Insurance Quotes & Advice

Already owing $150 billion to Uncle Sam and about to report a $60 billion loss for last quarter, AIG must go back once again to the government to see if it can get better terms to it’s bailout plan.  The initial $85 billion plan had a ridiculous interest rate attached to it but it was eventually reworked and expanded to it’s current agreement.

The company’s stock is trading at less than 1% of it’s 52 week high but much of that has to do with the fact the government now holds a 79.9% equity stake.  Even if the company were to declare bankruptcy, the government is fairly confident it could get back it’s money from the sale of AIG’s assets but the whole point of bailing them out in the first place was to prevent the ensuing shocks to financial system.

AIG plans to sell off assets to repay the government but it’s a pretty tough time for that with credit conditions the way they are.  Mergers and acquisitions activity has pretty much been nonexistent since credit markets seized up, so it’s difficult to find prospective buyers despite the fact prices are fairly depressed at the moment.

What AIG really needs is time more than anything, well that and another large infusion of capital.  The financial crisis worsened after Lehman Brothers collapsed and the government knew it would have a serious repercussions on the banking system but it still let them fail because the company just didn’t have the assets to cover what the government would have needed to give them to keep them afloat. 

The question the government is asking itself right about now is, how much are AIG’s remaining assets worth.  That and how much more losses the company will take in the upcoming year.

Mortgage insurers have struggled mightily since the housing market collapsed.  Hit by record foreclosure rates across the nation, they have taken considerable losses, while at the same time, new business is being hurt by the credit crunch which has put a crimp in housing demand.

However with so much of the economy struggling they are clearly in the back of the line waiting for any type of government bailout.  That being said, they will need to play a large role if there is to be any chance of a housing recovery.

Lockhart, who spoke to reporters after addressing a conference of the Association of Government Accountants, said he would like to see mortgage insurance companies receive a capital injection under Washington’s financial market rescue plan. His voice, however, is just one among policy-makers debating how to stabilize financial markets without burdening taxpayers with more costly bailouts.

“The right step is to get them some more capital so they can get back in the game,” Lockhart said.

Whether they get that infusion of capital remains to be seen but they services will be in high demand if and when the housing market starts to pick back up.  With banks having much tighter lending standards these days, they are not likely to favor giving out “piggy back” mortgages like crazy like they used to do.

That leaves prospective home buyers who are short of the standard 20% down payment with the option of getting mortgage insurance.  Unfortunately mortgage insurers have also tightened their standards, due to the above mentioned, record foreclosures.

A lot of things need to fall in place for the housing market to recover and mortgage insurance is one of those pieces.  How long it will take the government to recognize that fact and how much it will cost, remains to be seen.

Unfortunately with no one willing to take risks anymore, it’s the government which has had to step in and spend a lot of money to try to get the wheels turning again.

A number of insurance companies have purchased banks in recent months in order to gain access TARP funds.  Albeit not on the scale of their financial brethren, the insurance industry has also struggled during the financial crisis and has seen it’s largest company, AIG, require massive federal aid in order to avoid bankruptcy.

Two life insurance companies, the Hartford and Lincoln National received approval last month to convert into bank holding companies, paving the way for them to be eligible for federal aid.  Troubled bond insurers, Ambac and MBIA have also applied to the government for capital injections in recent months.

Giving aid to bond insurers would help out the municipal bond sector, which has been in upheaval for the past year ever since a number of the major players received credit downgrades.  A number of critics have complained that this would purport the original intention of TARP in the first place.

Some have called for the insurance industry to receive their own sort of bailout program as TARP was set to originally help re-capitalize the banking system.  While the insurance industry is a part of the financial services sector, helping them out will do little to help unfreeze credit markets. 

With only $350 billion remaining, not many people believe that will be enough to help both the banking system and the insurance industry.