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On October 21, 2010 a structured annuity market that had previously withdrawn from the market has re-entered the fray.

 

 

MetLife Praised by Barrons

Barrons is bullish on MetLife in a June 19, 2010 feature article about the insurance company stating that they " might have written the right policy to ensure future growth".

The Pluses

• The acquisition of ALICO from AIG is expected to double the percentage of operating profits the company gets from abroad and give it a foothold in Japan, China and Brazil.
• MetLife is taking share in the variable-annuity and structured-settlement markets from rivals.
• MetLife boasts $7.5 billion of capital above the total that it's required to hold.
• MetLife is benefiting from insurance consumers' flight which has been a factor in achieving double-digit premium growth.

The Question Marks

• Alico's $81 billion investment portfolio has considerable exposure to financials, lower-rated commercial mortgage-backed securities and sovereign debt, such as $1.3 billion in Greek bonds.
• MetLife has $35 billion of commercial mortgages. It could be hurt if defaults on commercial real estate rise, as many expect.

Barrons reports that company officials counter with MetLife having s a 432% risk-based capital ratio—meaning its total capital equals four times its risk-based capital, a sign of financial strength. MetLife did not participate in the Troubled Assets Relief Program (TARP) in 2008 or 2009. ( For background on TARP read MetLife CEO Says Insurer Bailouts were Bad PR Bloomberg June 10, 2010)

Ironically, the testament to insurer financial strength and declinaton of TARP (financial assistance to banks) comes just a day after USA Today carried this headline about the banking industry: "Bank failure is 83rd in '10; pace more than double last year's".

MetLife, which is 147 years old, is the largest life insurance company in the United States with over $539 billion in assets.

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.

Canada Unveils "Canadian Life Insurers Assurance Facility"

Reuters reports that Canadian Finance Minister Jim Flaherty unveiled details of an assistance facility for the country's life insurers aimed at ensuring the firms have access to the funds they need if credit markets seize up.

The Canadian Life Insurers Assurance Facility is similar to one already available to the Canadian banks and is designed as a backstop to global credit markets, to put Canadian insurers on an equal footing with foreign competitors who are benefiting from guarantee programs provided by their governments (e.g. TARP for US insurers)

Reuters, citing the Canada budget website said that "while Canadian insurers have seen their profits suffer or vanish amid a drop in business and huge investment losses, their balance sheets are relatively solid and the credit facility may never be needed".

The life insurance sector, both in Canada and abroad, has been hurt by weaker financial markets that caused investment losses and higher costs for minimum guarantee variable annuity products that are affected when market values fall.

Under the assistance facility, companies seeking to issue insured debt will be required to enter an agreement with the Canadian government. Ottawa will then offer a guarantee of timely payment for interest and principal payments for the wholesale debt instruments that qualify, and the insurer will pay a market-based fee on the amount of insured debt issued.

A number of life insurers issue structured settlements in Canada in addition to connections to the United States structured settlement market.  Manulife, a Canadian company is the parent of US insurer John Hancock and Canada Life is a former structured settlement annuity issuer.

Hartford and Prudential preliminary approval for TARP-Wall Street Journal

A  May 14, 2009 Wall Street Journal email blast is reporting that Hartford Financial, Prudential Financial, Lincoln National and Principal Financial have received preliminary approval from the Treasury Department to receive funds from its Troubled Asset Relief Program.

BUT today Reuters reports that analysts at Keefe, Bruyette & Woods said "U.S. life insurers Principal Financial Group, Ameriprise Financial Inc and Prudential Financial Inc, all with a solid capital position, may not accept funds under the U.S. Treasury's Troubled Assets Relief Program (TARP)". 

In the immortal words of the late great Billy Preston "Will It Go Round in Circles"?

The Hartford Gets Thrift Charter

by John Darer® CLU ChFC CSSC RSP

The Office of Thrift Supervision announced on Friday that Hartford Financial Services Group was granted a thrift charter, clearing a hurdle for its insurance affiliates to receive capital infusions under the Troubled Asset Relief Program (TARP).

Hartford Life Insurance Company is a prominent structured settlement annuity company.

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.

Treasury Expected To Take Stake In Insurance Companies

In a developing story the Wall Street Journal (WSJ) reports that the United States Treasury Department is contemplating taking equity stakes in insurance companies. The Treasury Department wants insurance companies to participate in its TARP Program, according to WSJ sources briefed by Treasury.

The TARP program is a voluntary Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to American businesses and consumers and to support the U.S. economy.

According to the WSJ, Met Life Inc. and Prudential Financial Inc. two of the nation's largest publicly traded life insurers, and New York Life Insurance Co., one of the highest rated insurers in the United States, are interested in exploring a sale of equity stakes to the government, according to people familiar with the matter.

The former two are holding companies to structured settlement annuity issuers (Prudential Financial Inc. also guarantees periodic payment obligations transferred via non qualified assignment to Pruco Assignment Corporation) and the latter is a structured settlement annuity issuer.

The U.S. Treasury is considering taking stakes in 20 financial firms.