Posts filed under Political issues

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.


AIG and Fed's unveil trust model for sale of company units.

In yet another major news announcement from AIG, today it was reported in the Wall Street Journal that an innovative trustee arrangement will be put in place by the Federal government to oversee the sale and management of the AIG assets necessary to repay the government loan provided three weeks ago to bail out the company.

Under this format the Federal Reserve would appoint three trustee's to handle the over sight and day to day process of managing the sale of assets, relieving the Federal Reserve bank and Treasury from the burden of management, all while insuring oversight and review of the decisions in process.

The Federal Reserve and Treasury are working to provide the capital and oversight necessary to provide for the orderly sale and liquidation of AIG units to repay the federal loan and the 80% stake the tax payers now have in the company as part of the bail out. The idea is to remove the pressure to sell quickly in a bad market and allow the trustees and the company to use the full two year period if necessary to pay back the loan.

It's obvious these are not currently ideal market conditions to sell insurance assets, so this structure buys time so that the maximum price can be obtained vs. a fire sale just to raise cash. That said, it was noted in the story that AIG has already used over $70 billion of the credit line and loans and now faces over $1 billion per month in interest payments to the Fed so the pressure is intense to get these sales done.

It's very good reading for anyone involved with the AIG situation so be sure to check it out.

Posted on October 13, 2008 and filed under Political issues.

Structured settlements are stable amid the crash

Amid the crash of stocks over the last few weeks, which followed the collapse of the mortgage market and continued slide in real estate values, annuitants, claimants, lawyers and others are all asking the same question?

" Is my structured settlement safe given the scary news and rumors coming out of Wall Street and the mainstream press and media?"

In this weeks special edition of Speaking of Settlements, host Mark Wahlstrom was joined in studio by a special guest, Jack Meligan the President of Settlement Professionals Inc, one of the nations largest structured settlement firms dedicated to working primarily with plaintiff attorneys and claimants. In the midst of the biggest one day decline, Mark and Jack discussed the following:

1. In spite of all that has gone on in the last year and last few weeks, virtually every structured settlement payment and check scheduled for beneficiaries and annuitants has gone out as promised and been made as scheduled. The record of steady, guaranteed payment by the life insurance companies that fund structured settlements is nothing short of amazing when put in contrast to the alternative choices of money market funds, bonds that fail, stocks that crash and real estate that loses value by the day.

2. The regulatory structure and safety net of insurance regulation created by the state regulators has worked as designed and continues to work as planned. The failures of large insurance companies in the past decades were the test lab that was used to build the current system, and while no one lost benefits in those prior liquidations either, thanks to the state regulators and companies that stepped up, the lessons learned from that event have largely insulated policyholders from the market risk that the insurance stocks might be having with their stock values due to fears about the economy.

3. People should not get alarmed about companies in the insurance business raising cash, such as Met Life did, or partnering with other powerful companies such as Hartford did with Allianz. Even the news that companies such as Prudential or Hartford are adding to reserves shouldn't be taken as bad news but GOOD news, as it shows how the regulatory and statutory requirements put into law are forcing them to put aside even more money to protect policyholders. The statutory reserve and accounting requirements are there to protect policy holders, even at the expense of stock holders and that is what makes life insurance companies so unique.

There is more in the video, which I encourage you to watch and share with clients, but the big issue that I as the host of the channel and near 30 year veteran of our industry wish to convey.

That is that we are about to witness the golden age of structured settlements as we emerge from this crisis.

As we get through this current panic and the life insurance markets hold strong and make their payments, it will become abundantly clear to trial lawyers, plaintiffs and others that the single, simple choice they made to put their money in a structure to protect their income and family was the ONE choice they made that kept it's promise. Couple that with the certainty of higher income taxes in the next few years and higher interest rates and we in the structured settlement industry will have the highest yielding, most tax advantaged and demonstrably secure place for personal injury victims and attorneys to place their money.

If that's not the golden age and an opportunity for growth, I don't know what is.

Now get out there, get educated on the solvency and stability of your clients annuity contracts and get on the phone with scared attorneys and claimants and show them what we have to offer. This crisis, while horrible for stock prices and real estate, has become the foundational proof for the message we have tried to hammer home for decades, that injured people NEED the safety and certainty of a structure.