Hedge Against Inflation

After five years, the Prudential Insurance Co. last week won a major victory in its campaign for variable annuities, a new type of insurance designed to protect policyholders against inflation. Under the plan, annuity payments vary according to the price of common stocks in which premiums are invested, a sharp contrast to conventional annuities, which guarantee fixed payment based on traditional insurance company investments, such as mortgages.

The company, with headquarters in Newark, N.J., won approval by the New Jersey senate of bills, previously okayed by the general assembly, allowing the sale of variable annuities. (Governor Robert B. Meyner is expected to sign the bills. ) In getting the first such state law, the Pru opened the door to sale of the policies by major insurance companies. To date, only three small companies have experimented with the policies in other states that have no laws regulating them.

The Pru faced strong opposition against variable annuities from top-ranking Metropolitan Life Insurance Co., the New York Stock Exchange and mutual funds. They charged that the new policies will change the traditional insurance concept of providing a fixed return on investments. and will put insurance companies in the securities business.

Countered Prudential President Carrol M. Shanks (TIME, March 18, 1957) last week: "The traditional approach to a retirement program has become inadequate and must be supplemented by some new economic weapon that will allow a retiring citizen to share in the economic growth of the country, and at the same time have some chance of protection against any impact of inflation. The variable annuity is the most promising weapon yet developed."

Despite the opposition, there seemed little doubt that other big insurance companies will have to institute variable annuities to meet competition when the Pru begins in some months. Still to be drawn up are the New Jersey Banking and Insurance department regulations governing the sale of variable annuities. Once the policies are approved on the state level, a recent Supreme Court ruling requires that they be registered with the Securities and Exchange Commission.

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