Vinny’s Blog

Humm!! are they ? well, I had my reservations about it…but when I read so much about AIG in the news it triggered my thought process finally. How can it be that the largest insurance company in the world takes such huge losses and others escape completely. Things don’t add up…when there is a leader there are always followers. Since followers, follow the leader if the leader gets in trouble followers will automatically get in trouble. So I started my research…..

Following article will give you all the clues right away…this was published on March-30th.

AIG crisis could be the tip of an insurance iceberg
The company’s situation reflects problems throughout the life insurance industry as investments suffer. Further strain could bring about a second financial crisis.
By Ralph Vartabedian and Tom Hamburger
March 30, 2009
Reporting from Washington and Los Angeles — When insurance giant American International Group Inc. imploded last fall, the firm’s problems were quickly blamed not on its core insurance business but on an obscure operation that traded exotic mortgage securities.

But as the economic crisis deepens, it has become clear that AIG’s problems extend across most of its business lines, including its massive life insurance and retirement services operations, which reported a staggering $18-billion quarterly loss this month.

Anyway, why should be base complete analysis on just one article…if the problem is so big as the article above suggests indicators must have been flashing for quite sometime so let us go back and look at when was this problem first reported.

October of 2008…yes that’s right..as soon as they (Insurance companies) saw money on the table ( TARP) they came forward…

U.S. Mulls Widening Bailout to Insurers
OCTOBER 25, 2008
By DEBORAH SOLOMON and LESLIE SCISM

WASHINGTON — The Treasury Department is considering buying equity stakes in insurance companies, a sign of how the government’s $700 billion rescue program could turn into a piggy bank for a range of beleaguered industries.

The availability of U.S. government cash in the middle of a global credit squeeze is drawing requests from insurance firms, auto makers, state governments and transit agencies. While Treasury intended for the program to apply broadly, the growing requests could put a strain on the $700 billion, a sum that only last month stunned lawmakers.
<these are other biggest insurance companies in US  besides AIG>
MetLife Inc. and Prudential Financial Inc., two of the nation’s largest publicly traded life insurers, are interested in exploring a sale of equity stakes to the government, according to people familiar with the matter.

On Sunday, a spokesman for New York Life Insurance Co., one of the highest-rated insurers in the U.S., said, “The Treasury has asked the life-insurance industry for help in developing solutions for strengthening the financial system. We agreed to work with other industry leaders and Treasury so we could play a constructive role in helping shape this important discussion.” He said the insurer, which is mutually owned, doesn’t require additional capital and has “not made any decision to accept capital, if offered.”

This article is even more interesting…

Life insurers in trouble too

Associated Press , Posted: 2009-03-01 00:54:33+05:30 IST, Updated: Mar 01, 2009 at 0054 hrs IST

The outlook for the US life insurers dimmed badly after an across-the-board downgrade from a key ratings agency sent stocks of major companies in the industry plunging by 20% or more.

Standard & Poor’s Ratings Services lowered its ratings on several US life insurers and life insurance holding companies, saying the troubled economy is putting increased pressure on their assets.

S&P lowered its credit and financial strength ratings on 10 groups of the US life insurers, and its credit ratings on seven US life insurance holding companies.

Among them were major players like MetLife Inc Hartford Financial Services Group Inc, Prudential Financial Inc and Conseco Inc.

The agency said the global economy and severe declines in the stock market would weigh on the companies’ operations. The Dow Jones industrial average closed on Friday at less than half its record high reached on October 2007. Share of major life insurance companies took a beating on Friday.

MetLife plunged 23.1%, Hartford lost 14.8%, and Conseco fell 21.9%. Aflac Inc lost 11.6%, and Principal Financial Group Inc sank 24.6%.

< Question - if AIG alone can cause so much headache imagine WHAT all these combined together will do ? I see all motivating factors here for keeping stock market afloat or the choice is clear face more problems. Once you put on AIG glasses rather glasses made by insurance companies you too would start to see ‘Green Shoots’>

In case you forgot what (…mess) AIG has made or rather what (…kind of mess ) it’s capable of making…

AIG Told U.S. Failure May Cripple Banks, Money Funds (Update5)

March 9 (Bloomberg) — American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.

“What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,” said the presentation by New York- based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.”

Overseas Seizures

Under the scenarios sketched by AIG, European banks that bought credit-default swaps might need to raise $10 billion in capital and could face rating downgrades. Life insurance customers, their faith shaken in the industry, would redeem some of their $19 trillion in U.S. policies, overwhelming firms already weakened by the credit crisis, AIG said.

And this is how you know that AIG is not bluffing because OTHERS understand it very clearly that risks are way too high when it comes to AIG.

Bernanke Says Insurer AIG Operated Like a Hedge Fund (Update1)
By Craig Torres
March 3 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the company made him “more angry” than any other episode during the financial crisis.

Bernanke made the comments in response to a question from Senator Ron Wyden, an Oregon Democrat, at the Senate Budget Committee hearing today in Washington.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke said. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

<Reminder : On one else could see the ‘Green Shoots’ except Feds & Bernanke at first ( Bernanke Sees ‘Green Shoots’ of U.S. Recovery ) it’s just a co-incident that he suddenly started to see ‘Green Shoots’ in March when AIG’s bigger mess was un-folding and then suddenly everybody on Wall Street started to see more and more ‘Green Shoots’ BERNANKE’S GREEN SHOOTS SEEN BY MARKETS there has never been less supply of ‘Green Shoots’ since.>

It’s immaterial but let us look at the downgrades that have taken place since Feb-09. Just to complete our analysis here.

A.M. Best Downgrades Ratings of Pacific Life Insurance Company and Pacific LifeCorp; Revises Outlook to Negative, Fri Mar 6, 2009 4:36pm EST
OLDWICK, N.J.–(Business Wire)–
A.M. Best Co. has downgraded the financial strength rating (FSR) to A+ (Superior) from A++ (Superior) and issuer credit ratings (ICR) to “aa-” from “aa+” of Pacific Life Insurance Company (PLIC) (Omaha, NE) and its wholly owned subsidiary, Pacific Life & Annuity Company (Phoenix, AZ) (together known as Pacific Life). In addition, A.M. Best has downgraded the ICR and debt ratings to “a-” from “a+” of Pacific Life`s parent holding company, Pacific LifeCorp (Wilmington, DE). Concurrently, A.M. Best has downgraded the debt ratings to “aa-” from “aa+” on the outstanding notes issued under the general account and separate account funding agreement-backed securities (FABS) programs and all other debt ratings sponsored by PLIC. The outlook for all ratings has been revised to negative from stable. (Please see link below for a detailed listing of the companies and ratings.)

A.M. Best Downgrades Ratings of The Exchange Insurance Company Limited; Ratings Remain Under Review.
OLDWICK, N.J. — A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B++ (Good) and the issuer credit rating to “bb” from “bbb+” of The Exchange Insurance Company Limited (Exchange) (United Kingdom). The ratings remain under review, but the implications of the review have been revised to developing from negative.

The ratings of Exchange have been downgraded following the failure to complete the sale of a 50% stake in the company to an external investor. (See related press release dated 10 November November: see month.  2008).

A.M. Best Downgrades Ratings of Wing Lung Insurance Company Limited  Insurance Newsnet Read News Article
Business Editors/Insurance Writers OLDWICK, N.J.–(BUSINESS WIRE)–March 10, 2009–A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and the issuer credit rating to “bbb+” from “a-” of Wing Lung Insurance Company Limited (WLI) (Hong Kong). The outlook for both ratings is stable. The ratings reflect the company’s solid business profile and liquid investment portfolio. WLI has established a stable market presence in the Hong Kong general insurance market.
A.M. Best Downgrades Ratings of United Security Life and Health Insurance Company
Business Wire ,  Feb 9, 2009
OLDWICK, N.J. — A.M. Best Co. has downgraded the financial strength rating to C++ (Marginal) from B- (Fair) and the issuer credit rating to “b” from “bb-” on United Security Life and Health Insurance Company (USL&H) (Bedford Park, IL). The outlook for both ratings has been revised to negative from stable.

Business Wire
A.M. Best Downgrades Ratings of Shenandoah Life Insurance Company
02.12.09, 04:24 PM EST

A.M. Best Co. has downgraded the financial strength rating to E (Under Supervision) from B++ (Good) and issuer credit rating to “rs” from “bbb” of Shenandoah Life Insurance Company (Shenandoah Life) (Roanoke, VA).

These ratings were placed under review on November 19, 2008 with developing implications following the announcement of Shenandoah Life’s proposed merger with OneAmerica Financial Partners, Inc. (OneAmerica) (Indianapolis, IN).

Fitch Downgrades Phoenix Life Insurance Company’s IFS to ‘BBB+’; Places on Watch Negative
March 4, 2009 6:18 PM EST
NEW YORK–(BUSINESS WIRE)– Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings assigned to the life insurance subsidiaries of The Phoenix Companies, Inc. (NYSE: PNX) to ‘BBB+’ from ‘A’ and placed the ratings on Rating Watch Negative. A full rating list is provided below.

Hartford Falls After Life Unit Misses Capital Target (Update2)

<life unit missed target>

By Andrew Frye and Erik Holm

Feb. 6 (Bloomberg) — Hartford Financial Services Group Inc., the Connecticut-based insurer, fell 22 percent in New York trading after slashing its dividend, reporting a loss and missing its own capital target.

Losses on commercial real estate and other fixed-income holdings helped push the so-called risk-based capital ratio at Hartford’s unprofitable life insurance unit below a December forecast by Chief Financial Officer Lizabeth Zlatkus, the company said yesterday. The fourth-quarter net loss of $806 million was the company’s second straight deficit.

If you’re interested in researching on this even more there is plenty of news on the net regarding downgrades feel free to explore. By-the-way this is just about LIFE INSURANCE. Commercial real estate, Auto insurance we haven’t even touched.Once again your tax money is at work……….

NEW YORK (MarketWatch) — Six of the largest life insurers got the go-ahead to take up to $22 billion in government money Friday, putting a firmer floor under a sector that’s been hit hard by the financial crisis.

< All those green shoots that me and probably you can’t see are coming out of this firmer floor….I guess. I will post more on this green shoot bullshit later. >

Life assurers to receive bail-out cash

By Krishna Guha in Washington
Published: May 15 2009 17:26 | Last updated: May 16 2009 02:43
Life assurance groups with banking subsidiaries will receive billions of dollars in US government bail-out funds, officials confirmed on Friday, a move experts hope will damp concerns about the financial stability of this sector.

Six companies have been approved for capital injections: Hartford Financial Services, Prudential, Allstate, Ameriprise, Lincoln National and Principal Financial, although Ameriprise turned down the money on Friday.

Officials said the insurance groups could receive much of the $22bn (£15bn) remaining in the capital purchase programme, part of the wider $700bn troubled asset relief programme, but cautioned that not all the money would necessarily go to them.
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