SVO Streamlining Moves Forward

Revenue generated from SVO filing fees totaled $6 million and $7 million in 2001 and 2002, respectively, exceeding budgeted amounts of $5.7 million in each year, according to NAIC CFO Brady Kelley. Revenue budgeted for 2003 is $6.1 million, he says.

“It is very difficult to respond specifically in terms of revenue generated from 1- and 2-rated securities vs. 3-6 rated securities,” Kelley says, “primarily because the composition of these security filings can fluctuate significantly from year to year. Fluctuations are driven by market conditions, various factors affecting the capital markets and the investment strategies of the industry.”

According to Kelley, an NAIC evaluation of the proposal, “based on the actual filing volumes in 2001 and 2002, estimates a 43% impact on the $6.1 million revenue budget from SVO filing fees.

“Of the 45.8% population of rated securities filed with the SVO, approximately 43% is comprised of those securities designated NAIC 1 or 2, while the remainder relates to rated securities designated NAIC 3 through 6.”

Regulators want the revenue neutrality project to run parallel to the Jan. 1, 2004 timeframe, the effective date of the first phase of the streamlining project.

The New York proposal would be implemented in two stages. Phase I involves exempting 1 and 2 securities and Phase II would ultimately exempt 3-6 securities. A general goal of the project would change the deployment of SVO resources to act more as an analytic tool for state insurance regulators.

Regulators expressed support for the project if revenue neutrality is established and the SVOs work “fits into the larger mechanics of departments and examinations.”

The industry also has enthusiastically supported the effort. Among the trade groups supporting adoption of the streamlining effort 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 Assocation of Mutual Insurance Companies, Indianapolis.

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

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

The project is a benefit to the industry, but how funding for the streamlining is resolved is a concern for insurers, says Bill Boyd, financial regulation manager with NAMIC. Currently, he explains, 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.

Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.