Since the late 1980s, declines in defense spending have resulted in dramatic employment reductions in defense-related sectors of the economy. Although considerable information exists on the fate of major defense contractors and military bases in New England, little is known about what has happened to laid-off defense workers.

This article reviews the distinctive features of life insurance companies and how they have reshaped their liabilities and restructured their assets in order to cope with the consequences of rising interest rates and increasing competition for savings during the past three decades. The author analyzes the consequences of these financial innovations for the capital of the industry as well as the distribution of capital among life companies, and goes on to examine the issues relevant for measuring and controlling the capital of life companies. He concludes that prudent standards for capital should take into account an insurance company's entire balance sheet, not just its holdings of risky assets. Marking only risky assets according to their disposal values, while reporting other assets and liabilities according to other rules, can greatly misstate the financial condition of life insurance companies. And to the degree that financial intermediaries increasingly favor more familiar assets, the role of nonfinancial corporations as financial intermediaries will continue to expand.