer:

If the stock fell back to its $37.93 price on March 7, the last trading day before the buyout offer was made public, Jurgensen’s $17.5 million of options would be worth about $9.4 million, according to estimates from Graef Crystal, a former compensation consultant and author of the newsletter graefcrystal.com. He assumed all the options were exercisable and used the company’s most recent estimate of volatility.

The premium nets a difference of $8.1 million to the CEO. I guess $9.4 million just doesn’t buy what it used to, does it? And lest you are worried about conflicts of interest, worry no more: The CEO recused himself!

Jurgensen participated in Nationwide Mutual’s deliberations only when price wasn’t under discussion and recused himself from the final decision to merge, Case [a spokesman] said.

Nationwide is a mutual company, owned by its policyholders, who, naturally, had no voice in this brilliant transaction. Ohio regulators must approve this deal, but I wouldn’t get my hopes up. State insurance regulation makes the Office of Thrift Supervision look tough.

Given what’s happened to the financial services sector the last few months, can this deal even be believed at this point?

So, great story.

I’m a critic so I have a couple quibbles:

First, this bit of Bloomberg wording is unfortunate:

Jurgensen succeeded [previous CEO Dimon] McFerson in 2000. He boosted annual net income at Nationwide Mutual to $2 billion last year from $330.8 million in 2000.

The period in question was the most profitable in insurance history. To say, “he” boosted anything is unfortunate. The industry is swimming in profits; how that happened is another story, which we’ll get to.

Second, there ought to be a moratorium on quoting experts who don’t actually say anything:

“The question is, who’s getting the best end of the bargain, the company or the CEO?” said Charles Elson, director of the University of Delaware’s John Weinberg Center for Corporate Governance.

The question is, why is Charles Elson cluttering up this story? And what does John Weinberg think of governance experts who ask questions but don’t answer them?

Overall, though, the Nationwide report is of a piece with other great reporting by Bloomberg on the insurance industry. Last year, the wire service’s David Dietz and Darrell Preston investigated how insurers had “boosted” their profits in recent years and exactly where that “excess capital,” such as that lying around for this questionable Nationwide deal, came from.

This is the nut paragraph from the first story of the brilliant Bloomberg series, “The Insurance Hoax,” which put to shame insurance reporting by other mainstream business-news outlets.

The emphasis is mine:

The 60 million U.S. homeowners who pay more than $50 billion a year in insurance premiums are often disappointed when they discover insurers won’t pay the full cost of rebuilding their damaged or destroyed homes. Property insurers systematically deny and reduce their policyholders’ claims, according to court records in California, Florida, Illinois, Mississippi, New Hampshire and Tennessee. The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers, court records and interviews with former employees and state regulators show. As Mississippi Republican U.S. Senator Trent Lott and thousands of other homeowners have found, insurers make low offers—or refuse to pay at all—and then dare people to fight back.

To be sure, the insurance industry and others attacked the story as unfair and filled with factual errors. But just as surely, the insurance industry and others are wrong.

A final thought: Anyone who thinks Bloomberg’s reporting on insurance is unrelated to the current meltdown that began in the retail lending industry should consider two things:

First, we now know of course that mortgage lenders, industry-wide and on a mass scale, engaged in predatory lending practices.

“Hoax,” along with groundbreaking reporting in The New York Times and elsewhere, have begun to pull the curtain back on insurer claims-handling practices that, too, can be described as predatory.

We’re talking about a broad cultural shift across the financial services industry.

Second, the Nationwide-Nationwide deal is part of a wider story about governance and cultural problems at top levels of the financial services industry. These are also relevant to the current meltdown.

Thanks to Bloomberg for another example of informative, tough reporting.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.