The NAIC 2012 proposed budget, which includes total revenues of $79.2 million and total expenses of $77.6 million, up almost 5% and 2.5% respectively, got its annual earful from the trade associations in the past weeks, with one organization calling for zero growth and others targeting its surplus and projected reserve cushion.
The NAIC budget hearing, to address these comments and questions received by Nov. 28 from all interested parties before the budget is approved by the Internal Administration (EX1) Subcommittee, is Tuesday afternoon.
[National Underwriter has several stories following the proposed budget release Oct. 27: See http://www.lifehealthpro.com/2011/10/28/naic-to-consider-initiative-to-grow-financial-mode , http://www.lifehealthpro.com/2011/10/28/naic-suffers-dip-in-investment-income-budget-shows and http://www.lifehealthpro.com/2011/10/27/naic-fio-seek-key-solvency-advisor-positions
In just a three year period ending through 2011, the surplus will have increased from $48.4 million to a projected $72.6 million, an increase of 50% in just three years, not even counting the additional $1.5 million in net revenues to the surplus coming on next year, a major life insurance trade group told the NAIC.
There is “simply no need for the NAIC to maintain $74 million of excess funds in its coffers, especially since it is able to generate additional fees from our member insurers if needed,” stated a letter from the American Council of Life Insurers to NAIC President-Elect Kevin McCarty signed by ACLI Senior Counsel for insurance regulation, Wayne Mehlman.
“We, therefore, urge you to gradually reduce this huge surplus by using a portion of it to fund some of your future years’ operations,” the ACLI letter states.
The ACLI explains that this can be done by proposing a certain amount of annual deficits over the next few years (without increasing revenues) – deficits which would be fully paid for by applying an equal amount of surplus to them.
The ACLI said this would cause no harm to the association if done correctly, as the NAIC’s surplus has occasionally seen some reductions in the past without resulting in any distress to the organization.
“For example, while the NAIC did not budget for a deficit for 2008, its surplus at the end of that year decreased from $59.6 million to $48.4 million after $4.8 million in net expenses and a defined benefit plan adjustment of $6.4 million were taken into account.”
The trade association of mutual property/casualty members known as NAMIC spoke for many across different lines of insurance when it stated that the most concerning thing about the NAIC budget is the relationship between the benefits obtained for NAIC services and the source of revenues to fund the costs associated with providing such services.
“Specifically, state assessments total a mere $2.3 million and represent less than 3% of the NAIC’s total revenues. Meanwhile, database filing fees total more than $25.9 million and represent more than 33% of the NAIC’s total revenues,” NAMIC’s financial regulation manager Dan Daveline, stated.