Someone made the call a while ago, and look at the massive, sector-wide sell off today. Lincoln National is getting crushed.
This article talks about the problems at AIG and also the life insurers, but this one sentence speaks volumes: AIG crisis could be the tip of an insurance iceberg The company's situation reflects problems throughout the life insurance industry as investments suffer. Further strain could bring about a second financial crisis. By Ralph Vartabedian and Tom Hamburger March 30, 2009 ... http://www.latimes.com/news/nationworld/nation/la-na-aig30-2009mar30,0,1747696.story All these companies pretty much depend on their investment portfolio to sustain their capital ratios. I do believe insurance is regulated on a state by state basis, but they have to keep x % of cash to meet a certain % of their liabilities (as not everyone who is insured is going to die at one time), but a huge portion of their assets is invested in equity and bond markets at any give time.
Look at the performance of Japanese life insurance companies during the 1990-2003 bear run - that is the fate that lies in store for life insurers in the west. Fairfax and maybe Berkshire I would exempt from this.
It's more than just their assets. Their liabilities also have increased, because the annuities they kept selling a) are floored; b) need to be discounted using a much lower rate. Along with CRE (commercial real estate), the insurance sector is the one, I think, where we haven't seen all the pain yet.