UPDATE: Life Insurers Fall As Auto Makers Struggle
12 Dezember 2008 - 9:05PM
Dow Jones News
Troubles in the U.S. auto industry helped drag down share prices
of U.S. life insurers Friday, as investors consider potential
insurer investment exposure to the industry, and to economic shock
waves should the industry's troubles worsen.
Life insurers generally have taken bigger losses than property
insurers from investments in troubled sectors as the economy
falters. Exposure to auto makers struggling for survival could add
a new source of pain, though an insurance industry analyst said the
worst may already be over for most.
"GM and Ford share prices have been going down for a long period
of time, to the extent that the depressed value of stock has
already been reflected" for many insurers, said Robert Hartwig,
president of the Insurance Information Institute, an industry trade
group.
The Dow Jones Life Insurance Index fell 8.6% in recent trading,
leading all insurance segments, which were generally down Friday on
bad news from Detroit.
Auto makers General Motors Corp. (GM) and Chrysler LLC failed
Thursday in their bid to win a $14 billion government loan. Both
have said they may not make it to the end of the year without
government help. Ford Motor Co. (F) says it is sound, but would be
hurt by the collapse of the other two.
The White House has said it is considering using money from the
Troubled Asset Relief Program, or TARP, to prevent a collapse of
the car makers. However, a White House representative said any
steps wold be intended to stop an immediate failure, and
stakeholders in the auto industry would need to make concessions
for the companies to become viable.
Although some insurers put out statements of their exposure to
failing financial-services companies such as Lehman Brothers and
Washington Mutual when those companies were in the news, there has
been little comment on their exposure to the big three Detroit auto
makers as two of them consider filing for bankruptcy protection
Friday.
Life insurers typically hold more of their investments in
fixed-income securities such as bonds than other types of insurers,
so several took big losses from the failure of financial services
companies, said A.M. Best & Co. analyst Andrew Edelsberg in an
interview Friday.
"Insurers happen to have a preponderance of exposure to
financial services companies because they issue fixed income,"
Edelsberg said. "But for auto makers, I don't believe insurance
companies have any more exposure than any other industry that buys
fixed-income securities."
At recent investor calls some big life insurers held in the past
week, some focused on their exposure to the commercial mortgage
market, as fears grow over rising defaults.
During an investor call last week, Greg McGreevey, Hartford
Financial Services Group's (HIG) chief investment officer, said the
company had been "winding down" its exposure to U.S. auto
manufacturers in the last six months, and has $46 million remaining
total exposure, and no exposure to GM or Chrysler. He didn't say
how much Hartford had lost on its auto maker investments.
Hartford has a total of $50 million in exposure to auto
suppliers.
"We're looking, as everybody else is, at the impact potentially
that the auto sector can have in other parts of the marketplace,
both in commercial real estate and unemployment and a variety of
other things," McGreevey said. But in terms of the direct impact to
autos, we feel very comfortable with the decisions that we've
made."
Genworth Financial (GNW) spokesman Thomas Topinka said that
Genworth has no direct exposure to GM, Ford or Chrysler, and has
bond exposure of less than $25 million to GMAC and Ford Motor
Credit financing arms.
A spokesman for MetLife Inc. (MET) said the company hasn't made
any announcements about what its auto-maker holdings may be.
Insurers could also take a hit to their premiums if a big firm
goes under. Hartwig said that although insurance would continue on
property coverage, premiums for workers compensation are based on
the number of employees, and are generally falling.
Among big life insurers, shares in Prudential Financial Inc.
(PRU) and Hartford led the way down for much of the day, with
shares of Prudential off 6.6% recently, and Hartford down 7.4%.
- By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
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