Why Are We Bailing Out Insurers?

Will someone please explain to me why we are giving $22 Billion to Insurers?

“The Treasury Department will make federal bailout funds available to a number of U.S. life insurers, acting on the embattled sector’s long-running effort to get government help. The Treasury is prepared to inject up to $22 billion into the insurers under the rescue plan launched last fall as the Troubled Asset Relief Program, said a person familiar with the matter.

The capital infusions mark the first new round of federal rescue funding since the biggest banks got more help around the turn of the year. Aid for the struggling life-insurance industry was expected, but the companies had been waiting for weeks since The Wall Street Journal reported in early April that the Treasury had decided to give federal money to qualified companies in the industry. As far back as November, some companies were taking steps such as agreeing to buy savings and loans in order to become eligible . . .

Many life-insurance companies, like others in the financial sector, got caught carrying too much risk when the financial crisis hit. Some were hurt by their variable-annuity businesses, under which they sold products often linked to equity markets that promised minimum payouts even if markets fell. Insurers also lost money on investments in bonds, real estate and other assets that back their policies.”

Why?

Why do insurers, who have fiduciary obligations to manage their assets prudently, require taxpayer largesse?

Yet even more moral hazard is being heaped upon us.

This is totally unacceptable. If you did not manage your assets prudently, if you failed to employ appropriate risk management procedures, and if you come to the government teat for aid, there must be a heavy cost and major strings attached:

1. Bailout Monies need to be eventually repaid;
2. Entrenched management needs to be fired;
3. Excess bonuses must be clawed back;
4. Shareholders (both public and mutual) need to suffer for their bad investment;
5. Competitive firms that ran their business properly should not be disadvantaged.

Why would we give money  managers with a demonstrated inability to manage it properly? Why would we reward shareholders who made losing bets? Why are we punishing well managed, prudent funds? THIS IS OUTRAGEOUS.

These are independent companies who should be able to raise capital on their own. At the very worst, the most I believe that should be authorized for these firms are loan assistance/guarantees. Even that is problematic.

Here is where $22 billion in Corporate Welfare is going:

Hartford Financial Services

Prudential Financial Inc.,

Principal Financial Group Inc.

Lincoln National Corp.

Allstate

Ameriprise Financial

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Source:
U.S. Slates $22 Billion for Insurers From TARP
ANDREW DOWELL and JAMIE HELLER
WSJ, May 15, 2009
http://online.wsj.com/article/SB124234565889921705.html