In New York City this week three massive life insurance companies will reveal their third quarter financial results and investors are waiting with baited breath, breath that will be ready for a negative result.

However, Wall Street cats are waiting to see if the worst however, is in fact over for the three companies which consist of Prudential Financial (PRU), MetLife (MET) and Hartford Financial Services Group (HIG). Or are there more money woes to come?

All three insurance firms stated that they were not going to meet the announced guidance for the quarter since they had to write down investments in economical plagued firms such as the Lehman Brothers.

Therefore, it has been exposed that PRU and MET will expect a 40% drop in earnings per share. This begs the question will more life insurance companies require help from the government to keep them afloat during the recession?

So How Did it Go Wrong?

In order for insurance companies to pay out insurance claims, the firms take the premiums that customers pay and then invest them in massive portfolios. These companies commonly then keep a huge portion of funds in corporate bonds which promise higher rates on returns.

These types of bonds or banks have become very common. Sunkeet Kamath a senior research analyst stated: “Most Life Insurance companies have exposure to the financial sector.” However, with the appearance of an unwelcomed guest known as the credit crunch the value of these investments have dropped quickly.

Life Insurance Analyst Steven D. Schwartz also said that the recession causes major problems: “When there is a credit problem, insurance companies by their very nature cannot escape it. They are going to get hit.”

However, despite these problems Schwartz believes that insurance companies can recover from this crisis because their investment portfolios are so diverse and big. Therefore, the public believe that the number revealed will not be much worse than the guidance that the companies already gave. Instead, people are more focused on how the insurers expect to direct themselves in the financial storm.

Bailout Money

Although to some the problem seems to be more intensified that it really is, there are still some companies that may need aid from the Treasury Department which could involve a $700 billion bank bailout or Troubles Asset Relief Program (TARP).

One analyst stated that it would make sense for troubled companies to get help from the government because where else would they find the money? Randy Binner said: “We view this potential source of funding as a positive support as it is unlikely they could access capital on as favourable terms in the current environment.  Issues of credit and liquidity still are paramount.”

Whatever the outcome may be, analysts have calmed policyholders suggesting that their life insurance plans will be OK.

Binner backed this theory up commenting: Customers “should not associate stock price declines with the company making good on its obligations.”