Anyone Know Insurance Company V. Bank Failure Rate?

[insurehound]

maybe someone could actually answer my question...except for you padthaiforlunch

 

[Charpress]

If what you want is to explain to people why the insurance industry (so far) has been safer than banks, then I think the question was answered.

I asked earlier if anyone had an example of an insurance company going under where annuity or life policy holders lost even a penny of their investment. I don't think there is an example.

And I don't mean a situation where a state guarantee fund had to be used. I mean that other than some P&C cases, nobody has lost an investment because of insurance company insolvency.

 

[motoxxx]

The Treas has spent Trillions trying to avoid the unavoidable. The course of action should have been to try to steer the economy in for a soft crash landing, (like on the Hudson River) instead... when things do hit bottom we will have spent trillions that could have been better employed later in rebuilding, as opposed to pissing it away propping up defunct companies... too late now, the horses have left the barn. Good money squandered.

Case in point, the current Bank of America situation. They agreed to buy Merrill Lynch Sept 15th, before the fan hit the excrement, for 50 Bil; yep fifty billion us dollars. Now they are so alarmed at the state of the portfolio and downside risks due to the mtg backed securities, and the latest qtrly loss of ML of 15.3 bil, that they are going back to Treas Dept for another 20 Bil in TARP money. This will not be the end of it, and by the time it is over, and yes the us gov't has now agreed to shoulder more of the ML losses... and take on more equity of B of A in exchange, they will have ingested more than the total book value of ML and B of A together... talk about stupid moves. They could have sold the assets off at a huge discount, let the free mkt value these assets and been done with it... But no, the gov't wanted to *AVOID PAIN*. We will all have more pain in the long run as a result, IMO.

Did you say precious metals outperforming... hmmm. Better get some; and if you have some, better get more... Deflation may drive prices of metals lower in the near term and if so, load up, because rampant inflation is an absolute must in the future. Just my thoughts and course of action.

Precious metals

Oh, and that rampant inflation, if it happens, will desimate the portfolio values of most ins companies that are holdiing large fixed income inv. Paper is devalued at times of high inflation; hard assets inflate with the devalued currency; hence commodities and metals.

Very well said. I gots me a bunch o metals. Gunna git me a bunch more too!

 

[retread]

Thanks insuranceexec...speaking of speech, is an agent allowed to explain in a speech (not a sale) that we have a Guarantee Association similar to the FDIC? I can't see why not as it is fact.

What the Insurance Commissioner can say and what an agent can say legally are two different things. Here in Kansas agents cannot discuss the state guaranty association, but the Commissioner openly discusses its function in a public pamphlet available online or in print from the Insurance Department.

 

[Freddie]

The banks were forced to make mortgages under threat of CRA lawsuits by community organizers like you know who. In fact, he sued Citicorp (which is technically insolvent) to make those loans in Chi Town. I read where mtg loans made in Newark, NJ were in excess of $1.5 billion. Newark is a dump. You cannot giveaway homes to the masses.

I think the onoly insurance company that went broke and did not pay off was Executive in CA in the 1980s?? Has any mutual ever gone belly up?

I saw something in Barron's this past weekend for ww.cdars.com. CDARS appears to be some sort of private insurance in addition to FDIC to bring the limit to $50 million. 2700 financial institutions belong to it. I saw a small local bank with a sign about it as well. I wonder if it is some reinsurance company??

 

[GreenSky]

Newark is a dump. You cannot giveaway homes to the masses.

You can if you loan 120% of value to people with no income.

Rick

 

[Charpress]

What the Insurance Commissioner can say and what an agent can say legally are two different things.

This has never made sense to me, but I'm not a bureaucrat.

You cannot discuss the existence of state guaranteed insurance on life or annuity policies ($300,000 in my state), but when you deliver the policy, included is our state's full brochure that tells the client, now that he has a policy, all the details of what the insurance does and does not cover. If I do this, I could lose my license.

So, what happens when the client says "What's this about insurance?"

Response: "I don't know, I don't see a brochure."

"But here it is, right here in front of your nose."

"Oh, that brochure? Sorry, I cannot admit nor deny its existense."

A friggin' Monty Python skit.

I guess in some convoluted bureaucratic way of thinking, if I say "insurance" it may get someone to buy a policy who would not have otherwise.

If someone asks me directly about whether a policy is insured I say "Yes it is" and explain. I will be damned if I'm going to lie to someone because the insurance commissioners came up with this nonsense.

 

[retread]

You can if you loan 120% of value to people with no income.

Rick

You're right on the money, Rick! (pun intended)

This is the point raised by SportsNut... the Fractional Reserve System is the problem. Banks loan out more than they hold in reserve (demand deposits). They were able to get away with it until the call came in to cover those obligations. They have always expected FDIC to cover their untenable (loan to deposit ratios of 32:1 or more!) monetary policy.

Insurance companies, on the other hand, are required to hold the amount liable in secure funds (close to 1:1 ratio). Even if they go BK, their customers are covered because of the state guaranty association, and they are audited regularly.

Now, if we just had regulation of banks like we do in insurance, we wouldn't be in the jam we are. Chris Cox was asked to include regulation of Credit Default Swaps (CDS) over a year ago (or longer), but he refused. Had he done his job, it is possible none of the dominoes would have fallen as they did. He is the one Republican most responsible for the election loss than any other... with the economy in full decline, the Dems got the upper hand. McCain was correct in that Cox should have been fired right then and there.... as it is, he will be replaced with the new Administration, but alas, too late to do any good politically.

Now the challenge is how to dig out of this humongous hole. We can't spend our way out, but you can't tell a Democrat that!

 

[Ron Van D]

The issue is, will just the weak companies be the ones to fail...? One or more of those cos that we think are golden could turn out to be weak... (ala AIG).

Yes, Ins cos like everyone else do forget and let their guard down in time. Things have been so good for so long, that you have execs in these companies that have known nothing else but Bull Mkt....> straight up...>.

My concern is that there are a few very large ins cos that will hit the wall and there will be so much carnage that the survivors won't be able to clean up the scraps... It won't take many to have lost $$$ in an ins co investment to ruin the integrity of the industry. I mean really, lets face it, AIG is insolvent. If the Treas hadn't stepped in and propped them up that would have done it right there... So my concern is that will be a lesser company, no too big to fail, that will start the domino effect, and a State guarantee fund will be useless if the spillage is too great. No comparison to FDIC coverage with the full faith and credit of Uncle Sugar behind them. Hope I am way off here.

Please remember that the AIG holding company is in trouble but the insurance company is solvent.

Also, a recent article showed that the industry has $281,000,000,000 over and above that needed to fulfill its obligations. The insurance industry is strong.

 

[SportsNut]

Please remember that the AIG holding company is in trouble but the insurance company is solvent.

Also, a recent article showed that the industry has $281,000,000,000 over and above that needed to fulfill its obligations. The insurance industry is strong.

Explain what would have happened to those subsidiary ins cos and their assets, had the Treas not pumped 150 Bil into AIG.

You're not suggesting that they would have been fine and continued operating, busines as usual, are you...? What would have happened to those assets, and the promises to those insured by AIG..?