Life Insurers Face ‘Unprecedented Stress,’ S&P Says

I have been warning my readers and radio listeners to avoid annuities like the plague. Big insurers will either need a massive government bailout or face Chapter 11 bankruptcy. An insurance industry failure would be worse than the failure of big banks. I would withdraw any annuity that did not have a huge surrender penalty.-Lou

Life Insurers Face ‘Unprecedented Stress,’ S&P Says

April 15 (Bloomberg) -- U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., face “unprecedented stress” on holdings in bonds and commercial mortgages in the next 18 months, Standard & Poor’s said.

“The U.S. is in the midst of perhaps its longest recession in a generation, and our economists believe it is just entering its most difficult phase,” the ratings firm said today in a statement.

Life insurance stocks have lost more than half their

market value in the past 12 months as declines in fixed-income holdings drained capital. Losses and profit declines have discouraged investors in the industry’s stocks and bonds and left life insurers waiting for a response from the Treasury on requests for federal bailout funds.

MetLife, the biggest U.S. life insurer, has dropped 53 percent in the last 12 months of New York Stock Exchange composite trading, while No. 2 Prudential is down 64 percent over the same period. The 11-company S&P Supercomposite Life & Health Insurance Index has fallen 60 percent.

“Insurers have been prevented from accessing the debt markets for additional liquidity,” S&P said.

North American insurers posted more than $190 billion of writedowns and unrealized losses tied to the collapse of the housing market since the beginning of 2007. The industry lost $32 billion in surplus last year, according to Moody’s Investors Service. This year, carriers including New York-based MetLife, Prudential and

Hartford Financial Services Group Inc. have been buffeted by ratings downgrades.

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