State Regulated Insurers Come Groveling to Uncle Sam for Help

What’ll you do when you get lonely
And nobody’s waiting by your side?
You’ve been running and hiding much too long.
You know it’s just your foolish pride.

From the Wall Street Journal (subscription required):

A dozen life insurers have pending applications for aid from the government’s $700 billion Troubled Asset Relief Program, and the industry is expecting an answer to its request for a bank-style bailout in the coming weeks. The government so far hasn’t said whether insurers will be eligible for the program.

Life insurers have taken a beating in recent weeks. The Dow Jones Wilshire U.S. Life Insurance Index has fallen 59% since the beginning of the year, leaving it down 82% since its May 2007 all-time high. The Dow Jones Industrial Average has lost 21% year to date, off 51% since its October 2007 record.

Denial is a terrible thing and it appears either the WSJ reporters were suffering the affliction or they were fed a line of BS and didn’t check it as the story continues:

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, they generally don’t have to recognize on the bottom line short-term dips in values of their assets.

Of course here at slabbed we know better than to believe the BS insurers, including life insurers, didn’t buy risky assets. We’ve chronicled the investing foibles of many an insurer and their special purpose entities in the past severel months here at Slabbed. You wonder if the writersof this piece bothered to pick up a 10-K and read it before they wrote their story. The last part of the sentence I highlighted implies mark to market accounting has not been a problem for these life insurers which again is patent BS. A quick google reveals Connecticut $enator Chri$ Dodd has lead the charge for months to suspend mark to mark accounting due to it’s impacts on his big business insurance friends including life insurers like the Hartford. I reckon we’ve been dreaming all that (and all the investment write downs) as the story continues (as the authors begin to make their case why life insurers are also too big to fail):

Ratings agencies and stock investors are growing concerned about how long the industry can avoid reckoning with the distressed assets on their books. Rating agencies Moody’s Investors Service, Standard & Poor’s and A.M. Best have cut the ratings of more than a dozen insurers in recent weeks.

The ramifications of a weakened life-insurance industry for the overall economy are significant. Life insurers are among the biggest holders of the nation’s corporate debt. Together, they own about 18% of all corporate bonds outstanding, according to the American Council of Life Insurers, or ACLI, an industry trade group.

If life insurers stop buying bonds, the capital markets may not fully recover, say insurance industry representatives and analysts. Already, their buying activity has slumped. In the fourth quarter of 2008, life insurers agreed to buy $3.3 billion in stocks and bonds through private transactions, down 63% from the previous quarter, according to a survey by the ACLI. Insurers have been putting more cash into safe havens such as Treasury bonds.

This is a brazen bunch of suits as the search for their government handout (to cover their bad investing decisions) continues, especially in light of the fact the industry has successfully escaped federal regulation for the better part of 60 years. Notice the rhetorical distance the put between themselves and AIG. I don’t think this BS will fly far in Congress as the story continues:

For now, the Treasury Department hasn’t said whether life insurers will be eligible for TARP funds. Industry group ACLI expects Treasury to decide whether insurers will be eligible for federal aid some time later this month. “We don’t have a clear picture of which way that clarification would tend to go,” said ACLI representative Gary Hughes.

The Treasury Department didn’t return calls for comment made late in the day.

One stumbling block is that the industry is overseen 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.

The problems plaguing life insurers aren’t the same as those at insurance giant American International Group Inc., which has received a $173 billion aid package. Its losses stemmed largely from derivatives, primarily credit default swaps, tied to complex securities that turned sour in the credit crunch.

Layla, you’ve got me on my knees.
Layla, I’m begging, darling please.
Layla, darling won’t you ease my worried mind.

sop

13 thoughts on “State Regulated Insurers Come Groveling to Uncle Sam for Help”

  1. Sad case these insurance types have become. They took our money. Don’t pay claims. Then blow the money on gambling grade investments. Sad case. Do we give the money to gaming addicts and just hope they will do better? Of course not. We need reform and regulation. These fools will do it again if we let them.

  2. PS Thought some of the regulars here might enjoy this article about insurance—

    —Pelosi, who calls Taylor “Mr. Insurance,” said that next month the House of Representatives will consider Taylor’s legislation expanding the National Flood Insurance Program into a multi-peril insurance plan for property owners who cannot obtain coverage in the private market.

    That is heartening.

    As was this comment from one of Pelosi’s key political lieutenants, House Majority Whip Jim Clyburn: “I want you all to know that our commitment to you is as genuine as anything we’ve ever undertaken. And we will never relent.”—-

    As you know the Sun Herald doesn’t keep its links active for long. Our areas good friend Nancy Pelosi was nice enough to save this article for us—

    http://speaker.gov/newsroom/articles?id=0065

  3. Oh this article is from 8-15-07. I was very impressed she had put the article up on her site and kept it there for so long. She was smart to put it up as they cut the links after about 2 months. I’m impressed.

  4. Life insurance companies have always been more “agressive” with investments than P&C carriers. Unfortuntely, the lines between the two became blurred as more P&C carriers saw “gold at the end of the rainbow” through financial services. ALL and SF are two prime examples of being enamored with financial services. Now the chickens have come home to roost.

    Whatever anyone’s opinion, the private insurance industry must survive and succeed if we are to have vibrant economy going forward. I believe the “mark to market” guides should be revised to allow some valuations of ultimate return.

    Once again, and Nowdy knows my feelings, the feds created more negative impact by their involvement in this situation. Please, someone give me a successful example of government involvement in trying to “fix” something. I am just asking for one.

  5. The first one that comes to mind, Sup, is that you’re free to express that thought.

    Until the industry hedged and swapped its way to undeserved wealth, we had a vibrant economy. What does it have to offer after “catting” around and dumping the litter box in the government’s lap?

    The chickens have indeed come home to roost – and godwilling they’re about to meet the rooster.

    The industry betrayed the trust of our nation and has the audacity to lobby Congress for a solution it will accept to the problem it created.

    If the industry’s leaders had anything in their pants, they would be supporting Gene Taylor and asking for another chance.

    They didn’t deserve you Sup.

    Find us a song! We need to dance!

  6. Sop Nowdy, that right to speak comes from the Constitution. My reference is to the politicians and bureaucrats who fail at everything they touch. Also, too many are working to take away those rights you so correctly referred to.

    How about something mellow like “Daddy’s Home”.

  7. I’ll give you a few examples of government fixes.
    Cleaner water, cleaner air, much improved public health, and an almost endless list of similar measures that generally were fought by the private sector with warnings that any regulation and resposibility would doom the economy.name a government program that failed without private sector contractors and cherry pickers being a major source of the problem?

  8. I took the liberty of correcting your response Sup though I’ve enjoyed reading your exchange with Nowdy.

    The problem with allowing monkey business with mark to market accounting is the estimate of what these toxic assets and beat down investment portfolios are “ultimately” worth. If corporate accounting history has taught us anything is that publicaly traded companies will massage their estimates to meet a desired end well past the point of fraud.

    There is no better estimate of value than a market of willing buyers and sellers. I don’t buy into the intellectually bankrupt notion that current pricing is irrational – it simply is what it is. At least that was the central notion our market economy was based until 2008.

    And if recent history has taught us anything is that everytime so called regulators allow these financial services concerns to play with their numbers their share price craters and the reason is simple: Investors see through the BS.

    In reality all this playing around at the edges instead of addressing the problem head on means is prolonged pain and a wider distribution of the economic pain. Insolvent companies, whether insurers or banks need to be put into receivership and auctioned off just like we did in the late 80’s with the S&L’s.

    I perosnally trust the marketplace (with a dose of the right kind of governemntal intervention) to work here – I wonder what all these heretofor unabashed free market types running these companies are afraid of? Perhaps losing their personal gravy trains perhaps.

    I’ll give you this Sup, Obama is rapidly losing my confidence on the economy. I didn’t vote for Bush lite (and helping these crooks perserve their ill gotten wealth) I voted for change. We’ve gotten nothing much more than the same to this point IMHO.

    sop

  9. Though we complain about it Interstate highways and public education are also rousing successes from a longer term viewpoint.

    Or what about the technological gains that would not have been possible without a Government run and funded space program that took us to the moon and other planets.

    My personal favorite is the Gulf Islands National Seashore.

    sop

  10. The biggest problem with government programs is poor oversight of the corporations that constantly figure out new ways to cheat them.

  11. No doubt there has been great advancements from the spending on NASA. (I will call governemnt disbursement of our money what it is – spending. It is not invetsment.) So in their infinite wisdom Congress has decided to reduce funding on an agency that has proven to serve the common good. Could it be there are no voters in space to buy? I also must agree I think the National Parks Service does a good job. However, their funding level is miniscule to the overall budget.

    Brian’s point is so well made. It is not the intention as much as the waste that goes with each program. There is case after case of waste. Why? There is no profit motive. The overseers do not have the accountability of possibly losing their job if they are not diligent.

    A good weekend to all. I am looking forward to cool , wet weekend in the mountains.

  12. In a prior life I peformed single audit of local governments, mainly in education. These weren’t performance audits for waste but the waste became very evident nonetheless. Poorly run institutions can waste taxpayer money by the truckload. A larger truth I discovered doing those audits is most of the time the general public doesn’t care, at least not in Mississippi.

    All that said I did occasionally go to an institution where there was a high level of community involvement in both the mission and governance. Those institutions were as well run as any of my private sector clients. Again the commonality is the involvement of the general public.

    The key in my mind, whether you talk about the military or the Securities and Exchange Commission is that the influence of partisan politics generally is the cancer that proverbially kills the patient. You end up with a horse farmer running FEMA because he is a good Republican and the results speak for themselves and people died needlessly.

    In any event enjoy the weekend in the mountains Sup and we’ll get Daddy’s Home up at some point this weekend. It will be a cool-wet weekend here too spoiling St Patty’s day festivities on the coast. I have a post coming on that.

    sop

  13. Sop, I can relate to your last post. While living in Jackson one of my children wanted to tranfer to a public school from a private. Our experiences with private schools were the parents are totally involved and consequently held the administration and teachers accountable.

    What a surprise we had when we attended our fist PAT meeting at the publlc school. If I recall, it was an excellent forum of top administrators. We were appalled at the small attendance and apparent lack of concern by parents of what was going on in the system and at this particular school. Obviously with out parental involvement schools will not perform at a level they should.

    Needless to say that experiment did not last long for us.

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