NEW YORK–The 2009 prospect for most insurers is positive, according to an analyst, but any firm that is looking for government help has a problem, said an insurance executive at a conference here.
The comments were made during the 13th annual insurance conference sponsored by the New York Society of Security Analysts.
Elizabeth Malone, a senior vice president with Wunderlich Securities, Memphis, Tenn., said that despite moves to assert more federal controls, state regulation of insurance is here to stay. She also noted that she is optimistic about insurers' prospects.
Ms. Malone said the same arguments for federal regulation of insurance being voiced now were made in 1991 and states responded by creating risk-based capital and a national accreditation program.
Both were developed by the National Association of Insurance Commissioners, Kansas City, Mo. The initiatives standardized regulation and created intervention levels when regulators would step in to oversee troubled companies, she explained.
When these programs were established, she said, as a former NAIC staffer she did not believe that they were particularly conservative. What has changed, she continued, are accounting rules which in combination with NAIC requirements may be making reserving requirements too high.
Now, with the recent proposal for capital and surplus relief advocated by the American Council of Life Insurers, that was voted down by the NAIC, insurers are going to lobby state by state to ease those requirements, Ms. Malone explained.
She said states are going to fight to maintain control of regulation because of "the dynamics of regulation which offers important leverage points for governors."
"Governors could lose some of their leverage with some of the richest lobbyists in the country," she said, adding that she believes "money talks."
But while state regulation may be expensive, it is also effective, according to Ms. Malone, who noted that even in the worst of times only 3 percent of insurers fail because state regulators either put troubled companies in rehabilitation or liquidation.
She said there may be some industry pushback on accounting rules, but they will remain largely unchanged. Consequently, companies will seek state-by-state easing of capital requirements, she noted.
Stephen Way, managing director with Southwest Insurance Partners, Houston, discussed the strategy of insurers applying for federal TARP [Troubled Assets Relief Program] funding.
"Good luck" to any company that wants government involvement in its business, he said. Mr. Way commented that "if you need TARP money, then you are in trouble. If you have taken the money, it is because you are desperate." And of investors considering these companies, he asked, "Why would you want to bet on them? Why would they do better this time around?"
Mr. Way said he does not believe the insurance industry needs a bailout of the kind banks are currently receiving.
But what he says may present a problem going forward is when states start defaulting because companies hold huge amounts of municipal bonds in their investment portfolios. "Take a long, hard look at munis and then look at the insurance industry. That's a lot of money."
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