Life insurers are continuing to press for different treatment of hybrid securities by the National Association of Insurance Commissioners and claiming that failure to do so could be costly to companies and unsettling to the capital markets.
At issue is whether such securities are treated as debt or equity and the risk-based capital charges incurred as a consequence of their classification.
In response, Alessandro Iuppa, NAIC president, reiterated that the NAIC’s New York-based securities valuation arm, the Securities Valuation Office, is “not a rogue operation but functions under a set of guidelines established by regulators.” Iuppa added that the SVO’s decisions are “consistent with responsible regulation.”
Iuppa made his remarks in a letter dated June 19. The NAIC reiterated its support for the SVO’s position in a June 22 press release.
The issue was raised during the NAIC’s summer meeting earlier this month and will be brought up again during a public hearing being planned this summer. At press time, details of the hearing were not available.
The American Council of Life Insurers, Washington, and the Bond Market Association, New York, are criticizing the handling of the issue during the summer meeting and are calling for clear guidance and greater transparency over how hybrid securities will be addressed.
Frank Keating, ACLI president and CEO, says the handling of the hybrid securities issue during the summer meeting is “extremely disturbing” to ACLI’s member companies. “A clear disregard for the very legitimate concerns of the insurance industry and the capital markets was evidenced by the decisions that were made, as well as the decisions that were not made,” he said in a June 15 letter.