Baldwin-United bankruptcy (1983)
The 1983 bankruptcy of a US conglomerate, once a piano maker, whose subsidiaries sold high-yield single-premium deferred annuities: 165,000 savers had entrusted it with $4.2 billion.
A single-premium deferred annuity is a savings contract: the insurer guarantees a rate during the accumulation phase, before any conversion to income. In years of very high interest rates, some players drew billions by promising above-market returns, sold through securities brokers. The danger is a familiar one: to deliver the promised rate, the issuer invests in risky or illiquid assets or, as here, in securities of its own parent. The insurance contract then lends an appearance of safety to what is really exposure to the group's credit. Baldwin-United became the textbook case of this concentration risk and conflict of interest, which led to tighter rules on life insurers' investments in their affiliates.
Baldwin-United filed for Chapter 11 bankruptcy protection on September 26, 1983, facing nearly $1 billion in debt; regulators had taken over its insurance subsidiaries, which had been selling deferred annuities since 1979. The rescue plan adopted in 1984 restored most of the $4.2 billion in principal entrusted by 165,000 savers, and brokerage firms paid about $135 million to settle class actions.
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