2008 Put On Hold?
Date: January 19, 2009
Author: Connie Jasper Woodroof
Email: Connie.Woodroof@fiserv.com
At the end of November, the ACLI (American Council of Life Insurers) sent a letter to the NAIC Executive Committee asking that, due to the current economic environment, the NAIC implement some changes that would result in capital and surplus relief for Life insurers (although a couple of the specific items could affect other insurers). The Executive Committee immediately formed the Capital and Surplus Relief Working Group (CSRWG). The CSRWG, in turn, asked for the opinion of several NAIC technical groups on the specific requests. Consequently the ACLI proposal was the “hot topic” during the December NAIC meeting and/or via various conference calls since. The ACLI asked for the changes to be implemented in time for year-end 2008 reporting.
There seems to be more than a little mis-information circulating regarding the various parts of the ACLI proposal. I have read articles in various publications that leave one believing the proposal, or parts of it, have already been adopted by the NAIC. I am here to tell you otherwise ---- no decision(s) has been made at this time.
Below is a brief listing of the changes proposed by the ACLI. The majority of issues apply to Life insurers, but the deferred tax asset and reinsurance collateral items could apply to all insurers.
1. Allow the 2001 Preferred Mortality Tables to be used for any 2001 CSO product; encourage adoption of the Model Regulation Permitting the Recognition of Preferred Mortality Tables For Use In Determining Minimum Reserve Liabilities in the states that have not yet adopted this model regulation.
2. Make Section 8C of Actuarial Guideline 38 retroactive to 7/01/2005.
3. Clarify that 2001 Non-preferred Mortality Tables can always be used for determining segments within Actuarial Guideline 38.
4. Eliminate the X factor restrictions from the deficiency reserve calculation required by the Valuation of Life Insurance Policies Model Regulation.
5. Eliminate redundant use of stand-alone asset adequacy analysis required by Actuarial Guideline 39.
6. Modify the Life Risk-based Capital C-3 Phase II for year-ends 2008 and 2009 to waive the Standard Scenario.
7. Temporarily modify the calculation of the Mortgage Experience Adjustment Factor in the Risk-based Capital (Life) calculation.
8. Change statutory accounting requirements to replace the current limits on the admissibility of deferred tax assets with a valuation approach similar to US GAAP (would affect Property/Casualty and Health insurers as well).
9. Encourage state Commissioner’s to ease the current allowable US collateral requirements for reinsurance (would affect Property/Casualty and Health insurers as well).
On Friday, January 2, 2009, there was a conference call held by the NAIC’s Executive/Plenary Committee regarding the proposals. Many were hoping that a decision would be made concerning the various parts of the proposal during the call, but that did not happen. Instead, feedback from the various NAIC technical groups was summarized. The responses ranged from being supportive, opposing, and offering yet another alternative. During the call, the Capital and Surplus Relief Working Group report was released for comment. After the comment period, a public hearing and interim meeting will be held on January 27. Executive/Plenary has then scheduled another conference call for January 29, at which time it is hoped that a final decision will be made. Obviously if any changes are going to be adopted and applicable to year-end 2008 reporting, a decision is going to have to be made very soon.
Copies of the ACLI letter (with much more detail), comment letters from several organizations, a summary of the consensus of several NAIC working groups regarding the specific proposal items as well as the reports from the individual groups, and a report by the Capital and Surplus Relief Working Group Report are available at http://www.naic.org/committees_ex_capital_surplus_relief.htm. Information regarding the public hearing on January 27 can be found at http://www.naic.org/Releases/2009_docs/economic_difficulties.htm.
Remember, no decision regarding any of the specific items of the proposal has been made at this time. That leaves some companies in a quandary on whether to wait for a January 29 (hopefully) decision, or proceed with business as usual and everyone wondering what the final outcome will be.
