Evan Greenberg and AIA agree, don't take the money!

In today's Wall Street Journal, Evan Greenberg, the chairman of ACE Insurance and current head of the AIA, agrees with me that the insurance industry doesn't need and shouldn't take the money being dangled in front of life insurance companies by the federal government.

You can read the Evan Greenberg opinion on whether insurance companies need a bailout by clicking here.

His thinking closely mirrors mine, and I hope others in the insurance industry, that the devils deal being offered healthy life insurance companies by the government, in hopes that it will be used to buy up weak players is a potential disaster for the companies and their shareholders. Evan Greenberg should know given his years of experience and his personal front row seat as the son of Hank Greenberg, the former AIG chairman who has had to watch the destruction of the company he spent his entire career building.

Further on this topic, the NY Times yesterday reported that AIG has gone through $90 billion of the governmet provided funds and did one of the best break downs of how it has been spent and allocated and for what purpose. If you haven't read it I strongly suggest you click this link to read the NY Times story on AIG and it's use of the government bailout money.

The bottom line is that the AIG story is still unfolding but it is strongly suspected in the insurance industry and capital markets now that people are starting to dig on this, that the bail out of AIG was specifically crafted to protect the counter signatories of it's debt guarantees vs saving the company from insolvency. Just who these yet to be named protected parties are is the big mystery and I suspect we won't have those names until long after the election has passed.

I think we are going to find out at some point that the AIG deal, and now the insurance funding deals being dangled in front of otherwise healthy insurance companies, are part of a larger plan to protect "friends of someone" who would have been otherwise wiped out. I hate to sound like a black helicopter conspiracy type of guy, but the fact that we are well over a month into the AIG deal, they get more money by the day and the government is trying to bride other life companies into using tax payer money to buy life markets that someone is being protected here.

The question remains, who is it, because I can tell you one thing for sure it's not the life insurance policy holder or the US taxpayer.

Life Insurance Companies, Still want that Government money?

So, my question of the day is do the life insurance companies, such as Met Life, Prudential, Hartford and others still want to line up at the door of the U.S. Treasury and get some of that low cost money being dangled in front of them by a desperate Fed and Treasury?

Today's inquistion by Congressman Henry Waxman of the banks who took the government bail out funds should give any sensible life insurance company CEO sufficient pause as to the true cost of taking government funds.

"Waxman, a California Democrat, asked the nine banks to divulge total company compensation, average compensation for each employee, and the reasons for any year-to-year changes in the amounts for 2006, 2007 and 2008.

Waxman also asked for the number of employees paid or projected to be paid more than $500,000, and the total and projected compensation for the banks' 10 highest-paid employees."

Ok, so which one of the life markets wants to be next to have the Congressional oversight committees start kicking around in their corporate business, or as is happening now, being told to " start lending and stop hoarding the cash."

My point is this, the second you take one dime from the Federal government in any way, shape or form, they own you. My son reminded me of a great scene in the classic mafia movie, Casino, where the Teamster Pension funds give the money to some rube real estate guy to build the Tangiers Casino, all the while the mob realizes the money is a front, palms are greased and they will be the real owners of the hotel.

What is going on now is just about the same. Dangle some cash in front of these life markets, tell them to buy up AIG and other weak life markets and all is well with the world. What they would ever buy that line and risk their freedom and autonomy is beyond me, but it is going to be a real test of will to see if they avoid the temptation and stay independent.

The price of that money is too high for my taste.

Hartford gets a major cash infusion from Allianz

In a move that mercifully allows me to get AIG out of the headlines and start discussing another member of our life company fraternity here in the structured settlement market, it was announced today that Hartford Financial had struck a deal with the massive German insurance conglomerate Allianz to provide up to $2.5 billion in fresh capital.

According to both internal communications and published reports, this deal provides Allianz with a hell of purchase of a share in a major US insurance operation. 

Under the terms of the deal, Allianz will buy $750 million of convertible preferred shares at $31 each and $1.75 billion in 10% junior subordinated debentures. Allianz also will get seven-year warrants entitling it to purchase $1.75 billion of common stock at an exercise price of $25.32. Hartford stock closed at just over $30 a share so the warrants are already in the black and Allianz is clearly banking on the fact that once the current turmoil subsides that they will have a valuable equity stake in Hartford as well.

So, what drove this purchase and capital infusion at this time? Primarily the fact that Fitch had cut their ratings outlook on Hartford from stable to negative last week once it became clear that the companies substantial variable annuity business was going to have potential charges of $330 million to $640 million related to reserve and expense charges. Those charges and reserve moves for those of you who don't do a lot of variable annuity business are tied into the widely sold "market lock" annuity contracts where in a client can be fully invested in a stock accounts that fluctuate in value, but if the market goes down dramatically as we are seeing right now, the clients annuity account stays at a previous locked in value, thus maintaining income value for the annuitant but creating a bookkeeping and reserve issue for the company.

I won't pretend to know all the intracies of how or why Hartford and other big variable annuity sellers have to reserve in this fashion, just let it suffice that it has caused a major reporting issue at exactly the wrong time for Hartford. They also had the twin body blow of having to report a significant loss in their investment portfolio due to large positions they held in financial services stocks. In that area Hartford is hardly alone in seeing share values in AIG, Lehman Brothers, Fannie Mae and Freddie Mac evaporate almost over night.

The Allianz investment will allow the company to maintain the necessary year end capital to retain it's coveted AA- bond rating, a feature that is essential to stay competitive in the municipal, qualified funds and structured settlement areas that Hartford is so active in.

Obviously there is more to learn over time but this is very good news for Hartford and very good news for the structured settlement profession. This has been a very trying month as uncertainty has surrounded many of the key life and P&C markets due to actual market events and unfounded rumors by certain US Senators who shall remain nameless. It is a positive to see private equity coming in to keep Hartford healthy and hopefully this takes them off the radar of companies that people might be concerned about. A rare sliver of good news but at this point we will take it.