Consumer advocates are asking Iowa Insurance Commissioner Susan Voss why she voted against a proposal to relax capital and surplus requirements on Jan. 29 and issued a bulletin allowing domestic life and property-casualty companies more lenient deferred tax asset treatment on Feb. 3.
NAIC-funded consumer representatives have been assailing the use of credit scoring in determining insurance coverage for years. More relaxed deferred tax asset treatment was one of 9 points made in a proposal floated by the American Council of Life Insurers, Washington. The proposal was roundly defeated in a 16-1 vote of commissioners on the NAIC’s executive committee. Voss was 1 of the commissioners who voted against the proposal.
Deferred tax assets are illiquid accounting assets that can be used to offset future tax obligations.
The bulletin 09-01 (http://www.iid.state.ia.us/news_media/whatsnew.asp) is dated Feb. 3.
In the bulletin, Voss cites a “permitted practices” rule that gives commissioners discretion to diverge from the NAIC accounting practices and procedures manual.
Among the new allowances the bulletin permits is the use of gross DTAs expected to be realized within 3 years rather than 1 year of the balance sheet date and DTAs in the amount of 15% rather than 10% of statutory capital and surplus.
The bulletin notes that the increase in admitted assets and statutory surplus resulting from the revised section cannot be considered under a company’s admitted assets and surplus for purposes of a regulatory trigger that involves either admitted assets or statutory surplus.
Companies using the new bulletin must file a “detailed description on how the DTAs are expected to be realized within the next 3 years and the company’s total adjusted capital and authorized control level risk-based capital without using the permitted practices.”
The bulletin also states a sunset of Dec. 15, 2009, at which time the commissioner may renew the guidelines.
In a Feb. 3 query to Voss, consumer advocates questioned why Voss voted against the action and then turned around and issued the bulletin.
The e-mail from Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, states, “Your action weakens the financial protections for insurance consumers, because insurers will now be able to count a greater share of illiquid assets as part of admitted assets and statutory capital and deferred tax assets cannot be connected to cash if needed immediately.”
Among the other questions asked are:
–The reason for the action;
–Why the bulletin is retroactive for 2008 experience reporting;
–What is Voss’ estimate of the impact of this bulletin on the amounts of insurer admitted assets and statutory surplus, and how the estimate was developed;
–What analysis was done to make sure consumers would not be put at risk.
In response to the query from consumer representatives, Voss said that the bulletin is being revised to reflect the fact that it will only be on a case by case basis. In addition, she told consumer reps that she has asked for a study on credit scoring and will await recommendations from that study.
During a Washington hearing on Jan. 27, the ACLI had pressed for changes which included relief on DTAs. The hearing drew testimony from consumer advocates, actuaries, the Affordable Life Insurance Alliance, Washington, and the National Conference of Insurance Legislators, Troy, N.Y.
The National Organization of Life and Health Insurance Guaranty Associations, Herndon, Va., and Pat Baird, ACLI chairman and president and chief executive officer of Aegon USA, Cedar Rapids, Iowa, also testified.
The NAIC’s capital and surplus working group then voted for the proposal, including a compromise on DTAs.
That compromise, developed by Wisconsin Insurance Commissioner Sean Dilweg, would permit the 15%, 3-year recognition of DTAs but also puts in guidelines. Those guidelines include limiting the ability to dividend and benefits from the proposal and not allowing the additional surplus if companies meet acceptable risk-based capital requirements without the DTA benefit. Additionally, companies cannot fall below acceptable RBC levels and continue to use the DTA benefit.