Regulators May Ease Reserve Rules as Insurers' Options Dwindle

By Andrew Frye
Bloomberg News
December 19, 2008

Dec. 19 (Bloomberg) -- State insurance regulators are seeking to ease reserve requirements for life insurers, increasing the companies' liquidity as investors and banks curtail funding of the industry.

The National Association of Insurance Commissioners advanced a proposal to reduce the amount of money carriers must hold against guarantees made to variable annuity clients. The potential reform, criticized by a consumer advocate, may be adopted in time for 2008 financial results, the NAIC said yesterday.

"Typically insurers would turn to the capital markets for reserve relief," Roger Sevigny, president of Kansas City, Missouri-based NAIC, told reporters yesterday on a conference call. By relaxing standards, "it becomes easier for the companies to meet the requirements of banks and other credit facilities."

Life insurers are seeking relief from regulators after losses on stocks, mortgage bonds and corporate debt forced the firms to slash dividends, suspend buybacks and raise capital. Prudential Financial Inc., the second-biggest life insurer, and Lincoln National Corp. advanced in New York trading yesterday.

"Passage of the capital relief measures would be beneficial" for insurers including Prudential, Lincoln and Hartford Financial Services Group Inc., Andrew Kligerman, an analyst at UBS AG, wrote in a note.

Prudential rose $1.56, or 5.4 percent, to $30.74 yesterday in New York Stock Exchange composite trading. Philadelphia-based Lincoln advanced 32 cents, or 1.8 percent, to $18.09.

The NAIC, a forum for state regulators, outlined new reserve guidelines in September to be adopted at the end of 2009. Last month, as the stock slump deepened, insurers called on regulators to speed reform.

New York

The NAIC came under additional pressure to accelerate relief after New York eased standards this month on insurers the state regulates. New York-based MetLife Inc., the No. 1 life insurer, said the rule change provided a benefit of $1.8 billion. Many states follow NAIC guidelines.

"Changing how strong an insurance company is with the stroke of a pen doesn't really change how strong an insurance company is," said Robert Hunter, a former Texas insurance commissioner now at the Consumer Federation of America. "I'm afraid that the people who won't figure it out are the consumers."

The NAIC will accept public comment on the potential rule change through Dec. 26 and plans to have its commissioners vote by early January. Insurers promise minimum returns on some equity-based annuities even when stock markets decline.

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