Regulator Sees Mergers Coming in Weakened Life Insurance Sector

U.S. life insurers, weakened by the global financial crisis, are in for mergers and regulators will not shy away from playing matchmaker to deal with weak companies, Eric Dinallo, New York’s insurance superintendent, said Tuesday.

Deals could happen in other insurance sectors as well, but life insurance is a focus for New York State’s insurance department right now, Dinallo said at the Reuters Global Financial Regulation Summit in New York.

“We don’t really have many situations. But if we did, I don’t have any problem encouraging it,” Dinallo said, referring to deals. “We did a pretty robust job in essence in doing that with the bond insurers.”

“Life insurance is more of a focus of our attention right now because of the current economic conditions,” Dinallo said.

Life insurers are expected to report first-quarter results that are worse than any prior quarter, and although some are stronger than others, the entire sector has been weakened.

The Dow Jones U.S. Life Insurance Index has fallen about 63 percent since last September as investment losses hit balance sheets.

Several life insurers, including Prudential Financial, the second-largest U.S. life insurer, and Hartford Financial Services, have applied to the U.S. Treasury for federal funds earmarked to help stabilize financial services firms.

Already, there are signs of deal activity. Hartford, a large life and property insurer, is trying to sell its property business, while Lincoln National Corp. is auctioning its Delaware Investments asset management business, sources have told Reuters.

Life insurers have an incentive to buy weaker rivals because they will end up paying anyhow if companies fail.

Like bank depositors, policyholders are protected up to a certain amount by a safety net when there are failures. Insurers, regulated by states, have to pay into a state guarantee association system to cover obligations when another insurer goes under.

“And they would rather keep the confidence level up of the consumers by stepping in and acquiring rather than having a failure,” Dinallo said.


American International Group Inc., which had to be rescued by the U.S. government in a massive bailout, is also trying to sell businesses and Dinallo’s office has been involved.

Asset dispositions by AIG have been “frustratingly” slow, Dinallo said, but he added that AIG Chief Executive Edward Liddy was “doing the best he can.”

After a bailout in September, AIG hoped to pay back the government with quick assets sales but was thwarted by the financial crisis and lack of credit.

“The plan made a lot of sense because we thought that Ed Liddy could immediately sell big, chunky amounts. And then the market deteriorated fast and furious and the credit pulled away,” Dinallo said.

“There is this very difficult balance between not engaging in fire sale transactions but keeping the process going so that the American taxpayer can see some progress,” he added.

(Reporting by Paritosh Bansal, additional reporting by Lilla Zuill; Editing by Tim Dobbyn)