Cooling off period urged before regulators tackle proposal to hide RBC

A proposal to make a key measure of insurance companies’ financial health confidential remained too hot for regulators to tackle during the National Association of Insurance Commissioners' summer meeting.

Instead, Iowa Chief Actuary Mike Yanacheak urged cooler heads over the controversial proposal to hide insurers' risk-based capital ratios. The Ohio proposal prohibits any insurer from putting its RBC ratio in its earnings releases, press releases, webcast materials or presentations.

Yanacheak spoke for about 15 minutes on the RBC issue during the Capital Adequacy Task Force meeting on Tuesday. He summarized some arguments against the proposal and the task force published all comment letters a second time.

The group will take up the RBC proposal in October, Yanacheak said.

"I ask you to please consider that there may be people on your side who are using the informative value of RBC wrongly and potentially endangering the financial well-being of some people," he said. "There are two very diverse points of view, and there is a middle ground. So, I hope that everyone can see something and understand the perspective of the other."

RBC requirements provide for a ratio to assess the level of risk associated with an insurance company's assets. The formula was adopted by the NAIC in 1992. Four major categories were identified for the life formula: asset risk; insurance risk; interest rate risk; and all other business risk. The property/casualty and health formulas were implemented in 1994 and 1998, respectively.

Not a 'reliable assessment'

The concern is that the wide dissemination of RBC figures is leading to a misunderstanding of insurance companies’ financial strength, Ohio regulators claimed.

“Because the NAIC formula develops threshold levels of capitalization rather than a target level, it is neither useful nor appropriate to use the RBC formula to compare the RBC ratio developed by one insurance company to the RBC ratio developed by another,” the proposal reads. “Comparisons of amounts that exceed the threshold standards do not provide a reliable assessment of their relative financial strength.”

Critics argue that hiding RBC will open up a "slippery slope" in which the total adjusted capital (TAC) and authorized control level (ACL) data elements are next to go. Yanacheak said that is not in anybody's plan.

"We have not received a formal proposal from anyone to do that," he said. "Might something change in the future? Yes. Can you continue with your slippery slope argument because of that? I guess you can, but I don't see that as being fruitful."

Over the past 18 months, life insurers and consumer advocates found themselves in rare agreement in opposing the RBC proposal.

"As an annuity owner with skin in the game, I'm uniquely qualified to share my strong opposition to the above-referenced proposal," wrote Peter Gould, an annuity owner from Indiana. "I'm astounded that a regulator, charged with protecting consumers, would even think of suppressing RBC information."

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.