(Bloomberg) — After Symetra Financial Corp. was formed in 2004, the life insurer set up shop in a 25-story glass tower outside Seattle, put its name on the building and pushed the state to adopt more favorable rules for its business.
The company advocated for a law to reduce its cost of investing in derivatives, saying that without the change it might have to move somewhere more welcoming. The bill languished in the Washington state legislature last year, and in January Symetra made good on its promise. It said it would switch the legal domicile of its main life insurer to Iowa.
"We're looking for a level playing field to more effectively compete with other life insurance companies," Diana McSweeney, a Symetra spokeswoman, said in an e-mail.
Symetra is joining insurers including Baltimore's Fidelity & Guaranty Life that are relocating to Iowa or expanding there, lured by what they consider a better regulatory climate. The ability of insurers to choose the most favorable of 50 state watchdogs has caught the attention of U.S officials, who say the oversight system needs more consistency.
"I'm not completely thrilled when I see companies moving domiciles," said Jeffrey Stempel, a law professor at the University of Nevada, Las Vegas, who specializes in the insurance industry. "It's usually because they think the regulator will let them get away with more."
State insurance regulators meeting this weekend in Orlando, Florida, are under pressure to reach consensus on rules to head off potential efforts by Congress or U.S. agencies to erode their authority.
Third Largest
About 8.4 percent of Iowa's economic activity comes from its insurance industry, the third-largest in the U.S. by that measure, according to the state's economic development agency. Since the late 1980s, 25 life insurers have switched domiciles to Iowa and 14 have left, Tom Alger, a spokesman for the state's regulator, said in an e-mail. The state is now home to 29 life carriers.
The Des Moines insurance industry employs about 24,100 people, according to the Bureau of Labor Statistics. Another recent arrival is Athene Holding Ltd., controlled by Apollo Global Management LLC and run by former American International Group Inc. executive James Belardi. The Bermuda-based insurer purchased Aviva Plc's U.S. life and annuity business last year and is moving products and operations from Delaware and South Carolina to Aviva's West Des Moines facility.
In an e-mail, Belardi praised the "strong talent pool" in Des Moines and Iowa's "very fair regulatory environment."
Nick Gerhart, the Iowa insurance commissioner, said his state takes a "balanced and measured" approach to regulation.
Consumers First
"We take our steps to protect consumers first, but we're also open to discussions with industry," Gerhart said in a phone interview. Letting insurers choose regulators isn't problematic, Gerhart said, because every state meets standards set by the National Association of Insurance Commissioners.
Symetra Chief Executive Officer Tom Marra and Fidelity & Guaranty CEO Lee Launer have lauded Iowa's approach to indexed insurance products, which some consumer groups have criticized as potentially risky retirement vehicles. The contracts, which include life insurance and annuities, tie increases in a client's account balance to changes in a benchmark such as the Standard & Poor's 500 Index.
Insurers also have said that Iowa places fewer restrictions than other states on firms that seek to transfer liabilities to affiliates known as captives.
Derivatives Bill
For Symetra, derivatives were another reason to move. The firm, formerly the life insurance unit of Safeco Corp., wanted Washington state to change its laws so that in the event of an insolvency, counterparties in derivative transactions would be in front of other creditors. That would have enabled firms like Symetra to invest in the instruments at lower cost, in line with rules adopted by more than 20 states, according to an estimate from the American Council of Life Insurers, an industry group.
The company said in its 2012 annual filing that the absence of such a law could force it to switch domiciles.
Symetra "had to put up a lot of collateral whenever they did a derivative hedging trade, and so that collateral made it a real pain in the butt," said State Senator Mark Mullet, a Democrat, who co-sponsored the bill backed by the firm. "It really reduced the amount of people who would accept them as a counterparty."
The reasoning failed to move state lawmakers. "A lot of the elected officials heard the word 'derivatives' and just panicked," Mullet said.
'Leading Way'
Iowa already treats counterparties as first in line. So Symetra decided to move its domicile to the state. It plans to keep 900 employees in its Bellevue, Washington, headquarters and hire about 40 in Des Moines, about 3 percent of its workforce of 1,230, the company has said.
Iowa is "leading the way" on many important rules, Symetra's McSweeney said by e-mail.
