Life Insurers Take a Hit From Shaky Market <i> <b>A shaky stock market ate away $26 billion of the capital and surplus of the nation's 900 life and health insurers during the first nine months of last year, according to a new analysis by TheStreet.com Ratings. </b> Insurers started 2008 with $329 billion in surplus and ended the third quarter with $303 billion. A $39 billion increase in unrealized investment losses was the primary cause of the decline. The industry also paid out $18 billion in stockholder dividends and reported a $20 billion decrease in nonadmitted assets. This was offset by a $15 billion increase in the asset valuation reserve and $42 billion of paid in surplus. Prudential Insurance Co. of America, the largest insurance unit of Prudential Financial (PRU Quote - Cramer on PRU - Stock Picks), suffered the largest decline in capital $3.2 billion. AGC Life Insurance Co. and American Life Insurance Co., units of AIG (AIG Quote - Cramer on AIG - Stock Picks), lost $2.7 billion and $2.4 billion in capital, respectively, in the first nine months of the year. <b> In reaction to this decline in capital, the industry is asking its regulators for relief. Earlier this month, the National Association of Insurance Commissioners (NAIC) -- the industry's regulatory body -- met to discuss a request made by the American Council of Life Insurers (ACLI) in November to ease strict capital requirements. No action was taken at the meeting, but the NAIC is accepting comments until Jan. 23 on the ACLI's proposal, which includes a request for relief in conservative reserving requirements on life insurance policies, a reduction in risk-based capital requirements for variable annuities and mortgage holdings, and a more favorable treatment of the tax benefits of declining asset values. A hearing will be held to discuss these proposals and the NAIC's response on Jan. 27.</b> Unlike property/casualty insurers who are getting hit from both investment losses and underwriting losses, life insurers continue to be profitable in their underwriting. Although underwriting income was down 27% year-over-year, the industry still earned $36.8 billion on underwriting. A big threat to this underwriting profitability, however, is the decline in sales of variable annuities. The Association for Insured Retirement Solutions (NAVA) recently reported that the third-quarter sales of these products were down 18.1%, the continuation of a declining trend that started in May 2008. This, of course, is closely correlated with the decline in the equities market. After factoring in a staggering $41 billion in realized investment losses, the industry had a net loss of $21.6 billion for the first nine months of the year compared to a $30.2 billion profit for the first nine months of 2007. Although the data are not broken out, clearly most of the realized investment losses were derived from a regulatory requirement to recognize "other than temporary impairments" of securities even if the securities were not actually sold. Companies with successful asset/liability matching programs who are able to hold their assets to maturity will be able to recover their full investments assuming no defaults. The four companies leading the industry with the largest declines in profits are all AIG subsidiaries -- AIG Annuity, American General Life, Variable Annuity Life, and Sunamerica Life -- and all are primarily annuity writers. Another AIG subsidiary, American Life, was the tenth biggest loser. Continued losses by AIG affiliates will clearly affect the holding company's ability to sell off its assets in order to repay the federal government . </i> <hr> Hoping for a Helping Hand: Life Insurers Reach Out to NAIC, Treasury for Lifelines <i> WASHINGTON, Jan 19, 2009 (A. M. Best via COMTEX) -- Concerned about the state of their balance sheets, life insurers are playing in a high-stakes game show, one where the winning jackpot is ensuring solvency. Faced with difficult questions amid investment losses and a foundering market, insurers have reached for their lifelines. They asked the audience -- the stock markets -- and were met with a resounding thumbs-down. Many of the leading life insurers are now trading at a fraction of their year-ago price. The largest U.S. life insurer, MetLife Inc. closed Jan. 15 at less than half the level of a year ago. Number-two life insurer Prudential Financial traded last week at one-third its January 2008 price. Genworth Financial? Less than one-tenth. Next, they phoned a friend -- lots of friends. Hartford Financial Services Group (NYSE: HIR) and Lincoln National Corp. (NYSE: LNC) recently won federal approval to purchase savings-and-loan institutions and convert to thrift holding company status, a step that could clear the way to receiving significant capital infusions from the U.S. Treasury. Protective Life Corp. (NYSE: PL) and Genworth are also seeking thrift-status conversion. Prudential and Principal Financial Group (NYSE: PFG), which qualify for the program as owners of federally regulated savings banks, have also applied to participate. Meanwhile, the American Council of Life Insurers is lobbying the National Association of Insurance Commissioners to adopt a series of measures to reduce the total capital reserves its members must keep on hand. Many insurers have sustained investment losses that have drained their reserve levels. "The capital cushion companies had has been depleted," ACLI Senior Vice President of State Relations Bruce Ferguson said. The nine ACLI-proposed changes address life insurance reserves; annuity reserves and risk-based capital; risk-based capital for investments; and accounting for deferred tax assets. If adopted in full -- unlikely, as the NAIC body reviewing the proposal has already rejected three -- the changes would lower the total reserves insurers must keep on hand by up to $25 million, according to the ACLI. Under regulations adopted in most states, certain accounting changes made by the NAIC are automatically put into effect. ACLI proposed the changes in November, with hopes the NAIC would enact them by the end of 2008. Now, the NAIC may have dedicated officials and staff. It may know more about insurance regulation than any entity. But it's not known for speed. ACLI staff have expressed disappointment in the pace of NAIC deliberations. The council warned inaction could result in a patchwork of state-by-state changes. The currently mandated capital reserve levels are too strict, it has said. Consumer groups are deeply concerned about the entire ACLI plan. They fear a loosening of capital requirements would increase the odds than an insurer could become unable to meet its obligations to pay annuities and life insurance policies. ?When insurance giant [American International Group] failed, the NAIC and individual state insurance regulators were quick to point out that, because of stronger capital and reserve requirements, AIG?s insurance units were financially sound," J. Robert Hunter, director of insurance for the Consumer Federation of America, wrote to commissioners. The NAIC will hold a public hearing on the changes in Washington, D.C. on Jan. 27. The full body has scheduled a Jan. 29 conference call for a possible vote. </i> <hr> Life Insurer Surplus Drops $77 Billion, Erasing Gain <i> Jan. 8 (Bloomberg) -- U.S. life insurers, led by MetLife Inc. and Prudential Financial Inc., lost $76.8 billion in surplus in 2008 on investment declines and costs guaranteeing retirement products, erasing six years of gains, Conning & Co. said. Statutory surplus -- the difference between assets and liabilities -- fell 24 percent to $237.3 billion in 2008, according to a study released yesterday by the consulting firm. The industry may need to raise $50 billion in capital and undergo “significant” consolidation after the losses, Conning said. Life insurers cut jobs, asked regulators to ease reserve standards and applied for government aid in the fourth quarter to replenish their dwindling capital cushion. Assets have slipped on declines in the value of corporate debt and mortgage investments held to back policies. Liabilities advanced after equity market drops increased the funds carriers needed to back guarantees of minimum returns made to some annuity customers. “Life insurers took a double hit in 2008,” said Terence Martin, a Conning analyst and author of the report. “A surplus reduction of this magnitude suggests that some insurance companies will be required to raise capital.” He didn’t name which companies may need the funds. Insurance stocks plummeted last year, and companies including Prudential halted buybacks and slashed dividends to preserve capital. In October, New York-based MetLife sold $2.3 billion in shares and Hartford Financial Services Group Inc. got a $2.5 billion cash infusion from Germany’s Allianz SE. The 24-stock KBW Insurance Index fell 48 percent last year, with MetLife down 43 percent, Newark, New Jersey-based Prudential off 67 percent and Hartford declining 81 percent. Streak Ends Surplus declined 2.6 percent in 2001 and gained at least 3.4 percent every year since 2004, according to Conning. “We expect that many life companies will build and maintain bigger capital cushions going forward,” Jeffrey Schuman, an analyst at KBW Inc., said yesterday in a research note. MetLife gained 70 cents to $33.14 at 4:15 p.m. in New York Stock Exchange composite trading. Newark, New Jersey-based Prudential advanced 82 cents, or 2.6 percent, to $32.88. Hartford, based in the Connecticut city of the same name, added 57 cents, or 3.2 percent, to $18.48. Hartford, which reported a net loss of $2.6 billion in the third quarter, is seeking as much as $3.4 billion from Treasury’s Troubled Asset Relief Program. <b>Prudential, Lincoln National Corp. and Principal Financial Group Inc. have also said they applied for government aid. </b> Insurers that are downgraded by ratings firms because of diminished capital may lose sales to employers, Conning said, without naming vulnerable firms. The American Council of Life Insurers successfully lobbied to state regulators to consider easing reserve requirements. The National Association of Insurance Commissioners is holding a hearing on Jan. 27 in Washington on regulatory reform.</i> <hr> Phoenix Cleared to Become Thrift Holding Company <i><b>Phoenix Cos. is the latest life insurer to move closer to a possible capital injection from the federal Treasury after gaining approval from the U.S. Office of Thrift Supervision to convert to a savings and loan holding company. </b> The OTS approved the Phoenix application in concert with its proposed take-over of Sugar Creek, Minn.-based American Sterling Bank. First announced in November, the deal marked Phoenix's bid to become eligible for the Treasury Department's Capital Purchase Program, which is limited to federally regulated, U.S.-controlled banks, savings associations, and certain bank and savings and loan holding companies. In its announcement, OTS noted Phoenix proposed to "inject a significant amount of capital into the savings bank to re-capitalize the savings bank," and that insurer "has demonstrated adequate resources and appears financially successful and stable." The approval is contingent on the deal closing within 30 days; the bank meeting its obligations under the Community Reinvestment Act; and for OTS to review the backgrounds of certain senior Phoenix officers and directors. Phoenix has noted that the transaction is contingent on receiving Treasury approval to participate in the CPP, as well as noting that it has "made no final decision to participate in the program" (BestWire, Nov. 21, 2008). Rolled out Oct. 14, the CPP allows eligible institutions to sell preferred shares, along with warrants for common shares, to the Treasury that pay 5% annual dividends for the first five years, which then escalate to 9% dividends thereafter. The OTS previously approved applications by Hartford Financial Services Group and Lincoln National Corp. to purchase savings-and-loan institutions and convert to thrift holding company status, while a similar application by Genworth Financial Inc. remains under review (BestWire, Jan. 16, 2009). Dutch financial services giant Aegon N.V. had sought a similar conversion through its Cedar Rapids, Iowa-based subsidiary Transamerica Life Insurance Co., but it withdrew that application last month. More recently, the Federal Reserve Board approved Protective Life Corp.'s application to become a bank holding company, as it looks to acquire Florida-based Bonifay Holding Co. Inc. and subsidiary Bank of Bonifay in a similar bid for CPP funds. Prudential Financial Inc. and Principal Financial Group, which both already were eligible for the CPP by virtue of their ownership of federally regulated savings banks, also have confirmed they applied to participate in the Treasury program. On Jan. 15, A.M. Best assigned a negative outlook for Phoenix's life insurance entities, which currently are rated A (Excellent), citing "below-average operating returns, recently declining life insurance and annuity sales and lower predicted renewal premiums in the closed block." "The revised outlook reflects Phoenix's significant unrealized loss position within its investment portfolio, as well as the dampening effect that the current environment has had on Phoenix?s previously favorable sales and earnings trends," A.M. Best said. "Additionally, given the market environment, A.M. Best anticipates material investment impairments at year-end 2008, with the likelihood of further write-downs in 2009." Earlier this month, Phoenix spun off its Virtus Investment Partners wealth management unit into a separate, publicly traded firm, distributing one share of Virtus for every 20 shares of Phoenix held by stockholders. The company also filed a $750 million universal shelf registration with the U.S. Securities and Exchange Commission on Jan. 6, replacing the $750 million registration that expired Nov. 30, 2008.</i> <hr> Life insurance shares jump, led by Prudential Equity and credit markets stabilize, easing capital concerns <i> Life insurance shares jumped Tuesday, led by Prudential Financial, as capital concerns were eased by the recent stabilization of equity and credit markets. Prudential shares rallied 14% to $34.75 during afternoon trading. The stock has more than doubled since hitting a low of $13.10 on Nov. 20. Lincoln National gained 13% to $24.71. That stock hit a low of $4.76, also on Nov. 20. Genworth Financial climbed 11% to $3.15. The shares slumped as low as 70 cents on Nov. 21. Hartford Financial gained 12% to $19.28 after plunging to $4.16 on Nov. 21. <b> Many life insurers sell products that are tied to the performance of the stock market, such as variable annuities. When equities plunged during the fourth quarter, investors began to worry that some life insurers may be forced to raise new capital or face potentially damaging downgrades from rating agencies. The collapse of credit markets and signs of trouble in commercial mortgage and real estate markets in late November sparked concern that life insurers like Prudential could be exposed to big losses, further cutting into their capital.</b> However, since then, the stock market and some credit markets have stabilized. The Standard & Poor's 500 index is up 17% since Nov. 21. Mortgage-backed securities guaranteed by government agencies like Fannie Mae and Freddie Mac rallied 6% during the fourth quarter, according to Barclays Capital. The stock market is still down a lot over the past year and other parts of the credit market remain in turmoil, however, the small rally in some areas may have calmed concerns about the adequacy of life insurers' capital. "Spreads have tightened in the credit markets, the equity markets have rallied off of lows, and capital positions appear to be holding up," Bret Howlett, an insurance analyst at Standard & Poor's Equity Research, said in a note to clients on Tuesday. He raised his target price on Prudential to $40 from $30. In late October, in the midst of the stock market swoon, Hartford said that if the S&P 500 ended 2008 at roughly 815 points, the insurer would have a risk-based capital ratio of roughly 300%. At least one analyst said at the time that Hartford may have had to raise new capital at such levels.</i> <hr> U.S. Insurance Industry <i> Ongoing turmoil in the financial markets has resulted in a highly challenging environment for the U.S. insurance industry, a trend that is expected to continue in 2009. We also expect further consolidation in the industry. Life Insurers <b> Increased losses in the investment portfolio and lower income from the variable annuity business will continue to hurt earnings.</b> The Industry’s statutory capital levels have fallen sharply in 2008 and some companies are trying to raise capital through the Troubled Assets Relief Program (TARP). We are not sure whether the lawmakers will allow the insurers access to TARP money. <b>Further, many life insurers have substantial exposure to commercial-real-estate-backed securities, which will result in further losses during FY09. </b> Property & Casualty Insurers Insurers' losses from natural disasters surged in 2008, with maximum losses resulting from Hurricane Ike (insured losses of approximately $15 billion). Six named storms -- Dolly, Edouard, Fay, Gustav, Hanna and Ike hit the U.S. coast this year, after two years of benign activity. Significant catastrophe losses of 2008, coupled with decline in the investment income and sizable investment losses resulting from the ongoing turmoil in credit and equity markets, will continue to affect earnings in the coming quarters. Also, losses in the investment portfolios since the beginning of 2008 have significantly reduced the capital adequacy of most insurers. The only positive trend visible as of now is slight improvement in the insurance pricing after continued deterioration during the last couple of years. Reinsurers Losses from the investment portfolio of the reinsurance companies have surged during FY08. Further, during 2H08, the underwriting profits were severely hurt by the Hurricanes Ike and Gustav. However, the pricing has improved recently, which will benefit these companies during the January renewals. Also, one of the reasons to hit profits was the increased tendency by the clients for risk retention. With insurers’ balance sheets constrained and reduced financial flexibility in the current capital markets, risk retention by primary insurers is less likely to impact growth in FY09. Reinsurers could benefit from improved pricing while losses from the investment portfolio will continue to hurt the earnings. OPPORTUNITIES We recently initiated coverage on Amerisafe, Inc. (AMSF) a specialist in providing workers compensation insurance. Since our initiation, the stock has already appreciated by about 42.5%, and we expect it to continue to outperform the market due to its sound capital position, solid investment portfolio and strong financial strength rating. We also cite its addition to S&P SmallCap 600 index after the close of trading on December 31, 2008. We are also positive on reinsurer PartnerRe Ltd. (PRE) due to its excellent underwriting abilities, strong capitalization, solid ratings and reputation in the market, which will enable it to take advantage of the stronger demand and better pricing being witnessed currently. WEAKNESSES We have Sell recommendations on mortgage insurer PMI Group (PMI), which will remain exposed to further losses from the decline in housing values, though the demand and new business quality have improved in recent months. Primus Guaranty (PRS), a seller of credit default swaps, will face increased losses from its exposure to some of the failed/troubles institutions. We are also bearish on Hartford Financial Services Group (HIG), as we suspect that the company will face higher losses on the investment portfolio and its variable annuity business.</i> <hr> <hr> Which company or companies are you talking about? Haven't found any extremely positive news about any insurer so far. Not sure about your usage of the word <i>guaranteed</i>. The insurance industry faces regulation at the state level, but I don't think that Texas, Florida, California, New York or any other state would step up and <i>make good -- whole</i> (my view of <i>guarantee</i>) on the committments -- contracts of a faltering company in the insurance industry. Weren't you on the BBS last Fall endorsing the <i>soundness</i> of annuities? If they wer truly as <i>sound</i> as you had said, then why the jostling for TARP funds and easing of regulatory requirements by insurance companies? The bottomline is that the insurance industry invests in various financial instruments to make their customers <i>good -- whole</i> and also make a profit. The past several months have seen tremendous upheaval in the financial markets with drastic swings in pricing that have impacted the insurance industry.
Unless I misunderstood you, Yahoo does have it : http://finance.yahoo.com/gainers?e=us http://markets.usatoday.com/custom/usatoday-com/html-mktscreener.asp?exchange=13&screen=2 http://www.smartmoney.com/marketmovers/ http://moneycentral.msn.com/investor/market/gainers.aspx
Mango: I work with Fixed and Indexed Annuities. And they have had an increase in business the past six months. The companies I primarily work with are Sun Life Financial, American Equity, ING, Old Mutual, and Forethought. And I talk to advisors all over the country about the difference between FA's and VA's. Believe me, most agents don't get the difference, either. Of the above listed companies, Am Eq. and OM have ramped back some of their products, but these aren't the companies that are having the problem, mainly because of their conservative nature. The State doesn't. Every Insurance company that registers with a State has to agree to bail out another Insurance company, should they falter. It has happened a couple of times. If an insurance company falters, the other Insurance companies registered in that State take over. Now, the parameters on the guarantees of return set by the faltered company can be changed, (ie. some annuity guaranteed 9%/year, and then falters. The State then says that the folks invested in that annuity will only be guaranteed a 3% return) but the principal is guaranteed, hence my assertion that it would take the entire industry to falter, which again, the Fed would never allow.
When you guys are talking about going high as 942 and low to 810, what are you talking about? S&P index?
FBB: I am very impressed by your response. The indexed annuities that you handle, are they part of the debate -- discussion about what governmental body should regulate them? Some people felt that certain indexed annuities are more like a mutual fund and shouldn't fall under the jurisdiction of state insurance regulators. Yes, the <i>pooling</i> by other companies to handle a failure of a company makes sense. I guess that they are insuring themselves as a collective group.
Its also a better market measure than the Dow or Nasdaq. The Dow just has too few companies, so big news in one will have an outsize effect on the index. Nasdaq is just too heavily weighted in certain sectors. So if you're looking at where the market is moving overall, the S&P makes the most sense.
That would be 151A, which we are fighting right now. As it stands now, barring appeal, Indexed annuities will only be allowed to be sold by registered reps starting Jan. 1st, 2011. Did that answer your question? I'm not sure I'm answering this correctly.
i've made money on lvs a couple of times now.. i'm back in at 5.24 today. hope it moves heavy! (i lost out from a 10% gain to a 1% gain by holding from last Fri to Mon morning..)
LVS has joined it.. and with that, i'm just gonna get out. too greedy last week with it and lost out on most of the gains.. this time i'll take the middle ground.
i always get these things wrong.. could have doubled my gains if i had waited 25 minutes.. edit: make it tripled and 1 hour.. ridiculous!
It could go down just as fast as it went up (like right after the elections). I wanted to lock in some profits before the wild ride tomorrow.
well I can't believe CS and UBS show such strength - maybe euro markets are considered a safe haven. however I didn't dare to stay in them. Have waited patiently for this second round of bad earnings and it looks good (for a chance to get in long)... but so confused as to how bad this will get. Yes, former bottom at 7500, however, these earnings are giving off numbers bad enough to fall below 7000. Missing the bottom by potentially 15% seems like not a good idea to me. Any bottom indicators people getting out there? My current long ideas include: DUK, DD, ITRI, AMSC (ITRI and AMSC have had a pretty strong run up already unfortunately), EEM, GME, maybe some coal players like BTU, ACI. Also waiting on a vietnam ETF to come out from wisdom tree.
