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Another Impending Financial Crisis?
Staff Reporters
According to industry sources, should commercial real-estate turn out to be the next focus of the financial crisis, life insurers will be among the companies feeling the most heat.
Life Insurance Companies
According to the Dow Jones Newswires, on11/20/2008, life insurers on average have the equivalent of about 41% of their equity invested in Commercial Mortgage-Backed Securities [CMBS], compared with 23% on average for property/casualty insurers.
The Fox-Pitt Kelton Report
According to a recent analysis of 10 large public insurers by Fox-Pitt Kelton analyst, Adam Klauber, Hartford Financial Services Group (HIG); Protective Life (PL) and MetLife (MET) had the highest exposures.
Assessment
Investment banks, by contrast, held about 18% of their equity in CMBS. While the financial crisis has come late to the life insurance industry, it has hit them hard. Shares of life insurers are down nearly 72% so far this year, a bigger drop than for other types of insurers.
Conclusion
Now – forget CitiGroup – what about the health insurers? Your thoughts and comments on this Executive-Post are appreciated.
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Filed under: Insurance Matters, Investing, Practice Management, Research & Development, Risk Management, Surveys and Voting | Tagged: cmbs, toxic cmbs |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Health Insurance Companies:
The CMBX indices which tracks commercial mortgage back securities are reporting widening yields, an indication that more defaults are eminent due to expectation of worsen U.S. market conditions. The exposure of these commercial mortgages back securities is affecting differently life insurance companies and health insurance companies.
Even though commercial loan underwriting fundamentally are sound by using debt service ratios calculations, which help determine the cash flow of the commercial property and its ability to repay the loan. Requirements of higher down payments; typically 20 – 25 percent down which improves the equity position; in addition to personal guarantees from borrowers with less then five years history and substantial assets and reserves. All which could abate some of the meltdown of valuations.
However, fundamentals in the commercial mortgage back securities do not guarantee the success of individual firms like Hartford (HIG), Met Life (MET) and Pacific Life (PL) which own these assets and could face additional problems from the exposure (Barr & Morcroft, 2008)
Health insurers like United Health Care (UNH), Aetna (AET) and Well Point (WEP) by comparison do not face the same problems. Even though their investments in fixed income have decreased current revenues, overall core business continue to grow and their outlook are better than most life insurers.
Health insurer core business which offers health benefits offered through commercial and government programs should continue to grow. With a potential market of the 46 million Americans without health insurance (US Census 2005) and with projected 76 million baby boomers turning 65 in 2011 (Novelli, 2002), health insures still are poised to add growth. Furthermore, health insures are not subject to loss of revenues due to asset management like most life insurance companies.
In conclusion, physicians should not have the same concerns with the health insurers’ default due to the commercial mortgage back securities, but should review policies issued by any life insurers and review the limits of coverage offered by their specific states insurance departments to determine what protection are offered in case of bankruptcy.
-Amaury S. Cifuentes; CFP
Citations:
Barr and Morcroft: “Insurerer’s slump on concerns about commercial mortgage exposure”
19 November 2008, MarketWatch.
http://www.insurancenewsnet.com/article.asp?n=1&innID=886958624
http://www.census.gov/Press-Release/www/releases/archives/income_wealth/007419.html
William Novelli: “2011 in America: A New Vision” 16 November 2002
http://www.aarp.org/about_aarp/aarp_leadership/on_issues/a_new_vision/new_vision.html
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Food; not Dollars,
Does anyone believe that the FDA and/or CDC or State regulators are watching the food supply?
Forget the SEC or FINRA. What happened with the Peanut Corporation of American, in South Georgia, and the Salmonella outbreak?
It’s always “buyer-beware”, out there!
Regina
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