Insurance regulators, together with the National Association of Insurance Commissioners (NAIC), have denied a request from life insurance companies to relax capital and surplus requirements to support the battered life insurance industry. The National Association of Insurance Commissioners (NAIC), a group representing regulators in all U.S. states and territories, reached the decision after weighing the proposal after nearly three months of deliberations. However, it did not rule out taking up the matter again in the future.
Many commissioners cited concerns that it will send the wrong message to the consumers especially at a time where confidence in the financial industry is scarce.. Such actions would be hasty to rush through such sweeping revisions at a time when financial regulation is already under a microscope given the global credit crisis.
Majority of regulators on NAIC’s executive committee from different states voted against the proposal. A sole vote in favor was cast by Connecticut Insurance Commissioner Thomas Sullivan..
Stocks rebounded on the news with the Dow Jones U.S. life insurance index rising about 20 percent at the end of the trading day when the announcement was made.
Large investment losses in recent months have raised concerns about capital adequacy for life insurers. In addition, there have been worries about shaky stock markets driving up costs for variable annuities, a popular retirement product largely dependent on stock performance.
State regulators impose capital requirements on insurers to make sure money is set aside when policyholders have claims.
Some insurance regulators expressed concern that a trade group, the American Council of Life Insurers, had overstated the industry’s need for capital relief.
The ACLI asked regulators to loosen life insurers’ regulatory capital requirements to eliminate redundancies in reserve requirements. The changes could have, based on ACLI’s estimate, freed up about $25 billion to $30 billion in capital, or up to 7 percent of life insurers total adjusted capital in 2007.
However, some states have the ability to loosen rules for insurers that they regulate. Some NAIC member states feel they do not need an appeal for capital citing that there been no recent U.S. life insurance failures.
State insurance regulators use time-tested tools to protect consumers and help maintain a solvent and competitive marketplace. The rejection of the vote reflects the belief that it is not appropriate to make emergency, permanent industry-wide changes for which there is no need at this time.