The Federal Reserve Board is on the case, and the days when insurance company officials can shoot first and then aim are going to end, AIG CEO Robert Benmosche subtly warned the insurance industry Tuesday.
He made his comments to Maria Bartiromo, anchor of the CNBC “Newsmakers” program, just 24 hours after the Financial Stability Oversight Council designated AIG as one of the first two insurance companies to be federally regulated.
Benmosche said AIG has been preparing for federal regulation for months, and “we’re well on our way.”
Benmosche said that, “… we’ve been preparing for it, as we’ve said, over the last year-and-a-half, so it’s not even the last few months. So this has been a long preparation time and the Fed has been with us now since September of last year …,” when government ownership of the AIG fell below 50 percent and the Fed began regulating its thrift, which is based in Wilton, Conn.
He also touched on other issues, saying regulators “have dramatically improved” their grasp of what is going on in the economy, but a “confidence issue on the part of corporate managers” is holding up investment and therefore private market growth.
And, as far as he is concerned, the deal to sell the leasing unit to a Chinese consortium is still on, although the group missed a deadline last week to come up with 10 percent earnest money.
“We’re working towards getting to that point, [i.e. sale of the company] we have not terminated, although we have a right to … in our agreement with them, we’re proceeding to work with them and negotiate through this period of time. So, that’s all I could say at this stage,” Benmosche said.
As to low interest rates, which he acknowledged is squeezing profit margins on life products, Benmosche said he had no idea when the Fed would move to hike interest rates and therefore improve margins.
“It’s the trillion-dollar question,” Benmosche said.
He warned that a hike in interest rates would create a disintermediation issue, “and people leaving one annuity, depending upon penalties, to go to another.
“Just like a CD, you leave the bank, you have a CD, your rates are going up, you may choose to pay the penalty and move your money,” Benmosche said.
“And so that’s where rates at some point in time could be a negative for the insurance company, but I think for the first 100 to 200 basis points, it’s going to be a big positive not only for AIG, which has a big fixed annuity block, a life insurance block, but it’s also going to help most insurance companies,” Benmosche said.
As to the timing, that will be “when the Fed decides the job creation’s there.”
Benmosche added that, “Look, one of the problems of job creation is you have many people who are eligible for or should have or normally would have required that are worried about outliving their income, and so they’re not giving up their jobs and that’s sort of holding back the openings that a lot of young people could fill.”
So, he said, “you’ve got to see that moving along a little bit better, see job creation and unemployment come down.”
In his remarks, Benmosche implied that federal oversight is a fait accompli for insurers in general, not just AIG.