AIG crisis could be tip of an insurance iceberg - Los Angeles Times

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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 has deepened, 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 earlier 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 revenues 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.

"It was essentially a house of cards at AIG," said Donn Vickrey, a forensic accountant and co-founder of Gradient Analytics in Scottsdale, Ariz. "I would characterize other life insurers as suffering varying degrees of risk."

AIG crisis could be tip of an insurance iceberg - Los Angeles Times

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