Quite true, the financial crisis is not only hitting the insurance companies, rather its affecting the overall financial market.
The insurance companies don't earn their profit only from what they gather as premium, rather they also invest their money into various stocks and shares. The recent market slump has also made them lose a great deal of money, part from the claim payouts.
Often a big natural calamity is enough to throw an insurance company off the bridge. Now if the insurer is required to pay out huge claims when its earnings from the other sources have dried out, its bound to face the financial crisis.
However, checking out with the rating companies would definitely help the customer in deciding before choosing the insurance company. Jeorge
Posted: Tue Sep 30, 2008 1:46 am Post subject: Lori _ I disagree
There are not a lot of carriers in trouble. Profits are down but that is part of the insurance cycle. There is been so much rate dropping that it is starting to catch up with the carriers results. If I am not correct a record low number of carriers went under last year.
AIG's problems are as a result of the poor investments of the parent company and not the results of the carriers.
I asked a insurance company president when the market might harden and he said 3-5 years. There is not enough blood in the streets. The losses on the investment side might help speed things up with underwriting results deteriating. Itr is my understanding that reinsurance pricing is starting to rise.....
AIG isn't a good example to use when referring to Insurance company stability.
AIG's downfall had little to do with their insurance branch. It is largely due to involvement in a kind of unregulated derivative called credit default swaps. AIG earned huge premiums in exchange for guaranteeing another company's mortgage investments if the mortgages defaulted. They bet that many of the mortgages would never fail, but an unusually high percentage did.
Of course, had they not paid so much money in fines through the last few years, who knows what would have happened:
2005 - New York Attorney General Eliot L. Spitzer (remember him?) and the SEC accused the company of fraudulent financial reports. An investigation found evidence that the company was playing down losses and risk, using sham transactions to companies that were not independent of AIG. The company settled the case by paying a record $1.6 billion in fines.
2004 - AIG agreed to pay $126 million to settle another multi-layer probe, in which the SEC and Justice Department said the insurer had engaged in accounting fraud by concealing the nature of its transactions with a bank subsidiary and cellphone company. _________________ Life moves pretty fast. If you don't stop and look around once in a while, you could miss it. - Ferris Bueller
