Shares of Lincoln National (LNC) are down by 30% this morning on news that it hasn’t qualified for Treasury’s Temporary Liquidity Guarantee Program.
David Goldman at Asia Times sees a big reason to worry:
Why would anyone hold an annuity from a life insurance company whose credit protection is trading at double-digit points up front? Annuity and whole life policies are at risk, and the blogs are starting to buzz about it. If customers rush to cash policies in, a number of insurers will be at serious risk.
Once again: the Treasury is pursuing the phantom of a bank-led economic recovery, when it should be fighting the risk of an insurer-led crash. If Americans think their insurance policies and annuities are at risk, it’s a different and much worse sort of crisis.
See, at their core, banks and insurers are basically the same thing. Banks make money off the spread, while insurers make money off the float. Banks don’t hold nearly as much capital as they could potentially be forced to pay out if everyone withdrew their cash at once. Insurers don’t have enough capital to pay everyone’s claims at once.
Policy holders who have holdings that can be redeemed may decide to just cash, perhaps out of fear, or perhaps just to put more of their assets in cash.
Certainly something to start paying closer attention to.