With a possible vote by state insurance regulators on a capital and surplus relief proposal advocated by life insurers scheduled for shortly after press time, different constituencies are trying to assess what the controversial request means in practical terms.
On Jan. 27, the National Association of Insurance Commissioners, Kansas City, Mo., held a hearing in Washington to receive testimony on the issue. This hearing was scheduled to be followed on Jan. 29 with a joint executive committee/plenary call to hear a report from the NAIC's recently formed capital and surplus relief working group and to possibly vote on any recommendations.
Meanwhile, two top officers of the National Conference of Insurance Legislators want insurance regulators to delay action on the ACLI proposal.
In mid-November, the American Council of Life Insurers, Washington, met privately with state insurance commissioners to advance a capital and surplus relief plan. The 9-point actuarial and accounting plan was presented to technical working groups at the NAIC and these groups made recommendations during the 2008 winter NAIC meeting. (See chart on this page.)
ACLI estimates that adopting some of the components in the proposal would improve insurers' financial standing by $27 billion to $44 billion.
Consumer advocates, some commissioners and at least one industry representative have questioned the speed of the project as well as the dearth of openness throughout its discussion and development.
But Whit Cornman, an ACLI spokesman, explains what ACLI believes is the importance of the proposal as follows: "It's a difficult question to answer but one thing is certain–financially strong companies are good for consumers and therefore producers. Our proposal before the NAIC is intended to release capital that is currently being tied up by ultra-conservative capital and reserving standards. Allowing companies to access their capital will provide a more accurate picture of a company's financial strength.
"With this more accurate picture, producers can provide better guidance to their clients in these turbulent economic times," Cornman says.
Christopher Greis, president of Leaders Partners Inc, Great Barrington, Ill., a brokerage general agency which acts as a wholesaler to financial planners and producers, says the financial strength of a company will be critical this year.
Although he says that to date "we don't think we have seen the flight to quality at the retail level," he adds that with publicized problems at banks that trend could accelerate in 2009.
The flight-to-quality trend will be more pronounced among independent producers than those producers representing companies, Greis explains.
Ratings do matter, according to Greis. At Leaders Partners, he maintains that the preference is to work with life insurers who have at least an 'A+' rating.
In general, he says, ratings are the first indicator of a company's strength followed by an insurer's stock price. It is "prescient" how the market can price a stock and "lo and behold, the reason manifests itself."
Greis notes that while it might seem counterintuitive to relax capital and surplus requirements right now, judicious requirements that accurately reflect a company's situation can actually make a company stronger. He referenced Actuarial Guidelines Triple-X and A-Triple-X, which outline reserving for term and level premium products and UL products with secondary guarantees, as examples.
