Life Insurer Sees Opportunity in the Rubble

Life insurers seemed to be one of the safe havens as the financial crisis unfolded, until it came to light earlier this month that the federal government was preparing to open its bailout coffers to the sector.

Though life insurers tend to make relatively "safe" investments, nearly all assets have lost significant value as the economy has deteriorated. As a result, the corporate bonds, mortgage-backed securities, equities and derivative products that life insurers used to offset liabilities have taken significant writedowns.

The biggest shoe to drop has been within the variable annuities business. Salespeople made sweetened offers to woo customers amid heightened competition, including promises of minimum returns, regardless of what happened to underlying assets. Now those annuities are upside down, with life insurers required to pay out far more than the products are worth.

Although insurers aren't required to make most of those payments for a decade or more, the Treasury is expected to provide funds from its Troubled Asset Relief Program to some life insurers to act as a cushion against losses. Among those expected to capitalize on the program are companies like Prudential (PRU Quote), Hartford Financial (HIG Quote) and Lincoln National (LNC Quote), which registered as bank holding companies to quality. Genworth Financial (GNW Quote) was once a contender as well, but its application to register as a bank holding company will not be approved in time. MetLife (MET Quote) has said it does not intend to seek federal funds.

Gary Bhojwani, chief executive of the North American life insurance division of German insurance giant Allianz (AZ Quote) spoke with TheStreet.com about headwinds facing the industry. Variable annuities hit his division last year -- the portfolio lost $238 million, net of hedging. However, Bhojwani has a bullish long-term outlook for the life insurance business, as consumers continue to seek safe, conservative options for retirement and beyond.

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TheStreet.com: Can you explain how Allianz has been affected by variable annuities, and whether you're planning on taking any government money to handle it?

Variable annuities account for about one-third of the business, roughly, for Allianz Life Insurance Company of North America...[But] the group as a whole, when you think about Allianz, has not been materially impacted by VAs...The second part of your question was pertaining to government funds, and no, we do not have any present intentions to seek government assistance.