NU Online News Service, June 2, 2003, 5:59 p.m. EDT — New York
Maurice “Hank” Greenberg, chairman of American International Group Inc., New York, says some life insurers might stop writing annuities in states that fail to lower minimum annuity interest rate guarantees.
Greenberg appeared here today with other life insurance company chief executives in a panel discussion organized by Standard & Poor’s Rating Services, New York.
Greenberg and the other executives agreed that the U.S. economic system is better equipped to handle the kind of prolonged low interest rate environment now confronting life insurers in Japan.
The situation in Japan has not changed much in the past 10 years because officials there have been unwilling to look at structural problems, and companies have been slow to recognize the bad assets on their balance sheets, the executives said.
Greenberg said U.S. life insurers can take some steps on their own to guard against continuing low rates, by cutting the minimum rates that they offer and introducing new products designed with the new, low rates in mind.
“You don’t have to be a victim of interest rates if you know your own business,” Greenberg said.
But Greenberg and the other executives also agreed that U.S. life insurers need some help from the states to cope with the new interest rate environment.
More state legislatures and insurance regulators should lower minimum interest rate guarantees, the executives said.
Forty states have approved a reduction in the minimum rate guarantees, but there are still some states that are not allowing an adjustment downward, according to Ramani Ayer, chief executive of Hartford Financial Services Group Inc., Hartford.
Ayer observed that the United States has a dual system of regulation, in which the rating agencies are, in effect, “more intense solvency and risk regulators than the insurance regulatory system.” Insurance regulators are more focused on “rate and form” regulation, he added.
“It is a market economy and we should let the market set rates and forms,” Greenberg said.
Rates are highest in the states where insurers have to get prior regulatory approval for rates and forms because insurers pull out of those markets, Greenberg said.
In other exchanges during the panel discussion:
? Greenberg said the potential impact of annuities not being included in the provision of the recent tax bill that cut dividend taxes was being “overstated.” He noted that qualified annuities would not be affected and he said that non-qualified annuity holders wished that they had the same treatment. At some point in the future, he said, maybe they will.
? Greenberg said insurers should have the option of choosing a federal charter. “Corporate America does not need guarantee funds to figure out who is viable and who is not,” Greenberg said, complaining about the inefficiencies involved with preparing policy filings for 50 different state regulators.
? Ayer denied that the insurance industry is a dinosaur and pointed out that, lately, insurance is where the economic growth has been.
? Arthur Ryan, chief executive of Prudential Financial Inc., Newark, N.J., said that relying entirely on a captive distribution system is obsolete, but that simply relying on other companies’ distribution channels carries the risk of losing access to the clients. An insurer can balance distribution needs by having a “highly productive” distribution channel that offers the insurer’s own product along with other insurers’ products, Ryan said.
? Greenberg said AIG has not yet bought a bank because owning a bank might cut out distribution possibilities at other banks.