The Ultimate Money Guide for Bubbles, Busts, Recession, and Depression

Chapter 7. HOW TO FIND SAFE INSURANCE COMPANIES

In the new millennium, while many of the nation's largest banks plunged headlong into the mortgage boom, got smashed in the housing bust, and are still knee deep in risky derivatives, most of the nation's largest insurers watched from the sidelines.

Have some insurance companies made imprudent decisions that could put your money at risk? Our data say "absolutely," and I'll name the ones we believe to be the prime suspects in a moment.

But when viewed alongside the wild escapades of the world's largest banks and brokerage firms, the adventures of most big insurance companies are tame by comparison.

This is good news. It means that there's at least one financial industry in the United States that has the potential to weather a major storm without mayhem and moratoriums. It also means that, when the economy is ready for a true recovery, there should be at least one major group of companies with the capital and cash available to buy up some cheap assets.

This alone, however, does not guarantee your insurer is safe. As you saw in Chapter 3, some major insurance companies have also committed their share of financial sins in the past—investing heavily in junk bonds and speculative real estate, skating on the thin ice of slim capital, making more promises than they could possibly fulfill, and ultimately going bankrupt. And unfortunately, if too many companies are complacent, that could happen again.

The outstanding recent example: American International ...