Relief is a Case-by-Case, State-by-State Campaign for Life Insurers
State by state, insurance regulators are moving to grant life insurers capital and surplus relief they denied granting last month.
Regulators in states including Connecticut, Indiana, Iowa and Ohio have granted or are considering steps to provide relief for life insurance companies, and regulators and other industry watchers expect others to do so as well.
Faced with mounting investment losses and stock drops among its member companies, in December 2008 the American Council of Life Insurers appealed to the National Association of Insurance Commissioners to fast-track a series of measures that would affect reserving requirements, reinsurance collateral and accounting procedures. In late January, a special NAIC working group rejected three items and recommended six for approval, with some alterations. But the NAIC executive committee rejected expedited action in a near-unanimous vote, opting instead for continued deliberations (BestWire, Jan. 29, 2009).
Just days later, Ohio Insurance Commissioner Mary Jo Hudson issued three permitted practice bulletins to allow life insurance companies to request making changes to their minimum reserve liabilities for certain life and annuity products. Approved companies will be permitted to apply the changes to 2008 regulatory reports, which had been a key request of the ACLI proposal.
Changes included allowing companies to include deferred income tax assets as up to 15% of reported capital and surplus and permitting estimating of deferred tax assets for a three-year period. The insurance department is currently considering 20 requests for participation from Ohio-domiciled companies, spokeswoman Carly Glick said.
NAIC Vice President and Iowa Insurance Commissioner Susan Voss has also said she would allow insurers to count deferred tax assets in 2008 reported capital. Her department is now considering 10 requests from Iowa-domiciled companies in response to the permitted practice bulletin, she said.
Preceding the NAIC vote, Hudson had adopted an emergency rule to change how life insurers' policy reserves are calculated. The changes, which are optional for insurance companies, had been under consideration as part of a transition towards a more principles-based approach to reserves and capital, Hudson said at the time.
As a member of the NAIC executive committee, Connecticut Insurance Commissioner Thomas Sullivan cast the lone vote in favor of the fast-track proposals forwarded by the Capital and Surplus Relief Working Group.
Sullivan recently agreed to permit Hartford Financial Services Group Inc. to use nearly $1 billion for statutory capital surplus requirements (BestWire, Feb. 12, 2009). In a filing with the U.S. Securities and Exchange Commission, the insurer said the approvals allowed the company to increase the estimated statutory surplus for its life insurance companies by $987 million as of Dec. 31. Hartford (NYSE: HIG) posted a net loss of $806 million in the fourth quarter of 2008, its second consecutive quarterly loss, again driven by plunging investment income -- compared with a $595 million profit for the same period in 2007 (BestWire, Feb. 6, 2009).
The Connecticut commissioner said the NAIC needs to revisit both the merit of the issues included in the ACLI request as well as how it handles emergency requests. The need for capital and surplus relief remains, he said.
Sullivan criticized fellow commissioners who endorsed the working group recommendation, then "abandoned that position two days later" and voted against it on the executive committee. "That suggests a certain lack of principle," he said.
Voss said she voted for the measures as a working group member because she wanted discussion and action at the executive committee level. In the end, she said she was not convinced of the need for immediate expedited action and voted against the recommendations in the executive vote.
"Tom is my friend and he has his opinion," she said.
Lincoln National Corp. (NYSE: LNC) won approval from the Indiana Department of Insurance to receive about $300 million in regulatory relief concerning similar deferred tax assets. In the final quarter of 2008, Lincoln posted a net loss of $506 million, as net realized losses on general account investments amounted to $283 million (BestWire, Feb. 10, 2009).
Such case-by-case, state-by-state actions pose the danger of weakening consumer protections capital and surplus standards are meant to ensure, wrote Birny Birnbaum of the Center for Economic Justice, J. Robert Hunter of the Consumer Federation of America and Betty Ahrens of the Iowa Consumer Action Network in a joint statement to Voss.
"Insurers will now be able to count a greater share of illiquid assets as part of admitted assets and statutory capital and deferred tax assets cannot be converted to cash if needed immediately," they wrote. "Further, the action encourages speculation about the amount of deferred tax assets -- insurers cannot reasonably estimate deferred tax assets three years into the future."
Voss and other state regulators maintain that these approvals are being given careful individual consideration with both solvency concerns and consumer protections in mind.
"We are continually analyzing the situation to protect the market and consumers," Sullivan said.
(By Sean P. Carr, senior associate editor, BestWeek: [email protected])
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