NEW YORK -- Today's planned seizure of the Mutual Benefit Life Insurance Co. is likely to have a significant impact on the debate in Washington over insurance regulation.
The seizure of Mutual Benefit, a blue-chip company, is expected to bolster support for federal regulation.
The takeover of the largest insurer today could could weaken confidence in the industry, some experts are predicting. Insurance executives have been arguing that stronger oversight by the states would be adequate to solve the industry's financial problems -- bad real estate loans, too many investments in high-risk "junk bonds" and too thin a cushion against losses.
Mutual Benefit's difficulties are expected to tilt the debate in favor of those who argue that the government should at least get involved in regulating insurers' investments.
"Mutual Benefit was no Executive Life," said Joseph M. Belth, an Indiana University insurance professor, referring to the West Coast insurer that failed recently after it bet almost half its policyholders' money on junk bonds.
"Mutual Benefit was an old-line, conservative, stodgy company with a modest growth rate. The time has now come for some dramatic action to restore public confidence," he said.
Indeed, the most important consequence of New Jersey's action could be its effect on the public's faith in insurers.
When he asks a judge in New Jersey Superior Court to place Mutual Benefit under the protection of the state, the New Jersey insurance commissioner, Samuel F. Fortunato, also planned to ask the court to impose an immediate freeze on all cash withdrawals from the company.
That freeze could easily last through the rest of the year, industry experts said. The freeze will make it impossible for policyholders to withdraw money.