Later this month, Newport Beach-based Pacific Life Insurance Co. plans to take a rare step for Orange County’s largest privately held company.
The insurer plans to release a detailed description of its investments in a bid to show policyholders and others that it is strong enough to weather the financial crisis and make good on its insurance policies.
“I want to reassure you that Pacific Life is well capitalized and continues to be financially strong in this environment,” Chief Executive Jim Morris said in a recent note posted on the company’s Web site.
To be sure, Pacific Life,considered one of most well-run in the insurance industry,is no AIG.
It didn’t do credit-default swaps,insurance-like contracts that promise to cover losses in the event of a bond default,that proved to be the undoing of American International Group Inc.
AIG was rescued in September by a $90 billion Federal Reserve loan.
Other insurers, including Hartford Financial Services Group Inc., Prudential Financial Inc. and MetLife Inc., have pushed to be part of the government’s $700 billion rescue plan.
Morris’ statement and Pacific Life’s forthcoming investment disclosure shows how the fall of AIG, Lehman Brothers Holdings Inc., Washing-ton Mutual Inc. and Merrill Lynch & Co. has reverberated among companies that weren’t major players in the mortgage meltdown.
Pacific Life, which uses premiums it collects to invest in a wide range of areas, had investments with AIG, Lehman, WaMu and Merrill Lynch.
Those investments were “minimal,” making up less than 0.5% of its overall holdings, Morris said in his Web site statement.
“We have a diversified investment portfolio that limits our exposure to any single industry, issuer or asset type,” he said.
While Pacific Life undoubtedly will take some losses on bad investments, Morris said the company is “well positioned to stay the course as we weather this storm.”
Pacific Life is more narrowly focused on life insurance than big insurers such as AIG, which offer property and casualty policies and specialty insurance to business, institutional and other customers.
In 2007, Pacific Life was the No. 14 life insurer, according to Fortune magazine.
Parent company Pacific Mutual Holding Co. has yearly sales of $5 billion. The company also runs a jet leasing subsidiary, Aviation Capital Group Holding Corp., which has more than $10 billion worth of commercial jets that it leases to airlines.
For 2007, Pacific Life said it had more than $110 billion in assets. Liabilities, mostly life insurance policies, were $105 billion.
The company boasts of top grades from credit rating companies, with A.M. Best Co. giving it’s highest of 16 ratings to Pacific Life; Fitch Ratings Ltd. giving it its third highest of 21 ratings; and Moody’s Investors Service giving it its fourth highest of 21 ratings.
Pacific Life did invest in some subprime mortgages packaged as bonds. But they were a small part of the company’s total investments and didn’t pose a risk, according to Morris.
The company also invests in stocks, bonds, real estate loans, private equity and venture capital.
Because Pacific Life is privately owned by policyholders, the company can take a long-term view of its investments, according to Morris.
The financial crisis and economic downturn still could be a factor for Pacific Life.
As Wall Street continues to see losses from a weak economic outlook and hedge fund stock sales, nearly all types of investments have suffered.
It’s unclear how well cushioned Pacific Life is against further market losses. That could become clearer when the company releases details of its holdings this month.
Another concern is that investors could become fearful and take their money out of annuities and mutual funds run by insurance companies, including Pacific Life.
Some competitors have been under shareholder pressure to create a bigger capital cushion for potential losses.
Metlife, the largest life insurer in the country, recently sold $2 billion worth of stock to cushion against potential losses.
Hartford Financial recently raised $2.5 billion by selling shares to Germany’s Allianz SE.
Some industry watchers have speculated that consolidation of insurance companies is more likely than widespread failures.
By law, insurance companies have to have enough capital to pay their claims. They’re routinely checked on by state regulators, who in severe cases can take over insurers.
States also have guaranty funds, which are funded by the industry, to payout policyholders if the insurer can’t.
AIG’s Fire Fighters: Extra Risk Insurance
While American International Group Inc. plans to sell some of its business units to pay off the debt from its taxpayer bailout, the company is holding on to its private firefighting force, the Wildfire Protection Unit.
The service operates on the logic that it’s cheaper to prevent homes from burning down in forest fires than it would be to pay out claims.
“We’re here because budgets for local fire companies have been cut so deep that they cannot provide adequate protection,” said Sam DiGiovanna, who heads the team of contractors. “It’s a shame, but it’s a
reality.”
It’s a significant issue for Orange County and the rest of Southern California.
“We started the service here in Southern California because of the ever-present danger of fire, because of the close proximity of our clients and because of the value of the insured assets,” said Todd Triano, vice president of AIG’s loss prevention department, which operates the fire service. “The service was created to mitigate damage, not to replace fire departments.”
AIG provides the service to clients who pay more than $10,000 a year in premiums or who have homes worth at least $1 million. The service originated in the Los Angeles area and now is offered in San Francisco, OC and Aspen, Colo.
If nearby structures are in danger, the AIG firefighters won’t just stand there.
“If there is a home AIG insures and a home next to it is in danger of going
up, we will assists local authorities in preventing any fire in the area because it’s
the right thing to do,” DiGiovanna said.
“It helps everyone involved in these tragedies.”
The nine brigades that are stationed near mountains and canyons between Santa Barbara and San Diego, up from five last year, spray fire-retardant chemicals on houses and nearby brush ahead of fire season and roll out in response to the threat of flames.
AIG, of course, is now infamous as the insurance giant that needed a loan of $85 billion from the government. Despite AIG’s financial problems, Triano said he did not anticipate any significant changes for the firefighting unit.
“During these tough times, the loss prevention division has become an increasingly valuable part of AIG, and we have no plans to cut back any of our offerings,” Triano said.
,Los Angeles Business Journal.
Zenith Sees Q3 Drop on Investment Losses
Zenith National Insurance Corp. said its net income dropped 74% in the third quarter due to charges taken for losses from bonds it held in failed investment bank Lehman Brothers Holdings Inc. and common stock in troubled insurer American Inter-national Group Inc.
The Woodland Hills workers’ compensation insurance company reported third quarter net income of $16.6 million, compared with $64.5 million in the same period a year ago. Net income included after-tax net losses on investments of $5.8 million, compared with investment gains of $3 million a year ago.
“We are obviously in an unprecedented environment with significant volatility, but with a strong capital base the fluctuations in securities values do not impact our business but stockholders’ equity per share is reduced,” Chairman Stanley Zax said in a statement.
Total revenue fell 22% to $167 million. Underwriting income from the workers’ compensation segment was $15.3 million in the quarter compared with $74.7 million a year ago.
,Deborah Crowe, staff writer for the Los Angeles Business Journal
