Members of a National Association of Insurance Commissioners panel have recommended that the NAIC plenary adopt most of a capital and surplus rules change proposal developed by the American Council of Life Insurers.

The NAIC’s Capital and Surplus Relief Working Group at the NAIC, Kansas City, Mo., met in Washington Tuesday to consider the proposal, which was presented to the NAIC, Kansas City, Mo., in November 2008 by the ACLI, Washington.

The ACLI says adopting all 9 components of its proposal as written would bring the rules governing life company capital and surplus requirements up to date, freeing up about $25 billion to $30 billion in capital, or about 6% to 7% of life insurers’ 2007 adjusted capital.

Working group members voted on the proposal point by point.

The plenary, the NAIC body that includes all voting NAIC members, is scheduled to hold a final vote on the proposal Thursday.

The working group members voted as follows:

- Recommendations that address the use of preferred mortality tables and the use of original mortality tables in relation to the principles-based reserving project were adopted, with dissents from Maine and Wisconsin.

- A recommendation to eliminate constraints in Regulation Triple-X for the calculation of X factors was adopted with dissents from Maine and Wisconsin.

- A recommendation that addresses allowable collateral for reinsurance was adopted.

- A recommendation to advance work on Actuarial Guideline VACARVM, which deals with variable annuities, was adopted. Maine and Wisconsin voted against the proposal and New York abstained.

- A recommendation to reject a retroactive use of Section 8C of Actuarial Guideline 38 was unanimously adopted.

- An ACLI request to waive the standard scenario requirement for capital calculations associated with the C3-Phase II project for variable annuities with guarantees was rejected unanimously.

- An ACLI request to temporarily change the mortgage experience adjustment factor was rejected unanimously.

- A recommendation to relax restrictions on deferred tax assets was adopted, with a dissent from Maine. The original proposal, which allows deferred tax assets to be recognized over a 3-year period, was amended with a proposal from Wisconsin Insurance Commissioner Sean Dilweg.

The DTA amendment restricts the ability of companies to use any additional surplus to pay out dividends. Additionally, companies with risk-based capital ratios that are below acceptable trend test safe harbors will not be able to use the DTA proposal to move to an acceptable level, and those that use the deferred tax assets and have unacceptable levels at a future point will be subject to review by the domiciliary commissioner. The compromise also increases the DTA calculation from 10% of surplus and 1 year to 15% of surplus and 3 years.

Links to more information about the ACLI capital and surplus proposal are available here.