Insurance Quotes & Advice

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 struggling insurers will likely be asking state insurance boards across the country for rate increases this year.  Regulators on the other hand, mindful of the economic difficulties of many of it’s citizens will likely fight any rate hikes tooth and nail.

Unfortunately for many customers, the industry may have a pretty decent case this time around.  The property/casualty sector posted major losses in the first quarter this year, much in large part to underwriting losses which were more than four times higher than the same period a year ago.

Many companies have openly criticized AIG, which flush with government funds, started lowering prices in an attempt to maintain it’s market share in the face of it’s diminished reputation.  This caused a mini-price war which the entire industry likely regrets right about now.

In most years, even the kind of underwriting losses that occurred wouldn’t raise too many eyebrows, because they would normally have their investment profits to fall back on.  This isn’t a typical year however and for some firms, every dollar matters and they will likely push for as much of a rate hike as they feel they can get away with.

The government has finally made it’s TARP program to insurers but truthfully there’s not really that much left in there and most that will still go to the banking system.  As of yet only life insurers, most particularly annuity sellers are any real danger at the moment of needing access to those funds.

Whether that will stay the case, remains to be seen, insurers have dodged a bullet so far and have yet to make out any catastrophe pay outs this year.  What will likely play the biggest role in many these rate battles is whether or not a major hurricane occurs in the next couple of months.

It was reported that the property/casualty insurance sector recorded $1.3 billion in losses for the first quarter.  Insurers saw a decline in underwriting and investment income over the same period from a year ago.

The property/casualty insurance industry suffered a $1.3 billion net loss after taxes for first-quarter 2009, which constitutes a $9.8 billion adverse swing from the industry’s $8.5 billion in net income after taxes in first-quarter 2008. And reflecting the swing to a net loss after taxes, the insurance industry’s annualized overall rate of return on average policyholders’ surplus dropped to negative 1.2 percent in first-quarter 2009 from positive 6.6 percent in first-quarter 2008.

With the stock market reeling the deep investment losses should not come as a surprise.  What is most disconcerting is the sharp swing in underwriting income, where losses more than quadrupled from $.6 billion to a staggering $2.5 billion.

We are seeing a general decline in insurance demand and the nation’s job losses are finally catching up with the industry.  Insurers have had to cut premiums in order to attract customers which have resulted in the large underwriting losses.

The annuity sector faces probably faces the most serious difficulties ahead, they are tied in paying out contracts whose values are guaranteed at a time when their own investment values have yet to recover.  Another major concern for the sector is the potential for a large catastrophe payout since the east coast is in the middle of the Atlantic hurricane season.

Earlier this week The Hartford was forced to accept $3.4 billion in TARP funds and there are other carriers facing liquidity dangers as well.