Warren Buffett had some comments on the life insurance and annuity industries during the Berkshire Hathaway annual shareholders conference held on Omaha over the past weekend.

Buffett's comments on Social Security as a form of a nationalized annuity were made on response to a question about the worst possible scenario for Bershire's insurance operations.  Buffett responded to the question by suggesting that nationalization of the insurance industry poses the gravest threat to Berkshire's insurance operations.  While the possibility is remote, Buffett imagined a scenario in which rampant inflation results in popular outrage to the skyrocketing cost of insurance and subsequent nationalization of the industry.

The annuity-related comments are useful as most people either do not realize or forget that Social Security is essentially a form of annuity.  People make payments throughout their lives that--in theory--serve as the basis for a guaranteed stream of income that commences when they retire and lasts for their lifetime.  Social Security is nationalized in the sense that the program is provided by the federal government rather than private insurance companies.

It's a stretch since the Social Security system is unfunded and is "pay as you go" (in other words, current workers actually fund Social Security payments for current retirees), but the Social Security system is somewhat analogous to a deferred fixed annuity that comes with inflation protection.