Insurers that aren't wasting taxpayer $
Everybody hates AIG these days ... and for good reason. But there are some insurers who still look healthy and shouldn't need government assistance.
NEW YORK (CNNMoney.com) -- AIG is the 21st Century corporate equivalent of legendary bank robber John Dillinger: Public Enemy Number One.
The insurance giant, despite receiving $170 billion in government "rescues," has drawn fire for paying $165 million in bonuses, including to some executives in the financial products group that nearly bankrupted the company.
AIG (AIG, Fortune 500) may be the poster child for all that was wrong with the financial system, but it's not alone. Most big banks have received bailouts and there are growing fears that other insurance companies, particularly life insurers, may also need federal assistance due to investments tied to soured mortgages.
But guess what? Not every financial firm deserves our wrath and scorn. In fact, there are a bunch of companies, mainly those who focus on property and casualty insurance, that have largely steered clear of trouble.
"The property and casualty insurers have clean investment portfolios," said Jeff Arricale, portfolio manager with the T. Rowe Price Financial Services fund. "They take in premiums and invest them. But unlike life insurers, they invest more in Treasurys and municipal bonds: lower risk assets."
As examples, Arricale points to his fund's top holdings -- Travelers Companies (TRV, Fortune 500), the P&C company that, ironically enough was spun-off from troubled bank Citigroup (C, Fortune 500) in 2002, and Chubb (CB, Fortune 500), a company that has found a profitable niche in insuring jewelry, art, antiques and other luxury items.
And that means that, unlike AIG, they should not need the government to save them from themselves.
In fact, when some life insurers indicated they might apply to the federal government for bank holding company status last fall -- a move to make them eligible for bailout funds -- executives from both Travelers and Chubb chided their life insurance peers publicly.
Travelers CEO Jay Fishman wrote in a letter to then Treasury Secretary Henry Paulson that "private market solutions" should be sought for insurers facing a capital crunch, while Chubb vice chairman and COO John J. Degnan warned Treasury to "consider the anti-competitive impact of bail-outs" in the insurance industry.
And in a Senate Banking Committee hearing Tuesday about the insurance industry (not to be confused with Wednesday's public flambeeing of AIG CEO Ed Liddy in the House), William Berkley, CEO of property and casualty insurer W.R. Berkley (WRB, Fortune 500) and chairman of the American Insurance Association, pointed out that P&C insurers do "not pose the same types of systemic risk challenges as most other financial services sectors."
Translation: Not all insurers got dragged into the credit default swaps muck like AIG did.
Ken Billingsley, an analyst who covers the insurance industry for investment bank Signal Hill, said that many smaller insurers were able to avoid getting greedy and stuck to what they did best.
"What's good about an insurance company is not writing business but knowing when not to write business," he said. "Many specialty insurers were not trying to do everything for everyone."
Along those lines, Billingsley said that some of his favorite insurers are smaller ones like property and casualty insurer HCC (HCC), AmTrust Financial Services (AFSI), an insurer that specializes in workers' compensation and warranty coverage and Maiden Holdings (MHLD), a reinsurance firm.
Of course, this is not to say that these types of insurers are worry-free. Due to the very nature of the insurance business, it is a risky endeavor. But that's one reason why the P&C companies have much better balance sheets to begin with: they need to be prepared at any given time to pay out large claims due to natural disasters like hurricanes or tornados.
"Property and casualty is not the most exciting area. But it's probably one of the safer industries you can be in these days," Billingsley said.
Arricale added that nearly all the top P&C insurers are expected to generate healthy profit growth this year as well as strong returns on equity, a key measure of how well a company invests earnings to generate more profits.
Despite that, several of the insurers cited by Arricale and Billingsley as good investments have taken their lumps along with the rest of the financial sector during the past year.
Travelers, Chubb and HCC all trade right around book value, the measure of how much a company would be worth if it had to cease operations and liquidate its assets. That seems to be a disconnect.
"This is the only part of the financial sector where there is decent and improving fundamentals and investment accounts not filled with toxic assets," Arricale said. "They haven't been good stocks over the last year but we can sleep at night because of their balance sheets."
And it looks like taxpayers can sleep at night knowing that there at least some financials out there that shouldn't have to line up in Washington for a big handout.
Shameless plug alert: Before I started writing The Buzz, I covered the media business for several years at CNNMoney.com. Some of this reporting is the basis of a book I've written about News Corp. CEO Rupert Murdoch called Inside Rupert's Brain, which will be published on March 19 by Portfolio, an imprint of Penguin Group (USA). 
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