Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

TARP Profit $25.2B: Return On Bailout Can Fund SEC for NEXT TWO DECADES!

by John Darer CLU ChFC CSSC RSP

Bloomberg reported the sensational headlines " Wall Steet Bailout Returns 8.2% Beating Treasury Bonds" . The report says the return on the bailout can fund the Securities Exchange Commission for the next two decades.

The New York Post headline was "US beats Street"

Have the clouds of pessimism indeed begun to dissipate?

Has any one seen Timothy Geithner & Co "cutting the rug" to THIS disco hit from the tail end of the 1980-82 recession?

Lest we forget only 15-24  months ago a life insurance company that took the TARP money was seen by some as a "scarlet letter" of sorts.

In his report of the January 2009 NSSTA Winter meeting S2KM and TSSG's  Patrick Hindert reported:

Congressman "Kendrick B. Meek, a Democrat representing Florida's 17th district, addressed economic challenges facing President Obama and Congress. TARP has not served the purpose Congress intended according to Congressman Meek".

2 years ago, some news reporters were laser focused on hot stone treatments at spa in California to churn the outrage, inspiring flared-nostrilled Mr Potato Head-eared politicians to snarl like hungry lions on prime time C-Span. 

On October 20, 2010 AIG was listed at the pinnacle of the Top 4 TARP returns, 23% on the government's $47.5B bailout loan.

Thankfully, things seemd to have turned around for insurance, perhaps not all the way, but getting there.

On October 21, 2010 a structured annuity market that had previously withdrawn from the market has re-entered the fray.

 

 

Geithner Says "The Returns We'll Get From Banks AND AIG Will Be More Than Enough To Cover Losses on Autos"

by John Darer CLU ChFC MSSC RSP

Yahoo Finance reports  that the price to the tax payers of the bailouts and financial rescue of 2008 and 2009 continues to fall sharply. Incredibly the final net cost of the Troubled Asserts Relief Program (TARP) is estimated to be $50 Billion, according to the report.

There has been alot of misinformation out there and to the extent it has affected structured settlement sales it needs to be corrected. If you are in the structured settlement industry , or an attorney, or a plaintiff in a personal injury case reading this a post I suggest you read this article and watch the video.

While AIG is characterized as a huge wild card , having received more than $180 billion in support from Treasury and the Federal Reserve, including $69 billion in TARP funds, the company has a plan to extricate itself from Treasury and The Federal Reserve. As published last week in the media, the plan involves converting preferred shares owned by Treasury into common stock, which would then be sold piece by piece over several years, but less than the 5 to 8 years estimated in 2009.

To underscore that Treasury is optimistic the plan will succeed, Treasury secretary Timothy Geitrner said ""The returns we'll get from our investments in banks and AIG will be more than enough to cover the money we'll lose in autos"

20 US Bank Failures in 2010 | Structured Settlement Failures in 2010 0

by  John Darer CLU ChFC CSSC RSP

Federal regulators closed 4 more banks on February 19, 2010 bringing the year's total to 20.

There were 140 bank failures in 2009, the highest annual number of bank failures since 1992, when the country was at the height of the savings and loan crisis.

The 2009 failures cost the insurance fund more than $30 billion. As a comparison there were 25 bank failures in 2008 and only  three in 2007.

Depositors' money is insured up to $250,000 per account through 2014. The FDIC's expectations are a $100B outflow over the next 4 years. Banks are assessed premiums each year and in 2009 were mandated by the FDIC to prepay premiums for 2010-2012 to help replenish the withered coffers of the bank insurance fund.

It is worth pointing out that during the same time period of this financial crisis  no structured settlement annuity issuer has been taken over by state insurance regulators and ALL of the structured annuity issuers writing structured settlements have made their payments to annuitants.

 

 

Understanding TARP in Relation to Structured Settlement Annuity Companies

I Really Don' Mean to "TARP" About It But...

I recently heard a comment from a plaintiff lawyer reviewing a structured settlement proposal from an industry colleague which comment was indicative that he was told something to the effect of "not to worry about the structured settlement annuity company's ratings because they had received TARP funds". If you are that structured settlement broker or settlement planner I ask that you take stock of what you are saying because it is both irresponsible and inaccurate.

  WARNING: Most states insurance laws prohibit the advertisement or discussion of even the existence of state insurance guaranty funds in connection with the sale of insurance (in New York at least, that includes solicitation in connection with the placement of structured settlement annuities). Most states insurance laws ALSO contain prohibition against using misleading statements in connection with the sale of insurance. The contracts between agents and the companies they represent as well as the codes of ethics/standards of professional conduct of their professional associations also prohibit these practices.

What was the Troubled Asset Relief Program (TARP)?

As part of the Emergency Economic Stabilization Act of 2008, the Troubled Asset Relief Program, commonly referred to as TARP, is a government program  to purchase assets and equity from financial institutions to strengthen the financial sector. It is the largest component of the government's measures in late 2008 to respond to the subprime mortgage crisis. Essentially TARP allows the United States Treasury to purchase illiquid, difficult-to-value assets from banks and other financial institutions. The intent of TARP is to improve the liquidity of these assets by purchasing them using secondary market mechanisms, enabling the participating institutions to achieve a more stable balance sheet and curtail further losses.

How Did TARP funds Actually Flow?

In the case of AIG the TARP Funds flowed to American International Group, Inc., not to American International Life Assurahnce Company of New York or American General Life Insurance Company.

In the case of Hartford, the TARP funds did not go directly to Hartford Life Insurance Company, they went to Hartford Financial Services Group, Inc.

It is important that those who dispense financial advice provide accurate structured settlement information to plaintiffs and other structured settlement stakeholders.

Moodys Statement on AIG and Repayment of Government Bailout Funds

by John Darer CLU ChFC CSSC RSP

A year after flared nostrilled politicians went batty over the folks from 70 Pine Street and Fox news hound Bill Hemmer's embellishment about the St. Regis sale conference, things seem to be looking up.

In a positive note affirming AIG's ratings, Moodys says that it believes that AIG can pay back the $120 billion it owes United States taxpayers.

14 months after the world seemed over Moodys says "the restructuring plan still relies heavily on government support, but if AIG's operations and global financial markets continue to stabilize, the company can likely generate enough value to repay the government". They also remarked that the 3rd quarter results "show continued stabilization of the core insurance operations despite challenging market conditions''

The ratings agency also praised former MetLife CEO' Robert Benmosche's strategy to rebuild some of the AIG's businesses previously on the short list to be sold, but also noted that a decline in realizable value could lead to downgrades.

While the recent track record of rating agencies suggests we should add the word "guarded" to this new sense of optimism to go along long with a "grain of salt", the recent intense scrutiny of such agencies suggests such agencies would be less inclined to give a favorable report unless a better job had been done on their homework.

Mum's the word from the structured settlement industry's AIG "grave dancer", Patrick Hindert, Executive Director of The Settlement Services Group.

 

AIG Stock Rises Over 30% in Morning Session, Touches $50 per Share

The common stock of American International Group, Inc. (AIG) continues its dramatic rise from a March 9, 2009 low of $6.60 to touch $50 in the morning session.  Shares have more than tripled since August 4, 2009 says Bloomberg. According to Reuters there is new optimism from the company's CEO Robert Benmosche "I think we will be clear as to what the vision is, what the reality of that vision is. We'll have a better sense of what our strategic companies will be worth, and what the marketplace will be worth, and people will say, wow, AIG is performing well,"

The differences between AIG and its former CEO Hank Greenberg may even be reconciling. The report suggests that current CEO Robert Benmosche may be doing his own version of "going Green" having tapped Greenberg's knowledge and resources "for months". 

Less than a year ago at this time AIG was the focal point for concern about the insurance industry, structured settlement industry and the target of opportunistic settlement industry commentators, who have done little more than a "hit and run" on AIG, that may now leave them with egg on their faces.

 If the rise in AIG's stock price portends a sustained turnaround, will the speed of recovery increase and inspire confidence in the insurance industry for years to come? Are "times a changin"? Stay tuned!

A Poem Inspired by J.G. Wentworth Chapter 11 Filing

by John Darer

 

(loosely to the tune of Simon & Garfunkel's Sounds of Silence-)

Hello Patrick, my old friend
Pardon me I must gloat, again 
That JG Wentworth who you once embraced,
Filed Chapter 11 leaving you disgraced,
Despite the mirth swirling 'round our brains 
The "Thought Leader" NOT still remains.

 

In September you bashed AIG

For its financial dealings so we see

Your lack of new comments on J.G.

Simply underscore your hypocrisy

Seems Mr. Wentworth to you can do no wrong

Now they're bust your blog is like... "so long!"

 

Many restless blogs I typed alone
Making points with skill I continue to hone
'Neath the halo of a greater good
I saw that Mr Wentworth was no good,
When my eardrums were violated by the Viking Chorus 
You're on frickin' mute, what are you HO-A-RSE? 
 

And from the Internet I saw
Endless seriata four score and more
JGW hyping without thinking
Pedantic postings, many were stinking
Patrick's blogs of a voice never shared
En Francais they have a word, simply "merd"

"Hear Ye," said I, "ignore thee so
The factor ads that like a cancer grow
Heed my warnings that I might teach you
Read my thoughts that I might reach you"

My posts like silent raindrops fell

These Cash Now Pushers, "ooh that smell"

And NOW your blog is silenced.

 

Why did Pat Hindert bow and pray
To the Viking trojan and now not bray?

What say you in Terrace Park?

Silence unbecoming, be not "Odd Vark"!

 

 

AIG-"Making Informed Decisions Is More Important Than Ever"-NAIC Chief, PA Insurance Commish

In the face of continuing media and consumer confusion regarding American International Group, Inc. (AIG) and the role of state insurance regulators, the National Association of Insurance Commissioners (NAIC) has moved to correct the misinformation and in a published statement urges caution and a close examination of the facts.

The following news release was published by the NAIC on  March 19, 2009 (underlines for emphasis)

“In uncertain times, making correctly informed financial decisions is more important than ever,” said NAIC Chief Executive Therese M. (Terri) Vaughan, Ph.D. “This is especially true for AIG’s policyholders, where unsubstantiated information and misstatements in the media have led to unnecessary consumer frustration and fear.”

First and foremost, AIG is typically described as the world’s largest insurance company. In fact, it is a global financial services conglomerate that does business in 130 countries. AIG owns 176 other companies, in addition to 71 U.S. state-regulated insurance subsidiaries.

“State insurance regulators have been actively involved in the AIG situation to help ensure that consumers remain protected,” Dr. Vaughan said. “Regardless of the failings at AIG’s holding-company level, its insurance subsidiaries have continued to fulfill their obligations to policyholders.”

These points were further underscored in testimony this week by Pennsylvania Insurance Commissioner Joel Ario at a Congressional hearing before the U.S. House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

“AIG’s insurance companies remain strong, in part because state regulation continues to wall them off from the high-risk activities engaged in by AIG Financial Products,” Ario said. “The insurance industry — just like the rest of the global economy — is facing challenges, but this only reinforces the need to be wary of changing a part of our regulatory system that has proven effective.”

Ario reiterated that AIG’s Financial Products operation — not its 71 U.S. insurance subsidiaries — created the systemic risk that caused the federal government to intercede. Additional action at the federal level, Ario stressed, should be collaborative, transparent and inclusive — and should integrate state-based insurance regulation into the framework for managing systemic risk.

“State insurance regulators recognize that federal action is needed to address systemic risk within the nation’s financial marketplace,” Ario said. “This shared objective calls for a collaborative approach .... that does not compromise one company within the enterprise for the benefit of another.”

Ario also addressed claims made by some of AIG’s competitors that the company was using federal assistance as an unfair competitive advantage.

“Regulators have devoted special attention to the current allegations, because AIG and its competitors may have distorted incentives to put their competitive engines into overdrive,” Ario said. “With the caveat that these issues are complex, we have not seen any clear evidence of under-pricing to date, though we continue to look at individual cases and at aggregate numbers on both renewals and new business at AIG

 

AIG What's Happening At AIG ?

While the news headlines will focus on the $61B Q4 2008 loss, American International Group, Inc.(AIG) today announced  a broad restructuring that includes the intention to form a General Insurance holding company, with a board of directors, management team and brand distinct from AIG. The establishment of  the new holding company, including its Commercial Insurance Group, Foreign General unit, and other property and casualty operations, is to be called AIU Holdings, Inc.

AIU Holdings, Inc. will assist AIG in preparing for the potential sale of a minority stake in the business, which ultimately may include a public offering of shares, depending on market conditions.

To reiterate what has been said before, AIG's troubles have been caused by the AIG Financial Products subsidiary that wrote naked credit default swaps. Most press reports agree that the core insurance operations of AIG have been well run profitable entities.

“AIG is executing one of the most extensive corporate restructuring programs in history,” said Edward Liddy, Chairman and Chief Executive Officer, AIG in a press release posted on the AIG website. “The formation of AIU Holdings, Inc.will help protect and enhance the value of these key businesses, and position them for the future as more independently run, transparent companies.” When formed, AIU Holdings, Inc. will be a unique leading franchise with more than 44,000 employees and 500 products and services serving 40 million commercial and individual customers in 130 countries and jurisdictions.

Certain other AIG subsidiaries will be placed in Special Purpose Vehicles which will reduce AIG’s debt and interest carrying costs, while allowing AIG to continue to benefit from its ongoing common interests in the SPVs. 

The United States Treasury and Federal Reserve said “The steps announced today provide tangible evidence of the U.S. Government’s commitment to the orderly restructuring of AIG over time in the face of continuing market dislocations and economic deterioration. Orderly restructuring is essential to AIG’s repayment of the support it has received from U.S. taxpayers and to preserving financial stability. The U.S. government is committed to continuing to work with AIG to maintain its ability to meet its obligations as they come due.”  It seems to say it all about the government's intentions to support AIG doesn't it?

Highlights of the new and restructured AIG deal with Treasury

• Improved terms of existing U.S. Treasury preferred investment: The terms of the U.S. Treasury’s preferred stock investment in AIG will be modified to make these preferred securities more closely resemble common equity and improve AIG’s financial leverage.
• New standby equity capital facility: The U.S. Treasury will provide AIG with a new five-year equity capital facility, which will allow AIG to raise up to $30 billion of capital by issuing non-cumulative preferred stock to the U.S. Treasury from time to time as needed.
• Repayment of the FRBNY credit facility: AIG will transfer to the Federal Reserve Bank of New York (FRBNY) (or to a trust for the benefit of the FRBNY) preferred interests in American Life Insurance Company (ALICO) and American International Assurance Company, Ltd. (AIA) in return for a reduction in the outstanding balance of up to $26 billion of the FRBNY senior secured credit facility. AIG also expects to transfer to the FRBNY securitization notes of up to $8.5 billion representing embedded value of certain of its U.S. life insurance businesses in return for a further reduction in its outstanding FRBNY credit facility balance. Securitization is a capital management strategy and will not affect the day-to-day operations, sales activities, or customers of these businesses.

• Reduced cost of FRBNY credit facility: The FRBNY will remove the LIBOR floor on the senior secured credit facility. This will save AIG an estimated $1 billion in interest costs per year, based on the current level of LIBOR and the current facility balance.
• Maintain availability of FRBNY credit facility: AIG will continue to have access to the FRBNY credit facility. Following the repayment of the outstanding amount on the facility with the preferred interests and securitization notes, the total amount available to AIG under the facility will remain at least $25 billion.

While none of the press releases specifically mentioned structured settlements, the financial statement said that "AIG’s capital contributions to its fleet (includes among them current structured annuity issuers American General Life, American International Life Assurance Company of New York and former issuer VALIC) have enabled them to maintain ratios of approximately 315 percent (of the minimum amount of capital required by regulators).

Risk-based capital is a method developed by the National Association of Insurance Commissioners (NAIC) to measure the minimum amount of capital that an insurance company needs to support its overall business operations. Risk-based capital is used to set capital requirements considering the size and degree of risk taken by the insurer. As the current measurement stands there are four major categories of risk that must be measured to arrive at an overall risk-based capital amount. These categories are:

• Asset Risk - a measure of an asset's default of principal or interest or fluctuation in market value as a result of changes in the market.
• Credit Risk - a measure of the default risk on amounts that are due from policyholders, reinsurers or creditors.
• Underwriting Risk - a measure of the risk that arises from under-estimating the liabilities from business already written or inadequately pricing current or prospective business.
• Off-Balance Sheet Risk - a measure of risk due to excessive rates of growth, contingent liabilities or other items not reflected on the balance sheet.
  

"As long as the ratio is over a certain threshold, regulators deem a company to be adequately capitalized," said George Hansen, managing senior financial analyst and actuary at A.M. Best Co., in an article published March 2, 2009 in The VIrginian-Pilot. Hansen was said to have noted that many of the nation's large life insurers currently have ratios between the high 300s and the mid-400s, which works out to a healthy 3.5 to 4 times the minimum amount of capital required by regulators, Hansen noted. The article cites Lynn Santimauro of SNL Financial who states " if its risk-based capital ratio drops below 200, regulators often ask a company to file a plan for improving its capital. And when the ratio sinks to 100, "that's when regulators step in".

AIG and Feds Reach Agreement to Clear $53.5B Per Regulatory Filing w SEC, Website

American International Group, Inc. (AIG) announced December 2, 2008 via its website that a financing entity recently created by the Federal Reserve Bank of New York (FRBNY) and designed to mitigate AIG's liquidity issues in connection with its credit default swaps and similar derivative instruments (CDS) written on multi-sector collateralized debt obligations (CDOs) has been launched. The new entity, "Maiden Lane* II, LLC", which was announced on November 10, is designed to purchase CDOs on which AIG Financial Products Corp. (AIGFP) has written CDS contracts. AIGFP has been publicized in the press as the AIG subsidiary company at the eye of the storm.

To date, the new entity has entered into agreements with AIGFP's CDS counterparties to purchase approximately $53.5 billion principal amount of CDOs. To date, $46.1 billion principal amount of such CDOs have been purchased, and the associated notional amount of CDS transactions have been terminated in connection with such purchases.

AIG has provided $5 billion in equity funding, and the FRBNY will provide up to approximately $30 billion in senior funding to the financing entity, of which approximately $15.1 billion has been funded to effect purchases of CDOs. The entity will collect cash flows from the assets it owns and pay a distribution to AIG for its equity interest once principal and interest owing to the FRBNY on the senior loan have been paid down in full. Upon payment in full of the FRBNY's senior loan and AIG's equity interest, all remaining amounts received by the entity will be paid 67 percent to the FRBNY and 33 percent to AIG.

Federal Reserve Board Press Release November 10, 2008

* for those who may be curious, Maiden Lane is major street in the New York City financial district.