As many Americans look at their mid year reports for their 401Ks, the drop in local housing values, and wonder whether sub-prime is really over, naturally one wonders about insurers' exposure to risk. The big banks and GM have been all been hammered this year, but how about the insurers?
Yet there is no hiding from the sobering statistic from Best Week US/Canada June 30, 2008, that the AM Best index of 179 publicly insurance related organizations collectively lost more than $396B in market capitalization since January 1, 2008.
Examples
- XL Capital lost 52.02%
- Meadowbrook lost 41.65%
- Unitrin lost 41.15%
- National Interstate lost 40.42%
- Erie Indemnity Lost 36.69%
- Cincinnati Financial lost 34.28%
- Prudential Financial Lost 31.97%
- Genworth Financial lost 30.12%
- Travelers lost 23.54%
- Hartford Financial Services Group lost 23.60% (also has life ops)
Despite the losses some insurers actually made money and the market capitalization of the 179 still stands at $1.36 Trillion. The index does not included mutual insurers like New York Life and State Farm , which are owned by their policyholders
On July 8, 2008 Lehman Brothers cut its price targets ons several leading insurers and re insurers, citing deteriorating P&C reinsurance markets through 2010.
The insurance industry has survived economic crisis before and it will likely do so again, but the ride out of this economic cycle may not be smooth. How will the downturn have on the structured settlement industry stakeholders including structured settlement brokers, settlement planners annuity issuers, lawyers and trust companies?
Here are some questions that come to mind:
- Are claims taking longer to settle or to get paid as the losses are absorbed?
- Will more cases go to trial and verdicts be appealed?
- Will the use of United States Treasury Bonds as qualified funding assets in structured settlements once again become as popular as they were in the early to mid- 1990s flight to safety?
- What will be the impact of the carrying costs to law firms without large cash reserves who take out lawsuit financing loans?
- What will be the impact be on the costs to plaintiffs for non recourse pre-settlement funding?
- How will the life insurance industry (annuity issuers) respond to the economic reality?
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