Egregious risk taking in the name of impressive earnings has led to massive losses in the insurance industry, and now carriers need to think realistically about their pricing models and investments, executives said at a conference today.
Egregious risk taking in the name of impressive earnings has led to massive losses in the insurance industry, and now carriers need to think realistically about their pricing models and investments, executives said at a conference today.
Carriers that once successfully invested in mortgage-backed securities and signed on many policyholders for guaranteed products are now paying the price, with dented balance sheets and reduced capital, the executives said at the 19th annual Executive Conference for the Life Insurance Industry in New York.
Accounting firm Ernst & Young LLP and law firm Dewey & LeBoeuf LLP, both in New York, sponsored the event.
“Clearly now is the time for government and the financial industry to work together to find ways to head off a potential spiral into chronic old age poverty,” said Christopher “Kip” Condron, president and chief executive of Axa Financial Inc. in New York.
He also chided companies for being too ambitious when it comes to signing on variable annuity holders.
Mr. Condron also told executives that although there were many opportunities for growth in variable annuity sales, as Americans had about $3 trillion in 401(k)s, but insurers needed to weigh their risk management capabilities as they take on these additional customers.
“In my view, the most vulnerable life insurers may be those with the biggest appetites for growth—those willing to borrow from future earnings to make today’s growth targets perhaps by using overly optimistic assumptions in pricing the investment and longevity risks these products and riders present,” he said.
Business leaders are becoming fixated on increasing earnings and short-term profitability, at the expense of customers and policyholders, scolded Gary C. Bhojwani, president and CEO of Allianz Life Insurance Co. of North America in Minneapolis.
“We don’t operate in a quarter-to-quarter business, we operate in three- to five-year increments,” he said. “When you create stupid thresholds, you get stupid behavior.”
