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AIG crisis could be the tip of an insurance iceberg
The company's situation reflects problems throughout the life insurance industry as investments suffer. Further strain could bring about a second financial crisis.
By Ralph Vartabedian and Tom Hamburger, Los Angeles Times

When insurance giant American International Group Inc. imploded last fall, the firm's problems were quickly blamed not on its core insurance business but on an obscure operation that traded exotic mortgage securities.

But as the economic crisis deepens, it has become clear that AIG's problems extend across most of its business lines, including its massive life insurance and retirement services operations, which reported a staggering $18-billion quarterly loss this month.

The company's situation is emblematic of problems across the life insurance industry, which is suffering deep losses on investments that underlie policies for millions of American families.

So far, some of the biggest companies have suffered sharp drops in their stock prices, and many of them are asking for federal assistance.

Industry conditions last year were the worst in memory and are expected to grow deeper this year amid credit rating downgrades, declining revenue and investment losses, according to credit rating firm A.M. Best Co.

The worst-case scenario is that a second financial crisis is looming if these life insurance companies come under too much stress.

I suppose with a baby boom there may be an accompanying funeral boom.

by Magnifico on Mon Mar 30th, 2009 at 04:51:26 PM EST
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When a "financial adviser" was pitching annuities to me last summer I told him my concern with an annuity would be institution risk.  He almost scoffed at the notion that Hancock, Prudential or AXA could find themselves in trouble....

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 12:17:57 AM EST
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pensions are best provided by the markets, it's just true.

(and if your pensions is shrinking right now, it's because you were too incompetent to invest properly, and deserve your fate)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 31st, 2009 at 07:15:16 AM EST
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Hat tip naked capitalism

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Tue Mar 31st, 2009 at 07:22:08 AM EST
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The statistical illiteracy of contraryinvestor.com is illustrated by their decision to plot a "average for the period" where there is a clear trend.

The proper way to plot these data is probably on a single chart with Marchetti Curves.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 07:26:45 AM EST
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