Insurance Quotes & Advice

President Obama’s healthcare reform proposal took a sharp blow this week as Democrats are considering dropping the plan for a government run insurance option.  The Senate entered the recess without a formal vote after Senate Majority leader Harry Reid reported last week that this would be the case.

Fiscal conservatives both Republican and Democrat are balking at the costs associated with a government run insurance program and the effects it would have on the private industry.  However without the plan, it may difficult to follow up on President Obama’s promise of finding a insurance solution for the estimated 50 million Americans who are currently uninsured.

That being said it would also probably be a mistake to follow in the footsteps of Massachusetts, the only state so far that has mandated universal health insurance coverage.  Putting in to effect an expensive plan and trying to control spending or find financing options later could backfire as it has for Massachusetts, the state quickly found that costs far outpaced their estimates and were forced to seek federal support.

Coming up with a comprehensive healthcare reform package is no easy task, as decades of neglect from the government over skyrocketing healthcare cost have led to the current situation.  Soaring Medicare costs and the impact from the recession now leaves the costly government run program less than nine years before insolvency and that time frame may fall even further.

It is probably for the best that Congress takes it’s time in this matter, as this will likely be the only chance they get to try to fix the problem that has been growing for many years now.  That they are also forced to come up with a solution during the worst recession since the Great Depression and when the government’s debt load has ballooned has only added to the already difficult task.

Fitch Rating Services released their mid-year report on the life insurance sector this week and the news is not favorable for the life insurance sector.  Feeling the pressure on their capital reserves from the decline in equity markets, while at the same time locked into guaranteed contracts from annuities, they face the prospect of further credit downgrades through the end of the year.

While many analysts feel the sector is still sufficiently capitalized, liquidity issues that would arise from credit downgrades are a cause of concern.  After much debate the government finally made available TARP to insurers earlier in this year but while that is the case, the bulk of the remaining funds are still earmarked for the banking system.

Last month The Hartford became the first insurer to take up the government’s offer by accepting $3.4 billion in capital in exchange for an equity stake.  Many insurers would like to avoid this situation if at all possible, if only for the negative reaction it would cause to stock values.

Further credit downgrades may leave some with little choice in the matter, as the impact to liquidity could force them to ask for funds in exchange for shear survival.  AIG is probably the best example, although the financial crisis has pretty much been banking related, credit downgrades forced them to ask the government for hundreds of billions of dollars in order to meet the collateral requirements those same downgrades required.

Although equity markets have staged a mini-rally this month, investment values still remain sharply down from a year ago and while many are claiming the recession is almost over, no one knows for certain if that is the case.

Many state and local governments are still having a rough time in municipal bond markets.  The fall of the bond insurance sector coupled with falling tax revenues leaves many in a precarious position.

It’s all well and good to talk about rating municipalities on the same standard as their corporate counterparts but the fact of the matter is, for many of them, the current recession has left their finances in shambles.  Budget shortfalls and the scarcity of credit overall has many municipalities and other non-profit organizations paying much higher interest rates for the debt offerings than when the financial crisis began.

The short term municipal bond market has been especially hit hard, the auction rate securities market virtually collapsed overnight last year when a number of bond insurers lost their top credit ratings.  Those with variable rate bonds saw interest rates jump in some cases by more than 10% and had to scramble to quickly find alternative financing options.

The banking system which had supported the market when buyers couldn’t be found by purchasing the debt, pretty much left the market entirely due to their own difficulties, which required massive federal bailouts.  Unfortunately their has been little federal support given to the situation state and local governments are in.

There has also been little support given to bond insurers for that matter, though municipalities would be loathe to trust them once again, they did play a pivotal role for decades in lowering the overall cost for debt in the municipal bond market.  Whether that symbiotic relationship remains beyond repair remains to be seen.