Life insurance companies have been criticised this week by billionaire Warren Buffet, who stated that life insurers were “crazy” for taking on financial risks by selling annuities or retirement products that promised unrealistic guarantees to customers.

The products are connected to stock market performance. Buffett said: “I always thought they were crazy when they were doing it,” because of the financial dangers to the insurer.

As a result, many insurers have been left burnt after they over-sold these products, which performed negatively as the financial downturn sent markets plummeting.

For some life insurance firms, the situation has been made worse as they loaded up on shaky investments, such as asset-backed securities tied to commercial mortgages.

“Life companies had those two temptations, one on the asset side, one on the liability side, and those that succumbed are in real trouble," Buffett concluded.

Around 12 life insurance firms have appealed to the government for financial aid.