If historical patterns held true, insurance companies and their stock prices might have seemed havens from the volatility that recently affected major banking companies.

Life and health insurers have tended to be stable performers during tough times, and hedges against disasters.

Not this time.

As insurers have raised their risk profiles, diversifying into everything from stock mutual funds and variable annuity sales to mobile- home lending, many of the shareholder-owned companies have experienced unusual gyrations in earnings, and hence in their share prices.

While the S&P 500 stock-market benchmark fell 19% from its July 17 peak to its Aug. 31 low, the S&P life and health insurance index fell 25%.

Since Aug. 31 the S&P 500 has recovered by 11%, the life/health insurance group by only 4%.

Insurers including Conseco Inc., Lincoln National Corp., and Aetna have felt the pain.

Conseco Inc. suffered a second-quarter net loss of $282.1 million, a far cry from its net income of $238.1 million a year earlier.

Though Lincoln National reported a 6% increase in third-quarter profits, its stock suffered after company officials told analysts that the equity markets' swoon would probably hurt future earnings.

"In the good times it's great, but in the bad times it can really hurt," said Daniel Weber, head of investor relations at Lincoln National, referring to his company's push into new businesses.

Still, industry observers are reluctant to make too much of the recent volatility. Though insurers have taken on some risk, their move into growth businesses should serve them well as mergers occur across the traditional financial-industry lines of banking, insurance, and securities.

"Large financial services companies aren't going to be afraid of other large, diversified financial services companies," said Anthony A. Latini, an investment banker with Berwind Financial in Philadelphia who specializes in financial institution deals.

As it is, insurance companies have not been nearly as shaky as the large U.S. banks exposed to emerging markets and volatile trading businesses. The Standard & Poor's money-center bank index dropped 33% between July 17 and the end of August and has inched up only 1% since.

Insurers, like regional and community banks, have benefited by staying tied to domestic markets at a time when overseas exposure can hurt.

Jefferson-Pilot Corp., a Greensboro, N.C.-based life and health insurer and one of the companies in the insurance index, has been a study in stability during troubled times. When the market was falling in August, Jefferson-Pilot's stock rose. The company recently traded at $58, only 2 points lower than it was trading on July 17-the day of the stock market's 1998 high.

By contrast the price of Conseco, a Carmel, Ind.-based insurance holding company that has been a Wall Street darling for most of this decade, plummeted 53% from its May 14 high of $51.375 to an Oct. 7 low of $24. The stock price has since recovered to $32.75 as of late Tuesday.

The company had problems related to its purchase this year of Green Tree Financial, a St. Paul finance company specializing in manufactured-home mortgages.

Conseco was forced to take a $350 million second-quarter writedown to cover early repayment of Green Tree loans in the refinancing boom.

Though Lincoln National, the 10th-largest U.S. life insurer, has shied away from mobile home financing, its forays into mutual funds and variable annuities have hurt its stock. From an Aug. 3 high of $97.5625, the shares fell to a low of $68.75 on Oct. 26.

Lincoln National executives recently told analysts that their estimates for 1999 earnings were too high unless the stock market bounces back. A 1% drop in the S&P 500 reduces annual profits from operations by about $3 million, the company said, because a down market will put a crimp on asset levels and on new sales of stock mutual funds and variable annuities.

Mr. Weber said "27% of our earnings are tied to the performance of the equity markets."

This is a far cry from when life insurers were known for relatively stable, if unspectacular, performance. In the years when Americans sought the financial peace of mind of a death benefit, these companies were cash machines, generating premiums and paying out claims in orderly and usually profitable fashion.

While banks and brokerages failed left and right during the Depression, the insurance industry was relatively unscathed.

"These hidden bankers were taking in all this money and giving policyholders savings-account-like returns embedded in a death benefit," said Douglas J. Elliott, managing director and head of the insurance investment banking practice at Sandler O'Neill & Partners.

In the 1990 stock market decline linked to the Gulf War, the life insurance index did lose 32% of its value. But the index recovered by early the next year. Big banks, stung by real estate losses, began a slide in October 1989 that resulted in a 68% drop by Nov. 2, 1990. The money-centers did not again match their November 1989 high until February 1993.

It is no surprise that insurers have had to reinvent themselves. Over the past three decades, Americans have grown less enamored of life insurance as a financial planning tool.

The number of new annual policies is 37% lower than it was 15 years ago. Over that period, Americans have become more concerned with generating enough income to pay for a lengthy retirement.

Accordingly, many insurance companies have been focusing on products that generate higher long-term investment returns for customers. This transformation, however, has been accompanied by the sharp stock price drops during down markets.

Said James W. Rosensteele, senior vice president for investor relations with Conseco, "This volatility is inevitable, given where the insurance industry has come from."

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