What Does ACLI's Capital Relief Plan Mean In Practical Terms?

While ratings are one of the major things producers look at, he says that about 5% of assets seems an appropriate level for capital and surplus, although for very large companies that might be too much.

In a Standard & Poor’s Corp. commentary last month, the New York-based rating agency notes that “the proposed changes would have a limited effect on our view of capital adequacy, which, although important to our rating assessments, is only one of eight major factors we look at when determining our ratings on insurers.

“We expect insurance companies to maintain certain levels of capital and liquidity at each rating category, but competitive positions and operating performance–two of the other factors we consider–tend to be the key differentiators at investment-grade rating levels,” S&P says. “Major rating factors also include management and strategy, enterprise risk management, investments, and financial flexibility.”

The report by S&P analysts Matthew Carroll, Kevin Ahern, and Robert Swanton says the changes would have only a “slight impact” on S&P’s view of capital adequacy but could increase financial flexibility and increase dividend capacity for some companies.

The leaders of NCOIL, Troy, N.Y., are preparing to send a letter urging the NAIC not to vote on the proposal.

New York state Sen. James Seward, R-N.Y., NCOIL’s president, says NCOIL’s leaders will “urge the NAIC to slow down until consensus is reached,” because the NCOIL leaders believe a “proper vetting of this issue is needed,” and, “frankly, the timing could not be worse. It leaves the appearance that standards are being relaxed when the rest of the world is calling for more oversight.”

NCOIL leadership has not determined whether it will try to prevent enactment of the proposal in state legislatures if the NAIC votes to adopt the proposal, Seward says.

Kentucky state Rep. Robert Damron, D-Ky., president-elect of NCOIL, says that, if the proposal were adopted, he would consider advancing legislation to prevent the proposal from being used in Kentucky and would advance a proposal to have Kentucky withdraw from NAIC membership. Damron says it is possible that action could be taken to remove references to the NAIC and its models from state law.

“It takes more guts than a slaughterhouse,” Damron says, for the ACLI to submit the capital and surplus proposal under current conditions.

“Asking regulators to reduce protection to policyholders is just absurd,” Damron says. “If the NAIC does this, as far as I’m concerned, it is absolutely a good case for federal regulation.”

Any member of Congress considering the possibility of federal regulation would have to ask “how the industry could have that much power over regulators,” Damron says. “How can you tell Congress to leave us in charge of insurance when you are getting in bed with the industry? I think [NAIC members] will be handing over insurance regulation to the federal government if they go through with that.”

The Independent Insurance Agents & Brokers of America, Alexandria, Va., is watching the issue closely and believes that the issue needs to be examined judiciously, according to Wes Bissett, representing the Big “I.”

When asked for comment, the National Association of Insurance and Financial Advisors, Falls Church, Va., referred to an article in its GovTalk publication authored by Ron Panneton, NAIFA senior counsel-government relations. The article offers a dateline on the project’s development.