No. of Recommendations: 28
State regulation (put in place after the Armstrong Investigations) still prohibited insurers from investing in the stock market. As such, the stock market crash did not have the same devastating impact on life insurers as it did other institutions. Only 20 out of 350 insurers (5.7 percent) went into receivership during the Great Depression. Of those that failed, virtually all of the policyholder claims were still honored from solvent reinsurers. This compares to more than 4,000 bank failures out of approximately 25,733 state and national banks (15.5 percent) at the height of the Great Depression in 1933. In stark contrast to insurers, bank failures resulted in losses to depositors of about $1.3 billion from 1929 to 1933.

This has changed. Not only do insurance companies invest in the stock market now, they guarantee their variable annuity and IUL policyholders 'returns' based on stock market performance.

Therefore, holding up the performance of insurance companies during the Depression as a reason to believe that insurance companies (and the IULs they issued) will be able to withstand a future stock market meltdown that other financial institutions will not be able to withstand is fundamentally flawed reasoning.

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