Wednesday, April 1, 2009
Are Insurers Next?-8
"The tumbling financial markets are dragging down the life-insurance industry, an important cog in the US economy, as mounting losses weaken the companies' capital and erode investor confidence. ... Some of the hardest-hit companies are century-old names that insure the lives of millions of Americans. Shares of Hartford Financial Services Group, Inc., which already received a capital injection from German insurer Allianz, are down 93% as of Wednesday's close from their 52-week high. MetLife Inc. and Prudential Financial Inc. are both suffering as the value of their vast investment portfolios declines. ... But as the economy buckles, analysts say many insurers face losses that can eat away at the capital cushions regulators require then to maintain. ... Some state regulators have lately extended relief from certain capital requirements. But insurers haven't received the kind of injections banks got in recent months. That's partly because insurers didn't gobble up risky assets, and also because as long-term investors, the generally don't have to recognize on the bottom line short-term dips in values of their assets. Ratings agencies and stock investors are growing concerned about how long the industry can avoid reckoning with the distressed assets on their books. ... If life insurers stop buying bonds, the capital markets may not fully recover, say insurance industry representatives and analysts. ... Ratings firms and Wall Street analysts say another problem for some life insurers is obligations for variable annuities, a retirement-income product that often guarantees minimum withdrawls or investment returns. ... For now, the Treasury Department hasn't said whether life insurers will be eligible for TARP funds. ... One stumbling block is that the industry is oveseen by state regulators, not a single federal agency. That means there's no group of federal officials responsible for it or with a deep understanding of its challenges. ... Life insurers' woes have come largely from investment-grade bonds, commercial real estate and mortgages, regulatory filings show", my emphasis, Scott Patterson and Leslie Scism at the WSJ, 12 March 2009.
As long-term interest rates fall, insurers' bond returns will fall. Zimbabwe Ben's, now ZimBen's recent decision to purchase $300 billion in long-term Treasuries will worsen the insurers' position. The banks are in worse shape than the insurers. We are lucky the Feds don't regulate insurers too!