We’ve all got it.
Eventually, we’ll all need it.
[img]455|left|||no_popup[/img] Life insurance is ubiquitous. It’s a fixture on the American financial landscape. No estate plan is complete without it.
But what if you woke up dead one day and they weren’t there?
Until the collapse of AIG, we took them for granted. Not anymore.
Life insurance companies, like Prudential, Hartford and MetLife, always have been major players in the U.S. financial system. Many invested in some of the same toxic, mortgage-backed assets that got the banks in trouble.
For months after AIG got federal aid along with the banks, lobbyists for the life insurance industry cried foul. Their pleas fell on deaf ears.
In an effort to qualify for TARP funds, several big life insurers even bought small savings and loans. Still, no dice.
Originally, the $700 billion federal bailout was designed to buy soured loans and securities from troubled banks. During the past several months, Treasury has used to funds to bolster a variety of firms, including credit-card companies and carmakers.
Among the Hardest Hit
Now, it appears that The Rock, his buddy The Elk and Snoopy finally will get their piece of the bailout pie.
Since the financial crisis began, the stock values of publically traded life insurers have taken a beating. They have seen their issues decline more than 40 percent. The downturn has made it exceedingly difficult for these firms to raise cash from private investors.
Traditionally, life insurers have been one of the largest buyers of corporate bonds. Their inability to raise funds in the market not only has threatened their continued solvency, but it has been another major drag on the economy.
Currently, U.S. life insurers hold about $1 trillion in corporate debt. To date, life insurers have accumulated more than $190 billion in write-downs and losses relating to the implosion of the mortgage market.
Following the infusion of more than $160 billion in federal aid to AIG, life insurers relentlessly have argued that they too need Treasury assistance. Without this federal aid, they contend that the financial crisis will be prolonged because they will be stymied in their ability to inject needed liquidity into the credit markets through their sustained purchases of bank bonds.
Confidence Booster — or Not?
A federal bailout of the life insurers also may restore customer confidence in the industry. As consumer trust in the solvency of life insurers has waned, so have their sales.
News that life insurers soon may be getting federal aid also has boosted their stock prices. This morning, Hartford’s shares surged 30 percent. Prudential’s stock has advanced about 13 percent, and the largest U.S. life insurer, MetLife, saw its shares climb 12 percent.
With only about $100 billion left in the TARP piggy bank, Snoopy and his friends may be among the last U.S. companies to get a federal lifeline, unless the Obama administration and Congress agree to expand the program.
U.S. taxpayers, however, are unlikely to support any moves to add more money to TARP or programs like it, unless and until they see tangible evidence these massive injections of federal monies actually have had a positive impact on the economy.
Good job, Snoop dog.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
