Thursday, October 8, 2009

Deferred Tax Asset Discussion Deferred

A call to discuss a controversial proposal for surplus relief by allowing deferred tax assets to be part of statutory surplus is postponed as staff at the National Association of Insurance Commissioners, Kansas City, Mo., gathers last minute comments and does additional work needed to prepare for the call. It is likely that the call will be rescheduled for some time after the meeting of the International Association of Insurance Supervisors, Zurich, Switzerland, after Oct. 15.

The change to SSAP 10, which would provide life insurers with more leeway in applying deferred tax assets was first introduced in November 2008 as part of a package presented by the American Council of Life Insurers, Washington, to provide what it maintained was an immediate need for capital relief following the financial crisis that hit a year ago.

In January 2009, after a public hearing, regulators said that the request was not an emergency, but that they would be willing to look at the issue through the normal channels at the NAIC. Iowa and Ohio, through permitted practices, allowed DTA to be applied as the ACLI had requested.

In a joint letter on Oct. 6, the Consumer Federation of America, Washington, and the Center for Economic Justice, Austin, Texas, opposed the proposed changes and called on the NAIC to “force those states, including Iowa and Ohio, which allowed changes to DTA calculations by bulletin earlier this year, to rescind those bulletins and provide uniform consumer protections across all states.”

The two consumer groups called the proposed changes “another giveaway to insurers at the cost of consumer protection” by reducing surplus with non-liquid assets. The two groups cite the Virginia insurance department which they say questioned the fact that no impact studies have been done. CFA and CEJ say that the proposal will actually speed the decline of troubled companies because as an insurer’s capital position weakens, the insurer will lose the DTA included in surplus and risk-based capital.

Both groups allege that the fact that the relief is limited to stronger insurers suggests that the proposal is “not about consumer protection, but about puffing up insurer surplus and credit ratings.”

When asked whether the use of permitted practices was a backdoor way to implement proposals still being discussed at the NAIC, Birny Birnbaum, CEJ executive director, said that “it is among the problems.” He noted that insurers are major employers in Iowa and Ohio.

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