Regulators will discuss 2 additional proposals, and possibly a third, on reserving for hybrid securities at upcoming meetings.
In talks to be held Aug. 24-31 by the National Association of Insurance Commissioners, Kansas City, Mo., regulators hope to advance a short-term proposal on reserving for hybrids. The draft proposals would be presented at the fall national NAIC meeting in St. Louis Sept. 9-12.
Rating treatment of hybrid securities by the NAIC’s Securities Valuation Office raises concern among both insurers and Wall Street because of the potential impact on the market for these investment vehicles as well as the risk-based capital and reserving charges companies will face because of these ratings. Ratings would reflect the heavier charges for hybrids, which are more like common stocks than they are like bonds.
The goal of the effort is to “balance the potential additional capital in the short run with a clear message that will facilitate those changes without rattling the markets,” according to Lou Felice, a New York regulator chairing the working group.
Jim Renz, director-accounting policy with the American Council of Life Insurers, Washington, says if changes are made, then a “proper” rather than a “quick” solution is needed, even if that means holding off on a final decision until after the fall national meeting.
The new scenarios are in addition to 3 proposals submitted to the NAIC that are already available for comment. And the ACLI is promising to develop a scenario of its own to be considered during the exposure period.
The two new scenarios are: