Thursday, December 6, 2007

In the news today

A couple of notable items relevant to the insurance industry:

  • President Bush is expected to unveil the terms of a 5-year rate freeze for homeowners with mortgages that they can afford now, but wouldn't be able to once their rate resets. My gut says that this is probably good for financial service stocks in the short run, but that in the long run, the implications on the broader mortgage market are unclear and possibly not good. Are we doing away with the entire concept of charging high interest to poor credit risks? Are we giving up on the idea that the lending industry has been stung badly enough that it now knows better than to give low-rate 100% financing to people who won't prove their income? Stay tuned...
  • Fitch predicts a modest drop in profits for life carriers, and also lower profits for P&C carriers in 2008. I'm inclined to agree with this, because the interest rate situation is unfavorable for carriers right now, and most life carriers have squeezed as much cost as they could out of their organizations already - that is, without replacing that old batch admin system they love to hate, which takes time, money and hard work.
  • Bill Gross (bond guru and manager of PIMCO Total Return) sees the federal funds target rate dropping from 4.5% to 3%, starting with a quarter-point cut next week, to avoid a "near-recessionary economy". Now, full disclosure here; I owned PIMCO Total Return for many years, only selling due to a 401(K) rollover, and I owned it because I consider Bill Gross to be a LOT smarter than me. I have to disagree with him on this one, though. Things have been tough for bonds lately, of course, because rates had been going up; but a "near-recessionary economy"? Forgive me, but I just don't think we're closing in on that just yet. However, if he's right about the Fed, that's not good news for life carriers.
H/T Walt Podgurski.