Insurance industry associations engaged in their annual rite of passage this month, criticizing on many fronts the proposed National Association of Insurance Commissioners (NAIC) budget for the coming year, especially targeting the association’s growing accumulated surplus which one organization predicted could break the $100 million mark in just four more years, in 2016.
Total unrestricted net assets are projected to be $81.5 million at the end of 2012. The 2013 proposed budget would increase this amount to $83.3 million by year-end 2013, which would amount to a 72 percent increase in just five years, it was noted. Total unrestricted net assets were $48.4 million at the end of 2008; $59.1 million at the end of 2009.
The NAIC 2013 proposed budget before fiscals and the modeling of structured securities includes total revenues of $80.8 million and total expenses of $78.1 million, which represent a 2 percent and .33 percent increase, respectively, from the 2012 budget.
“While we understand the need for an organization of your size to maintain a reasonable surplus in case it generates occasional deficits, there is simply no justifiable reason for the NAIC to have this extraordinary high amount of accumulated surplus,” wrote the American Council of Life Insurers (ACLI) in its comment letter dated Nov. 9.
What Your Peers Are Reading
“What organizational or economic risks exist that could possibly warrant the NAIC to hold onto $80-plus million in reserves, most of which is generated from industry through database fees, meeting registration fees, and the Securities Valuation Office (SVO) and other service fees?” asked the letter, addressed to NAIC President-Elect James Donelon and signed by Wayne Mehlman, ACLI senior counsel, insurance regulation.
The growing accumulated surplus, referred to in the budget as “unrestricted net assets” include operating revenues and expenses, investment income, defined benefit plan adjustments, project cost recovery payments and other projects, and business and fiscal impact statements.
Although the NAIC has rarely swayed in passing its proposed budget as-is, the ACLI urged the NAIC to gradually reduce the total accumulated surplus to a much lower, but still sufficient, level (e.g., $40-50 million) by using a portion of it to fund some of future years’ operations, offering a game plan consisting of annual deficits fully paid for by applying an equal amount of the accumulated surplus over the next few years.
The National Association of Mutual Insurance Companies (NAMIC) in its letter also cited concern with the overall growth of the budget and the hope—but without any influence, it suggested—that NAIC would change its tack in future years.
“We observe that the growth of the NAIC is not unlike that experienced by other bureaucracies such as state and federal government agencies. But at least those are subject to fiscal constraints and realities as well as reform efforts which from time to time are able to curb and even reverse trends,” stated NAMIC’s letter, signed by Paul Tetrault, NAMIC state & policy affairs counsel.
NAMIC noted NAIC lacks such checks and balances.
“This is a matter of great concern to NAMIC since, as we consider the budget, we are mindful that the costs reflected therein are borne by insurers initially and by the insurance-buying public ultimately.”
The Property Casualty Insurers Association of America (PCI) said that the NAIC should also consider whether there is a longer-term plan for assessing revenue and expense issues because it remains concerned about the long-term growth of the NAIC’s budget asked again for a full discussion.
“PCI urges the NAIC to adopt a 2013 budget that projects no growth in revenues and expenses. The majority of NAIC revenues come from PCI members and the rest of the insurance industry, and the NAIC’s budget should be viewed in conjunction with the current economic environment in which those companies operate. With the additional pressure from the federal and international levels, PCI believes NAIC would benefit from a zero growth budget,” stated the Nov. 12 letter from Deirdre Manna, PCI regulatory and political affairs.
NAMIC also zeroed in on what it termed significant increases in NAIC travel expenses.
“One of the most frankly eye-popping areas of growth within the NAIC budget is the increase in travel expenses,” NAMIC stated.
“We note that the proposed budget amount for 2013 is a staggering $4.9 million, representing a 21 percent increase over the 2012 amount budgeted for travel,” said the NAMIC letter, addressed to NAIC CFO Jim Woody.