The National Association of Insurance Commissioners (NAIC) is considering a request from the American Council of Life Insurers (ACLI) to provide capital and surplus relief for life insurance companies. In its request, ACLI proposed nine changes that it believes would provide insurers with relief from current, overly conservative reserve and risk-based capital requirements. The request was driven by recent market disruptions, which have weakened life insurers’ balance sheets, increased their reserve requirements and reduced their ability to access capital markets to finance required reserves.

Many of ACLI’s proposals have been under consideration by the NAIC for some time, but ACLI has requested the NAIC accelerate implementation of the proposals so they would apply to 2008 statutory financial statements. The NAIC formed the Capital and Surplus Relief Working Group to review and quickly respond to the request. The working group sought input from several NAIC technical groups, received comments from various interested parties, and held working group meetings to develop its response to ACLI’s proposals. We have provided below a table summarizing the NAIC working group’s consensus recommendation for each ACLI proposal.

Several commentators support the ACLI proposals and the working group’s recommendations regarding implementation, but others have expressed concern that, given the recent failures of financial service firms, now may not be an appropriate time to loosen solvency standards. In addition, some commentators have argued that the NAIC process in considering these issues lacks sufficient transparency and public accountability.

The NAIC has yet to implement any of the ACLI proposals and has announced that it will hold a public hearing on January 27, 2009, to further discuss capital and surplus relief. The NAIC has posted on its website details of the public hearing, along with the ACLI request, reports of the NAIC technical groups, public comment letters, and the working group’s report. See http://www.naic.org/committees_ex_capital_surplus_relief.htm. (Also see table)