Mills Tells NAIC To Hold Back On Hybrid Securities

The SVO ruled in the spring that at least some hybrid securities should be treated as stock, rather than debt securities, in assessments of insurers' risk-based capital levels.

The SVO assumes that stock holdings are riskier than debt holdings, and it assigns stock a lower weight than bonds when computing RBC ratios.

Insurers and hybrid securities issuers have complained bitterly about the SVO ruling, arguing that uncertainty about the risk classification of hybrid securities is hurting the market for those securities, and that treating the securities as stock could cause big problems for some insurers that have purchased the securities.

"Although there have been some varying estimates as to the economic impact [of the SVO ruling], it is our view that even a 1% negative impact on total industry holdings in excess of $40 billion is significant when the basis for the classifications are, for all intents and purposes, not subject to disclosure," Mills writes in his letter.

Commissioners talked about hybrid securities at the NAIC's recent summer meeting in Washington, and the NAIC says they plan to take up the matter again soon at an interim meeting.