Thursday, April 16, 2009
Are Insurers Next?-9
"Once a seemingly stable sector, life insurers are looking like a concentrated bet on the broader market. ... Shares of life insurers have come under pressure in recent months due to weakness in their portfolios of bonds and turmoil in their variable-annuity products--retirement investment products that become more costly for companies that sell them when stocks fall sharply. ... Moody's ... said the risk of further losses on Hartford's portfolio 'is meaningful in view of unsettled markets and deteriorating economic conditions.' ... For some time, life insurers' fates seemed more stable than those of banks, because they tend to invest in historically safe assets such as corporate and municipal bonds. But lately the market seems to expect that more writedowns are inevitable, especially on the commerical real-estate securities some companies snapped up. ... 'If the market takes another steep decline, many of these companies would have little to no excess capital,' said Barcalys Capital analyst Eric Berg. 'If on top of that rating agencies downgrade large numbers of investment grade bonds, the situation could become grim.' ... On Monday, Lincoln said it entered an agreement to cede a large block of life-insurance assets to Commonwealth Annuity & Life Co., a unit of Goldman Sachs Group Inc. That move will proivde Lincoln with about $240 million in capital relief, primarily from funds it has set aside for the policies, according to Lincoln", Scott Patterson at the WSJ, 31 March 2009.
This industry and its accounting bear watching.