Greenberg Wants Optional Fed Charter

Advocating the option of a federal charter, he said: "We have been regulated by an 18th century regulatory structure. We need to be in the 21st century," highlighting the costs and administrative problems faced by commercial insurers that cover risks countrywide. "Its not in keeping with whats really required in a market economy."

"I would have very stiff capital requirements [and] no guaranty funds," he added. If a company in Corporate America wants to buy cheap insurance, they should take the credit risk, he said. Instead, solvent competitors are losing twice under the current system, he complainedonce when weak companies "cut our prices and [again] when they go broke and we have to pay to bail them out" through guaranty fund assessments.

"We shouldnt have to pay for the failures [of competitors]," Mr. Greenberg said.

Later, sharing the conclusion of Fitch Ratings that the industrys reserves could be inadequate by as much as $70 billion, he said: "One thing is clear. The industry needs some more stability if its going to be healthy.It just makes no sense to go through this roller coaster every few years, where the downward spiral is much longer than the up-cycle."

However, he lamented, "I dont have any words of wisdom" to change the situation. "You have to change people," he said, sarcastically noting that those who do the most damage in perpetuating cycles "get fired and then go on to a bigger job."

He did, indeed, go on to impart some words of wisdom, going on to say that "the graveyard of companies" that didnt have underwriting strategies to make long-term profits, but instead relied on investment cash flow, "is quite large."

"Youve got to have your own strategy," he added. "Dont copy somebody elses strategy, [and] dont cut somebody elses rates 10 or 15 percent." However, he added, "theres nothing I can say thats going to make the industry operate differently."

While the overwhelming sentiment at the Forum seemed to be one of unqualified optimism, Mr. Greenberg hedged a bit. "Im a little optimistic about 2004," he said, predicting a "reasonably good year, barring unforeseen catastrophes."

"Just dont get too enthusiastic, people," he warned, addressing a room full of industry executives.

Mr. Greenberg, who said he would put asbestos reform on the top of his wish list of issues to be resolved in Washington, spoke about how insurers struggle to get their voices heard in the nations capital.

"We employ thousands and thousands of people [and] invest $915 billion in the capital marketsan amount that exceeds banks," he noted. But while theres a Senate Banking Committee, there is no insurance committee, he said, adding that most federal legislators "know very little about insurance."

On asbestos reform, Mr. Greenberg suggested that a focus on medical criteria and caps on legal feeswithout a trust fund componentwas the way to go, because of the difficulties involved with getting different parties to agree on share allocation.

Explaining why asbestos reform is the issue hes concerned about most, he said that "the most massive tort issue this country has ever encountered" doesnt just affect the insurance industry. "Its an economic problem. Its a problem thats hurting the country," since thousands of jobs are lost when companies with huge asbestos liabilities go bankrupt.

Repeating some familiar themes, Mr. Greenberg also offered observations on tort reform and international accounting standards.

Tort reform is "both a good and a bad story," he said, noting that progress had been made in some states that have been judicial nightmares for insurers, including Texas and Mississippi. "State by state, county by county, judge by judge, the battles are going on. But we havent won the war yet," Mr. Greenberg said.

At the federal level, the battle is tougher to fight "because we dont have the structure we need," he said, again alluding to the lack of a Senate insurance committee. However, "I think well get class action reform," he added, noting that its likely to be the second issue on the agenda of Senate Majority Leader Bill Frist, R-Tenn, with the federal budget being the only issue taking precedence.

As for international accounting standards, "mostly were opposed to itviolently," he said. In particular, AIG opposes a standard that would have every asset and every liability on the balance sheet stated at fair market value every quarter.

"You cant have one accounting protocol for all industries," he said, calling the notion "particularly offensive for the life industry."

Its appropriate for an investment bank that is trading securities to mark those to market value every day, he said. In contrast, in the life insurance business, "when youre writing a policy for 20 years out, what do we care what happens to that investment up and down over the [course] of 20 years?" On the property-casualty side, "how would you mark liabilities to market every day?" he asked.

The International Accounting Standards Board "doesnt understand anything about our industry. Other than that, its a great idea," he quipped.

Reproduced from National Underwriter Edition, January 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.