Ace CEO Says Insurers Wrong to Seek Taypayer Funds

By | October 30, 2008

Evan Greenberg, Ace Limited’s CEO, chided insurers asking to take part in a plan that could see government take stakes in ailing financial institutions, saying the motivation is not real need but access to “cheap capital.”

“Taxpayers should be a last resort rather than a cheap source of capital … We’ll row our own boat,” Greenberg said Wednesday on a call with investors after the insurer reported quarterly results that topped Wall Street expectations.

In a letter to Treasury Secretary Henry Paulson posted on Ace’s web site [www.acelimited.com] late on Wednesday, Greenberg warned that opening up the federal capital scheme to insurers could backfire.

Under that scenario, “perfectly healthy insurers may well have to (participate) … in order to compete with companies that do … it will become a general government capital subsidy rather than a means of crisis correction,” he wrote to Paulson.

Greenberg said that while some sectors, such as life insurers, may face liquidity issues, there are other ways — including other forms of federal assistance — to address problems.

One area of the insurance market that may warrant inclusion under the federal capital scheme was bond insurers, Greenberg said. “That could present systemic counterparty credit risk,” he told investors.

Several providers of bond insurance, including MBIA Inc and Ambac Financial Inc, have recently met with regulators to push for federal aid.

Ambac on Wednesday proposed a two-part federal plan that it said would help stabilize U.S. bond insurers, and could have an “exponentially positive impact for several critical sectors of the U.S. economy.”

Ace owns about one-fifth of another bond insurer, Assured Guaranty Ltd., which it spun off several years ago. Spokeswoman Sabra Purtill said Assured had not met with Treasury officials, and does not plan to seek federal assistance. Assured steered clear of insuring complex mortgage-backed securities that have cost other guarantors dearly.

She added that Assured also does not need to tap the government for additional capital since it has other funding sources. Those include billionaire investor Wilbur Ross, who earlier this year said he could make an investment.

Some life insurers approached Treasury last week to explore ways to access the rescue program, which under a draft proposal is not available to all financial institutions.

Greenberg is one of a growing number of insurance executives saying “thanks, but no thanks” to the prospect of federal capital, as Treasury examines how it can give relief to the industry under the $700 billion rescue program.

Travelers CEO Jay Fishman and Chubb Corp Chief Operating Officer John Degnan sent their own letters on Tuesday to Paulson, saying they will not seek federal funds, and chiding others who do.

TUMULT
The investment portfolios of both property-casualty and life insurers have been dented by the credit crisis, leading to sizable losses for some. That has spooked investors, who worry that the industry will find itself short of capital.

The Standard & Poor’s Insurance Index has lost 60 percent since January, and the Dow Jones U.S. Life Insurance Index has been halved over the same period.

But besides American International Group — which was pushed to the brink of bankruptcy by massive losses on mortgage bets — most insurers remain in a strong financial position because of solid profits over the past two years.

Still, some have been moving to shore up capital, mostly in the life insurance sector.

MetLife Inc recently raised $2.3 billion in capital, Hartford Financial Services Group Inc got a cash injection from German insurer Allianz SE, and Prudential Financial Inc suspended its share buyback program.

Investors have remained wary. Since the start of the month, MetLife, Hartford and Prudential have all seen their market values cut in half. A federal capital injection could ease those worries, according to Frank Keating, president of the American Council of Life Insurers, a trade group.

“Life insurers want to make sure consumers don’t delay acting on their financial and retirement security needs out of concerns prompted by current economic conditions,” Keating said in a statement.

The group represents 353 life insurers, including Hartford, Assurant Inc and Lincoln National Corp.

(Reporting by Lilla Zuill; editing by Jeffrey Benkoe, Gerald E. McCormick, Gary Hill)

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