Washington — Consumer groups are calling for the National Association of Insurance Commissioners (NAIC) to reject a plan forwarded by the American Council of Life Insurers (ACLI) to loosen capital requirements to help life insurers meet required reserve levels amid falling stock prices and a worsening economic climate.

“The American Council of Life Insurers strongly supports efforts by the National Association of Insurance Commissioners to explore changes to reserve and capital requirements,” says ACLI President Frank Keating. “At a time when our nation’s economy is in turmoil, state regulators are taking prudent steps to ensure these requirements are protecting consumers’ interests and allowing life insurers to best serve their policyholders.”

The ACLI request includes nine specific items that propose changes to reserving, risk-based capital, reinsurance collateral and accounting requirements.

In a dispatch to the NAIC's Capital and Surplus Relief Working Group, the Consumer Federation of America and the Center for Economic Justice suggest less-stringent reserves requirements could imperil life and annuity policyholders. The proposal, which addresses life insurance reserves; annuity reserves and risk-based capital; risk-based capital for investments; and accounting for deferred tax assets, was brought before the working group earlier this month during the NAIC's national meeting in Grapevine, Texas.

"It is simply incomprehensible that state regulators now want to weaken the very standards they trumpeted just a few short weeks ago," says J. Robert Hunter, the CFA's director of insurance. “State regulators should be ashamed of themselves for putting industry interests so far ahead of the interests of consumers.”

Keating says, “ACLI has submitted a proposal for the NAIC’s consideration that would bring flexibility to the current system of calculating reserves, which is overly conservative and sets standards that are above and beyond what is reasonably needed for insurers to meet their obligations,” he says. “Current rules force companies to tie up capital that could be used, among other things, to provide more competitively priced products to a broader range of consumers, and to invest even more into the U.S. economy. In effect, the changes would modernize reserving rules by setting rules for appropriate level of reserves while allowing for sufficient capital to be used to carry on normal business operations.”

Professor Joseph Belth of Indiana University echoes some of the consumer groups’ concerns. In a letter to the group, Belth wrote, "regulators should retain their conservative statutory accounting rules in order to encourage the 'solidity' of insurance companies, especially those issuing contracts that span several decades."

"I urge regulators to abandon this rushed and secretive effort to provide capital relief for life insurance companies until there has been an opportunity to determine, through a careful, deliberate, and open process, (a) whether the relief is needed, (b) the extent of the relief needed and (c) whether the relief is in the long-term best interests of the insurance-buying public," Belth continued.

NAIC held a meeting on Jan. 2, 2009 to discuss the ACLI request. First requested by the ACLI in November 2008, the appeal comes during a time of unprecedented national economic challenges.

“Over the past two months, we have worked diligently to inform ourselves of what is being requested, as well as what might be necessary and possible,” says NAIC President and New Hampshire Insurance Commissioner Roger Sevigny. “While many of the ACLI’s requests have been under consideration by insurance regulators for quite some time, I can assure that careful deliberation will be exercised before any action is taken.”

The NAIC formed the Capital and Surplus Relief Working Group to review the ACLI request. The Working Group then enlisted the aid of several NAIC technical groups to provide their initial analyses of the ACLI proposal. In addition to a public comment period that ended Dec. 26, 2008, the Working Group will hold a public hearing on Jan. 27, 2009, from 10 a.m. to 2 p.m. in Washington, to gather additional comments and information.

Written comments should be submitted by Friday, Jan. 23, 2009, to Todd Sells at tsells@naic.org.

“State regulators hold insurers to conservative solvency standards to provide the ultimate protection to consumers—making sure a company will be able to pay claims,” Sevigny adds. “We will not contemplate making any changes that would negatively impact existing consumer-protection measures.”

For more information, visit the NAIC Capital and Surplus Relief Working Group Web page.

Sources: NAIC, ACLI, AM Best

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