Variable annuities may lead some insurers to request bailouts

The insurance business is supposed to be simple and relatively stable. It's not difficult to sell insurance, collect premiums, hedge your risk elsewhere with re-insurers and then invest the remaining premiums conservatively.

So what the hell happened? AIG (AIG) allowed an unhedged fund to operate from within and a tiny 400 person division brought down a giant that employed 125,000. Hartford (HIG), Prudential (PRU), Lincoln National (LNC), MetLife (MET) and Genworth (GNW) are all suffering the same fate. All are facing ratings agency downgrades based on capital ratios that fall with the stock market.

The culprit in this mess are guaranteed variable annuity contracts. A relatively new phenomenom in the annuity business, guarantees on annuity returns are irresponsible and should never have been allowed to exist. I don't remember which insurance company first got the bright idea to offer a minimum guaranteed return for their investors, but once launched by 1, the other firms soon followed with similar guarantees...

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