AIG Unloading Minority Stake in India Life Insurer
AIG Unloading Minority Stake in India Life Insurer
Sept. 25, 2009 – Officials for ailing insurer American International Group (AIG) likely will sell the insurer’s 26 percent stake in India-based Tata-AIG Life Insurance, according to recent news reports. The buyer would be AIG’s majority partner in the joint venture, global giant Tata.
India’s Tata owns the remaining 74 per cent of the joint life insurance enterprise and has hired auditing firm KPMG to work out terms of the proposed deal. AIG reportedly could get up to $170 million for its stake in Tata-AIG Life Insurance
Founded in 2001, Mumbai-headquartered Tata-AIG Life has grown into one of the larger life insurance providers in India with about 200 offices dispersed across the nation and more than $2 billion in assets. Although AIG officials are unloading their minority interest in Tata-AIG Life Insurance, the recently taxpayer-rescued firm will continue another joint venture with Tata, the Tata-AIG General Insurance Company.
The potential sale is part of AIG’s previously announced plan to unload most or all of its life insurance businesses and focus on property and casualty insurance markets and other sectors as the federally rescued insurer works to repay its staggering debt to U.S. taxpayers. AIG officials have been trying to sell its Asia-based American International Assurance, which is one of the largest life insurance and financial services companies operating in Asia with more than $60 billion in assets and offices in Australia, Brunei, China, Hong Kong, India, Indonesia, Macau, Malaysia, New Zealand, Singapore, South Korea, Thailand and Vietnam. But tightened credit markets during a global recession have hampered AIG’s restructuring efforts.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Under the December revision, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts. The latest bailout adjustment boosts its total value to nearly $183 billion.
AIG is attempting to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.
AIG has raised nearly $9 billion through the sale of several subsidiary units, including its domestic personal auto insurance units for $1.9 billion, commercial insurer Hartford Steam Boiler for about $742 million and joint Brazilian venture for about $820 million. Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.
The Hartford to Focus on Insurance Instead of Annuities
The Hartford to Focus on Insurance Instead of Annuities
Sept. 10, 2009 – Having accepted a $3.4 billion, taxpayer-funded federal bailout earlier this year, officials for The Hartford Financial Services Group say the reviving company will focus future business on insurance instead of maintaining its position as the top provider of annuities in the United States.
The Hartford’s chairman and top executive, Ramani Ayer, announced the insurer’s change in business focus during an insurance conference held earlier today in New York City and broadcast on the Internet. Officials for The Hartford already ceased underwriting new variable annuities in Britain and Japan and are looking to reduce additional business costs. The Hartford Financial Services Group recently reported a second-quarter net loss of $15 million, which was much lower than industry analysts predicted and was the smallest loss posted by The Hartford during the past year.
Partly bolstered by a $3.4 billion infusion of taxpayer dollars and stock market investment gains, The Hartford recently reported an unexpected $360 million gain that reduced its total loss to $15 million for the second quarter of this year, company officials reported. The Hartford had posted losses totaling $4.6 billion during the prior three quarters combined.
The Hartford, like other life insurers, suffered significant losses tied to annuities and mortgage-backed investments that reduced its capital holdings. But company officials said the firm finished the second quarter of 2009 with a suitable level of capital and used some of its $3.4 billion in taxpayer bailout funds to increase the capital surplus backing its life insurance operations and policies.
The Hartford was a life insurance industry leader in annuity sales as insurers began offering guaranteed returns for annuity owners during the 1980s and 1990s. In 2002, the Hartford made it easier for consumers to make withdrawals from their annuities. The insurer’s “Principal First” annuity product guaranteed withdrawals of up to 7 percent per year to allow owners to recover their principle investment. Annuity owners also could add investment gains to the guaranteed amount after maintaining the Principal First annuity for five years.
The Hartford’s annuity product became so popular it sparked an industry-wide trend of offering guaranteed annual, monthly and sometimes daily investment returns to consumers on top of their normal investment gains. Some insurers also promised to increase the guaranteed repayment amount by up to 7 percent each year.
Although a solid profit-generator for several years, annuities proved to be a serious liability in 2008 when many large life insurance companies had to build up their reserves and capital levels to meet state regulatory requirements prove their ability to honor their annuity policies. The downturn inflicted a $2.6 billion third-quarter loss on the Hartford’s balance sheet, including a $932 million loss tied to the insurer’s annuity business. Officials for the Hartford in October arranged a $2.5 billion capital infusion from German insurance giant Allianz SE.
U.S. Seniors Selling Life Insurance Policies as Economy Tightens
U.S. Seniors Selling Life Insurance Policies as Economy Tightens
Aug. 31, 2009 – As the nation’s economy grew worse during the past year, many senior citizens finding themselves in need of quick cash have resorted to selling their life insurance policies to third parties in exchange for a smaller payout in advance.
Senior citizens in the United States last year sold off life insurance policies totaling nearly $12 billion – nearly double the amount sold two years ago, according to a U.S. Senate special committee on aging. Most did so to replenish depleted retirement funds or help pay for medical bills.
While selling off a life insurance policy generally means forfeiting up to 80 percent of the face value, many seniors find it preferable to surrendering policies for a much smaller payout – usually a return of premiums paid minus fees. Instead, many use specialized brokers to sell their life insurance policies to investors for lump-sum payments often many times greater than they can get through a policy-surrender. The new owners of the life insurance policy then continue making premium payments until the insured either dies or the policy matures at age 100.
Selling life insurance policies often times isn’t a good idea, but seniors in their 70s and older who have policies valued at $500,000 or more but who no longer need such large sums typically are ideal candidates for executing a “life settlement” in advance, according to the National Association of Insurance Commissioners. Many no longer need to protect assets or don’t need to leave an estate for heirs.
Also called “viatical settlements,” life settlements became popular in United States in the 1980s among investors who recognized the near certainty of a high profit from paying a terminally ill patient $200,000 knowing a $300,000 life insurance payoff awaits them after his or her death. The AIDs epidemic of the early 1980s help spur creation of viatical settlements.
But as medical science progressed and a better understanding of AIDs and other “terminal” illnesses became known, many investors began shying away from viatical settlements unless the “terminal” illness were nearly certain.
Both parties take on risk when buying or selling life insurance through viatical settlements. The person selling the policy might settle for too little money and wind up short-changing heirs. For the investor, the primary risk is the insured party will live many more years, reducing profitability while increasing the risk of the life insurance company going out of business before paying the death benefit.
While viatical settlements are legal and sometimes necessary, many industry experts say it’s better to get a life insurance policy with an accelerated death benefit than to sell a life insurance policy through a viatical settlement.
Accelerated death benefits sometimes are included in life insurance policies and other times are sold as riders. They usually pay up to half a life insurance policy’s value upon diagnosis of a terminal illness with no tax penalty and efficient services. Viatical settlements can take time to process, are subject to taxation and result in losing a portion of the life insurance value.
Report: World’s Largest Life Insurer Likely to Invest in AIG Unit
Report: World’s Largest Life Insurer Likely to Invest in AIG Unit
Aug. 26, 2009 — Officials for the world’s largest life insurance company, the China Life Insurance Company, said the insurer might invest in ailing American International Group’s (AIG) Asian life insurance unit if company officials make an initial public offering on the Hong Kong stock market, Reuters reported today.
AIG officials in May announced plans to make an initial public offering for its Asia-based AIA Group, which has been doing business overseas for 90 years and is one of the world’s largest life insurance companies. AIG has enlisted the support of Deutsche Bank and Morgan Stanley to bring about an estimated $ billion initial public offering for AIA.
China Life officials told reporters they are interested in investing in the AIG unit if it is listed on the Hong Kong stock as part of an overall strategy of investing in branded companies.
“We’re definitely interested in any influential, branded financial institutions with sound results,” China Life Chairman Yang Chao told media members earlier today.
AIA has more than $60 billion in assets and is considered struggling AIG’s top Asian asset. Earlier attempts to sell the company outright were foiled by the recent global economic downturn and tightened credit markets making it nearly impossible for AIG to obtain a reasonable selling price or for suitors to obtain funding. Instead, AIG officials decided an initial public offer would be the best way to raise capital for the struggling parent corporation.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of preferred company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion rescue package with a lower interest rate and longer repayment period.
After another bailout revision in December, the U.S. Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts. The most recent bailout adjustment boosts total taxpayer investment in AIG to nearly $183 billion.
The insurer is attempting to sell off AIG’s overseas life insurance units and other subsidiaries to repay its debt. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.
AIG officials have raised more than $9 billion through the sale of several subsidiary units, including its domestic personal auto insurance units for $1.9 billion, commercial insurer Hartford Steam Boiler for about $742 million and joint Brazilian venture for about $820 million.
Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.
MetLife Reports $1.4 Billion Net Loss for the Second Quarter of 2009
MetLife Reports $1.4 Billion Net Loss for the Second Quarter of 2009
Aug. 4, 2009 – Officials for the nation’s largest life insurer, New York-based MetLife, reported significant derivative and investment losses caused the insurer to post a net loss of $1.4 billion during the second quarter of 2009 after reporting a $915 million profit during the same quarter last year.
Company officials reported total revenues during the second quarter declined by nearly $4 billion from a year ago, from $12.05 billion during the second quarter of 2008 to $8.27 billion during the same period this year. Much of the loss occurred to poor investment performance as MetLife officials reported a $3.8 billion net investment loss during the second quarter, up some $3.5 billion from the $357 million investment loss during the same period in 2008.
The poor second quarter performance resulted in MetLife officials declaring a $2 billion net loss after posting a $1.5 billion profit during the first half of 2008 – before the stock market began its precipitous decline last year. Company officials reported total revenues of $18.48 billion through the first half of 2009 – down from $23.67 billion in revenues during the same period last year.
The fall 2008 stock market crash caused MetLife to lose more than $1 billion in net income for the year as the insurer reported a net income of $3.21 billion for the year compared to $4.32 billion in net income for 2007. The insurer posted a fourth-quarter 2008 profit decline of 12 percent, which was cushioned by investment gains.
MetLife officials said they used investments in derivatives to post consecutive quarterly investment gains during the second half of 2008 despite declining equity markets. As with many life insurance companies, MetLife’s profit margin was hurt by the rising cost of guaranteed minimum returns on annuities and other retirement products.
The insurer’s fourth-quarter 2008 net income dropped to $985 million from $1.12 billion. But MetLife offset the income declined by earning $1.6 billion on derivatives, including interest-rate investments. MetLife officials reported a $1.35 billion investment gain of for the quarter, which surpassed analysts’ expectations.
MetLife generally outperformed its competitors during the recent stock market crash, but the insurer has lagged behind some competitors thus far this year.
MetLife officials sold $2.3 billion in new shares in October and stockpiled cash to prepare for a worsening U.S. economy and rising corporate-bond defaults. The insurer’s bolstered capital could enable the insurer to acquire assets of its struggling competitors, such as recently bailed-out American International Group (AIG). Chief Financial Officer William Wheeler said in September that MetLife is “very aggressively” seeking expansion outside of the United States. AIG is looking to unload its overseas life insurance units.
U.S.-based life insurers lost $77 billion in surplus holdings on investment losses and rising costs of guaranteeing retirement products in 2008, wiping out six years of gains, according to consulting firm Conning & Company. MetLife had $403 million in credit-related losses and writedowns in the fourth-quarter of 2008, joining the Allstate Corporation, Chubb and The Travelers Companies in posting losses on mortgage-backed securities.
The Hartford Post $15 Million 2nd Quarter Loss But Bests Analysts’ Expectations
The Hartford Post $15 Million 2nd Quarter Loss But Bests Analysts’ Expectations
Aug. 4, 2009 — Officials for The Hartford Financial Services Group last week reported a second-quarter net loss of $15 million. While a net loss normally isn’t good for business, the $15 million deficit was much lower than industry analysts predicted and was the smallest loss posted by The Hartford during the past year.
Partly bolstered by a $3.4 billion infusion of taxpayer dollars and stock market investment gains, The Hartford last week reported an unexpected $360 million gain that reduced its total loss to $15 million for the second quarter of this year, company officials reported. The Hartford had posted losses totaling $4.6 billion during the prior three quarters combined.
The Hartford, like other life insurers, suffered significant losses tied to annuities and mortgage-backed investments that reduced its capital holdings. But company officials said the firm finished the second quarter of 2009 with a suitable level of capital and used some of its $3.4 billion in taxpayer bailout funds to increase the capital surplus backing its life insurance operations and policies.
The Hartford has been a life insurance industry leader in annuity sales as insurers began offering guaranteed returns for annuity owners during the 1980s and 1990s. In 2002, the Hartford made it easier for consumers to make withdrawals from their annuities. The insurer’s “Principal First” annuity product guaranteed withdrawals of up to 7 percent per year to allow owners to recover their principle investment. Annuity owners also could add investment gains to the guaranteed amount after maintaining the Principal First annuity for five years.
The Hartford’s annuity product became so popular it sparked an industry-wide trend of offering guaranteed annual, monthly and sometimes daily investment returns to consumers on top of their normal investment gains. Some insurers also promised to increase the guaranteed repayment amount by up to 7 percent each year.
Although a solid profit-generator for several years, annuities proved to be a serious liability in 2008 when many large life insurance companies had to build up their reserves and capital levels to meet state regulatory requirements prove their ability to honor their annuity policies. The downturn inflicted a $2.6 billion third-quarter loss on the Hartford’s balance sheet, including a $932 million loss tied to the insurer’s annuity business. Officials for the Hartford in October arranged a $2.5 billion capital infusion from German insurance giant Allianz SE.
AIG Weighing Initial Public Offering of Overseas Life Insurance Giant
AIG Weighing Initial Public Offering of Overseas Life Insurance Giant
July 16, 2009 – Despite potential sales talks with competing life insurer MetLife, officials for highly indebted American International Group (AIG) this week announced they are stepping up their efforts to make subsidiary American Life Insurance Company (ALICO) a completely separate unit from financially strapped AIG and go through with an initial public offering and public listing on the New York Stock Exchange pending regulatory approval and favorable market conditions.
“We continue to consider all strategic options through a robust, structured and disciplined process. At this stage, we expect that a public offering for ALICO will be beneficial to all stakeholders, including U.S. taxpayers, policyholders, employees and distribution partners,” said AIG Chairman and Chief Executive Officer Edward Liddy in a July 15 statement.
If AIG officials go through with the potential public offering, ALICO would become a wholly independent life insurance company with its own board of directors and management structure. The federal government likely would be given control of a large block of ALICO shares as partial repayment of the insurer’s massive debt to U.S. taxpayers.
ALICO is a global life insurance company licensed to do business in 54 nations. The AIG subsidiary has about 19 million policyholders, more than $89 billion in assets and has generated a great deal of interest among several large global firms. But the current poor global economy has hampered efforts to sell the unit at a suitable price in a down market, although AIG and MetLife officials continue to discuss a potential sale.
Through its subsidiary units, AIG does business in about 130 nations and has more than $1 trillion in assets. But the insurer has had difficulty finding suitable buyers for its larger and more lucrative assets, such as one of the world’s largest aircraft-leasing firms and several Asia-based life insurance units. Tightened markets have made it more difficult for buyers to obtain backing.
Once its restructuring is complete, AIG officials plan to focus future business on property and casualty markets while maintaining a financial interest in some of its more profitable units. But relying on the sales of AIG’s life insurance units to help repay its debt to U.S. taxpayers has not gone as planned.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Under the December revision, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts. The latest bailout adjustment boosts its total value to nearly $183 billion.
AIG is attempting to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.
AIG has raised more than $4 billion through the sale of several subsidiary units, including its domestic personal auto insurance units for $1.9 billion, commercial insurer Hartford Steam Boiler for about $742 million and joint Brazilian venture for about $820 million. AIG in January agreed to sell the insurer’s Philippines-based retail bank and auto-lending subsidiary to the East West Banking Corporation for $48.5 million.
Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.
The Hartford Joins Dodd Benefactors in Gaining Federal TARP Funds
July 7, 2009 – Already facing scrutiny from his handling of the recent bonus scandal regarding executives at ailing American International Group (AIG), another major contributor to U.S. Senator Chris Dodd (D-Conn.) has been approved for a $3.4 billion loan in taxpayer funds and bringing to seven the total number of Connecticut businesses to be granted access to federal relief.
Officials for The Hartford Financial Services Group last week completed a deal for $3.4 billion in federal Troubled Asset Relief Program (TARP) funds, making the Connecticut insurer the state’s seventh business to receive federal taxpayer support. Six Connecticut-based banks and The Hartford now are participating in the federal TARP program and have received a total of $3.8 billion in funds.
Dodd chairs the U.S. Senate Committee on Banking, Housing & Urban Affairs and collected a total of $224,278 in political donations from AIG executives, employees and their families in a failed bid to secure the Democratic Party presidential nomination in 2008, according to Opensecrets.org. And political donors affiliated with The Hartford Financial Services Group donated a total of $161,600 to the Senator’s campaign while donors affiliated with The Hartford contributed another $94,550 to Dodd’s political ambitions during the prior two years.
Currently, Dodd has accepted $183,700 from AIG, $115,300 from the Hartford Financial Services Group and another $94,550 from The Hartford.
Officials for The Hartford reported a $2.7 billion loss in 2008 and another $1.2 billion loss during the first quarter of 2009. The Hartford is a leading provider of annuities and life insurance products as well as a property and casualty insurer. The Hartford was among six major U.S. life insurers to be allowed access to the federal TARP program initially intended for ailing banks and other financial institutions.
Among Connecticut banks and Dodd supporters to receive federal TARP money is Webster Bank, which donated a total of $32,100 to Dodd during the 2006 election cycle and another $36,350 during the 2008 election cycle, according to Opensecrets.org. Webster Bank received $400 million in TARP funds in November.
Also receiving TARP funds were the First Litchfield Financial Corporation, which received $10 million in taxpayer funds, Salisbury Bancorp, $8.8 million, Connecticut Bank and Trust, $5.4 million, BNC Financial Group, $4.8 million, and SBT Bancorp, $4 million, according to the Hartford Business Journal.
The $700 billion TARP fund was intended to purchase toxic assets and strengthen American banks to stave off a potential collapse of the nation’s financial sector. Federal officials since have changed the scope of the TARP program to allow other financial institutions to participate.
But Dodd, along with President Barack Obama, has received recent harsh criticism for ensuring executives at large campaign donors like AIG, Fannie Mae and Freddie Mac would receive contractually obligated bonus pay despite their respective institutions needing taxpayer dollars to remain in business. Dodd initially denied any connection to the matter but later claimed White House staff requested he sponsor an amendment to ensure the executive bonus payments. The three organizations are among several that continue to ply Dodd, Obama and others with campaign donations despite having accepted federal bailout money.
Study: Global Life Insurance Market Rebound Predicted in 2010
Study: Global Life Insurance Market Rebound Predicted in 2010
July 2, 2009 – The short-term forecast for life insurance companies around the globe is grim, but the gloomy forecast through 2009 anticipates an economic upswing next year that should prove beneficial for the global life insurance market, according to results of a study released June 30 by Swiss Re, one of the world’s largest reinsurance companies.
Through 2009, Swiss Re researchers anticipate life insurance premiums will remain level and possibly decline slightly due to unstable stock markets and rising global unemployment that is depressing the sales of traditional investment vehicles, according to Swiss Re.
“As the economy recovers, we expect both higher life premiums and better investment results as asset prices are expected to improve,” said Daniel Staib, one of the authors of the study on global life insurance markets in 2008. “This will not only have a positive impact on profitability, but also on shareholder capital and the ability to raise capital. In the medium and long-term, the outlook for life insurance remains positive.”
Along with life insurance, demand for other types of insurance likely will “remain flat” in accordance with the poor global economic climate, according to Swiss Re. But the various markets should recover by the end of the year and likely will see rising premiums.
“While it is expected that the recession will reduce demand for insurance coverage, capital shortages will support the upward movement of prices,” said Staib. “Furthermore, demand for additional coverage should increase in 2010 along with the economy. Profitability in non-life is likely to improve, mainly due to rising prices and stronger investment results.”
While the current global insurance market is less than favorable for insurers, Swiss Re researchers say it would be much worse but for the positive impact of emerging economies in the wake of the global economic collapse that battered insurers in established industrialized nations after the September collapse. When adjusted for inflation, global insurance premiums declined by about 2 percent when compared to premiums a year earlier, according to Swiss Re.
Globally, life insurance premiums declined by about 3.5 per cent while premiums for policies other than life insurance decreased by 0.8 per cent. Life insurers in Britain, France and Italy suffered the most by the financial crises with steep declines in sales. But sales of life insurance policies in emerging economies offset the global decline, posting an average gain of nearly 15 percent in emerging markets, according to the Swiss Re study.
Other Life Insurers Weigh Benefits, Consequences of Federal Relief Program
Other Life Insurers Weigh Benefits, Consequences of Federal Relief Program
April 16, 2009 – Industry analysts are saying MetLife likely won’t be the only life insurance company to refuse federal bailout money and only financially distressed insurers likely will have no choice but to accept taxpayer aid through the U.S. Treasury’s Capital Purchase Program.
MetLife officials earlier this week said the company has a strong balance sheet and recently raised enough capital to cover its regulatory and other obligations and would not participate in the Capital Purchase Program – formerly called the Troubled Asset Relief Program (TARP). Other life insurers approved for program participation include The Hartford and Lincoln National.
Industry analysts say many struggling U.S.-based life insurers can benefit from taxpayer-funded federal relief program, but not without consequences. Because program participation requires issuing preferred shares of stock to the federal government, the value of common shareholder’s holdings would be decreased and their earnings per share reduced. And officials in charge of the life insurance companies are wary of federal restrictions on executive pay and increased government interference that come with program participation.
U.S. life insurance companies and their stocks received a significant boost on April 8 after the Wall Street Journal reported federal officials would allow qualifying life insurers to participate in the $700 billion taxpayer-funded rescue program for the financial industry. Officials for the U.S. Treasury Department reportedly said only those life insurance companies that own banks and small consumer lenders can participate.
Life insurance units that will benefit from the action include two of the nation’s largest, , as well as others who recently applied for official federal status as thrift holding companies. Federal regulators already approved applications from The Hartford and Lincoln National as well as Prudential Financial, Genworth Financial and Holland-based Aegon NV, which owns San Francisco-based Transamerica.
“These companies are among the hundreds of financial institutions in the pipeline that will be reviewed and funded as appropriate on a rolling basis,” Treasury spokesman Andrew Williams told the Associated Press.
The $700 billion taxpayer-funded bailout program is intended to help provide lenders with the relief they need to sustain themselves during the current economic crisis and continue issuing consumer loans. Embattled insurer American International Group (AIG) already has accepted federal TARP funds, and officials for The Hartford expect to be get between $1.1 billion and $3.4 billion in relief funds if they choose to participate.
United States-based life insurance companies, led by MetLife and Prudential Financial, lost $76.8 billion in surplus during 2008, mostly due to investment losses and increased costs for guaranteeing retirement products that erased six years of industry gains, according to industry analysts.
The U.S. life insurance industry’s combined statutory surplus, which is the difference between company assets and liabilities, fell 24 percent to $237.3 billion in 2008, according to a study released recently by the consulting firm Conning & Company. The U.S. life insurance industry might need $50 billion in additional capital and consolidate operations to make up for the losses.
MetLife Officials Tell Fed to Keep Bailout Funds, Avoid Federal Intrusion
MetLife Officials Tell Fed to Keep Bailout Funds, Avoid Federal Intrusion
April 15, 2009 – Officials for the nation’s largest provider of life insurance, New York-based MetLife, this week refused to participate in the taxpayer-backed U.S. Department of the Treasury Capital Purchase Program, formerly known as the Troubled Asset Relief Program (TARP).
MetLife has been a federally chartered bank holding company since 2001 when the insurer created a subsidiary banking unit, MetLife Bank. But company officials decided against participating in the federal relief program.
“MetLife is well positioned, with approximately $5 billion in excess capital, a strong balance sheet and leading market positions in our core group and individual insurance businesses, where our revenues continue to be healthy,” said C. Robert Henrikson, chairman, president and chief executive officer of MetLife. “MetLife has already taken actions to reinforce its strong financial position, including raising capital in the marketplace. We have therefore decided not to participate in the Program.”
“Although a number of economic challenges remain, MetLife is well positioned to continue meeting the needs of our clients,” added Henrikson. “We repositioned our investment portfolio over a year ago for the current recession. completed a successful $2.3 billion common stock offering last October and successfully remarketed over $1 billion in debt earlier this year. We are confident that we have the financial strength to continue to succeed now and over the long-term.”
MetLife, lost more than $1 billion in net income for 2008, reporting $3.21 billion for the year compared to $4.32 billion a year earlier.
The insurer posted a fourth-quarter 2008 profit decline of 12 percent, the fall of which was cushioned by investment gains. MetLife officials used investments in derivatives to post consecutive quarterly investment gains during the second half of 2008 despite declining equity markets. As with many life insurance companies, MetLife’s profit margin has been hurt by the rising cost of guaranteed minimum returns on annuities and other retirement products.
The insurer’s fourth-quarter net income dropped to $985 million from $1.12 billion. But MetLife offset the income decline by earning $1.6 billion on derivatives, including interest-rate investments. MetLife officials reported a $1.35 billion investment gain for the quarter, which surpassed analysts’ expectations.
“MetLife’s results largely matched our expectations, which is good in today’s environment,” Nigel Dally, an analyst with Morgan Stanley, said in a research note. “The company stands out as providing safe-haven-like characteristics.”
MetLife officials sold $2.3 billion in new shares in October and stockpiled cash to prepare for a worsening U.S. economy and rising corporate-bond defaults. The insurer’s bolstered capital could enable the insurer to acquire assets of its struggling competitors, such as recently bailed-out American International Group (AIG). Chief Financial Officer William Wheeler said in September that MetLife is “very aggressively” seeking expansion outside of the U.S. AIG is looking to unload its overseas life insurance units.
Life Insurers Buoyed by Federal TARP Fund Participation
Life Insurers Buoyed by Federal TARP Fund Participation
April 9, 2009 – U.S. life insurance companies and their shares enjoyed a significant boost yesterday after the Wall Street Journal reported federal officials will allow qualifying life insurers to participate in $700 billion taxpayer-funded rescue program for the financial industry. Officials for the U.S. Treasury Department reportedly said only those life insurance companies that own banks and small consumer lenders can participate.
Life insurance units that will benefit from the action include two of the nation’s largest, The Hartford and Lincoln National, as well as others who recently applied for official federal status as thrift holding companies. Federal regulators already approved applications from the two life insurance companies as well as Prudential Financial, Genworth Financial and Holland-based Aegon NV, which owns San Francisco-based Transamerica.
“These companies are among the hundreds of financial institutions in the … pipeline that will be reviewed and funded as appropriate on a rolling basis,” Treasury spokesman Andrew Williams told the Associated Press.
The $700 billion taxpayer-funded bailout program, the Troubled Asset Relief Program (TARP) is intended to help provide lenders with the relief they need to sustain themselves during the current economic crisis and continue issuing consumer loans. Embattled insurer American International Group (AIG) already has accepted federal TARP funds, and officials for The Hartford expect to be get between $1.1 billion and $3.4 billion in relief funds.
United States-based life insurance companies, led by MetLife and Prudential Financial, lost $76.8 billion in surplus during 2008, mostly due to investment losses and increased costs for guaranteeing retirement products that erased six years of industry gains, according to industry analysts.
The U.S. life insurance industry’s combined statutory surplus, which is the difference between company assets and liabilities, fell 24 percent to $237.3 billion in 2008, according to a study released recently by the consulting firm Conning & Company. The U.S. life insurance industry might need $50 billion in additional capital and consolidate operations to make up for the losses.
“Life insurers took a double hit in 2008,” said Terence Martin, a Conning analyst and author of the report. “A surplus reduction of this magnitude suggests that some insurance companies will be required to raise capital.”
U.S. life insurance companies during the fourth quarter of 2008 have cut jobs, asked insurance regulators to ease capital reserve standards and applied for federal aid to replenish their dwindling capital cushion. Company assets have fallen after suffering declines in the value of investments held to back life insurance and other policies. Liabilities advanced after equity market drops increased the funds carriers needed to back guarantees of minimum returns made to some annuity customers.
Life insurance stocks plummeted in 2008, and companies halted stock buybacks and slashed dividends to preserve their capital holdings. New York-based MetLife sold $2.3 billion in shares in October, and the Hartford Financial Services Group got a $2.5 billion investment from Germany’s Allianz SE.
Analysts Agree with Reports of The Hartford Exiting the Life Insurance Business
Analysts Agree with Reports of The Hartford Exiting the Life Insurance Business
March 17, 2009 – Many life insurance industry analysts say recent reports of The Hartford Financial Services Group looking to unload its life insurance operations make good business sense.
While The Hartford’s property and casualty insurance business remains vibrant with a promising outlook, the recent national and global economic downturns have hammered United States-based life insurers. Despite a recent $2.5 billion capital infusion from Germany-based Allianz S.E. in October, The Hartford reported a $2.75 billion loss in 2008 after posting nearly $3 billion in net income a year earlier. The insurer’s life insurance businesses posted a combined $2.44 billion loss last year while The Hartford’s property and casualty business had $92 million in net income.
Bloomberg News last week reported officials for The Hartford are negotiating to sell most of the Connecticut-based insurer’s life insurance subsidiary to Canada’s Sun Life Financial.
The Hartford might be divided into separate life insurance and property and casualty insurance units so the insurer can sell of its life insurance business, although no plans have been announced. Company had been negotiating a potential sale with MetLife that fell through last month, according to the report.
A Sun Life representative affirmed company officials are eyeing expansion opportunities without confirming the potential deal.
“Sun life is committed to business growth, and we actively look at potential opportunities in key markets that may build on our shareholder and customer value,” Sun Life spokesman Steve Kee said.
As with all U.S. life insurance companies, The Hartford’s life insurance units suffered significant losses and repeated credit ratings downgrades as industry analysts forecast a poor short-term outlook for the U.S. life insurance industry. Citing concerns over the insurer’s ability to boost its capital in an increasingly bad economy, Standard & Poor’s last week lowered the insurer’s credit ratings and those of its subsidiaries. The outlook for all of Hartford Financial’s subsidiaries now is “negative.”
Officials for The Hartford in their recent federal filing reported a loss of $806 million during the final quarter of 2008, including $610 million in realized capital loss and another $597 million in “goodwill” write-offs.
To improve its capital base, the insurer in October raised $2.5 billion and allocated the entire sum to its life insurance business. The Hartford also seeks taxpayer-funded relief through the federal Troubled Asset Relief Program (TARP).
In an effort to access the low-interest federal aid, The Hartford recently agreed to purchase the Federal Trust Bank of Sanford, Florida, for about $10 million. The bank has 11 branches in Florida, and the federal Office of Thrift Supervision approved the insurer’s application to acquire the savings and loan and become a federally recognized thrift holding company. Officials for The Hartford anticipate the deal making the insurer eligible for between $1.1 billion and $3.4 billion in federal rescue money.
In the meantime, credit rating agencies have been busy downgrading their ratings outlooks for most United States-based life insurers this month. Several life insurance companies recently reported lower operating earnings, high investment losses and increased unrealized losses due to the global economic meltdown. Investors also are concerned about guaranteed minimum returns associated with life insurance companies’ variable annuity products, which have inflicted heavy losses across the industry.
MetLife Takes Top Market Position in Fixed-Annuity Sales as Investors Seek Safe Options
MetLife Takes Top Market Position in Fixed-Annuity Sales as Investors Seek Safe Options
March 11, 2009 – With investors seeking safe vehicles for their retirement accounts given the recent stock market crash, sales of fixed annuities climbed to $107 billion last year, up 60 percent from 2007, with MetLife emerging as the market leader, according to the annual Beacon Research Fixed Annuity Premium Study.
The industry research firm based in Illinois says for the third-consecutive quarter, the sales of fixed-annuities remained at a six-year high, rising to $34.1 billion during the fourth quarter of 2008 and up 90 percent from the same period in 2007. “Book-value” annuities paying a fixed rate of interest for a specified period posted the highest sales among fixed-annuity products at $17.1 billion – more than double the amount of a year ago, according to Beacon Research.
Market-value-adjusted annuities allowing investors to choose their own time periods and interest rates were, 3.5 times higher than 2007 at $7.4 billion. Sales of index annuities climbed 12 percent to $7.2 billion while sales of immediate annuities were up $2.4 billion and 22 percent from the same period in 2007.
MetLife sold the most in the fixed-annuities and had the most popular product during the fourth quarter, posting $4.1 billion in sales. The New York Life Insurance Company was second with $2.6 billion in sales, followed by Aviva USA at $2.3 billion.
The top-selling product during the fourth quarter was MetLife’s market-value “Investors’ Fixed Annuity” followed by the New York-based insurer’s “Target Maturity” market-value annuity. Aviva’s “Income Select Bonus” index annuity was the third most popular fixed-annuity during the final quarter of 2008.
With constant credit downgrades for life insurers and a generally poor industry outlook, annuity-holders understandably feeling some level of anxiety over the future of their retirement investment and have been purchasing safer annuity investments.
The nation’s top provider of variable rate annuities, The Hartford Financial Services Group, has had its credit rating cut three times in the past month by Standard & Poor’s Ratings Services. Each time an insurer’s credit rating is downgraded, the company must boost its capital reserves, which isn’t easy in a down market.
Annuities are based on the financial stability of the insurance company offering them, and Standard and Poor’s as well as other major ratings agencies have been busy repeatedly lowering credit ratings on life insurers, including MetLife and Prudential Financial. The downgrades in part are due to the recent world-record $61.7 billion fourth-quarter loss recently posted by American International Group (AIG), which industry analysts took as evidence of significant problems facing the life insurance industry – although AIG’s near-bankruptcy mostly was spurred by bad bets on securities tied to the sagging mortgage industry.
Although life insurers are taking a financial beating, the industry’s long-term outlook remains sound.
Life Insurers’ Struggles Causing Concern Among Annuity Owners
Life Insurers’ Struggles Causing Concern Among Annuity Owners
March 10, 2009 – With constant credit downgrades for life insurers and a generally poor industry outlook, annuity-holders understandably feeling some level of anxiety over the future of their retirement investment.
The nation’s top provider of variable rate annuities, The Hartford Financial Services Group, has had its credit rating cut three times in the past month by Standard & Poor’s Ratings Services. Each time an insurer’s credit rating is downgraded, the company must boost its capital reserves, which isn’t easy in a down market.
Annuities are based on the financial stability of the insurance company offering them, and Standard and Poor’s as well as other major ratings agencies have been busy repeatedly lowering credit ratings on life insurers, including MetLife and Prudential Financial. The downgrades in part are due to the recent world-record $61.7 billion fourth-quarter loss recently posted by American International Group (AIG), which industry analysts took as evidence of significant problems facing the life insurance industry – although AIG’s near-bankruptcy mostly was spurred by bad bets on securities tied to the sagging mortgage industry.
Although life insurers are taking a financial beating, the industry’s long-term outlook remains sound.
“The insurance industry has been good about rescuing its own, and The Hartford will probably be absorbed,” said Dean Barber, president of Kansas-based Barber Financial Group. “But in the long-term, the fees charged for guaranteed benefits will likely increase while the benefits themselves will probably decrease.”
The minimum-return guarantees on variable rate annuities sold by many insurers are what have many investors concerned. If The Hartford couldn’t meet its obligations, the guarantees many count on for retirement income would be endangered. Investors could recoup the value of their investment assets, but if those investments have posted losses, investors will have to accept them instead of receiving the minimum guaranteed returns.
The Hartford might be divided into separate life insurance and property and casualty insurance units so the insurer can sell of its life insurance business, although no plans have been announced. Company officials had been negotiating a potential sale with MetLife that fell through last month.
Officials for The Hartford in their recent federal filing reported a loss of $806 million during the final quarter of 2008, including $610 million in realized capital loss and another $597 million in “goodwill” write-offs.
To improve its capital base, the insurer in October raised $2.5 billion and allocated the entire sum to its life insurance business. The Hartford also seeks taxpayer-funded relief through the federal Troubled Asset Relief Program (TARP).
In an effort to access the low-interest federal aid, The Hartford recently agreed to purchase the Federal Trust Bank of Sanford, Florida, for about $10 million. The bank has 11 branches in Florida, and the federal Office of Thrift Supervision approved the insurer’s application to acquire the savings and loan and become a federally recognized thrift holding company. Officials for The Hartford anticipate the deal making the insurer eligible for between $1.1 billion and $3.4 billion in federal rescue money.