NAIC Suffers Dip in Investment Income, Budget Shows

The NAIC uses Prairie Capital Management  LLC and investment managers, and has parameters on investments with U.S. publicly-traded equities targeted at 32.50% of allocation of investments, but allowing for a range between 23% and 63%. Foreign equities are not to exceed 10% of the account’s market value, with a minimum requirement of 3%. The principal subcomponent of the income securities category, which is not to exceed 67% of the account’s market value, is U.S. publicly traded domestic fixed income securities, but these cannot exceed 38% of the account’s market value. 

The NAIC leadership approved a report from a consulting firm on Sept. 22 to change the NAIC’s liquid operating reserve from a flat 80% to a target range of 80% to 91%. The liquid reserves are projected to increase to 83.9% by the end of 2012 from 79.3% at the end of 2010. By the end of this year, the liquid reserve is expected to be at 82%. These numbers exclude the structured securities project.

The operating reserve, although some trades have lambasted the ratio in the past, is designed to ensure the financial stability of the NAIC, it argues and is commensurate with not-for-profit associations.

Database filing fees continue to make up the lion’s share of the organization’s revenue, at 33.1% or almost $26 million in revenue projected for 2012. Publications and insurance data products are expected to garner almost $19 million, at 24.2% of revenue, followed by Services such as SERFF, securities valuation and OPTins at almost $18 million in revenue, or about 23% of total revenue composition in 2012.

By far the largest expense is salaries, with their taxes and benefits, reaching 65.2% of expenses and costing $49.2 million for 2012, according to the budget proposal.

All other NAIC expenses are all less than 10% of the expense composition, including travel. Travel is projected be 5.2% of the 2012 budget, with very close to $4 million in expenditures budgeted, behind lease and office equipment at 8.6% and professional services at 7.2% of the 2012 expenditures.

Most increases are incremental in both expenses and revenue with the exception of the investment income, which is suffering due to the volatile markets, and a salary expenditures for new advisory positions for solvency and financial regulation. See: http://www.lifehealthpro.com/2011/10/27/naic-fio-seek-key-solvency-advisor-positions