Insurance Quotes & Advice

Property insurers took a beating in the 3rd quarter mostly due to an active tropical season in the Atlantic.  The difficult quarter couldn’t have come at a worse time for the struggling industry.

U.S. property/casualty insurers are expected to pay homeowners and businesses an estimated $11.5 billion for third-quarter property losses resulting from a total of 11 catastrophes in 22 states — the fourth-largest insured property loss in a third quarter since 1998, according to preliminary analysis by ISO’s Property Claim Services (PCS) unit.

PCS estimates the 11 catastrophes of third-quarter 2008 generated 1.7 million claims. Of the 11 catastrophes, six were caused by severe weather (wind, hail, tornadoes, and flooding) and five were caused by tropical systems.

The insurance industry is entering a rocky period where significant losses on the financial front are beginning to mount as well.  Widespread ratings downgrades are expected across numerous sectors in the near future.

It was definitely an interesting hurricane season which saw over 2 million people evacuated from both the Houston and New Orleans coastal areas.  Although none of the storms could be classed as a Katrina like event, when taken together they cost the industry a considerable amount of money.

Although the Atlantic hurricane season is winding down there is the possibility of further tropical activity.  Then the start of the winter season for the Midwest and Northeast always gets interesting.

Investment losses are beginning to take their toll on the insurance industry and Fitch Ratings Services has revised their ratings outlook for a dozen sectors in insurance and reinsurance globally.

The Negative Outlooks reflect the significant falls in global credit and equity markets, and unprecedented market volatility and uncertainty. Of greatest concern to Fitch are declines in the market value of investment holdings that have led to significant declines in economic capitalization and profitability for many insurers.

Ongoing market volatility means there is potential for significant further reductions in capital as market values further decline, and additional impairments are recognized. Declines in investment performance are impacting essentially all insurers, to varying degrees.

It’s really not surprising considering that stock markets around the world have taken a real pounding in recent weeks.  For years, investment income has made up the bulk of the industry’s profits but the current financial crisis has pretty much wiped out those gains.

Future credit downgrades will hamper already difficult access to capital markets and further constrain liquidity.  We may see additional insurers seeking government relief as was the case with American International Group, which was forced to seek out a Federal Reserve loan in order to avoid bankruptcy.

Whether or not the government will have to earmark money as it did for the banking system remains to be seen.  However with the world facing a long economic downturn, such a relief program may become necessary.

Hank Greenberg, Ex-CEO of American International Group(AIG) has been sharply critical of the Fed’s $85 billion loan agreement with his former company and it’s not surprising why.  He along with other shareholder stand to lose much the way things stand now.

At a minimum, Greenberg wrote, AIG should be afforded the same borrowing terms that other companies are now getting from the government. He said the Federal Reserve has recently been lending to other financial institutions on terms “far less onerous than those imposed on AIG.”

“The loan from the Federal government to AIG, as it is currently structured, will result in the liquidation of AIG, the loss of thousands of jobs, and the irretrievable loss of billions of dollars in shareholder value,” Greenberg warned in his letter to Liddy.

Despite him being a less than objective observer, there is some merit in his arguments because compared to the other instances of government intervention, AIG’s loan is substantially at a disadvantage.  On the other hand their should be some sort of penalty for coming to the government for handouts and putting taxpayer dollars at risk.

Yes, the shareholders will probably lose substantially but consider the other cases of government help, Bear Stearns, Fannie and Freddie, for the most part all their shareholders were also wiped out.  However was that the government’s fault or were the people running the companies are to blame.

This actually sets a bold precedent which states that companies can’t expect to act irresponsibly and because they are “too big” to fail, count on the government to bail them out at no cost.  Yes the Fed loan is harsh but if that’s what it takes to protect taxpayer interest then perhaps it is for the best.