Insurers Next In Line For Bailout?
Months ago, Citigroup (C) and Merrill Lynch (MER) kicked off what has now become a worldwide deluge of writedowns on mortgage and credit-related assets. It was believed at the time that losses would be limited to those securities tied to risky mortgage debt. This viewpoint has been proven false.
Now, as the credit crisis spills over into markets once believed to be virtually risk free, even conservative financial institutions are feeling the pinch.
The New York Times is reporting the insurance industry may be the next to see years of consolidations packed into a few short months.
Everyone knows about the troubles at American International Group (AIG), the world's largest insurer, which is now owned by Joe and Jill Six-pack (thank you, Governor Palin, for re-introducing this archetype to the lexicon). But it was believed that AIG was an isolated incident, that its unique exposure to the treacherous credit default swap market sealed its fate.
Troubling action yesterday in other larger insurers is turning that supposition on its head.
Prudential Insurance (PRU) fell more than 30% after warning profits would slump and indicating it may need to raise capital. Lincoln National (LNC) tumbled 35%, Principal Financial (PFG) lost 27% and Unum Group (UNM) dropped 30% in other southward moves within the industry. The group as a whole fell almost 17%, making it the second worst performing sector behind the automakers.
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The need for immediate emergency legislation for the registration of unregistered 'securities' and all other related instruments under penalty of default, both in the financial and insurance world, is absolute. Whether or not fears of a global run on banks, insurance companies, commercial and industrial companies ... central banks, national currencies... will prove justified through cascading defaults due to fantastical accounting, excessive leverage and ponzi-type instrument creation remains TO BE ESTABLISHED BUT THE THREAT NEEDS TO BE PURGED NOW or otherwise controlled by selective suspension or cancellation.
For the moment we are running on high octane FEAR and it is essential that the FED, the SEC, the TREASURY and other regulatory bodies show everyone clearly that they are in control of all these instruments world-wide or will introduce regulations and legislation immediately to ensure they have such control and that they can and will neutralise the threat. Pumping good money after bad on an emergency case by case basis just isn't working; it is merely raising the threat to the next victim and ultimately to the next level: currencies, central banks, governments...
