Economic indicators: insurance industry update

February 18th, 2009 by Julie Ferguson

How has AIG been doing since their big government bailout five months ago? Ieva M. Augustums of Associated Press offers an update:

Q: How much has AIG paid back?
A: In October, AIG said it would sell off a number of business units to repay the initial $85 billion Fed loan. The loan, which was reduced in size to about $60 billion under the restructured rescue package the government put together in November, had roughly $35 billion outstanding as of last week.
The company has not specifically disclosed the assets it is selling or the expected prices from the sales. However, AIG has said it plans to retain its U.S. property and casualty and foreign general insurance businesses, and plans to retain an ownership interest in its foreign life insurance operations.
Q: Has the bailout been successful?
A: Without knowing specifically how AIG is spending the money it’s received from the government, it is difficult to know if AIG’s bailout package has helped.
“To the extent the bailout was able to give them a bridge that would enable them to discard or separate the good business from the bad business, I think they have been able to do that,” said David Steuber, co-chair of law firm Howrey LLP’s Insurance Recovery Practice Group in Los Angeles.
And despite all the financial woes, AIG’s traditional insurance subsidiaries have widely been viewed as safe, Steuber said. AIG operates insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services.

Meanwhile, other insurers should not be counting on any bailout funds, at least not at present. Arthur D. Postal of National Underwriter reports that there will be no relief for insurance companies in phase two of the federal bailout.

“However, insurers will be allowed to participate in a new program offering financial institutions an opportunity to sell troubled assets to the private market with government guarantees. “We believe insurance companies will benefit if the steps we are taking will lead to stability in the financial markets,” the official said.”

In another story in National Underwriter, Jim Connolly reports that insurance companies are actively seeking some relief from state capital surplus requirements.
According to Andrew Frye of Bloomberg, insurance sales are experiencing the worst decline since the 1930s and it is expected that more than half of insurers may be downgraded by Fitch due to profit declines and quarterly losses.

“Fitch expects the extent of downgrades to be greater among life insurers” than property-casualty companies, the rating firm said. “If provided, government-funded capital or other forms of financial support could potentially temper downward ratings actions.”

On the employment front, Jeff Casale of Business Insurance reports that insurance industry employment numbers have dropped, according to the U.S. Bureau of Labor Statistics. In January, the rate of unemployment was 3.5% for insurers and intermediaries, up from about 3.0% in 2008. The national unemployment rate in January stood at 7.6%.