Insurance Quotes & Advice

Insurance companies have faired better than other types of institutions in the financial sector with regards to the subprime mortgage meltdown. After reporting large write downs last quarter, many investment banks and lending institutions have seen their stock prices and market values plummet.

The insurance industry’s subprime exposure is modest and their capital positions remain strong.

“In the life and health sector, given the diversity of insurers’ asset portfolios and their enhanced risk management practices, A.M. Best does not expect, at this time, to take negative rating actions due to the effects of the subprime crisis, with the possible exception of a handful of companies with above average exposure.”

“A.M. Best also is concerned about the lack of pricing clarity on mortgage-linked securities and its contagion effect on the pricing of other asset classes. Evolving capital market conditions and the potential for increased economic risk and its impact on investment returns will likely remain the dominant investment theme for many U.S. insurers.”

While 2007 will be a profitable year for the industry, much of those profits weren’t derived from underwriting activities but rather from investment income and there are concerns about what the effects an economic recession would have on the industry.

Ratings agencies have taken much criticism over their classifications of mortgage backed securities so there has been increased scrutiny over their ratings of other types of non-investment grade debt. With a large source of the industry’s earnings coming from fixed income securities this is cause for concern.

Many insurance companies also have significant equity holdings in their portfolios that have provided a boost in profits in recent quarters. However, the stock market has seen increased volatility in recent weeks.

So while the insurance industry has avoided the fallout so far from the mortgage meltdown that may not remain the case for much longer.

Due to the difficulty in predicting terrorist attacks and the possibility of huge losses, a private terrorism insurance market has had difficulties in forming.  As is the case with flooding, the government acts as the insurer of last resort.  The current federal program, the Terrorism Risk Insurance Act is set to expire at the end of the year.

The Senate and House are having difficulties compromising on a bill to reenact the program.  President Bush favors the Senate version and threatens a veto if the final bill differs greatly from how it is currently constituted.

What was at the heart of the matter was the number of years for the program.  The Senate wants the program to be extended for seven years which the Bush Administration agrees with in that it wants a private market to build up in that time frame.  The House originally sought a fifteen year extension but has since acquiesced to the Senate’s length.

The Senate version calls for the program to trigger at $100 million in losses while the House sets it at $50 million.  For a $100 Billion program it seems a bit misguided to argue over such a relatively small difference but nonetheless that is the case.

If they can’t agree on a bill that is acceptable to the Administration before the program is set to expire, they will more than likely pass a mini bill to reenact the program for a few months so that can have this same political battle again next year.  That’s our tax dollars working hard for you.

Although we rank well behind the other wealthy industrialized nations of the world in terms of overall lifespan, Americans are still living longer these days. This increased lifespan is having a noticeable affect on the insurance industry.

Insurance companies hire trained professionals called actuaries that develop complex mathematical equations to determine how much to charge for premiums. It basically boils down to them trying to figure out how long people will live.

For regular life insurers the longer you live, the better it is for them. They receive premiums for a longer period of time and are able to invest the capital allocated to your pay out for a longer period of time. So, it’s a win/win situation, you’re both happy when you have a long fruitful life.

However, cases may arise where you may need to cash in your policy before you die. This is where life settlement companies come in. They will give you a sum of money to take over your policy, pay for the premiums and become the beneficiary. In this case though, the longer you live, the worse it is for them.

“investors realize some life expectancies are not maturing as projected, but no one is sure yet how it will impact financially.”

“major flaws with the system and fears the industry could collapse like the subprime mortgage market.”

It’s kind of morbid when you think about it, that a company’s financial success is determined by how quickly you die. They do provide a useful benefit to people though. For whatever reason you no longer wanted your life insurance policy, it would be unfortunate if you were to receive nothing back after making years of payments.