Shenandoah Life Insurance Co., a venerable Roanoke institution, acknowledged Wednesday it anticipates its third-quarter results will reflect investment losses tied to the financial straits of mortgage giants Freddie Mac and Fannie Mae.

Meanwhile, the nation's financial turmoil has several Virginia banks preparing to take investment losses and other Roanoke-based companies re-evaluating their insurance coverage with American International Group. State officials are monitoring the situation.

Earlier this month, the Bush administration seized Freddie Mac and Fannie Mae after the government-sponsored enterprises lost billions underwriting risky loans.

Like others owning stock in the two mortgage agencies, Shenandoah Life has been affected by the devaluing of the stock.

"We do anticipate those investment losses will be reflected in the third-quarter results," said Cynthia Light, vice president of marketing and sales for Shenandoah Life, founded in Roanoke in 1914.

She said she did not know what those numbers will be and would not speculate until accurate figures are available. The company's third quarter ends Sept. 30, and results should be available within a couple of weeks, Light said.

She emphasized that Shenandoah Life is "fully capable of meeting all our obligations to policyholders." Among other ongoing measures to control spending, she said, the company will look "very judiciously" at open jobs before deciding whether to fill them.

AIG

International insurance and financial services giant AIG issued a similar statement Tuesday, the same day the Federal Reserve Board authorized the Federal Reserve Bank of New York to lend AIG as much as $85 billion.

AIG announced that its general insurance and retirement services businesses "continue to operate normally and remain adequately capitalized and fully capable of meeting their obligations to policyholders."

John Williamson, president and chief executive officer for Roanoke Gas, said Wednesday that the company has some basic coverage policies with AIG, including all of Roanoke Gas' vehicle and workers' compensation insurance, but only a portion of its liability coverage.

Williamson said communication with AIG before the government bailout assured Roanoke Gas that AIG's insurance subsidiaries had sufficient resources to continue paying claims.

He said Roanoke Gas will review its coverage options in coming weeks.

"Our insurance renewal date is Oct. 1, and we have solicited quotes for coverage," working with insurance broker Marsh, Williamson said. AIG quotes will be considered, he said.

Eric Earnhart, spokesman for Carilion Clinic, said Carilion has three small, supplemental insurance policies with AIG. None are related to patient care, he said, and the policies represent less than 2 percent of Carilion's insurance coverage.

Those polices also renew Oct. 1. Earnhart said Carilion already has decided to move those polices to another insurer because of AIG's financial turmoil.

Alfred Gross, commissioner of insurance for the Bureau of Insurance, said the bureau has been busy monitoring insurers licensed in Virginia.

"There are going to be some companies that will be taking hits on their earnings," Gross said.

The American dream

Meanwhile, Shenandoah Life is not alone among Virginia companies experiencing fallout from the woes of Freddie Mac and Fannie Mae.

Both Fannie Mae, chartered by Congress in 1938 during the Great Depression, and Freddie Mac, chartered in 1970, were designed to facilitate the American dream of home ownership by buying mortgages from banks, credit unions, mortgage companies and others.

Those loans were repackaged and used as collateral for bonds called mortgage-backed securities. Buyers of those securities were guaranteed the mortgages would be paid.

On Sept. 12, Staunton-based Community Financial Corp., the holding company for Community Bank, announced the value of stock holdings in Fannie Mae and Freddie Mac was about $11.8 million on June 30. But as of Sept. 11, the value of that stock had plunged to $720,000.

As a result of a related noncash charge -- expenses charged against revenues that do not directly affect cash flow -- Community Financial said it "will fall below the threshold needed to be considered well-capitalized" and will be "out of compliance with certain loan covenants on a $5 million line of credit it has outstanding with a commercial bank."

Consequently, the company's board of directors voted to suspend Community Financial's quarterly cash dividend.

In a news release, Community Financial said it remains "a well-run community bank with strong core earnings and very low non-performing assets."

'Solvent'

At least two other Virginia bank holding companies have reported exposure to the mortgage agencies' meltdown.

They are Virginia Beach-based Gateway Financial Holdings, parent company of Gateway Bank & Trust, and Berryville-based Eagle Financial Services, the holding company for the Bank of Clarke County.

Ken Schrad, a spokesman for the Virginia State Corporation Commission, said the Bureau of Financial Institutions and Bureau of Insurance, both SCC divisions, are closely monitoring how the industry turmoil is affecting, or could affect, state-chartered banks, as well as AIG insurance subsidiaries licensed in Virginia and investors and policyholders.

Schrad said scrutiny to date suggests all of Virginia's 83 state-chartered banks "are fine, healthy, solvent."

He said AIG has 37 licensed insurance companies in Virginia -- 12 offering life and health insurance and 25 offering property and casualty insurance.

The Bureau of Insurance's monitoring has shown that all AIG licensed companies are paying claims, he said.

News researcher Belinda Harris and staff writer Jeff Sturgeon contributed to this report.