Anyone Know Insurance Company V. Bank Failure Rate?

[insurehound]

arnguy...not even as a fact? It's a fact, just like when you walk into a bank and see FDIC insured

In California, you can not use the existence of the association to help induce a sale...at least that is how it reads. But what about an educational seminar or speech to a group? It's a fact!

On the other issue of a list of failed insurance companies and banks, I think it's too hard to make the comparison as its like comparing apples to oranges.

The FDIC list is for all banks nationwide, it's a federal program. Insurance companies are regulated on a state basis which can cause problems as what is considered insolvent in one state may not be in another state.

maybe I'm wrong...

 

[Charpress]

We have nothing to measure real failure against at this point. I think over the next two years we are going to find out what real failures are all about. It is going to get really ugly.

In the meanwhile, first let's look at ratings. They don't mean crap. Enron was highly rated and was carried as a "BUY' recommendation up until the week before it folded. AIG was A+ (yes, yes, I know. The insurance side of AIG is sound). The point is, rating agencies don't really have a clue until the average guy is already screwed.

If you want to look at something scary, how about SIPC? I think they have something like $1.7 billion in assets facing much more in potential liability from whats his name's $50 billion boondoggle alone.

The federal government is not going to be able to bail everyone out. As a matter of fact, with the national obligation approaching $100 trillion over the next few years (national debt plus SS and Medicare/Medicaid obligations), the US will be defaulting on its own debt. Argentina all over again. China will be running to the exit trying to unload metric tons of worthless dollars.

Now, talking about insurance company failures, can anyone give an example of an insurance company failing and the policy holders (not stockholders) ending up with claims unpaid? I don't know of this ever happening. Most insolvencies were grabbed up by bigger companies that took the liabilities. As far as I'm concerned, it is bank failures in the many of thousands and insurance company failures zero.

PS: I'm not talking about small P&C companies. They have gone under leaving people with worthless car insurance. We had that once only in my state with a small car insurance "cut-rate" company that our guarantee association paid out. I'm only referring to life policies and annuities where a failure left people without their investments. I don't know of that happening (so far).

 

[SportsNut]

I think over the next two years we are going to find out what real failures are all about. It is going to get really ugly.

If you want to look at something scary, how about SIPC? I think they have something like $1.7 billion in assets facing much more in potential liability from whats his name's $50 billion boondoggle alone.

Now, talking about insurance company failures, can anyone give an example of an insurance company failing and the policy holders (not stockholders) ending up with claims unpaid? I don't know of this ever happening. Most insolvencies were grabbed up by bigger companies that took the liabilities. As far as I'm concerned, it is bank failures in the many of thousands and insurance company failures zero.

Well I agree, it is going to get YOU-GLY, which is way worse than just plain UGLY. But what I have found is... by and large folks on this site would rather be ostriches, and keep their head (and ears) in the sand, and NOT hear such words spoken.

What-his-name-boondoggle... 50 bln. Well the good news is that SIPC is limited to 500K per acct and many of his accts were much larger. So there is nowhere near 50 bln of exposure.

Insolvent Ins Cos have been absorbed, (to this point), because there has never been a really big one go down. I truly do not think that we will be able to say that a couple of years from now. What it comes down to is, all those standing will absorb the dead wood, until such time as it starts rotting their own tree. Then the ballgame will change. We will then (potentially) see policy holders stuck holding the bag. The first time that it happens will be a game changer, because what the industry has (to this point) is INTEGRITY... and when folks lose money, even if it isn't within the company that you or I represent, it will leave dents and damage to the model... the model of integrity.

Of course just theory, but those are my thoughts on it... so I am on record on the above. I will hope that I am wrong.

 

[motoxxx]

Well I agree, it is going to get YOU-GLY, which is way worse than just plain UGLY. But what I have found is... by and large folks on this site would rather be ostriches, and keep their head (and ears) in the sand, and NOT hear such words spoken.

What-his-name-boondoggle... 50 bln. Well the good news is that SIPC is limited to 500K per acct and many of his accts were much larger. So there is nowhere near 50 bln of exposure.

Insolvent Ins Cos have been absorbed, (to this point), because there has never been a really big one go down. I truly do not think that we will be able to say that a couple of years from now. What it comes down to is, all those standing will absorb the dead wood, until such time as it starts rotting their own tree. Then the ballgame will change. We will then (potentially) see policy holders stuck holding the bag. The first time that it happens will be a game changer, because what the industry has (to this point) is INTEGRITY... and when folks lose money, even if it isn't within the company that you or I represent, it will leave dents and damage to the model... the model of integrity.

Of course just theory, but those are my thoughts on it... so I am on record on the above. I will hope that I am wrong.

I don't think most people on this site have their heads in the sand. Where did you get that idea from? I think the people on this site offer pretty decent prospective from different views. Much less of an ostrich than about 90% of the American public is.

 

[SportsNut]

I don't think most people on this site have their heads in the sand. Where did you get that idea from? I think the people on this site offer pretty decent prospective from different views. Much less of an ostrich than about 90% of the American public is.

Where I got that idea is right here... via discussions with others that simply think that cash value insurance and insurance companies are the guiding light... the be-all end-all. We will see when the rubber hits the road with the current credit crisis, as it gets worse, going forward. I personally think it is going to be a very ugly existence and some insurance company's may not pass go and collect the 200 big ones. This opinion is one that some would rather not even consider, and if one reacts this way, then they are disregarding at least a possibility that it could occur; hence head in the sand.

The very title of this thread comparing Banks to Ins Cos... and the inference that Ins Cos are stronger and superior to banks is a falsehood, IMO. That may be true at any snapshot in time, but if this crisis gets worse and we have more liquidity crunches, and more banks failing, as I think we will, then we will have to come back and revisit the comparison. The thought process that this crisis somehow will not bleed over into ins cos is ludicrous, IMO. The failsafes for banks are so much greater than for ins cos... which has been a non-issue so far, but if failures do occur of more banks and some notable ins cos, then the comparison and result may be more graphic. Others may decide to keep their head in the sand, and eliminate even the possibility of such a thing. Of course we are all entitled to our own opinions, and I certainly have, and share mine... No responsibility for anyone else to like or enjoin that opinion... but I reserve the right to consider some ostriches just the same.

Again, I hope I am so far off base that I am a laughing stock, but I probably wouldn't take the stance if I believed that to be true.

 

[Charpress]

In the real estate crises in the 80s some insurance companies, Prudential comes to mind, got themselves into serious financial problems because of their real estate heavy portfolios. At the time, commercial property like large office buildings was thought to be golden. Pru and some others learned their lesson and stayed away from real estate once they took their lumps.

It seems that in large part insurance companies like investors in general don't learn from experience. It is bad enough to have overly large equity positions in actual investments like real estate. What was AIG thinking to put money into paper backed up by more paper? Of course, it was the bottom line mentality of showing huge profits. That bottom line thinking is going to take a few companies down. The only issue is whether the stronger companies will be able to take over the outstanding liabilities of the weaker companies. The bottom-line, 6-month financial planning CEOs need to be flipping burgers instead of running big companies.

 

[SportsNut]

The only issue is whether the stronger companies will be able to take over the outstanding liabilities of the weaker companies.

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.

 

[policy doctor]

Capitalism is based on faith. As long as people have faith in the system, the industry, the products....it will continue. But once people's faith starts to falter the flow of dollars will cease...(like investing money into start-ups business or mfg more and new prods, new technology, , propping up good existing business, etc ) and we will see a collapse.

Our system works because of credit, and a paper currency is easy to inflate. However, people are losing faith and patiently waiting to see what the new administration will do. HA....they're talking another trillion added to the debt. Yes, we will collapse.

 

[motoxxx]

Thanks for clarifying your position a bit further. I think I may be too new here still have have formed the opinion you had about peoples heads in the sand.

I agree with everything that you all have said.

My whole life policy value at this point is only out paced by my precious metals. I agree that it is going to get uglier before it ever gets any better.

I have absolutely no faith in the new administration. Not one little bit. Jimmy Carter proved that you cannot tax your way to prosperity, but Reagan proved that tax cuts brought in much more money to the Fed.

 

[SportsNut]

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.