Is Your Life Insurance Company Stable?

This question never occurred to me in the context of the current economic tumult. When I got my life insurance policy I checked the status of my company - Protective Life - with all the rating agencies, but it never occurred to me that there might be a reason to revisit the issue in light of the market turmoil. Well, the Wall Street Journal ran an article this weekend saying that some life insurance companies are seeking federal bailout funds. Which leads me to ask a couple of important questions: (i) how would a life insurance company be impacted by the financial crisis? (ii) is my life insurance company safe?

With respect to the first question, here is a quote from the WSJ article:

"Most insurance companies are financially sound but have seen their long-term investments and stock prices fall in value. Some have holdings of riskier alt-A and subprime-mortgage backed securities. Insurers have suffered losses in bond and preferred-stock holdings from the collapse of companies including Lehman Brothers Holdings Inc. Insurers also have been hit with billions of dollars in unrealized losses as corporate bonds of all stripes suffered big declines. Low interest rates have damped interest income and a prolonged economic slump could dent the variable-annuity business and even hurt sales of core life-insurance policies.

Insurers would normally tap capital markets to raise money. But many are loath to attempt selling common stock because their share prices have been so battered. That's one reason many insurers have been pushing the expansion of Treasury's equity-stake program to raise capital."

With respect to the second question, I went to Protective's website and checked their current agency ratings, all of which appear to be excellent. However, when I ran a Google search on recent changes to the ratings, it appears that a couple of agencies are re-examining Protective's ratings for a possible downgrade. So, while it doesn't look like there is any imminent danger, this is a situation that I will be monitoring in the coming months. I mean, if there is one thing you absolutely want to be certain about it is that your family's financial future is 100% secure if the worst case scenario comes to pass.