Life Insurance Companies and TARP

Once again today we can open our papers, or browsers if you are an online reader, and be treated to a big story on the life insurance industry and it's request for funds from the TARP program. TARP being an acronym for Troubled Asset Relief Program.This story, and the reaction of congress and media groups makes clear once again just how incredibly foolish these life companies are to take this devils deal of funds from the federal government.

Today's Wall Street Journal outlines how life insurance companies pay a relatively small amount of federal and state taxes each year but yet wish to avail themselves of the funds at low cost from the federal government bail out program. Profiled in the story are Prudential, Hartford Financial, Lincoln National and Genworth Financial, each of which has submitted a request for funds from the TARP program in order to shore up their balance sheets, obtain access to low cost capital and generally to stabalize their finances so they can maintain their A+ ratings.

The reward for asking to access this capital is now going to be incredible scrutiny and media distortion as to the business practices, uses of capital and operations of these organizations. As anyone who works in the life insurance industry knows, this is not a business that typically welcomes the bright light of the media as to it's finances, operations, business practices and tactics. In fact we could say, and I have said on many occasions, that the structured settlement industry is the ultimate under the radar, shadow business of it's size in the entire country.

Take a look at this article, read the commentary from "consumer watch dog groups" and the sure to come congressional grandstanding and "oversight" and ask yourself if taking these funds is worth what is sure to follow.

Personally, I commend New York Life for some clear thinking in their earlier decision to turn down TARP funds, as well as other markets who have made similar decisions. Not that I fear disclosure of our business, in fact I welcome it, but it sickens me to see congressmen and women grandstanding and trying to score points on the backs of the one stable financial industry left in the US and the drain on company management talent isn't worth the "free" money from the Feds.

Keep Congress out of your business life markets, and woe to the companies on the list. I don't think their agents and stakeholders have any clue what they are in for if they take those funds.

Structured settlements, The Golden Age

In an earlier blog post I tossed out the concept of The Golden Age of structured settlements, and how I believe we are about to enter a period of incredible growth in the settlement profession. I got such an exceptional response to that blog post that I took the time to create a two part video presentation on the topic of the future of the structured settlement profession, settlement planning and the need for structured settlement annuity contracts for injured plaintiffs.

This two part edition of "Speaking of Settlements" goes into that post and the theory of a coming boom in structured settlements in greater detail. Obviously I'd like you to view the videos, but if you want the short hand argument as to why I think we are about to see a surge, the five points are as follows:

1. Tax rates are about to rise given the government deficit and Democratic control of the House, Senate and White house. High tax rates make tax free annuity payments such as offered under structured settlements more attractive and as such we will see a relative advantage to using tax free annuity payments over alternative investments that don't enjoy the same tax status.

2. Interest rates are going to rise substantially over the next 3 years as the massive government debt leads to inevitable declines in the value of the dollar and relative increases in interest rates on debt obligations. Again, when compared to alternative investments such as bonds and bank CD's, the high rate of return on structured settlement annuities will compare favorably with other choices that lawyers and plaintiffs have before them, making the structured annuity a favored choice for many.

3. Life insurance companies are going to come out of this financial crisis as one of the few entities that didn't fail and in fact stood strong during the turmoil. The performance of structured settlements in this crisis is going to contrast very favorably with money market funds, banks, stock brokerage and mutual funds, not to mention real estate. People will begin to realize the superior safety of life insurance companies which is going to make our selling job easier when we discuss safety, stability, etc. All one needs to do is look at the 100% gain in the price of Hartford Life's stock last week in a single day once it became clear the insurance industry is still making money, is not going to vanish and that the major life markets such as Met Life, John Hancock, Genworth, Prudential, Hartford and others are not going away, but in fact are going to get stronger. Even AIG looks to be a candidate for a successful work out at this point.

4. Tort reform is dead as a political issue on both the national and state level, which will ultimately lead to a stronger settlement market. The distraction of tort reform, the heavy handed claims and litigation tactics and other clubs used to push people into smaller settlements, poison jurys and reduce the number of cases filed will slowly begin to receed. Nothing huge at first but the pendulum that swung so far to the right over the last 10 years will begin to swing back to the middle as the political climate shifts to a more pro-plaintiff market.

5. The Structured Settlement industry cartel is in it's last days as the information age sweeps over our business and creates greater awareness of pricing, negotiation and access to markets by consumers looking to decide how to settle their claims. The last 25 years has seen complete dominance by defense interests and a few powerful brokers that limited information, access and entry to the structured settlement business. I can't think of any other major financial market that is so totally insulated and sheltered from outside competition, however, with the information age, the intrusion of other financial professionals and increased sophistication of consumers is going to continue to force greater transparency and cooperation on our business.

Take a look at both segments of Structured settlements, the coming Golden Age and watch for some other big news this week related to new marketing opportunities about to be made available to structured settlement professionals nationwide.

Life Insurance Company Ratings, Here comes the press

In today's New York Times we are treated to the now obligatory scare headlines that draw the readers eyes or Google search term with words like " Life Insurers facing cuts in ratings". Obviously it caught my eye, caught yours and we all eagerly scan the article for news we can use about the looming disaster in life insurance company finances.

However, what do we find when we actually read the article and look at the reporting being done? An analysis that indicates many if not most life insurance companies have no desire to take advantage of TARP in order to boost up their capital, or if they are it is being done primarily to avoid rating down grades or to build a war chest for acquisitions.

Most of the major companies listed might be facing earnings declines, but still are posting earnings, or may see a down grade in claims paying ability from excellent to very good or good, hardly a disaster compared to the melt down in brokerage houses, regional banks and mortgage companies. In fact, if you actually take the time to read the article they point out that most life insurance companies are ideally positioned for the long term demographic trends facing the US with baby boomers needing insurance products, guarantees and life time income that annuity contracts provide.

In an even more revealing aspect, the article confirms that many of the short term earnings hits that the life insurance companies are facing are related to the guarantees they specifically built into a wide range of annuity products to protect policyholders and annuitants from market downturns, so that they can have guaranteed income and savings, basically validating the reason people bought these products. Remember, insurance at it's core is the transference of risk, and people who bought and buy annuity contracts are transferring two specific risks to the life insurance company. The risk of living too long and the risk that markets collapse at the very time they are starting or have monthly income they desperately need to count on to support their lifestyle and family. The fact that life insurance companies are putting hundreds of millions of dollars into reserves to honor those promises, and are taking short term earnings hits to do this, is an indication of absolute strength and the very reason people should be confident in using life insurance products to build the foundation of their retirement and savings program.

In summary, what looks in the headline as bad news is in fact good news. When a life insurance company takes a short term earnings hit to build reserves and honor commitments, it is a sign of confidence and strength for the long term. People need to start to seperate "news" on stock prices and earnings from long term value, strength and stability on the underlying products that they sell.

As i've said before, the life insurance industry, if it stays away from the temptation of taking federal money and the control and issues it brings, will come out of this financial crisis with the strongest reputation, products and solutions for the wiser and more careful consumers we will be dealing with. Stand firm, add to your personal reserves by building your business and be ready for the golden age that is around the corner for those of us selling guarantees, stability and promises kept.