Life Insurers Facing Cuts in Ratings
November 26th, 2008
Life insurance companies are finding it hard to keep up with real estate investment losses and costly retirement contracts in the midst of the current economic hurricane. With the prospect of even more credit rating cuts for the balance of the year, companies are faced with little choice but to find more capital sources from an unforgiving marketplace.
Federal Government, TARP, and Life Insurance Companies
Under the federal government’s TARP system (Troubled Asset Relief Program), only those insurance companies affiliated with banks or under the umbrella of thrift organizations can qualify for financial assistance. That only takes into account about half the insurers in the country with the other half preparing to scramble for funds wherever they can get them. Because of the market’s perception of financial weakness that may be construed when a company asks for aid, many have simply refused to go that route – for now.
One of the nation’s largest insurers, MetLife, is rumored to be heading for federal aid, though their spokesman declined to comment on the rumor. Not because it needs the bailout money, but rather to prepare itself for the many smaller companies that it will try to buy up when the opportunity presents itself. Economists feel that opportunity is rapidly approaching. With a sale of its stock recently raising over $2 billion, the company is poised to buy up the assets of troubled and weakened institutions that may become available over the coming months.
A New Insurance World may be Dawning
The life insurance landscape is most likely going to change dramatically over the next several months, as more and more smaller companies either apply and receive federal aid or don’t. The ones that are still in financial trouble over the coming months will find themselves either the victim of consumer non-confidence or being gobbled up by the huge insurance sharks that will be circling in the insurance waters.
With many insurance companies holding mortgage-backed securities in their investment portfolios, the troubles being felt in the stock market are rattling the financial foundations for them as well.
photo credit: Mike Licht, NotionsCapital.com
Tags: AIG, insurance acquisitions, insurance bankruptcy, life insurance companies, TARP, troubled asset relief program
