Social Networking for the Insurance Industry
Do U.S. Insurers Need or Want TARP Funds?
U.S. insurance companies, at least the ones that own banks, will be receiving TARP funds before you know it, and I have the feeling that some people are likely to start thinking about insurance companies the way we've pretty much all started thinking about banks. So, I thought it might be a good thing to set the record straight on this, before anything gets out of hand.
First of all, we all understand that AIG's insurance operations were not part of the problem at AIG, right. It was AIG's brokerage dealings that burst into flames at AIG. You can look it up. Okay? Okay.
Here's the most important point…
There are two main reasons that insurance companies want TARP funds:
Who doesn't want TARP funds? Heck, I'll take some myself if they're offered. Insurance companies compete with banks in many ways, so if the bank are going to have the monetary advantage of TARP funds, insurers would be crazy not to level the playing field.
U.S. insurance companies hold vast highly rated real estate assets, but they also hold 18% of corporate bonds, according to The American Council of Life Insurers. The point is that insurance companies have lost money in the various markets just like everyone else, but this doesn't mean that the insurance companies don't have enough money, it means that some may have to sell some of their assets on the open market to raise the cash they need, and the Treasury Department would prefer they didn't do that right now.
Mass Mutual, New York Life, Northwestern Mutual, and TIAA-CREF are all still triple A rated companies, and there are many in the industry with very high ratings, whether AA, A+, A, A-, et al.
Look, it's hard not to see the value in getting billions of dollars in government dough, and if others are doing it, well… than you've pretty much gotta' do it too. According to a story in the Wall Street Journal on April 8, 2009, some of the insurers are jumping through all kinds of hoops to make sure they're eligible for the government dole, as in:
Hartford recently said it plans to infuse $20 million into a cash-strapped Florida thrift it agreed to purchase for $10 million to qualify for federal aid under TARP. Hartford has estimated that it would be eligible for $1.1 billion to $3.4 billion in funds if Treasury accepts its application.
What's not to love? Throw $20 million at a cash-strapped thrift in exchange for $1.1 billion at the low end? Why, hel… I say, hell yes… where do I sign? And if I buy another cash-strapped thrift for $20 mil, can I have another $1.1 billion at the low end? How many cash-strapped thrifts can I buy? (I'm kidding, I'm kidding… I kid.)
The point is… well, you know what the point is.
My point is that no one should start thinking about U.S. insurance companies as being anything but what they are, especially in times of economic distress, one of the safest places you could possibly be as an investor.
Insurance companies offer a range of investment products, from all sorts of life insurance policies to a cadre of annuities that can offer as much or as little risk as you'd like. On one end of the spectrum there are insurance products termed "variable," because they allow for a market based variable return… meaning you invest in the stock market inside them… and on the other end of that spectrum insurance companies offer products with guaranteed fixed rate investment returns.
It seems that many people have been led to believe that the investment vehicles offered by insurance companies are somehow less efficient than investing outside the insurance or annuity vehicle, but I don't think it's true. How's that. I've done a lot of the math on a number of insurance products and I don't see any appreciable difference, between similar alternatives, especially when you consider the guarantees and tax benefits that are offered only by insurance companies.
Truth be told, we're not that good at investing in markets, at least we haven't been that good lately, and it wouldn't hurt most of us to have more of our retirement savings being credited with the guaranteed returns offered by good old American, slow and steady, safe and boring insurance companies. And the top rated carriers are as safe today as they've ever been, and a whole lot safer than most.
This has not been a statement paid for by The American Insurance Council. And, no… I don't sell insurance for a living… it's a side job… I'm kidding, I kid… I'm just saying… So, there you have it. Insurance...good. Other things maybe... not as good. And that's all I have to say about that.
First of all, we all understand that AIG's insurance operations were not part of the problem at AIG, right. It was AIG's brokerage dealings that burst into flames at AIG. You can look it up. Okay? Okay.
Here's the most important point…
There are two main reasons that insurance companies want TARP funds:
Who doesn't want TARP funds? Heck, I'll take some myself if they're offered. Insurance companies compete with banks in many ways, so if the bank are going to have the monetary advantage of TARP funds, insurers would be crazy not to level the playing field.
U.S. insurance companies hold vast highly rated real estate assets, but they also hold 18% of corporate bonds, according to The American Council of Life Insurers. The point is that insurance companies have lost money in the various markets just like everyone else, but this doesn't mean that the insurance companies don't have enough money, it means that some may have to sell some of their assets on the open market to raise the cash they need, and the Treasury Department would prefer they didn't do that right now.
Mass Mutual, New York Life, Northwestern Mutual, and TIAA-CREF are all still triple A rated companies, and there are many in the industry with very high ratings, whether AA, A+, A, A-, et al.
Look, it's hard not to see the value in getting billions of dollars in government dough, and if others are doing it, well… than you've pretty much gotta' do it too. According to a story in the Wall Street Journal on April 8, 2009, some of the insurers are jumping through all kinds of hoops to make sure they're eligible for the government dole, as in:
Hartford recently said it plans to infuse $20 million into a cash-strapped Florida thrift it agreed to purchase for $10 million to qualify for federal aid under TARP. Hartford has estimated that it would be eligible for $1.1 billion to $3.4 billion in funds if Treasury accepts its application.
What's not to love? Throw $20 million at a cash-strapped thrift in exchange for $1.1 billion at the low end? Why, hel… I say, hell yes… where do I sign? And if I buy another cash-strapped thrift for $20 mil, can I have another $1.1 billion at the low end? How many cash-strapped thrifts can I buy? (I'm kidding, I'm kidding… I kid.)
The point is… well, you know what the point is.
My point is that no one should start thinking about U.S. insurance companies as being anything but what they are, especially in times of economic distress, one of the safest places you could possibly be as an investor.
Insurance companies offer a range of investment products, from all sorts of life insurance policies to a cadre of annuities that can offer as much or as little risk as you'd like. On one end of the spectrum there are insurance products termed "variable," because they allow for a market based variable return… meaning you invest in the stock market inside them… and on the other end of that spectrum insurance companies offer products with guaranteed fixed rate investment returns.
It seems that many people have been led to believe that the investment vehicles offered by insurance companies are somehow less efficient than investing outside the insurance or annuity vehicle, but I don't think it's true. How's that. I've done a lot of the math on a number of insurance products and I don't see any appreciable difference, between similar alternatives, especially when you consider the guarantees and tax benefits that are offered only by insurance companies.
Truth be told, we're not that good at investing in markets, at least we haven't been that good lately, and it wouldn't hurt most of us to have more of our retirement savings being credited with the guaranteed returns offered by good old American, slow and steady, safe and boring insurance companies. And the top rated carriers are as safe today as they've ever been, and a whole lot safer than most.
This has not been a statement paid for by The American Insurance Council. And, no… I don't sell insurance for a living… it's a side job… I'm kidding, I kid… I'm just saying… So, there you have it. Insurance...good. Other things maybe... not as good. And that's all I have to say about that.
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