The alarm rang.? John shook himself awake, and rolled out of bed.? He dreaded that the day had come, but he was determined to face it like a man.

Things were tough since the credit bubble burst.? Almost nothing worked that way it should, and today the CEO would tell him whether his subsidiary would live or die.

Mega Insurance was a privately owned stock insurance holding company, owned by the Bullards, a wealthy New England extended family.? John Davidson ran one of the life insurance subsidiaries, Wonderful Life.? In the midst of the credit crunch, the holding company was doing triage.? Excess capital at the holding company was there, but not plentiful, and the Bullards did not want to pony up more capital.? As it was, they wanted to make sure that their capital was used in the best risk-adjusted way.

Wonderful Life was a pretty bread-and-butter company as life companies went.? No equity indexed products, no variable annuities — just a variety of individual deferred and immediate annuities, structured settlements, term and permanent life products sold through their own field force.? They sat in the shadow of their more successful sister company, Whata Life.

Whata Life had most of the lines of Wonderful LIfe, but they sold through independent agents.? They also sold EIAs, Variable Annuities and Life products, and had a group life, specialty heath, and pension business as well.? They had grown dramatically over the last decade, eclipsing Wonderful Life.

John wondered why he had pursued such a conservative course as he drove to Mega’s headquarters.? He felt he could have entered many of the same lines of business, but the fixed costs would have proven too great of a hurdle, and the agency force was not anxious to do it.? Self-recrimination was easy, and John knew it was a weakness of his, so he laid it aside, putting his trust in God.

Arriving at Mega’s headquarters, he met his longtime friend and colleague Peter Farell, the Chief Investment Officer for Mega.? Peter greeted him:

P: Well, I’ve prepared the exhibits that you asked me to.? On the bright side, we didn’t do as much with hybrid securities in your subsidiary, because you asked us not to.? We still have the losses from Lehman, AIG, and many of our positions in financial bonds are trading rather poorly.

J: How are the commercial mortgages?

P: Under stress, but we stopped originating for you in 2005, so you aren’t that bad off.

J: Any bright spots?

P: Well, the long dated GSE debt that we bought when it was under stress was a hit, and the higher quality portfolio that you requested is holding up better than many of the other subsidiaries.? Also, the tactical move to buy a small amount of low investment grade and high yield in November paid off.

John thanked Peter, and considered that maybe he wasn’t as bad off as he thought.? Sure, his division was a slow grower, but it threw off excess cash flow which Mega usually clipped as dividends.? Trouble was, that dividend would be reduced this year.? John paused and remembered what the prior CEO of Wonderful Life had told him regarding dividend reductions to Mega Insurance: “They fired that guy so fast that his severance check arrived home before he did.”

Checking his watch, the big meeting was in a half hour.? He prayed in his own head and went to the boardroom.