National Association of Insurance Commissioners executive committee members today voted 16-1 against supporting a package of capital and surplus rules changes proposed by the American Council of Life Insurers, with the commissioners repeatedly stating that they see no proof that an emergency exists.
Connecticut was the only state that voted for sending the measure to the plenary, the body that includes all voting members of the NAIC, Kansas City, Mo.
The ACLI, Washington, submitted the 9-point package to the NAIC in November 2008 and asked the NAIC to consider the package on an accelerated basis.
Members of the NAIC working group voted Tuesday to recommend NAIC adoption of 6 of the 9 components.
Proposal supporters said adopting the package as written could free up $25 billion to $30 billion in capital, an amount equal to about 6% to 7% of life insurers’ total 2007 adjusted capital, by updating needlessly conservative capital and surplus rules.
Critics questioned the need for unusually rapid action on the package and argued that the process for considering the proposal had been lacking in openness.
The executive committee vote will keep the NAIC plenary from voting on the package today, and it likely will stop the NAIC from pushing to let insurers incorporate the changes requested by the ACLI in the 2008 annual statements, which are due March 1. Regulators in individual states may still be able to implement some or all of the changes in their jurisdictions.
ACLI President Frank Keating said in a statement that the ACLI is “disappointed with the failure of the NAIC to provide uniform guidance to the states on how to respond to rapidly changing and volatile economic conditions. In absence of this uniform guidance, the responsibility to respond to these unprecedented economic conditions now falls to individual states.”
Many of the commissioners on the executive committee said that some of the proposals had merit and would be considered during the normal model law process, possibly for the 2009 annual statement. Indeed, at least one of those proposals, Actuarial VA-CARVM, which offers guidance on reserving for variable annuities with guarantees, already is scheduled to take effect in time for implementation for the 2009 statement.
Proposal critics noted that it mostly was kept hidden from the public for the first month of the consideration process, which started with an ACLI letter sent Nov. 11, 2008.
The NAIC working group hearing on the proposal held Tuesday drew 150 participants. The executive committee session, held via conference call, attracted more than 300 participants, including many state lawmakers.
During the call, a number of commissioners, including Joel Ario of Pennsylvania and Scott Richardson of South Carolina, said they had contacted companies in their states. Those companies had said that, while it would be of benefit to have freer access to capital, there was no emergency.
“[We have] a very good financial oversight system,” Wisconsin Insurance Commissioner Sean Dilweg said during the call. “The NAIC is a huge collector of data, and there is not an emergency.” To the extent that there is, it can be addressed on a company-by-company basis, Dilweg said.
Oklahoma Insurance Commissioner Kim Holland said that there is a process at the NAIC to advance these issues and that they would not be lost.
Commissioners who are not on the NAIC’s executive committee and did not vote also weighed in on the proposal.
Mila Kofman, Maine insurance superintendent, said she was encouraged by the vote “to reject a push by some in the industry to weaken financial protections that are in place to guard against insurance company insolvency – protections that protect insured consumers.”
The current financial crisis “is precisely why now, more than ever, we need realistic and credible financial evaluations to guide us through these troubled times and preserve the confidence of the public,” Kofman said.
New York Insurance Superintendent Eric Dinallo said the ACLI brought before commissioners “the concept of emergency capital relief, but they couldn’t even use the word ‘need’.”
Dinallo said he was surprised that the ACLI would want to advance the proposal, because the industry has come out relatively well in the current financial crisis due to solvency requirements.
Utah Commissoiner Kent Michie said he believed there had not been enough evidence that an emergency exists, but that the “national economic and financial emergency” could affect insurers’ investments in instruments such as commercial paper. He said state insurance regulators should be willing to work with the ACLI to help make Congress aware that there is a need for life insurers to have better and lower-cost access to capital.
Over the past few weeks, a number of parties — including consumer groups such as the Consumer Federation of America, Washington, and the Center for Economic Justice, Austin, Texas; state insurance legislators; and Unite Here, Washington, a labor union — have urged regulators to oppose the ACLI proposal.
“State regulators today showed they can be independent of the industry they regulate,” CEF Executive Director Birny Birnbaum said. “This is a good day for state insurance regulation.”
Robert Hunter, the CFA’s insurance director, said some of the points in the proposal may have value, but he said suporters had not proved that there was an emergency, and he said regulators had not been able to say how the proposal would affect companies.
New York state Sen. James Seward, R-Oneonta, N.Y., president of the National Conference of Insurance Legislators, Troy, N.Y., said members of the NAIC executive today had the “wisdom to slow down the process and not move forward at this time.”
The executive committee decision will allow for a “much fuller vetting of all of the issues through a formal process, not an expedited one,” and it will allow state insurance legislators to become involved in the process, Seward said.