Life Insurers Face 'Unprecedented Stress' - S&P

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Includes: AFL, AMP, GNW, GWO, LNC, MET, MFC, PFG, PL, PRU, SFG, SLF, TMK, UNM
by: Deep Value Guy

As with banks, the long-term survival of the life insurance industry is likely to be determined by its access to bailout funds. No one trusts insurers’ balance sheets, which face “unprecedented stress” according to S&P, so they aren’t able to raise capital privately. (Bloomberg)

U.S. life insurers…face “unprecedented stress” on holdings in bonds and commercial mortgages in the next 18 months, Standard & Poor’s said….“The U.S. is in the midst of perhaps its longest recession in a generation, and our economists believe it is just entering its most difficult phase,” the ratings firm said today in a statement….

Losses and profit declines have discouraged investors in the industry’s stocks and bonds and left life insurers waiting for a response from the Treasury on requests for federal bailout funds.

A recent Citigroup report tells a tale of high risk exposures on insurers’ balance sheets. A key point they make has much to do with what I told NPR last week: Despite the industry’s reputation for investing conservatively, a large chunk of its assets are parked in junk bonds, real estate, stocks, subprime and alt-a.

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As S&P highlighted, problems in commercial real estate loom very large. Life insurers have big exposure in this area:

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Wouldn’t you know it, insurers are sitting on billions of dollars worth of “unrealized” losses.

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Not a pretty picture…