The nation's large life insurance companies have quietly begun exploring the establishment of a giant emergency fund that could provide short-term assistance to cash-strapped insurers.
The fund, which would be financed by the companies themselves, would probably be modeled after the Federal Reserve's lending program for distressed banks.
jTC As the Fed acts as a lender of last resort to banks whose cash is being depleted by depositor withdrawals, the insurance fund would be used to rescue insurers that are financially sound but unable to handle an onslaught of policyholders seeking refunds.
"The plan should keep policyholders from panicking at the first hint of trouble," said David S. Hochstim, a financial institutions analyst at Bear, Stearns & Company. "Such panics can themselves cause a crisis for even healthy institutions."
The idea of creating an emergency fund is in the embryonic stage.
Nothing firm has been put on paper and the obstacles to establishing such a fund are numerous and formidable -- from deciding how much each insurer would contribute to making sure the fund was not used to bail out incompetent managements.
Indeed, industry experts say the chances are against such a fund being created.
But the fact that top insurance executives are talking about such a program is testimony to the extraordinary change that has swept through the industry.
Executives hope that the existence of such a fund could avert the type of policyholders' runs that led regulators earlier this year to seize three giant life insurers: Executive Life and First Capital Life of California and Mutual Benefit Life of New Jersey.
"Financial institutions are confidence games," said Michael W. Blumstein, an analyst at Morgan, Stanley. "So anything you can do to bolster the confidence of policyholders has got to be viewed positively."
Life insurance industry executives were unwilling to talk about the loan-fund discussions, saying that even publicizing the subject could rattle already-nervous policyholders.
But people familiar with the effort say it is being led by Ian M. Rolland, the chairman and chief executive of the Lincoln National Life Insurance Co.
Rolland is also the chairman of the newly formed solvency committee of the American Council of Life Insurance, the industry's Washington-based trade group.