Life and Health Insurers Hurting From Investment Losses
The life and health insurance sectors have taken a big financial hit from the tumbling stock and housing markets.
Profits of the nation’s life and health insurers plummeted $9.9 billion to a mere $542.6 million in the first quarter of 2008, a 95% decline from $10.4 billion in the same period a year ago.
The industry suffered a decline in its operating results as well as a massive realized loss on investments. Operating income for the industry declined 28% to $11.9 billion in the first quarter of 2008, down $4.6 billion from $16.5 billion in 2007, while investment results turned negative in a big way.
Still the insurance industry is in much better shape than their financial brethren in the commercial and investment banking sectors. Due to the nature of their business, insurance companies are usually well capitalized in order to meet claims demands that can happen at a moment’s notice.
Despite their reputation for sticking to “safe” investments, the industry hasn’t been immune to losses from mortgage backed securities. Much this stems from the fact that many of these securities were considered “investment” grade not too long ago, which is something ratings agencies are getting a lot of heat for these days.
Intense competition in the industry has also tightened income from underwriting activities considerably the last few years. For a long time investment income had more than made up for this shortcoming but that is no longer the case.
With the possibility that the current bear market could go on for quite some time, the insurance industry could be looking and a few more lackluster quarters in the upcoming year.
