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Uncle Sam To Throw Lifeline to Life Insurers

Posted by Larry Doyle on April 7, 2009 9:06 PM |

life-preserverNo surprise here. Starting with my interview of Sean D’Arcy in early January, I have tried to highlight the expected capital shortfalls in the insurance industry.

Obviously not every life insurance company has the same issues but the models are largely similar.

Don’t expect the number of insurers looking to jump into this lifeboat to be only a few. State guaranteed funds for insurance companies total a whopping $8 billion.

Additionally, if consumers look to tap the cash value in their policies, the insurance industry will potentially need to raise more than a few hundred billion dollars. That capital can be generated by asset sales or “hello, Uncle Sam!”

The WSJ reports: Treasury Plans To Extend TARP to Life Insurers.

The Treasury Department plans to extend the Troubled Asset Relief Program to certain eligible life insurers, according to people familiar with the matter. Several life insurers have been burdened lately by capital constraints amid ailing markets.

The Treasury is expected to announce within the next several days the inclusion of life insurers that are bank holding companies or own a thrift, these people said.

How much money would be available to the insurers remains unclear. The Treasury says it has about $130 billion remaining in TARP funds. Life insurers that are bank holding companies have been eligible for TARP for some time, but the Treasury had not yet given the green-light to approve their applications.

Several have applied, including Prudential Financial Inc., Hartford Financial Services Group Inc. and Lincoln National Corp. No decisions have been made yet about which applications will be approved, these people said.

LD

  • fiscalliberal

    “Several life insurers have been burdened lately by capital constraints amid ailing markets.”

    Does this mean they cannot write more policies as they do not have capital to pay out in case of a surge of claims, or they do not have capital for remaining liabilities because of previous claims?

    Not certain on what the problem is

  • fiscalliberal

    My comment above was late last night. Rereading the article again this morning, I definitely come away with the impression we are coddling a whining industry who is not able to manage its financial reserves.

    Note in the article that not all companies are doing badly, could this be because they kept their finances in order by prudent investment and sane product offerings. Again we are rewarding people for bad business practices. Isn’t that moral hazard? Merge and Acquisition might be the better answer. We do it for the small banks.

    So – the alternative is, pay less on the annuities or go bankrupt. That is real free market. In the end, maybe the grandchildren will see the experience of the grandparents and be taught the lesson that not all products are realistic.

    So now we have the finance industry and Insurance industry being treated different than automotive. How is that not a form of class differentiation.

    • Larry Doyle

      Fiscal…the insurers are hard pressed given declines in their asset valuations vs their liabilities. In short, certain companies took excessive risks in an attempt to generate outsized returns. Now WE pay for their mistakes. Yes, this is the definition of moral hazard.

      I would not be surprised to see some M&A activity in both the banking and insurance industries.

      Feeding at the government trough: Banks, soon insurance ….lesser extent automotive….but get set for state and municipal pensions and commercial real estate!!!

      Moral hazards all ovee the place. The impact of these hazards will be felt for many generations.






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