Friday, July 31, 2009

California Pay-As-You-Drive Insurance A Wide Open Road

An amended regulation that could be in place by mid-November in California will allow companies to offer auto insurance based on how much mileage a driver puts on a car. The concept is in use in states like Texas and could be starting to gain ground nationally.

Industry representatives and a consumer advocate applaud the concept of making insurance more available and potentially more affordable. However, there was more disagreement over how complex the proposed regulation (Reg. 2008-00020) is and whether it will impede those twin goals advanced by California Insurance Commissioner Steven Poizner.

The California department says that the regulation will allow companies to sell auto insurance by the mile if they want by using a verified mileage program instead of mileage estimates, linking premiums to actual mileage. Consumers will be able to pre-pay for a specific number of miles and would have the option to purchase a block of miles at a specified price for a set period of time, according to the department. The concept works much like buying minutes on a pre-pay cell phone. If a consumer runs out of miles before the end of the policy period, more miles can be purchased.

A big piece of the program requires mileage verification through a variety of methods such as odometer readings taken by insurers, agents or vendors, auto repair dealers or smog check stations. A driver could also have a device placed in the vehicle to measure mileage although privacy concerns would prevent the gathering of data location through GPS devices.

While everyone interviewed by applauded the concept, there were varying opinions over the details.

The proposal creates “a pretty positive change with new avenues in competition,” according to Sam Sorich, president of the Association of California Insurance Companies, Sacramento. However, Sorich suggests that some revisions should be considered to make the proposed regulation simpler for both consumers and companies.

Among the changes ACIC is suggesting, Sorich says, are the proposed regulation creates prescribed bands of miles that all companies would follow. For instance, he explains, there may be a band that would cover up to 15,000 miles driven. Companies should be allowed to develop their own bands and establish rates it considers appropriate, he adds.

Additionally, he says that if a consumer agrees to use a tracking device in a car, GPS devices should be allowed and just measure straight mileage, he continues.
Another issue Sorich raises is what happens if a consumer runs out of miles before the end of a time period. Liability coverage would not run out but other components of auto coverage would and would have to be purchased again.

Sorich says he believes the measure will be put into place because the issue was first raised in October 2008, so action has to be taken by the end of this September or the process has to begin from scratch. He urged that “flexibility” be kept in mind as the amended regulation is put in place.

Dave Snyder, vice president and associate general counsel, public policy with the American Insurance Association, Washington, says that the regulation offers “flexibility and encouragement of innovation” in the auto insurance market. It is “a move in the right direction,” and takes account of that different companies have different systems that need to be an option under the regulation. “This is very much at the forefront of the effort to include mileage and vehicle usage” to determine auto insurance premiums, he notes.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, says that the concept is a good one but the regulation is too complex. In California, the number of miles driven is already a ratings factor, so it is not necessary to address that in the proposed regulation, he says. It would have been simpler to take the number of miles driven and divide them by premium, Birnbaum adds.

“We support the concept” but the proposed regulation “offers flexibility with one hand and takes it away with the other,” according to Rex Frazier, president, Personal Insurance Federation of California, Sacramento. For instance, he says that offering the same discount for different mileage verification does not recognize the multiple verification methods that companies use.

And, he adds, it does not allow the use of GPS systems because of privacy concerns over location data but such a requirement will minimize innovations. The issue should be looked at on a case-by-case basis, Frazier says.

Even if there are concerns about specific points in the proposed regulation, everyone interviewed by FiLife reiterated their optimism about the future of the concept of pay-as-you-go auto insurance and believe that the idea is going to continue to gain traction as companies look to match cost to risk and consumers look to pare their budgets.

This article first appeared on

Wednesday, July 29, 2009

Half A Loaf

The lesson to be learned from yesterday’s conference call of the NAIC’s Life Insurance and Annuities “A” Committee is that something is better than nothing. The first half of the call was devoted to advancing the proposed new Standard Valuation Law up to the next level for ultimate adoption by the National Association of Insurance Commissioners in Kansas City, Mo. But the call really got interesting when a discussion of Model 815 began.

Model Reg 815’s more formal name is the Model Regulation Permitting the Recognition of Preferred Mortality Tables for Use in Determining Minimum Reserve Liabilities. This mouthful in very general terms allows the use of mortality tables reflecting the difference in preferred and standard lives to determine reserves in accordance with the SVL.

The “A” Committee’s Life and Health Actuarial Task Force had adopted 815 after two and a half years of discussion. But the American Council of Life Insurers , Washington, had issue with some of the points in the draft including how reinsurance should be accounted for when determining when the preferred tables could be used. The ACLI’s Paul Graham, chief actuary, suggested wording that would allow use of the tables by more companies and suggested that the reinsurance reserves be tested when a company is doing asset adequacy testing to ensure that there is enough money to cover a company’s assets in the event of financial trouble.

Sheldon Summers, a life actuary with the California insurance department, says that the ACLI amendments would be counter to existing statutory accounting practices and questioned whether it makes sense to allow an accounting offset when the reserves that are being held is 0. “It is inappropriate when you don’t hold enough to cover the value of carrying an asset.”

John Rink, a life actuary with the Nebraska insurance department, said that the LHATF version would allow some companies to use the preferred tables and lower reserves while others would not be able to do so and would conceivably have to post higher reserves.

The interesting part came when it was time to vote. In the first round, 6 voted to adopt the LHATF version without ACLI amendments and 4 voted ‘no.’ But because of recent NAIC policy, in order to be considered for model law status, a 2/3 vote of the “A” Committee is needed. The model could be adopted as a bulletin but not as a model law.

But in order to be in compliance with the Standard Valuation Law, 815 needs to proceed as a model regulation and not a bulletin, LHATF’s Larry Bruning, chief actuary with the Kansas insurance department, explained.

The ACLI version was then put to a vote and received 4 ‘yes’ and 5 ‘no’ votes. The ACLI’s Graham said that the possibility of nothing be advanced had not been considered and that having something in place was better than having nothing in place because at least some companies could see a benefit.

A third vote was taken to reconsider the LHATF version without the ACLI amendments. And this time the vote of 9 ‘yes’ and 1 ‘no’ was enough to advance Model 815 through “A” Committee on a model track rather than a simple bulletin. Some regulators including Cary Krantz of the Florida insurance department said that this was a good thing considering how much energy could be used on other matters including developing a Valuation Manual.

The Valuation Manual is a roadmap for the Standard Valuation Law that two committees, the Principles-Based Reserving (EX) Working Group, and the Solvency Modernization Initiative (EX) Task Force adopted earlier on the call.

The “A” Committee reserved judgment on the issue until it examines the issue more closely. A real concern is adopting the SVL without necessary components such as the Valuation Manual which is still being developed. Some commissioners questioned whether it would be better to advance it through the NAIC’s “A” Committee and then on to full adoption at Executive Committee and Plenary when all the parts are ready. Others such as Al Gross, Virginia Commissioner, stressed that “it is important that the NAIC as an organization not be seen as dragging its feet on this approach to reserving.”

It was decided to hold a conference call in early September to further discuss the issue and conceivably for “A” Committee to vote on the issue.

Saturday, July 25, 2009

Summer Musings

So much for the summer doldrums. There is a lot going on. So, let’s begin with the praise the Property Casualty Insurers Association of America, Des Plaines, Ill., offered the National Conference of State Legislatures, Denver, on adopting a resolution that expresses support for state regulation over insurance as established under the McCarran-Ferguson Act and affirmed most recently by the Gramm-Leach-Bliley Act.

The resolution, made by NCSL during its summer meeting in Philadelphia, issued the resolution “Continued State-Based Insurance Consumer Protection,” says that insurance consumer protection should remain with the states; and declares that neither the Financial Product Safety Commission Act of 2009, which would be established by companion bills S. 566 and H.R. 1705, nor the Consumer Financial Protection Agency Act, H.R. 3126, should have direct or indirect jurisdiction over insurance-related products.

PCI commended that recommendation and noted that the property-casualty industry has a “proven track record” of protecting consumers through a state-based system as noted by Deirdre Manna, vice president of industry, regulatory and political affairs for PCI.

The message for state-based regulation follows a letter to Congress from the National Conference of Insurance Legislators, Troy, New York, of NCOIL’s efforts to guard against credit default swap abuse. NCOIL held a lengthy hearing on how to address credit default swaps during its own summer meeting in Philadelphia a little over a week ago. The letter signed by NCOIL President Sen. James Seward (NY) and Financial Services & Investment Products Committee Chair Assem. Joseph Morelle (NY), pointed to NCOIL development of draft Credit Default Insurance Model Legislation—a year-long process grounded in the belief that certain CDS are insurance.

In speaking of the letter, Sen. Seward said, “As Congress grapples with how to address an under-regulated market, we feel it essential to alert federal lawmakers of the progress we have made to protect consumers from the widespread economic fallout of controversial CDS transactions. The premise of our draft model act—that credit default swaps with material interest are insurance—means consumers would be protected by the safeguards inherent in state-regulated coverage.”

The letter explains that the proposed model act, which is scheduled for final NCOIL review in November during its annual meeting on Nov. 19-22, would regulate certain “covered” CDS—those that maintain a material interest in an underlying asset—as a new form of insurance, known as credit default insurance (CDI), and would prohibit so-called “naked” CDS, or swaps in which a party has no material interest in the underlying asset.

The National Association of Insurance Commissioners, Kansas City, Mo., who is also making its case for state insurance regulation before Congress, released its 22nd edition of the Insurance Department Resources Report mid-month to help state insurance departments assess their resources in comparison to other states.

Among the findings in the report are:
• Premiums increased by 3.5 percent to $1.6 trillion from 2007 to 2008.
• In 2008, the five states with the most premiums written in all lines were California, New York, Florida, Texas and Pennsylvania. These five states accounted for 40.4 percent of all insurance premiums in the U.S.
• There were 7,948 domestic U.S. insurers in 2008.
• State insurance departments received more than 337,000 official complaints and 2.2 million inquiries.

The staff breakdown for state insurance departments in 2008, according to the report, was led by resources devoted to financial regulation at 18% and consumer affairs at 13.7%.

Aggregate insurance department budgets will increase to $1.85 billion in 2010 up from $1.6 billion in 2009 and up from $947 million in 2002.
Revenues for state departments totaled $18.3 billion in 2008 with 82.05% coming from taxes.

Monday, July 20, 2009

Do Product Guarantees Help Recover Lost Retirement Income Ground?

Creating regular income that you can count on during retirement is taking on even more importance given the ground many baby boomers have lost during this deep recession.
There are ways to counter recession setbacks to retirement income, financial services executives say. Both executives interviewed offered options such as guarantees either in annuities or in products that are outside of annuities.
Guarantees have gained popularity with consumers over the last several years. But one prominent fee-only certified financial planner says that she doesn’t work much with these annuities but what she does see in potential clients who come to her should give potential buyers pause.
Income guarantees in annuities are becoming increasingly popular, according to Keith Golembiewski, assistant director-market research for individual annuities at Hartford Life Insurance Co., Simsbury, Conn. There are many different types of guarantees but typically a floor is guaranteed for regular payments. So, clients would take out their own money through systematic withdrawals and if the market is not performing well, the insurance component kicks in to make sure the guaranteed minimum amount is paid, Golembiewski explains.
The guarantee can help an annuity holder with the risk of living too long and not having enough income, he adds. But, the guarantees cause risks for insurers which companies must manage, Golembiewski states. For example, a company may put caps on withdrawals, require mandatory asset allocation or at a certain point require that you annuitize your contract, he continues. Annuitizing a contract occurs when the contract owner takes regular, periodic distributions.
Golembiewski advises that a few of the things you need before you make a purchase is trust in your advisor as well as the insurance company based on ratings, history and the length of time it has been in business. And, the client should know the reason why the product is being purchased, he counsels. Does the client need to protect income or maximize it? He asks. Other options that may suit a consumer’s needs are immediate annuities or fixed deferred annuities, Golembiewski says. He also says that the cost of variable annuity guarantees is increasing because insurers have to buy hedges or reinsurance and consequently, these higher costs will create a bigger drag on any potential annuity growth.
A variable annuity provides liquidity because it is still the customer’s money. But if a client decides to take out a greater percentage than was originally used to calculate regular income, then there may be less in the future to draw on, he explains.
Ed Friderici, managing director of alternative retirement solutions with Phoenix Cos., Hartford, Conn., describes another option: a standalone guarantee outside of an annuity that can be bolted on to retirement products including a 401(k), IRA rollovers and non-qualified retirement plans. The “bolt on benefit” can be turned on and off at will, he explains. And, there is no surrender charge that is associated with an annuity, according to Friderici. A surrender charge is assessed an annuity owner, if money is withdrawn before a specified period, for instance seven years. Often, surrender charges decline with each year into the surrender period. But not so with the “bolt-on benefit,” he continues.
But if the benefit is turned off, Friderici adds, and then turned back on later, if the market is down and costs to the insurer are up, switching it back on could cost more, he warns.
Eve Kaplan, founder and CEO with Kaplan Financial Advisors, LLC, Berkeley Heights, N.J., says that as a fee-only planner she does not work with variable annuities with guarantees. But when potential clients who have been sold them come to her, she says that “almost anything that I’ve ever seen is ugly.”
One problem, according to Kaplan, is the complexity of many of these products with “all the bells and whistles and elements on them.” Another problem, she adds, is the ambiguity of marketing with use of phrases such as “tax-sheltered.” And, even on fixed annuities, she says that typically, there can be a 4-8% commission.
Kaplan says that often an employer will not understand the product but will invite what she refers to as “the donut people” in to speak to workers. In this particular instance, the “donut person” was known to his former co-workers, and with donuts in hand and a new career selling annuities, has the trust of his former colleagues.
She speaks of one couple, potential clients, who were locked into a variable annuity because of surrender charges. The “donut man” had made a pitch to them. This VA paid 3% but had a mortality and expense ratio of 1.4%, which after taxes left the couple with about 1%. She says that this particular couple could have done just as well in a certificate of deposit.

This story first appeared on

Friday, July 17, 2009

Compact Commission’s Annuity Standards Advance, Contract Rights Debate Likely To Follow

Proposed annuity standards for variable and non-variable annuities were advanced on July 14 by a regulatory subgroup and sent up to the Product Standards Committee of the Interstate Insurance Product Regulation Commission. The standards that were advanced contain a controversial provision which would eliminate guaranteed living benefits and guaranteed minimum death benefits if the contract is sold to an institutional investor (see earlier posts.)

Life insurers argue that the behavior of individuals is different than institutional investors and that institutional investors are more likely to use guarantees for financial reasons than reasons of actual need. They argued throughout the three months it was discussed that if the language was not put in place, the cost of these guarantees could become prohibitive because companies would have to hedge against the added risk these provisions will be exercised.

Those who oppose say that it is an issue of contract rights and limiting the right to sell something that they paid for diminishes the value of what the consumer purchased.

The IIPRC process allows for several more periods of comment and Brian Staples of Right LLC, Versailles, Ky., representing the Life Insurance Settlement Association, Orlando, Fla., says that he plans to pursue the issue. In an interview with Staples, he says that consumer representatives and the AARP, Washington, need to be made aware of a standard provision that may be detrimental to seniors and their ability to maintain liquidity. Staples says that having the option of that liquidity is needed because of surrender charges that are often associated with these annuities.

Saturday, July 11, 2009

NCOIL Tackles Tough Issues On Day 2 Of Its Summer Meeting

On the second day of the summer meeting of the National Conference of Insurance Legislators, Troy, N.Y., many issues were addressed. Here are some takeaways:

On a proposed Consumer Financial Protection Agency: Ethan Sonnichsen, director, government relations with the National Association of Insurance Commissioners’ Washington office explaining to legislators that even though there is a carve out for insurance in the CFPA, part of President Obama’s planned overhaul of financial services regulation, there is still a need for state insurance regulators and legislators as well as the industry to be watchful. The reason, he explained is that many products that would be regulated because they are sold by other financial services entities including banks are connected to insurance. So, for instance, while you might receive a car loan through a bank, that car will still need insurance.

On a resolution on a proposed CFPA: A resolution advanced during the state-federal relations committee stated that a CFPA or any other new or existing federal agency “should not have direct or indirect jurisdiction over insurance products-including credit, mortgage and title insurance, and/or insurance related matters.” The proposed entities should not have jurisdiction over “all” insurance products and insurance related matters, the resolution states.

Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., asked legislators to be attentive to the language in HR 3126, specifically “the business of insurance.” There needs to be a well-defined description of insurance, he continued. The life settlement industry is attentive to whether life settlements will be included in this language, Head explained. The language in the Consumer Financial Protection Agency Act of 2009 states that “…the Agency shall not define engaging in the business of insurance as a financial activity (other than with respect to credit insurance, mortgage insurance or title insurance as described in this section.”

On credit default swaps and hedging risks: Hampton Finer, deputy superintendent and chief economist with the New York insurance department, pointed out that prior to the introduction of credit default swaps, the way to minimize risk was to sell the bonds that created additional risk in a portfolio. While much of the problem for credit default swaps comes from outside the industry, Finer said that “we need to fix our insurance house and said that the work of legislators on a CDS model as well as action such as a bulletin issued by the New York Insurance Department last September following the meltdown of the financial system and American International Group, New York, will help move toward that goal. The insurance industry needs to pull back from products with the greatest risks, Finer added.

On NCOIL’s Market Conduct Annual Statement confidentiality model act: Susan Voss, Iowa insurance commissioner and NAIC vice president, urged state insurance legislators to not establish hurdles that will make it difficult for state insurance commissioners and their departments to share confidential information on companies. She acknowledged that there has been general concern over a centralized data repository. But, she told NCOIL legislators, there needs to be a balance found where regulators retain the capability to share data and consumers have access to aggregate data and that a group that includes industry is seeking to find that balance.

Deirdre Manna vice president-regulatory and political affairs with the Property Casualty Insurers Association of America, Des Plaines, Ill., said that companies are left with little comfort because there are a number of commissioners that want open all data from market conduct analysis to the public domain.

Joe Thesing, director of state affairs with the National Association of Mutual Insurance Companies, Indianapolis, applauded the NCOIL model saying that it is consistent with NCOIL’s market conduct surveillance model act.
Ultimately, NCOIL legislators deferred advancing the model so that proposed amendments could be reviewed and further considered.

On a tussle over NAIC fees being fought in Michigan: A discussion indicates that just before July 4 several Michigan domestic companies got into a disagreement with the Michigan department over fees to be paid to the NAIC. The fees are for access to filing financial statements and are modest, according to Mary Jo Hudson, Ohio insurance commissioner, representing the NAIC. The crux of the issue centers around a promise that was said to have been made by a previous insurance commissioner that these companies would not have to pay the fees. Now the company is being told that they will have to pay the fees. It is unclear whether the issue will end up in court, according to the discussion. It is expected that the fees will be paid, but another option is not to participate in the filing system and then file individually in individual states.

On producer background checks: Wes Bissett, senior counsel for state government affairs, of the Independent Insurance Agents & Brokers of America, Alexandria, Va., said that because of other major issues including health care reform and the CFPA background checks may not currently be a priority. But, he continues, if the issue is addressed, background checks should be done on a resident basis and not on a non-resident basis. Any work on the issue should reflect proper confidentiality and privacy protections, a strong appeals process and hold board of directors and management up to the same standards producers are held to.

David Eppstein, director of state affairs with PIA National, Alexandria, Va., urged that any fingerprint and background checks be uniform and said that whether a uniform, national system is done through a federal bill or state by state, it is possible to get to that point.

NCOIL Legislators Put NAIC Rating Agency Under Review, Outlook Uncertain

Clearly, the biggest discussion item to surface on the second day of the summer meeting of the National Conference of Insurance Legislators here was the plan by state regulators to create a rating agency. In response to questions from state legislators, Roger Sevigny, president of the National Association of Insurance Commissioners, Kansas City, Mo., offered more details on the project. The NAIC has made it known that it was considering the creation of an agency, so that it not new. What is new is the confirmation that it would directly compete with rating agencies and some more details about how this new entity might come to be.

Sevigny says that a business and financial plan is being finalized by the NAIC and the next step will be to test the assumptions in that plan before advancing it through the organization’s process. The project would have to be self-funded, he explained.

New Mexico State Sen. Carroll Leavell, R-Jal, expressed concern that the NAIC “is taking a great deal on” and in doing so, would create a beauracracy. In response to a question about who would own and operate the new rating agency, Sevigny said that the rating agency would be a separate not-for-profit entity from the NAIC.

State Rep. George Keiser, R-Fargo, N.D., and NCOIL vice president, said that creating a new rating agency has “tremendous potential for a conflict of interest. I can’t imagine you putting all that work in this and not wanting to be part of it.”

“The SEC [Securities and Exchange Commission] has a great deal of interest in a non-profit competitor being out there,” added Susan Voss, NAIC vice president and Iowa insurance commissioner.

NCOIL’s Leavitt responded by asking if there was really a need for such an entity. Sevigny answered that regulators were very concerned with the ratings on American International Group last fall prior to the entity’s failure, noting that they did not reflect the company’s real situation.

State Rep. Bob Damron, D-Nicholasville, Ky., and NCOIL president-elect, said that in his capacity as an investment banker, he had found that the rating agencies could be really tough when rating new securities and that they are “not being given enough credit.”

Friday, July 10, 2009

NCOIL Meeting Update--Day 2

During the summer meeting of the National Conference of Insurance Legislators here, Roger Sevigny, president of the National Association of Insurance Commissioners, confirmed that a rating agency that is being developed would compete directly with existing rating agencies, prompting skepticism from state insurance legislators as well as questions about funding, conflicts of interest and the project's feasibility. More to come later.

NCOIL Summer Meeting Off And Running

State insurance legislators discussed everything from principles-based reserving to Rule 151A during the summer meeting of the National Conference of Insurance Legislators, Troy, N.Y. But the real issue of the first day of the summer meeting here was a model law that would regulate credit default swaps, an area some industry representatives question is actually insurance.

After a lengthy discussion of whether to advance the model, a decision was made to defer a decision so that more work could be completed. The discussion on July 9 comes a day before Congress is expected to discuss how the financial instruments should be treated.

The following is a breakout of what state legislators and speakers at the meeting had to say:

Regulation 151A: Susan Voss, Iowa insurance commissioner and vice president of the National Association of Insurance Commissioners, Kansas City, Mo., said the issue would be one of several discussed with Mary Shapiro, chairman of the Securities and Exchange Commission, when regulators meet with her next week. Voss also discussed an effort in Congress that would exempt fixed annuity products from being regulated as securities when they are insurance products and that was gaining sponsorship.

Voss was joined by Jim Poolman, a former North Dakota insurance commissioner who is now representing American Equity. Poolman told legislators that a court decision on a suit filed in District Court in the District of Columbia that challenges the SEC ruling could be handed down by the end of August. The decision, he says, could: vacate the rule if it finds that it violated federal law; remand the issue back to the SEC; or put it through as written.

Suitability: The NAIC’s Voss said that a lot of the work on the model update should be completed by the fall NAIC meeting in September. John Gerni, regional vice president-state relations with the American Council of Life Insurers, Washington, expressed concern that the proposal is “overly prescriptive” and Voss responded that this is not the intent of regulators.
Principles-based Reserving: Paul Graham, the ACLI’s chief actuary, said the current NAIC draft is “rule intensive,” noting that there are 191 pages of rules on how to determine reserves to replace four to five pages that had previously been part of the Standard Valuation Law. Voss responded that regulators wanted to ensure that there are sufficient reserves. “We are trying to right size reserves so that people are buying products at the right price.”

State rep. Bob Damron, D-Nicholasville, Ky., and NCOIL president-elect, responded that companies have expressed concern to him that the large companies will be given an advantage over smaller ones but Voss said that she had spoken with larger companies that will have greater capital requirements if PBR is put in place. Damron said that if there is a perception that reserves are being reduced, then it could support the argument for federal regulation.

But Nancy Bennett, a senior fellow with the American Academy of Actuaries, Washington, said that the essence of PBR is that “it aligns risk with reserves, making companies safer.”

Credit Default Swaps: Delegate Bob Marshall of Virginia said that financial guarantees are insurance even if they are not called such. And, he asserted that they need to be regulated. “My constituency is now paying for your market decisions. Regulation is needed for the common good…We can’t continue this roulette wheel game that is going on. We need governance here.”

George Keiser, R-Fargo, N.D., and NCOIL vice president, concurred, noting that the NCOIL model draft grandfathers currently underwritten financial guarantees unless there is a substantial change in the language of existing contracts or there are new contracts. The model draft is spearheaded by Assemblyman Joseph Morelle, D-Rochester, New York.

And he responded to the assertion by industry that regulating CDS might shrink the availability of these products and credit. “I have never seen it more difficult to get credit in my life. For us to go back to where we were [not regulating CDS] is not acceptable.”

But Robert Pickel, CEO of the International Swaps and Derivatives Association, New York, said that CDS play an “important role in the economy,” lowering the cost of borrowing. He said the markets are very sensitive to uncertainties, “and that whether or not regulation of CDS as insurance would impact the market remains to be seen.”

The ACLI’s Gerni said that it is possible a change in the market will diminish the availability of these financial instruments. And, for instance, he explained that in the case of General Motors bonds which declined to a value of zero, life insurers that were hedged with CDS came out “the significant winner.”

Dave Sandberg, representing the Academy, explained that by using a traditional actuarial approach for these products, the possibility of these products unraveling in the future is not addressed. “Unless you tie reserving to the actual risk, you might be surprised,” he explained.

Thursday, July 9, 2009

NCOIL Summer Meeting

The National Conference of Insurance Legislators will hold its summer national meeting starting today in Philadelphia. The Insurance Bellwether will be covering the meeting on Twitter and Linkedin at Jimsconn, with updates to follow on the blog.

Saturday, July 4, 2009

Happy July 4th


Enjoy! Be Thankful we live in a great country.
Jim Connolly

Thursday, July 2, 2009

The Pieces Are There. Can We See A Picture Yet?

For over four years now, and 15 post NAIC conference calls hosted by the American Academy of Actuaries, Washington, the discussion has centered around the development of principles-based reserving and how PBR will fit into the development of international solvency and accounting standards that are currently being developed.

The pieces are starting to come together.

During the 15th AAA update Donna Claire spoke of exciting news and was followed by Larry Bruning, chief actuary with the Kansas insurance department and a co-chair of the Life & Health Actuarial Task Force. Bruning detailed the advancement of the revised Standard Valuation Law during the summer meeting of the National Association of Insurance Commissioners’ in Minneapolis last month.

Bruning also updated Academy members about how the NAIC is reorganizing its work under a Solvency Modernization Task Force that will bring PBR as well as regulatory work on international accounting and solvency standards under its purview.
Can you see a picture yet?

Well, those speaking on the call say that while there is a great deal of work that still needs to be done, there is at least an outline.

Here are some of the takeaways.
• On July 28, the exposed SVL is up for adoption by LHATF’s parent, the Life & Annuities “A” Committee.
• Work will begin at LHATF’s fixed annuities subgroup to add to Section 22 of the Valuation Manual which deals with these products.
• Mike Bohner, a life actuary with the Texas discussed how pieces of the Valuation Manual including VM-0, are being worked on for a scheduled Jan. 1, 2012 implementation date.
• One of the hot topics of discussion this summer will be the PBR discount rate for reserves associated with VM-20, another section of the Valuation Manual.
• Phil Barlow, a District of Columbia regulator and chair of the Life RBC working group discussed the C3-Phase III project and how the group is estimating that work will be done by year-end so that it can become effective in 2010.
• The next project, Barlow says, will be C-3, Phase IV, which will update C-3, Phases I and II so that they are consistent for all annuities. That may be achieved by updating Phase III for all annuities. Phase IV is scheduled to be in place for 2010 or later and 2011 at the earliest.
• Nancy Bennett, a fellow with the Academy, rounded out the discussion by detailing how events including international accounting and solvency work, the plan of President Barack Obama to overhaul the financial services industry and other regulatory work may be moving regulation toward a more seamless, international system of oversight.