U.S. Halts Inquiry Into Insurer Moves on Bank Annuities

The New York Times
June 3, 1995

The Justice Department said yesterday that its antitrust division had dropped an investigation into efforts by the insurance industry to prevent banks from issuing annuities, a popular form of retirement savings.

This means that life insurers and, in particular, their large trade group, the American Council of Life Insurance, can continue their campaign, attempting to persuade state insurance regulators and Federal officials that banks should not be allowed to issue annuities. Banks have become rapidly growing players in the annuity industry, which has historically been dominated by insurance companies.

Last year, for instance, more then $75 billion in annuities were sold. Most of the annuities sold in bank lobbies were issued by insurance companies. More recently, however, banks have been seeking to issue what they call C.D. annuities that are backed by Federal deposit insurance. That would give them a safety advantage over annuities sold directly by the insurance companies, which are backed only by the insurance company.

The investment performance of an annuity depends on its underlying holdings. Those sold by insurance companies are often clones of popular mutual funds, and thus have a potential for doing better -- or worse -- than a certificate of deposit. The insurance "wrapper" as it is known gives annuity holders certain death benefits and tax-deferral, but also entails fees and costs that an investor would not incur by buying a mutual fund outright.

"This ruling means that we will continue to operate as we always have," said Ken Vest, a spokesman for the American Council of Life Insurance. "We will be filing and intervening and remaining active in state courts, and we will be lobbying on the Hill here in Washington."

In a statement, the insurance council said that it had been "confident" that a review of its activities "will lead to the conclusion that the council operated well within the letter of law." It added that "today's decision confirms that view." The Insurance Council also said that in its lobbying activities it "fully complied with all applicable laws in the conduct of its activities," and it blamed the media for "a good deal of misinformation" about its activities.

Annuities are typically purchased for a one-time lump-sum payment and held for a number of years, often on a tax-deferred basis. The annuity provides a series of payments, typically for retirement, over the buyer's lifetime.

The Justice Department began the investigation over concerns that the insurance industry campaign may have illegally restrained trade and violated the Sherman Antitrust Act. The investigation was believed to be the first by the Justice Department into the insurance industry since the passage of the McCarran-Ferguson Act of 1945. That measure exempted the insurance industry from Federal regulation and antitrust laws, except in cases of boycotts or restraint of trade.

William Brooks, a Justice Department spokesman, confirmed that the investigation had been dropped, but gave no details as to why.

The investigation arose from complaints by the American Deposit Corporation, an upstart Denver bank that began offering to help banks issue annuities with the same tax advantages as those sold by insurance companies. Federal banking regulators had approved the annuities.

At that time, Dennis M. Gingold, a Washington lawyer and co-owner of American Deposit, said that the insurance industry's lobbying campaign against his activities was a "concerted effort to use the state regulatory apparatus in an effort to delay and harass us." Other lawyers for the bank contended that the insurance industry was engaged in a "conspiracy" to protect their traditional preserve.

Copyright © 1995 by The New York Times Company

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