The Insurance Industry - The next big financial meltdown? - by Michael Brush
The life insurance companies that millions of Americans entrust to help protect their families or pay the bills in their golden years are caught in a downward spiral eerily similar to the one that has brought down banks and brokers. Like Bear Stearns and Lehman Bros. Life insurers Hartford Financial Services, Principal Financial Group, Lincoln National and many others all have significant exposure to mortgage-backed securities and other risky debt instruments. They're reporting huge losses that -- if they continued -- could trigger a meltdown. That could wipe out shareholders, who already have suffered declines of 20% to 40% in the past week alone. Customers with annuities or insurance policies might have to turn to state insurance backstop funds and settle for only a portion of the money they were expecting.
Health, auto and property insurers are better off. But based on how far life insurance stocks have fallen, investors are worried many won't survive at all.We're telling people to be more careful, particularly if you are going into longer-range products that involve significant upfront funding like annuities," says Bob Hunter, the director of insurance for the Consumer Federation of America. "You want to make sure that the company is actually around when you want to get the money out. I'd say there's a good likelihood some of them will go under."
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