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IN THE FACE of this worldwide financial meltdown, a life insurance company has to grapple with its own unique problems.

If you own a factory with a heavy loan on it, and you are hopelessly unable to keep up the amortization, the bank could foreclose on the mortgage and take over your property. You lose your asset, it is true, but your liability is wiped out as well. You are bankrupt, but you could say you are clean.

In a life insurance company, a loss in assets does not result in any corresponding cut in liabilities. The company might lose everything it owns, but it will still be burdened by what it owes. This accounting anomaly stems from this undeniable fact: clients, who have paid premiums with hard-earned cash, and are holding on to valid long-term insurance policies, will continue to die, get disabled or retire to a ripe old age.

When the value of a company's portfolio of stocks and bonds plummet, the hole must be plugged right away with fresh capital. The insurance commissioner in New York has ordered such giants as Metropolitan Life to raise fresh capital to cover the drop in assets.

This business phenomenon is also the result of the level premium system. In the earliest days of life insurance in England, companies sold one-year policies only. Every time you renewed the policy, you paid a higher premium, in line with your age. As you neared middle age, at precisely the time when your earning capacity might be weakening, and when you needed the insurance the most, your premium became prohibitive. To solve this problem, the level premium system was devised.

If you buy a 20-year endowment policy, you will pay the same premium yearly for 20 years. This means that, in the early years, you will be paying more premiums than are needed, so that, in the later years, you will be paying less. All figures are actuarially computed.

This excess premium you pay in the early years is the reserve. To keep the premium low, and in fairness to you, this reserve is guaranteed to earn at a certain rate. Nowadays, earnings on the reserve are set at about 8 percent compounded annually.

The reserve, and all premium collections for that matter, is held in trust by the company. Because of the trust character of the funds, the Insurance Code has very strict rules on how the funds should be invested. Always, earnings are sacrificed at the altar of safety.

When actual investment earnings are less than required, the company loses money, because it has to continue paying out benefits contracted for under the policies and established on the assumption that the reserves would earn at a certain fixed rate.

The boast of the Government Service Insurance System that it earned over P1.2 billion on its foreign investments of $600 million is bad news for members. The earnings rate is only 5+ percent, well below the statutory minimum. This rate will not even cover administrative expenses.

I suspect, and I stress this is merely a suspicion, the sale of Meralco shares on a three-year installment plan was cooked up because the GSIS is having some problems in its cash flow.

A few years back, the largest Japanese life insurance company collapsed because its investment earnings for some time had been below the statutory threshold.

The mathematical underpinnings of insurance, particularly life insurance, are unrelenting, inscrutable and unforgiving. A company can fool around with them only at great peril.