Chamber Standards Fight Could Affect Life and Annuity Prices, Product Menus

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The U.S. Chamber of Commerce is trying to persuade an international insurance group to adopt a U.S. Chamber approach to determining whether insurers have enough capital to support the insurance policies and annuity contracts they’ve sold.

The outcome of the fight, at the International Association of Insurance Supervisors (IAIS), could eventually have a big effect on what life insurers charge for products in the United States and what kinds of products life insurers can offer.

The IAIS wants regulators around the world to have one benchmark insurer financial health number they can use to get a rough idea of how strong any particular insurer is. IAIS members are eager to avoid a repeat of the problems that occurred before and during the 2007-2009 Great Recession.

(Related: International Capital Standards Could Kill Annuities: NAIC President to Senate)

The Basel, Switzerland-based group is preparing to start a five-day meeting Nov. 11 in Abu Dhabi, in the United Arab Emirates.

In many of the jurisdictions that belong to the IAIS, companies often offer banking services and insurance at the same time, and the same regulators oversee both banking and insurance. U.S. insurers and insurance groups often complain that the standards developed by the IAIS and similar groups are based on hand-me-downs from bank regulators, and not well-suited to fit insurers.

U.S. insurers and groups say the Insurance Capital Standards benchmarking proposal the IAIS is considering would give a distorted picture of how healthy U.S. insurers are, and make life insurers that have sold many annuities and savings-oriented life insurance policies look sicker than they really are, partly because the solvency standards would focus on risks related to short-term fluctuations in investment returns, and the possibility that customers might run to take their product value out all at once.

U.S. annuities and savings-oriented life insurance policies usually come with product features that lock the customers’ money in for money years and limit the potential impact from any customer “runs on the insurance company,” many U.S. insurers and insurance groups say.

The U.S. Chamber is lobbying hard for a proposal, for an “Aggregated Method,” that would create a different kind of insurer financial health benchmark number.

The Chamber’s “scaled capital ratio” benchmark figure would factor in how much excess capital an insurer has, by its country’s standards; how well capitalized the top-level parent company is; and how big the insurer in question is when compared with its parent.

U.S. regulators use a risk-based capital (RBC) ratio benchmark number to summarize how healthy an insurer is.