Ameriprise Most Vulnerable to Withdrawals, Dally Says (Update2)

By Erik Holm
Bloomberg News
April 1, 2009

April 1 (Bloomberg) -- Ameriprise Financial Inc. is more vulnerable than competitors if life insurance customers in the U.S. begin asking for their money back, Morgan Stanley said.

Ameriprise policies subject to discretionary withdrawal account for about half the company's investment portfolio, compared with an industry average of about 15 percent, said Nigel Dally, a Morgan Stanley analyst, in a note to investors today. Genworth Financial Inc., Lincoln National Corp. and Principal Financial Group Inc. also "stand out as being the more vulnerable companies," Dally said.

Life insurers have been forced to set aside capital as slumping stock values put them on the hook for guaranteed minimum returns promised to consumers who bought savings products called variable annuities, even as the value of the companies' holdings declined amid the recession. Investors are concerned that an increase in withdrawals would force insurers to sell those assets at a loss, Dally said.

"Perhaps it is just too early, but at least based on fourth quarter 2008 results, redemption activity was very stable, actually improving in some cases," Dally said. The value of fixed-annuity sales outpaced redemptions at Ameriprise and Lincoln in the fourth quarter, he said, a favorable trend known as "net inflow."

'Strong Financial Foundation'

"We are in retail net inflows due to the long-term client relationships that our financial planning approach generates and our strong financial foundation," said Ameriprise spokesman Paul Johnson. Ameriprise, based in Minneapolis, has fewer unrealized losses on investments than rivals, Dally said.

Ameriprise, the largest U.S. financial planning company, rose 36 cents, or 1.8 percent, to $20.85 at 11:04 a.m. in New York Stock Exchange composite trading. Genworth increased 9 cents, or 4.7 percent, to $1.99. Lincoln jumped 22 cents, or 3.3 percent, to $6.91, while Principal fell 17 cents, or 2.1 percent, to $8.01. All four insurers have declined more than 60 percent in the past 12 months.

About 25 percent of Lincoln's investment portfolio is subject to withdrawals, followed by Principal and Genworth, Dally said. Of the four, Principal had the largest proportion of policies subject to a surrender charge that would levy a fee of at least 5 percent on customers withdrawing funds, he said.

State programs designed to reimburse policyholders if insurers can't pay may encourage customers to maintain their policies, Dally said.

Aflac, Unum

Aflac Inc. and Unum Group were among the firms with the smallest proportion of their investments at risk to withdrawal by Dally's calculation.

Laurel O'Brien, a spokeswoman for Lincoln, had no comment. Al Orendorff, a spokesman for Genworth, and Principal's Eva Quinn didn't return phone calls seeking comment.

Separately, analysts at Credit Suisse Group AG wrote that insurers may not be major participants in a government program allowing firms to sell securities tied to home loans, commercial mortgages and other assets. The plan, called the Public-Private Investment Program, would require companies to take losses on the securities that aren't currently reflected in capital levels reported to regulators, Credit Suisse said.

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