Capital and Surplus—The Debate Continues

The capital and surplus argument continues. If you remember, late last year, there was a request by the American Council of Life Insurers, Washington, to advance a 9-point proposal to release what it says are redundant reserves to help insurers cope with what everyone would agree are trying financial times. It is the corporate equivalent of the average Joe and Jane digging for change in their sofa.

The request culminated in a Jan. 27 public hearing and a cliff-hanger public vote which denied immediate relief but did allow for the request to be considered using the typical process at the National Association of Insurance Commissioners, Kansas City, Mo.

Well, fast forward to early June. Task forces are taking action in order to move their capital and surplus assignments up to their parent committees so commissioners can take action on it either at the summer NAIC meeting next week or shortly thereafter. The NAIC’s Life & Health Actuarial Task Force did so earlier this week. It reviewed Model 815 which addresses using preferred mortality tables retroactively, one of the proposals that life insurers say would help them pinpoint the correct amount of reserves they should hold.

The group looked at three amendments: two from the ACLI and one from California. One amendment to the model which allowed for commissioners to rely on the opinion of a company’s domestic commissioner sailed through. The other two required enough discussion to push back a potential vote of LHATF’s parent, the Life & Annuities “A” Committee to the NAIC summer meeting next week.

ACLI’s Paul Graham argued that if a company seeks retroactivity, it would have to show reserves are adequate when the request is made, that any accounting issues can be worked out later and that the test would have to apply to all 2001 CSO policies so that there would not be any gaming.

But regulators expressed concerns ranging from locking into retroactivity by block of business to issues of discrepancy with reinsurance requirements in the NAIC’s accounting practices and procedures manual. For instance, Sheldon Summers, a life actuary with the California department, asked what would happen if the amount of reserve credit exceeds the income it expects to receive from a policyholder.
The motion to allow retroactivity failed in a 7-6 vote with New York abstaining.
LHATF then looked at a motion from California which replaced the current document up for exposure with a version that reflects California’s issues on accounting and reinsurance. That motion passed with a 7-4 vote and Connecticut and New York abstaining.

The ACLI then withdrew a request to review a related request on Model 830 because it paralleled its requests it made in Model 815. LHATF then advanced guidelines 1C which addresses segmentation and 822 which reduces X-factors on deficiency reserves, in preparation for the summer meeting.