The low interest rate environment has wreaked havoc with many investors, particularly those who rely on investment income. Life insurers in particular have seen their income drop and have been seeking higher-yielding, albeit more risky, investments to turn the tide. The pursuit of profit has put these companies on the radar screen of state regulators, who are concerned about credit risk at some of the nation's largest insurers.
Risk is in again
It's no surprise that companies like AIG
Life insurers aren't the only ones hungry for once-shunned MBS products. The auction of the last Maiden Lane portfolio, created by the FRBNY in 2008 to remove toxic assets from AIG's books to prevent the company's failure, was a smashing success. The vehicles consisted of once-toxic MBSes and collateralized debt obligations, and the Maiden Lane III auction attracted over a dozen bidders and created a profit for taxpayers of $6.6 billion.
Similarly, a big finish is expected as bankrupt Residential Capital, formerly part of Ally Financial, sells off its loan origination and loan servicing businesses. The dispersion of the company's assets has spurred scuffles among bidders drooling over the now-coveted divisions. Nationstar Mortgage
One Fool's take
Regulators have reason to fret over the health of large insurers, and the state of New York is currently investigating how these companies use reinsurance subsidiaries to manage risk. In addition, companies like AIG and Genworth Financial
If the new rules to increase the companies' capital reserves are deemed necessary, the group of state regulators known as the National Association of Insurance Commissioners could institute them before the end of the year. This would doubtless send up a cry from the insurers, who are not known for their fondness for increasing capital reserves. In the long run, however, the rules should make the industry stronger and safer, good news for consumers and investors alike.
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Fool contributor Amanda Alix owns no shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of American International Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.