Life insurance companies are supposed to be the least risky of all insurers, as they don't have to worry about catastrophic or "black swan" events. Historically, they were very conservatively managed and the stocks were considered safe, if boring dividend plays. Barring a nuclear explosion or plague that were to wipe out millions of people at once, there was no one event that could hit the bottom line of these companies unlike a property insurer. On the other hand, property/casualty insurers were supposed to be risky in that a catastrophic event could have a devastating effect on their capital resources. However, the asset side of the equation was never supposed to become the problem that everyone would focus on. Somewhere along the line, they started drinking the Kool Aid and executives started getting more of their compensation based on the performance of their stock price. Companies en masse started converting from cooperatives owned by the policy holders to public companies, and they essentially became large investment funds delving into more esoteric asset classes.

Today is just another example of how grossly these companies have been mismanaged, as Principal Financial and Lincoln National reported large losses (both realized and unrealized) from investments. Since the beginning of 2007, insurers have reported $139 Billion of losses - and in case you haven't noticed they have all applied to become bank holding companies so they can get some love from the TARP. Of course, none of them really plan to have any banking business, as evidenced by their targets - Lincoln acquired Newton County Loan & Savings of Goodland, Indiana - I mean that doesn't exactly establish a very strong deposity base, but it does enable them to apply for $3 Billion of aid.

It's estimated that insurance companies hold over $1 TRILLION in corporate debt, and their losses overall could very well be higher than for all Sub-Prime, Alt-A, and Commercial Mortgages combined. If you are looking for an insurer to invest in...well, I can't help you as it seems nobody - from Prudential to Aflac, to Genworth, to Hartford - well none of them have escaped the carnage. Trying to determine their book value with any degree of safety is just unrealistic at this point, and the stock price volatility has resembled that of penny stocks over the last six months. If you are looking for a solid company to get a policy from - well New York Life is still owned by its policy holders and stayed away from chasing yield. I sleep well at night knowing my NY Life policy won't be in danger anytime soon...

Fool: Conservative Insurance Companies a Thing of the Past?