It's one thing to comprehend the volatility of gold, junk bonds and dot-coms, but it's something altogether different (and eye-opening) when that sucking sounds hits a financial entity as stable as the insurance industry. But that's just what happened in September when the Federal Reserve Board stepped into the fray and loaned nearly $85 billion to insurance firm AIG, in efforts to plug a deepening hole and prevent further hits to the U.S. economy.
Later that month, the Bush administration rolled out its $700 billion rescue plan, an effort to thaw out the frozen credit markets and steer the financial sector out of an economic crisis, which many have compared to the worst since the market crash of 1929.
On Oct. 6, as I write this column, the bailout bill passed through Congress, but the Dow continued to tumble, falling below 10,000 for the first time since 2004. Only today, the U.S. financial markets weren't alone — the European index saw its largest drop ever, falling some 7 percent.
Who knows where this will go from a global perspective, but to get a better handle on the situation from an insurance sector point of view, I spoke with Brian Ashe of Lisle, Ill.-based Brian Ashe and Associates.
"Notices I have seen from state regulators indicate even AIG's insurance operations are profitable and sound financially. Someone reminded me that, back in 1987, as we went through another big downturn in the stock market, the life insurance industry ran an ad that, to paraphrase, said something like, 'Today, the cash values of your life insurance policy went up!' Our industry is strong and its strength is reaffirmed in times like these."
