NU Online News Service, Nov. 12, 4:06 p.m. — Washington

The American Council of Life Insurers, Washington, will formally pursue optional federal chartering of life insurance companies, the ACLI board said today.

The board voted to formally endorse optional federal chartering at its annual meeting in Boston, after more than a year of study.

ACLI has termed regulatory reform a “survival issue” for life insurers.

“Regulatory reform and modernization is crucial to the continued success and competitiveness of life insurers,” said Joseph Gasper, president of Nationwide Financial Services Inc., Columbus, Ohio.

“In today’s rapidly evolving financial services marketplace, life insurers no longer compete only with one another,” Gasper says, “but with banks and securities firms as well.”

Gasper says banks and securities firms, due to more streamlined and centralized regulatory systems, can usually bring products to the national marketplace within 30 to 90 days.

This contrasts with six to 18 months for life insurers, he says.

“Failure to reform insurance regulation would pose a competitive burden that may threaten the viability of the life insurance industry,” Gasper says.

Gasper is the incoming ACLI board chairman.

ACLI formally began exploring optional federal chartering in June of 2000. About one year later, ACLI released a draft proposal on the issue, but it did not formally endorse federal chartering until today.

The ACLI proposal would create an Office of National Insurers at the Treasury Department, headed by a director who would be appointed by the President and confirmed by the Senate.

The director would be appointed for a five-year term.

ONI would have authority to conduct regular financial examinations of federally chartered insurers and prescribe all necessary regulations.

The ACLI proposal would require federally chartered insurers to meet specified requirements regarding accounting principles, investments, asset valuation, risk-based capital and auditing standards.

Federally chartered insurers would still be subject to all state taxes that apply to state-chartered companies.

The ACLI proposal does not establish a federal guaranty fund. Rather, to acquire a federal license, insurers would have to be members of a “qualified” state guaranty association in each state in which the insurer does business.

A “qualified” association is defined as one that provides coverage and benefits similar to those under the Life and Health Guaranty Association Model Act developed by the National Association of Insurance Commissioners, Kansas City, Mo.

However, a backup mechanism called the National Insurance Guaranty Corp. would be established to cover insurers that do business in states that do not have qualified associations.

The ACLI proposal also calls for federal licensing of insurance agents. Insurance agents would be required to obtain a federal license to sell insurance for a federally chartered insurers.

The ACLI proposal only covers life insurers at the outset. However, health insurance would be included as a regulated line for federally chartered life insurers on the third anniversary of the effective date of the proposal.

There is no provision in the ACLI proposal regarding property-casualty insurance.

While approving optional federal chartering, the ACLI board also said it will continue to devote all resources necessary to working with the NAIC on improving state insurance regulation.

ACLI says it expects Congress to hold hearings on federal chartering of life insurers in the spring of 2002.