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.