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June 12, 2006 at 08:04 AM
Failing to decide on whether hybrid securities are debt or equity would cause investors to shy away from the insurance sector and could jeopardize some carriers’ financial stability, insurers and investment bankers warned the National Association of Insurance Commissioners during its summer meeting here.
But the remarks were countered by regulators who insisted that it was their duty to consider the complex issue carefully before reaching a decision.
Ultimately, n NAIC unit decided to defer a decision on the treatment of hybrid securities until regulators figure out how they should be treated in an insurer’s portfolio.
In a 9 to 5 vote, the Valuation of Securities “E” Task Force of the NAIC, Kansas City, Mo., deferred a compromise solution that would have grandfathered hybrid securities issued before June 11, 2006, and treated them as debt rather than as common stock. Hybrids issued after that date would have been treated as common stock under the shelved proposal, which was put forth during the NAIC’s summer meeting here.
The issue affects the risk-based capital charge that a company is assessed. The charge for common-stock treatment is higher than for securities categorized as debt or as preferred stock. That common stock charge is 30% for life companies and 15% for property-casualty companies.
The VOS decided to hold an interim meeting to get more input and make a careful decision on the issue. By press time, the date of the meeting had not been announced.
Howard Mills, New York Superintendent of Insurance, said he hoped the decision to give the issue a more careful examination would give the markets more clarity.
