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The Insurers Implode: Back to Normal or Business as Usual?

Hmmm, no response from the author. Sure, author probably has many things on the go in business and personal life, but took the time to write an article stating its position about several insurers.

Wonder how his insurance short trades have been going?
Wonder if the author just looks at charts or knows something about the insurers, insurance products, insurance risk pricing, valuation, capital requirements, etc?

Concerns About Manulife's Variable Annuity Business Are Misguided - Scotia Capital

Mr. McKinnon,

For the Vairable Annuity business, please tell us Manulife's assumptions for:

(a) S&P 500 index in 2009 (many insurers have assumed S&P index would AVERAGE 900 to 950 in 2009... we are 3+ months into 2009, do you really foresee this assumption occuring?) S&P index = E x 'p/e' E is expected from $40-60, 'p/e' was recently 8.03

(b) use of financial hedges? cost of hedges?

(c) implied volatility ?

(d) degree to which OSFI softened / relaxed the (i) reserving (ii) capital requirements


(by the way, what if Manulife at its highest level was a USA company and therefore was regulated by the USA, would reserves and cepital requirements be more, less, or the same? Why are the stock prices of the VA writers in the USA getting hit hard and yet, MFC, SLF, AXA are not hit so hard?)

The Insurers Implode: Back to Normal or Business as Usual?

Coincidentally, after hours today (Apr 1), Protective Life (PL) announces withdrawal / cancellation of agreement to acquirte a bank such that PL would qualify for the same program that Lincoln National (LNC) was considering.

LNC says it has funds/liquidity... PL says it has funds/liquidity.

LNC nose-dived approx 40%... how much does PL drop tomorrow ??

Appreciate your take on these additional named companies as you've mentioned only 4 companies and there are many in the industry publicly listed.

The Insurers Implode: Back to Normal or Business as Usual?

and
AXA
ING
AEG

can't forget the Europeans, with substantial USA insurance business including Variable Annuities, and some have banking business which has gone sour, etc etc

bye

The Insurers Implode: Back to Normal or Business as Usual?

Why don't you include:
* Manulife (MFC) - heavy USA exposure via John Hancock)
* SunLife (SLF) - heavy USA exposure vis Keyport, etc and hiring (apparently several) sales people from LNC
* Protective Life (PL) - set up bank/applied (or intent to apply for TARP)

Too afraid to short these? maybe insurers not all the same?

At least PFG management took some additional action which is more than can be said for majority of insurers.
Finally PNX got rid of their CEO (lot of value destroyed since going public).
Some majority 'familiy'-owned publicly listed insurers crated and the management said nothing, did nothing (no one bought stock, says a lot about the persons' confidence and managements' confidence), n'est-ce pas?

What about other insurers similar to PFG, sometimes categorized as
(a) an Asset Manager - heck, Goldman Sach has practically downgraded the whole Asset Mgmt sector
(b) Group insurer - has got to be a lot of those
etc

ok, need to run now, literally, windy day for ties

One Way Life Insurance Customers Can Protect Themselves

Rolfe, good to explain this to build awareness. I've been mentioining such things on the Yahoo msg boards for quite some time. A few other things:
- consumer has a contract with the insurer; insurers often transfer a portion of the risk to another company/pool (called reinsurance); some reinsurance contracts may participate in loans, etc but this would need to be investigated further to determine what the %
- reinsurers were the 'gateway' to capital for insurers needing capital; reinsurers got capital from the investment banks (traditionally)
- so, the food chain goes up to investment banks. At an industry meeting 4 or 5 years ago, as the reinsurance market had consolidated substantially from the 1990's to mid 2000's (the top 5 Life/Annuity reinsurers account for 70%+ of the market ) some investment banks effectively became reinsurer going direct to insurance companies...but now some are gone (Lehman, Bears Stearns) and others have curtailed there activities ... rather concentrated industry and if things go wrong for such companies, big gap

I've got to run to meetings, more later or if you want you can reach me at this screen name @ yahoo.com

How to Profit from Market Manipulation

Harold,

1. Any thoughts on what just happened in the final 30 minutes, particularly the final 10 minutes of today?
Was the PPT in full force trying to paint the tape to show a positive (+ve) day and/or demonstrate support? Last time we were above 7,800 it was a channel trading range between approx 7800 and 8200. Are they trying to pump fake us to be in that zone?


2. Any comments to my questions posted above:
(a) So, should we look for strong support the next time the 50day MA nears the 200day MA ?
(b) What other nearer-term events (say in the next month) do you think would lead to "manipulation" forces to make an appearance?

Appreciate your viewpoint/input.


3. My market quote system data feed tends to "freeze" (for a minute or so) at rather significant point moves whether +/- moves and of course it happened in the last part of today. In the mid-late 1990's, our trading team conceived that the retail investor was "frozen out" of trading by automated trading and/or software in the electronic order placement systems. Any thoughts on this?

How to Profit from Market Manipulation

Very informative, and very conceivable... perhaps US gov't interests let some offshore hedge funds in on things to seek their assistance as a vehicle.

So, should we look for strong support the next time the 50day MA nears the 200day MA ?
What other nearer-term events (say in the next month) do you think would lead to "manipulation" forces to make an appearance?

After AIG: Which Insurer Is Next in Line for a Federal Handout?

PRU is next

ING and AEG are not in such great shape (each has substantial US buysiness), and have received funds from their parent-domicile government.

MFC (Manulife) was unhedged on its variable annuities and lost it's AAA rating


Just like investment banks looking for alternate ways to generate revenues (and securitization markets opening a new universefro fees), insurers also found alternate ways, such as variable annuities, etc.

Well with "life insurance" companies (pure life insurance, annuities, some health, Long-term care, etc) the contracts are of a long term and are priced/sold once, so if you make a mistake it's with you for a long time.
Compare that to Propertty & Casualty companies which offer insurance typically on a one-year term basis, and re-price it each year... provides more control.

Life insurance is a much lower ROE business than P&C.

Why does Warren Buffett buy P&C insurance entities primarily (vs Life insurance)? Hmmm, could it have anything to do with the above items

Dollar Takes Huge Hit

Thanks again, oh brilliant USA government for killing any strength we had in the USA dollar. And to add insult, billions of the Fed bailout money provided to AIG went out the window immediately to European banks.

Will Najarian's Prediction of a Stock Market Explosion Come True?

Re "Mad Hedge Fund Trader" comments:

1. The Swiss hedge fund manager who says we entered a bear market in 2000? I think that hedge fund manager got his info from the same source as RBC Global Asset Management who indicates we are in a "secular bear market which started in 2000. Secular bear markets last about 18 years".


2. S&P index valuation. P = Earnings x p/e we all agree on that. About 6-8 weeks ago, investment community was anticipating Earnings of $50 to 60 for the S&P500 companies, and anticipating a p/e more towards the norm of 10 to 15.

IF we take the maximum of those anticipated ranges we get S&Pindex = $60 earnings x 15 p/e = 900.

Quick aside: many insurance companies indicated when they reported Q4 numbers, that they assumed the S&P500 would AVERAGE 900 to 950 in 2009.


Now the reality: actual p/e = 8.03 and Earnings i could not locate but let's, conservatively, say are $55.... then we are at S&P500 index = 55 x 8 p/e = 440

Based on the actual results, sure seems the S&P can go lower from 700. Insurance companies which sell Variable Annuities and assumed 900-950, whoa, it sure seems they have under-estimated the AVERAGE for the year.

Will Najarian's Prediction of a Stock Market Explosion Come True?

I suggest reading Martin Wolf articles (he's raised issues and been correct on outcomes many times on many issues). Latest article, amongst many things, asks whether the US administration is asking/addressing the proper issue. Also, he mentions actions such as conversion of debt into equity will hurt pension funds, insurers, etc.

Re M2M, the G20 has been discussing / taking steps to implement transparency. Also, international accounting standards (IFRS) mandate fair value. Is the USA going to back away from all this forward progress in the world? It would be a significant blow to the USA.

M2M is an emotional item being made into a scape-goat, and is not the cause of the situation, it is just the rules for presenting financial results. Only way it gets suspended is on politics which seems to be against Obama's theme of cutting through red-tape, etc.

This appears to be more hype than of substance. There goes more tax-payer money on involving and debating with Congress.

The technology exists for quick referendums with voting rights available to all people. Why not use it on issues such as bailouts? So much time/money/GDP wasted by politicians.

7 Insurers on My Shopping List

Comments:
1. Cheap can get not only cheaper, but much cheaper

2. Buffett buys Property/Casualty (P&C) insurance companies. Could it have anything to do with:

a) higher ROE (long-term nature of life insurance and heavier capital requirements has meant low ROE's for the past several years. Trying for an ROE of 15% in life insurance, as the insurers have even tried? look elsewhere)

b) P&C insurance contracts are short-term; you;re done with the contract (essentially) at the end of the year

c) if you made a mistake in one year on the pricing, the next year you can increase prices

d) one year coverages means P&C insurers don;t have to invest in all those long-term bonds [remember that people are concerned about inflation down the road? so when inflation occurs and rates rise, price of the bond falls. of course insurers will say we're holding to maturity...yet many things can happen in the 30 years of holding a bond to maturity (interest rates rising, credit defaults, etc).

---
Moving on to Variable Annuities(VA) (not typically written by predominantly-P&C companies...ACE is one exception), should I re-post details about concerns/issues about variable annuities?

Re USA vs non-USA companies, except for LFC all of the companies you mention have operations and write VA policies in the USA and must comply with USA reservinig and capital requirements on that USA business.

But with the non-USA parent companies, there are reserving and capital requirements of other countries to be considered. You mention AXA, AZ, MFC and SLF, so are the reserving and capital requirements of France, Germany, Canada weaker or stronger than USA standards and have these been employed?

And the National Post article yesterday was quite informing about MFC's issues.
www.financialpost.com/...

Percentage of Stocks Above 50-Day Moving Average

re the Presidential eras: it's not just the President but the economy and demographics


re Mark-to-Market (MTM): the arguments have already been presented for both sides. Having recently moved to a system of greater transparency, if reporting is returned to high-level info, how can investors make informed judgments and decisions? Also, how can companies be monitored to ensure companies are not fiddling with the books? Finally, what about the international community that has progressed towards fair value/MTM - America would be seen as retracting and weak, and foreign investors could pull out.

Congress being involved is somewhat disappointing. MTM will get media attention, yet only a political decision would remove MTM (and actually cause a lot of adminstrative headaches). Would you rather a system where it appears things are going ok (because mid-level detail not provided), and then wake up one day surprised of losses (from where? how could this be? etc?) and huge drop in equities.

Next In Line for Bailout? Life Insurance Companies

Oh, on bailouts... they are like a dangling this pacifier or carrot in front of the citizen-taxpayers/inve... They give false hope and prolong the inevitable. The market hates uncertainty.

Sure, it is difficult to estimate the amount needed for this/that problem, and amounts have been increased.

Obama indicated he wanted to clean up the economic mess. Letting a company go bankrupt is more straight-forward, and allows the private sector to determine how/what should re-emerge (instead of some complex administration of some pot of money collected from taxpayers).