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Msg  5449 of 5573  at  3/17/2023 4:59:57 AM  by

jerrykrause


Principal CEO on How the Banking Turmoil Could Hit Insurance Companies

 

Principal CEO on How the Banking Turmoil Could Hit Insurance Companies

 

Principal Financial Group's decision to exit the annuity business will help limit the fallout on the company from the jitters that have rocked the financial industry over the past week, according to CEO Dan Houston.

Turmoil has rippled through the banking sector since Silicon Valley Bank was closed by regulators last Friday amid a liquidity crisis.

Annuity businesses like the one that Principal announced it was exiting in 2021 have the potential to cause liquidity concerns, Houston told Barron's on Wednesday: "The reality is today, if you're an insurer, and you have a large annuity business that introduces liquidity as one of the options, it's certainly one of things they'll have to look to."

The fixed annuities that Principal Financial sold were the kind where consumers hand over a lump sum in exchange for guaranteed income, either now or in the future, in the case of deferred annuities. Selling the business was a way to reduce risk and complexity, Houston said in a statement at the time.

On Wednesday, Houston applauded the Biden administration for stepping in to restore confidence in the banking system after the collapse of Silicon Valley Bank and the subsequent failure of New York-based Signature Bank. The government promised to make all depositors whole, even those who held more than the $250,000 limit on FDIC insurance. "I actually think a lot of things have gone right, since last Thursday or Friday at this point," Houston said.

For now, the risk of contagion seems contained, he added. "When you think about the great financial crisis, what led up to that, there's always some small catalyst," Houston said. "It does make you start to wonder, is this the soft underbelly of the current economy, with some of these small regional banks failing? And I don't think [so] yet."

Principal's stock price has fallen over the past week alongside the broader financial industry, although it recovered some ground on Thursday, as did its peers. The company has a diversified revenue stream that will help the company weather any storm, Houston said. "Our entire sector is under a lot of pressure," Houston said. If investors thought Principal stock was a good deal a month ago, he added, "you'd really love it today."



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