"We think the insurance industry now is essentially where the banking industry was 12 months ago,"

TO BE NOTED: From the NY Post:

"March 26, 2009 --

The insurance industry could be the next shoe to drop in the financial crisis, a big hedge fund warns.

According to a report from Bridgewater Associates, a Westport, Conn.-based hedge fund with $71 billion in assets under management, insurance companies are looking a lot like what banks looked like a year ago as the assets they're sitting on continue to sour -- setting the stage for those companies to need a rescue of their own.

"We think the insurance industry now is essentially where the banking industry was 12 months ago," according to the 5½-page report, which is distributed to a tight circle of clients and was obtained by The Post. Bridgewater officials declined to comment.

"If things continue to spiral downward, at some point the Treasury or Fed will likely try to find a way to get capital to this industry," Bridgewater said in the note, which has ricocheted throughout the investment community.

New York State Insurance Superintendent Eric Dinallo dismissed the notion that insurers were in imminent danger.

"Right now solvency isn't a problem," he said. "I feel secure about the solvency of the companies and their claims-paying abilities."

Nevertheless, like banks, an insurance-industry meltdown, could have far-reaching consequences. The sector is a big source of direct lending, and, according to Bridgewater, owns nearly half of all US corporate bonds.

To be sure, many of the stresses facing the industry are no secret. Their stocks are down and American International Group, once the world's biggest insurance company, was on the verge of collapsing had it not been for $180 billion in federal aid.

But Bridgewater said the worst of the insurers' problems have yet to emerge. It noted that the industry could be forced to come up with as much as $59 billion in fresh capital as a result of downgrades on assets these companies are sitting on.

Insurers are also big owners of commercial real-estate loans, and that market is widely expected to falter as a result of corporate cutbacks and depressed office rents. Even a minor decrease in performance "will cause capital ratios to increase rather substantially," Bridgewater said.

On top of that, Bridgewater projects the industry will have to shell out as much as $800 billion on so-called whole-life policies, which essentially are life-insurance policies with a savings component. Historically, during rough economic times, holders of these policies tend to draw down on money built up in these accounts whenever they're short on cash."

deal with the banks' finances separately and sell this insurance (i.e. the implied put arising from the non-recourse loan) for what it's worth

TO BE NOTED: From Reuters via Zero Hedge:

"Hedge fund Bridgewater mulls U.S toxic asset plan

Tue Mar 24, 2009 5:42pm EDT

By Jennifer Ablan

NEW YORK (Reuters) - Bridgewater Associates Inc, one of the world's biggest hedge-fund managers, said on Tuesday it might be interested in participating in the U.S. Treasury's public-private investment program, calling it a "big transfer of money from the government to the banks and to the buyers."

Bridgewater manages roughly $80 billion in global investments for a wide array of institutional clients, including foreign governments and central banks.

In a letter to clients, Bridgewater said its interest in buying the distressed assets under the terms being offered would depend on the pricing and on "whether we can get over our fears of partnering with the government."

Last week's political furor surrounding the American International Group Inc bonus payments raised the risks for private capital firms thinking about partnering with the Treasury. Many have expressed reservations regarding retroactive curbs on compensation and profits.

But investors' concerns were muted after Federal Reserve Chairman's Ben Bernanke's statement to a congressional hearing on Tuesday in which he said: "I do think we have to provide assurances to participants" in the Term Asset-Backed Securities Loan Facility and the Public-Private Investment Fund, for example, "that their involvement will not be retroactively penalized in some way."

Ray Dalio, the founder of Bridgewater, is considered one of the world's most successful investors. Bridgewater's Pure Alpha fund returned 8.68 percent last year, according to Absolute Return magazine, while many hedge funds posted double-digit losses for the same period.

In August 2007 when markets were in near free-fall, Bernanke held discussions with financial experts, including Dalio.

In the letter, Bridgewater said: "From a macro perspective, this is a big transfer of money from the government to the banks (who are getting the higher prices for their assets) and to the buyers (who are probably going to get a heck of a deal because of the non-recourse loan and the easy access to leverage).

"If the government was operating in an economic way, it would not do this deal -- it would deal with the banks' finances separately and sell this insurance (i.e. the implied put arising from the non-recourse loan) for what it's worth," Bridgewater said in the letter.

"But, politics being what they are, this route is probably motivating this non-economic behavior. We are eager to see how it is received on the Hill," it said."