A panel of life insurance company chief executives last week assessed how the industry has dealt with the financial crisis, debating the merits of mutual companies versus stock companies.
“If you're talking about business models and it's about long-term guarantees, then the mutual is superior,” said Theodore A. Mathas, chairman and chief executive of New York Life Insurance Co.
He, along with Robert E. Chappell, chairman and chief executive of The Penn Mutual Life Insurance Co., and Donald A. Guloien, president and chief executive of Manulife Financial, were participants on the panel “Executive Viewpoints on the New Financial Landscape” at LIMRA International Inc.'s annual conference in New York.
“It doesn't mean you can't run a superior stock company, but what has happened in the last few years is some evidence of that,” Mr. Mathas said. “The absolute objective is to ensure you're going to be here in the future.”
Mr. Guloien, whose firm once was a mutual, pointed out that that structure doesn't necessarily spare companies from failure. He recalled Confederation Life Insurance Co., Connecticut Mutual Life Insurance Co. and other insurers that either failed or were forced into marriages with acquirers.
However, troubles have hit stock companies as well. The way in which a company's management and board steer a carrier is what makes the difference, Mr. Guloien said.
The executives also discussed their thoughts on federal regulation versus state regulation. Although the general opinion is that a federal regulator makes more sense than a state regulator, Mr. Mathas said, there are some benefits to the state system. For one, he noted, the structure slows the creation of potentially dangerous products.
Meanwhile, the banking industry — which helped spawn complex and troublesome investments — is already under federal oversight from agencies such as the Office of Thrift Supervision.
The state regulatory structure of the insurance industry “slowed things down in a way that was beneficial to the industry,” Mr. Mathas said.
The executives were cautious about their forecasts for the economy.
“The economy is a mixed bag,” Mr. Chappell said. “Corporate profits are back, but they're back because 30% to 40% of employees have been [laid] off.”
Mr. Guloien said that he is most concerned about the unemployment level, though he said that he thinks the crisis is partly over.
“It's going to be a flat U, like a contact lens,” he said about the economic recovery.
Mr. Mathas noted that the economic rout has pointed toward a new way of doing business. He added that ratings agencies and companies have used risk-focused models that can't accommodate for the most extreme scenarios.
“Models are supposed to assist judgment, not get you comfortable in justifying a level of risk,” Mr. Mathas said. “If your GPS tells you to turn off a cliff, then you're still supposed to look out the window.”
TARGET DATE WRAPPERS
In another panel discussion at the LIMRA conference, executives discussed the new opportunities on the horizon for insurers and asset managers as they seek a way to put a guaranteed wrapper around target date funds.
James K. Cornell, chief marketing officer at Prudential Retirement, discussed the interest he has seen among asset managers, as well as the new products the firm has created, including Income Flex, which uses an underlying investment of enhanced index funds and an income guarantee.
“We're being asked to wrap target date structures,” he said.
Mr. Cornell said that major institutional asset managers, such as
Barclays Global Investors,
BlackRock Inc. and Pacific Investment Management Co. LLC, are among the firms that have shown interest in pairing with insurers.
“When firms like that focus on this market, you're going to see some real product innovation and distribution get behind it,” he said. “This is the time to start wrapping these.”
Still, one of the major obstacles to marriages between asset managers and insurers has been the carriers' concern about backing assets that another firm is managing, Mr. Cornell said.
“We'd love to provide guarantees and investments, but that would limit our potential growth,” he said. “From our perspective, we only have access to so much distribution.”
E-mail Darla Mercado at [email protected].
