Article by
Francine L. Semaya 
,
William K. Broudy 
and
Laurance D. Shapiro
The National Association of Insurance Commissioners ("NAIC") has rejected changes in capital and surplus requirements for life insurers proposed by the American Council of Life Insurers ("ACLI"). After considerable media scrutiny and after several weeks of study, the NAIC's Capital and Surplus Relief Working Group ("Working Group") held a public hearing held in Washington, D.C. on January 27, 2009 and voted to accept several of the ACLI proposals, including changes to reserving requirements, reinsurance collateral and accounting procedures.
The NAIC Executive Committee did not, however, concur with the Working Group. As reported in a press release on January 29, 2009 by NAIC President and New Hampshire Insurance Commissioner Roger Sevigny:
Simply put, the industry has not made a credible case for why we need to make changes on an emergency basis, and why those changes should be limited to the specific proposals made by the industry.
NAIC Vice President and Iowa Insurance Commissioner Susan Voss stated that:
While the Working Group's proposals have merit, we believe such adjustments would be better implemented through the NAIC's standard protocol. Any future consideration of changes to regulatory requirements will follow the NAIC's open, transparent and deliberative process.
Commissioner Sevigny added that:
State insurance regulators use time-tested tools to protect consumers and help maintain a solvent and competitive marketplace. Today's vote reflects our belief that it is not appropriate to make emergency, permanent industry-wide changes for which the need has not been demonstrated.
The Working Group, chaired by D.C. Insurance Commissioner Thomas Hampton, voted on each ACLI recommendation separately and approved the following proposals:
- Expanded use of the 2001 Preferred Mortality Tables;
- Elimination of constraints for the use on an adjustment factor, in Regulation XXX;
- Allow greater discretion to state Commissioners to approve collateral for reinsurance;
- Elimination of the stand-alone asset adequacy analysis required by Actuarial Guideline 39;
- Rejection of retroactive application of Section 8C of Actuarial Guideline 38, concerning universal life products with secondary guarantees;
- Use of GAAP rules for accounting for Deferred Tax Assets.
Although the NAIC decided not to adopt these changes on an expedited basis and declined to limit the decision-making process to the ACLI proposals, at a recent seminar sponsored by the Insurance Regulation and Corporate Counsel Committees of the ABA's Tort Trial and Insurance Practice Section, Commissioner Hampton alluded to the fact that the NAIC has been closely studying these issues for some time and will be considering how to implement changes on an expedited timeframe. In the wake of the NAIC decision, life insurers in Illinois, Iowa and Kansas have sought approval of lower capital reserves from their state insurance regulators.
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