Insurance Companies See Losses, Downgraded Fitch Ratings

by LAS

The year 2009 has seen insurance companies taking hits both in their bottom lines and in their ability to sell bonds. Fitch has downgraded all health insurers that it covers to a negative outlook. Part of the reason for the downgrades is the uncertainty of what health insurance reform will entail.

Fitch has been downgrading ratings on insurers during the first half of 2009, almost across the board. A total of 42 companies had their ratings downgraded. By contrast, only three insurers suffered downgrades in 2007, and 13 in 2008. Fitch does not expect to see more upgrades than downgrades till 2010.

MetLife suffered investment losses of $2.6 billion in just the second quarter of 2009. This loss was mainly due to derivatives, a sector that is still exacting its penalties for the industry's lack of judgment. MetLife had been using derivatives as a hedge against risks like inflation and currency fluctuations. Company net income fell from $4.3 billion in the second quarter of 2008 to $3.9 billion this year.
Oddly enough, MetLife passed the government's stress test earlier this year. It also had the lowest total potential losses compared to 18 competitors.

The Hartford Financial Services also posted a second quarter loss and missed analyst expectations. While expected to finish that quarter with a profit, instead it lost $15 million. Earnings were down 11 percent from a year ago. Earnings per share for common shareholders declined from $2.22 to $1.90 per share.

One of the few insurers to see a healthy gain in business was AAA. A.M. Best attributed AAA's superior showing to its wide marketing and distribution relationships with partner clubs.