US Insurance Industry - Life Insurers Seek Lower Cash Cushions ( Will Europe be next?) - by David S. Hilzenrath
To the list of industries seeking government relief, add another: life insurance. Battered by the financial crisis, life insurers are urging regulators to let them operate with thinner financial cushions -- the capital they must hold to absorb financial shocks and cover their obligations to policyholders.The changes the industry group seeks would make companies appear healthier. If the life insurance industry were to experience the equivalent of a bank run, companies could be forced to sell investments at depressed prices, exacerbating the industry's woes.
Like banks and other financial institutions, life insurance companies are required to maintain prescribed levels of capital. If they fall below those levels, state regulators are required to intervene. When a company's capital sinks to 35 percent of the required level, regulators are required to take it over. The meltdown in the financial markets has reduced the value of insurance companies' investments, leaving them with thinner cushions.
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