Life Insurers Want Looser Standards for Home Mortgage Holdings

Those life insurers never stop trying. First they asked for an $18 billion relief package back in January. Then they rattled their tin cups for the Treasury, begging to get in on the TARP program. Ultimately Lincoln National and Hartford Financial received nearly $6 billion.

Now their latest request has been posted on the website of the National Association of Insurance Commissioners by the American Council of Life Insurers. The insurers are asking for looser standards on their mortgage holdings, so they can keep less capital in reserve against these declining assets. According to the ACLI, last year these insurers owned $145 billion of residential mortgage-backed securities.

Standard & Poor's, Moody's Investors Service and Fitch Ratings originally gave these mortgage securities a high rating, prompting insurers to buy them. Then the raters pulled the plug and downgraded them making them worth less and forcing insurers to back them up with more capital.

Of course, the phrase "looser standards" should always raise a red flag for regulators since lessening standards is what brought about the mortgage crisis. It also brought down American International Group, which gobbled up mortgage-backed securities between 2000 and 2005 until the piper came calling and AIG couldn't provide collateral.

But the ACLI does have a point. Who knows what these things are worth? Certainly not the credit rating agencies. They are due for a well-deserved whipping from Congress, the Securities and Exchange Commission and the insurance regulators themselves at tomorrow's hearing. And, while many mortgage securities were downgraded when the raters finally got religion, most people are still paying them, and they may be worth more than people think. The ACLI thinks an independent rater should step in and evaluate them.

But do life insurers really need help? In January the regulators said no to a similar request. Consumer groups such as the Center for Economic Justice are opposed to any relief, arguing that policyholders who want their assets to be safe and not speculative could be the victims if life insurers are allowed to play fast and loose with the rules.

Regulators "have been doling out relief like lollipops in a barber shop," the Center's executive director told Bloomberg News.
So it remains to be seen who gets clipped: the insurers, the rating agencies or the already victimized public.