Life Insurer Ploy Said To Threaten System

A complex financial maneuver being utilized by some life insure companies, including one company that has been designated “too-big-to-fail,” comes under scrutiny in an AP article that appeared in Insurance Journal. “I think that the industry is headed for serious trouble with this,” said Joseph M. Belth, a professor emeritus of insurance at Indiana University who has been investigating the practice, which involves creating wholly owned subsidiaries that assume some of the companies’ liabilities. This allows them to reduce the amount of reserves they are required by regulation to hold and, as the Insurance Journal article observes, to free up cash so they can “pay dividends, make acquisitions and increase executive pay, all while shaving their federal tax bills.” Professor Belth, calling it “a shell game,” has filed a lawsuit that seeks documentation regarding the companies from regulators in Iowa, which is one of the states that has taken the lead in allowing the practice. Some state regulators defend the arrangement, maintaining it’s not problematic per se and can be done responsibly.