AAA Asks Insurers To Tell It About Hybrids

A team at the American Academy of Actuaries is taking an in-depth, “blank sheet” look at risk assessment of hybrid securities.

Nancy Bennett, chair of the invested asset working group at the AAA, Washington, gave a rundown of the working group’s efforts recently during a conference call organized by the hybrid risk-based capital working group at the National Associational Association of Insurance Commissioners, Kansas City, Mo.

Bennett, a vice president with Ameriprise Financial Inc., Minneapolis, said the working group has developed a set of questions for insurers to help it get a better understanding of the hybrid market.

The questionnaire includes general questions about the nature of the hybrid market and specific questions about how the responding companies manage their own hybrids.

The working group will look at the concerns facing the interested parties, including the NAIC’s Securities Valuation Office, Bennett said.

If all goes well, the working group could have a preliminary report available in time for the NAIC’s summer meeting in June, Bennett said.

The working group could end up reviewing the RBC factors for assets as well as for liabilities, or even considering ways to apply a “principles-based” approach to actuarial analysis to the asset side of RBC calculations, Bennett said.

“Many of the asset factors have not been looked at in a long time,” Bennett said.

The practicality of taking a principles-based approach to RBC asset calculations still needs to be explored, Bennett said.

During the conference call, Mary Kuan, a vice president with the Securities Industry and Financial Markets Association, New York, repeated arguments previously made by SIFMA and the American Council of Life Insurers, Washington, that rating agencies’ hybrid ratings already capture any risks that hybrid securities might pose for insurer-investors.

The SVO has argued that rating agency ratings of hybrids may not reflect all relevant risks.