On January 27, at a public hearing held in Washington, D.C., the Capital and Surplus Relief Working Group of the National Association of Insurance Commissioners (NAIC) approved a proposal to relax certain capital and surplus requirements for life insurers.1 The Working Group promptly forwarded the proposal to the NAIC Executive Committee for consideration on an “emergency” basis.
On January 29, the NAIC Executive Committee, meeting by teleconference, declined to consider the proposal on such an emergency basis. While not rejecting the proposal outright, NAIC President and New Hampshire Insurance Commissioner Roger Sevigny stated that, “so far the insurance industry is in much better condition than most of the rest of the financial services sector because of strong state solvency regulations.” Commissioner Sevigny added, “simply put, the industry has not made a credible case for why we need to make changes on an emergency basis, and why those changes should be limited to the specific proposals made by the industry.”
The proposal initially submitted to the NAIC by the American Council of Life Insurers (ACLI) in November 2008, contained nine specific items that would involve changes to reserving, risk-based capital, reinsurance collateral and accounting requirements. Of these, the NAIC Capital and Surplus Relief Working Group approved six for emergency action. The decision by the Executive Committee against emergency action means that these six items will now wait to be addressed through the NAIC’s standard protocol.
One of the items would have accelerated the effective date of certain revisions to variable annuity actuarial guidelines that, while already adopted by the NAIC, are not scheduled to become effective until year-end 2009. These revisions would eliminate a standalone asset adequacy test requirement that may overstate the aggregate liability associated with an insurer’s variable annuity contracts and require the insurer to maintain unnecessarily high reserves and risk-based capital. We have no information at this point on whether the NAIC’s procedural timeline will allow for any meaningful acceleration.