Consumer Groups Warn NAIC Against Loosening Capital Requirem

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

In correspondence 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. State regulators should be ashamed of themselves for putting industry interests so far ahead of the interests of consumers," said J. Robert Hunter, the CFA's director of insurance.

Some of the consumer groups' concerns were echoed by professor Joseph M. Belth of Indiana University. In a letter to the group, Belth said "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 wrote.

The ACLI contends the current system of calculating reserves is overly conservative and forces companies to tie up capital that could be used to provide more competitively priced products. In a statement, ACLI President Frank Keating said the group "looks forward to working with state insurance regulators at the NAIC as they work to address the unique challenges we face."

In its preliminary recommendations, the working group approved provisions of the proposal that would affect mortality tables and would facilitate commissioners' discretion for allowable collateral for reinsurance, among other changes. Proposals where alternates were suggested would affect stand-alone asset adequacy and Generally Accepted Accounting Protocols.

District of Columbia Insurance Commissioner Thomas Hampton, leader of the working group, has said a finalized proposal could be approved by the NAIC Executive Committee the first week of January.

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)