SVO Streamlining Moves Forward

The full NAIC must approve both the rating exemptions and revenue neutrality provisions before the NAIC can start streamlining the SVO.

New York Insurance Superintendent Greg Serio has promoted the streamlining effort. The effort would have two stages. Phase I involves exempting securities with 1 and 2 ratings, and Phase II would eventually exempt securities with ratings of 3 to 6. Supporters of the effort hope it will reduce the amount of time SVO staff members spend reviewing simple securities that have already been reviewed by the major rating agencies and increase the amount of time the staff members spend helping state insurance regulators analyze insurer portfolios.

Regulators should be able to make the SVO “our think tank, our research arm,” Serio said during a discussion of the streamlining effort.

Regulators expressed support for the project if the NAIC can maintain revenue neutrality and the SVO’s work fits into the “mechanics of departments and examinations.”

Insurance industry groups have enthusiastically supported the streamlining effort. Among the trade groups supporting adoption are the American Council of Life Insurers, Washington; the American Insurance Association, Washington; the Alliance of American Insurers, Downers Grove, Ill.; the National Alliance of Life Companies, Rosemont, Ill.; the National Association of Independent Insurers, Des Plaines, Ill.; and, the National Association of Mutual Insurance Companies, Indianapolis.

The change will “help regulators supervise the industry in an efficient and appropriate manner,” says Bill Schreiner, an ACLI life actuary.

There will be a great savings of staff time for companies, Schreiner adds.

Bill Boyd, financial regulation manager with NAMIC, says the streamlining effort will help the industry, and he concedes that a $2 million to $3 million reallocation of SVO revenue would be small compared with the enormous size of insurance company investment holdings.

But how the NAIC resolves the funding issue is a concern for insurers, Boyd says.

Currently, Boyd says, companies with very conservative investment policies that include highly rated securities pay very little to the SVO for ratings. Under a revised system of payment, these costs could increase if companies have to contribute to make up the difference in revenue the SVO receives for rating securities.

About the issue of making the SVO the “eyes and ears” of regulators, Boyd says NAMIC would have reservations if that role entailed analyzing individual companies’ portfolios periodically or during regular financial examinations.