Insurance Quotes & Advice

With all the problems the insurance industry has had over the past year and a half, they are hoping and praying that this year’s hurricane season is mild compared to past seasons.  Researchers at the National Oceanic and Atmospheric Administration are forecasting and average hurricane season for Atlantic basin this year.

In its initial outlook for the 2009 Atlantic hurricane season, which runs from June through November, NOAA’s National Weather Service Climate Prediction Center calls for a 50 percent probability of a near-normal season, a 25 percent probability of an above-normal season and a 25 percent probability of a below-normal season. Global weather patterns are imposing a greater uncertainty in the 2009 hurricane season outlook than in recent years. Forecasters say there is a 70 percent chance of having nine to 14 named storms, of which four to seven could become hurricanes, including one to three major hurricanes (Category 3, 4 or 5).

Capital reserves for the industry have been depleted by the financial crisis and while they believe they have enough to handle a normal season, a Katrina-like event would likely devastate the industry for years to come.  Although regulators raised capital level requirements for the industry in the wake of the 2004 storm, there is no question that the current recession will strain their ability to cope with such an event if it were to occur.

Many state regulators have also been quite firm with insurance companies over rate increases over the past few years and in some cases we’ve seen some companies leave entire markets all together as a response.  This has put an additional burden on state run programs to make up for the slack and could put many state budgets in a precarious position due to the ongoing problems in the municipal bond market.

Some good news for the industry is that it appears as if the stock market has stopped it’s free fall and may have finally turned a corner.  If they can get some investment gains in the short term, it could go along way in shoring up capital reserves before a major storm does occur.

Congress is quickly running out of time to come up with solution to the looming insolvency of the Medicare program.  Because of the impact of the recession on their finances, trustees for the program have had to move up the insolvency date of the program by a full two years and with the recessions still ongoing, don’t be surprised if that timetable gets cut again next year.

You can’t blame it on one party or another because both Democrats and Republicans have had control of Congress over the past decade, yet neither has acted on a problem that is quickly coming to a head.  With the recession seeing a sharp rise in unemployment, there have been a large number of baby boomers that have been forced into early retirement and are straining a program that is already past it’s breaking point.

There are only two possible solutions, raise taxes or cut benefits or a combination of both.  Neither party wants to spend the political capital to fix this mess but they are quickly running out of options the closer we get to D-Day.

The already cumbersome national debt has exploded because of the recession and the Obama administration’s bold plan for healthcare reform will add to that burden.  Later generations will likely curse us for what we’ve done to the nation’s finances because they will be paying the price for our follies for many years to come.

Many people love entitlement programs and they also love low taxes, but you can’t have it both ways.  If the government was a business, they would have been bankrupt long ago, if not for the fact that they can print their own money.

There is a third solution to the problem, if you can call it a solution because it would be a disaster for the majority of the nation’s population.  Massive runaway inflation, it would make our money as well as our debt practically worthless but that’s what we could be looking at less than ten years down the road if the government is unwilling to make the hard choices sooner rather than later.

The subprime collapse of 2007 devastated the bond insurance industry which in turn wreaked havoc in municipal bond markets. Federal Reserve testimony before the House Finance committee state that significant difficulties lie ahead for many segments of the municipal bond market.

The financial crisis has strained the market for municipal debt, as it has so many other markets. One source of this strain has been that losses on a range of nonmunicipal credit exposures have greatly diminished the capacity of financial guarantors to write new policies and have reduced the perceived value of previously written policies.  The share of newly issued municipal bonds that are insured has fallen from about 50 percent in the fall of 2007 to about 10 percent in the first quarter of this year, and the market for reinsurance for such bonds is largely closed. Another source of strain has been that liquidity support for VRDOs has become more expensive while support for ARS has essentially disappeared. Yet a third source of strain has been that the recession has significantly reduced the revenues collected by many municipalities, in some cases by enough to raise concerns about their ability to service their debt.

The symbiotic relationship between bond insurers and municipalities that has existed for decades may be beyond repair.  Bond insurers shot themselves in the foot when they decided to dabble in the residential mortgage market.

The fall of credit ratings for many of the big name bond insurers saw interest rates for some municipalities shoot through the roof in some cases.  At a time when the Fed has lowered interest rates to all time low, it unfortunately hasn’t translated into lower borrowing costs for many state and local governments.

The reason the relationship between insurers and municipalities worked so well for so long was because municipalities received lower borrowing costs and since they had such a low default rate, there was little or no risks to insurers, it was a win-win situation for both.  But once insurers lost their top credit ratings, this increased the financial burden for many state and local governments and in turn increased their likelihood on defaulting on their debt obligations.

It also doesn’t help matters that the length of the current recession has seen the revenue streams drop significantly for many local governments.  There have also been many cases where local governments have had to scrap planned building projects all together because cost effective funding is simply not available.

Despite political pressure to do away with the double standard credit rating system between corporate and municipal debt, it will be quite some time before the state of municipal finance recovers.