In my last Post, I discussed the financial difficulties that some insurers were having. In that discussion, we looked at a few ways that Insurance Carriers could raise capital. In my synopsis, the easiest way for Insurance Carriers to raise money was through Rate Increases. Well, I was partly right! This morning The Treasury Department announced that six major insurance carriers are accessing the TARP program.
Hartford Financial, Lincoln National (for North Carolinians that is the old Jefferson Pilot), Allstate, Ameriprise Financial, Principal Financial, and Prudential Financial are all about to receive TARP Funding. It is estimated that, combined, the companies will receive a little under $22 BILLION! While this will strengthen the capital positions of these institutions in the short term, I think the jury is still out about the long term consequences.
While I don’t want to throw about random musings about the future of these companies, I do know that I would not place any insurance business with any of these companies until they can prove that they can stand-alone without being bailed out. With Insurance, companies ask a question of every policy they write, “Is this risk worth insuring?”, my question now becomes are these institutions worth bailing out? The management of these companies apparently have not performed their jobs well, so why should we think that they are going to act any differently now. They just have more money (your money) that they can “gamble” with.