Do life insurers need insurance?

All the other comments here look like they are from people who really understand what is going on, so I am probably silly to comment, but I guess I can’t help myself.

But it seems to my uneducated eye that the issue of just where the companies have their “assets” is the key. And if I were the gambling type, I would bet that they had their money where they could get the best return but still had ratings that the regulators would allow as “asset” investment. And that wasn’t treasuries. That was, as I understand, SIVs and other liquid smoke assets that are now collapsing into the near nothingness that they are. At some point in the future the real value of these assets will have to be dealt with and when they are, a lot of people who thought they had solid life insurance policies are going to see them disappear in a puff of smoke as the companies that hold them implode.

Maybe. The vast majority of their holdings should be in bonds. The question is what type of ‘bonds’ they have: were they in treasuries (yeah) or high-grade corporates (good) or Lehmans (ugh) ? Life insurance policies should come out intact, as they are regulated, but shareholders may take some hits … or they may not. It all depends on the quality of their bond portfolios.

As an aside: what is the real reason that the feds did not bailout Lehman ? Because the feds are going to prosecute Lehman, to wit the plan to start by subpoena of 12 top executives (‘dirty dozen’) with more to follow later.

Insurers make their money based upon mathematical models that approximate risk of all types. There is still so much uncertainty in the markets that accurately measuring risk is extremely difficult. Add to that the high cost of borrowing at the moment, factor in the possibility of a credit rating downgrade (making borrowing more expensive)and it seems likely that there will be some insurers losing a ton of money due to flawed models and expensive money.

The worse financial crisis is still ahead of us. There is a lot of unwinding of the banks to be done. Let’s see Europe needs to go from 50 to 1 leverage to 10 to 1. American banks need to go from 30 to 1 to 10 to 1.

There is a lot more pain out there as CDS kick in when this unwinding happens. It may hold off until after the American elections but it will happen very fast and soon. It will make the current crisis look tiny.

As stock prices were for the most part leveraged up as the banks were ther will be a 3 to 5 fold drop in price which means for a DOW of 14,000 we might even see 4,500 or less.

This is endgame for the banking system. Nothing they are doing right now is going to fix anything. The central banks giving money to the thieves who stole our money in the first place is only making things worse as now they are stealing our tax dollars.

When the US tries to finance about 1.5 trillion dollars next year they will find out there is not enough money to do it. That is when it hits the fan.