Two years into the most severe financial crisis since the Great Depression, what have we learned, and for how long have we learned it? The “Great Moderation” led society into believing that economic cycles had been tamed or possibly even eliminated, and that associated risk levels had consequently declined to unprecedentedly low levels. We now know that economic cycles had not been tamed and that risk levels were actually much higher than were then believed with the resulting economic storm requiring virtually unprecedented levels of government intervention in worldwide financial systems. American life insurers as a whole, while very much impacted by the resulting economic tsunami, nonetheless performed better than many other types of financial institutions during this very difficult period. Insurers that were most adversely affected by the crisis typically exhibited the following behaviors:

(1) insufficient available liquidity especially at the holding company level;

(2) an expectation that high levels of equity risk could be managed through hedging or other similar programs; (3) a belief that increased levels of return on equity could be earned without incurring associated higher levels of risk; and (4) that excess capital could safely be used to fund stock repurchases or business acquisitions. Conversely, the most successful companies during this period were those that remained conservatively managed with sufficient internal flexibility to manage through extreme events without inflicting excessive harm on the organization.