Hoping for a Helping Hand: Life Insurers Reach Out to NAIC, Treasury for Lifelines

Sean P. Carr
A.M. Best
January 19, 2009


WASHINGTON, Jan 19, 2009 (A. M. Best via COMTEX) -- Concerned about the state of their balance sheets, life insurers are playing in a high-stakes game show, one where the winning jackpot is ensuring solvency.

Faced with difficult questions amid investment losses and a foundering market, insurers have reached for their lifelines. They asked the audience -- the stock markets -- and were met with a resounding thumbs-down. Many of the leading life insurers are now trading at a fraction of their year-ago price. The largest U.S. life insurer, MetLife Inc. (NYSE: MET) closed Jan. 15 at less than half the level of a year ago. Number-two life insurer Prudential Financial (NYSE: PRU) traded last week at one-third its January 2008 price. Genworth Financial less than one-tenth.

Hartford Financial Services Group (NYSE: HIG) and Lincoln National Corp. (NYSE: LNC) recently won federal approval to purchase savings-and-loan institutions and convert to thrift holding company status, a step that could clear the way to receiving significant capital infusions from the U.S. Treasury. Protective Life Corp. (NYSE: PL) and Genworth (NYSE: GNW) are also seeking thrift-status conversion. Prudential and Principal Financial Group (NYSE: PFG), which qualify for the program as owners of federally regulated savings banks, have also applied to participate.

Meanwhile, the American Council of Life Insurers is lobbying the National Association of Insurance Commissioners to adopt a series of measures to reduce the total capital reserves its members must keep on hand. Many insurers have sustained investment losses that have drained their reserve levels.

"The capital cushion companies had has been depleted," ACLI Senior Vice President of State Relations Bruce Ferguson said.

The nine ACLI-proposed changes address life insurance reserves; annuity reserves and risk-based capital; risk-based capital for investments; and accounting for deferred tax assets. If adopted in full -- unlikely, as the NAIC body reviewing the proposal has already rejected three -- the changes would lower the total reserves insurers must keep on hand by up to $25 million, according to the ACLI. Under regulations adopted in most states, certain accounting changes made by the NAIC are automatically put into effect.

ACLI proposed the changes in November, with hopes the NAIC would enact them by the end of 2008. Now, the NAIC may have dedicated officials and staff. It may know more about insurance regulation than any entity. But it's not known for speed.

ACLI staff have expressed disappointment in the pace of NAIC deliberations. The council warned inaction could result in a patchwork of state-by-state changes. The currently mandated capital reserve levels are too strict, it has said.

Consumer groups are deeply concerned about the entire ACLI plan. They fear a loosening of capital requirements would increase the odds than an insurer could become unable to meet its obligations to pay annuities and life insurance policies.

?When insurance giant [American International Group] failed, the NAIC and individual state insurance regulators were quick to point out that, because of stronger capital and reserve requirements, AIG?s insurance units were financially sound," J. Robert Hunter, director of insurance for the Consumer Federation of America, wrote to commissioners.

The NAIC will hold a public hearing on the changes in Washington, D.C. on Jan. 27. The full body has scheduled a Jan. 29 conference call for a possible vote.

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