The US insurance industry is badly affected by the global economic meltdown, as a majority of the insurance companies have invested hugely in the financial institutions.
The insurance industry of the US is slumping down as the investment and catastrophe losses are sucking up the profits of national insurers. The three leading insurance companies registered unfavorable results for Q3 2008, reported cnnmoney.
Hartford lost $2.6 Billion ($8.74 per share) during Q3 2008 as compared to $851 Million gain ($2.68 per share) during the same period previous year. MetLife registered the higher operating costs in Q3 2008 as it paid $1.2 Billion more in benefits and claims. Thus, its profit slipped down 39% during the same period. Financial services businesses of Prudential Financial suffered a loss of $108 Million (23 cents per share), drastically lower than $860 Million ($1.88 per share) recorded in 2007.
The major reason for the loss in the US insurance sector is that most of the insurance players have exposure to fix maturity investment instruments such as corporate bonds. Majority of these investment instruments value very less during credit crisis. Hence, insurance companies are loosing their assets.
Moreover, insurance companies invest the consumers’ premium money in large portfolios to reimburse the life insurance claims. Traditionally, these companies used to keep a major part of their funds in the corporate bonds as they provide returns at a higher rate than the government bonds. Therefore, they’re going to feel the heat as credit crunch tightens and the value of these security investments dropped rapidly.
This has given rise to rumors that whether these insurance companies and other insurers are going to seek the help of government to cross this deep channel of crisis. Consequently, rumors about the probable overtaking of the sector by the mergers are also gaining ground.
According to a Research Analyst at RNCOS, “The US insurance sector would not get worse than that guided by the companies. In fact, the major matter of concern at this point of time is that how the insurance industry would cross the hurdle that has raised its head in the form of global financial crisis.”
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