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March 25, 2005 at 07:00 PM
NU Online News Service, March 25, 2005, 10:51 a.m. EST
U.S. life insurers still are struggling to meet reserve funding requirements set by regulators 5 years ago, according to a leading corporate rating service.[@@]
To meet the reserving requirements, life insurers often are covering long-term debt with short-term instruments such as 1-year letters of credit, according to a report from Standard & Poor’s Ratings Services, New York. The big problem with 1-year LOCs is that they carry a significant rollover risk because they must be renegotiated every year, S&P points out.
The advent of Regulation Triple-X in 2000 and Actuarial Guideline A38 in 2003 forced the industry to set aside added reserves for life insurance policies that cover a term as long as 60 years. These rules are based on conservative mortality assumptions that date back to the 1970s and force insurers to set aside the same reserve levels for policyholders who live healthy lifestyles as those who lead unhealthy ones, S&P says.
