Regulators Vote Down Capital Relief for Life Insurers (Update3)

By Andrew Frye
Bloomberg News
January 29, 2009

Jan. 29 (Bloomberg) -- State regulators today voted down a proposal to loosen capital requirements for life insurers, saying carriers failed to demonstrate adequate need for aid. Carriers plummeted in New York trading.

The measure failed after insurance watchdogs from states including Alaska, Louisiana and Oklahoma voted against it, Florida Insurance Commissioner Kevin McCarty said in a conference call meeting of regulators. Connecticut's Thomas Sullivan voted in favor of the proposal, which an industry group said would lower capital and reserve requirements by $18 billion.

Prudential Financial Inc., the second-biggest U.S. life insurer, and Hartford Financial Services Group Inc. publicly supported the measure as stock declines of more than two-thirds at each firm last year made private capital more expensive. Investment losses depleted capital across the industry, and in November the American Council of Life Insurers presented a proposal to provide as much as $30 billion in relief. That was scaled back, and the ACLI asked regulators to rush approval.

"They did not make the case that anyone needed this, let alone the entire industry, on an emergency basis," New York Insurance Superintendent Eric Dinallo said in an interview. "We're very willing to step in and be proactive and flexible" on a case-by-case basis, Dinallo said.

Prudential dropped $5.12, or 15 percent, to $28.62 at 4:15 p.m. in New York Stock Exchange composite trading, while Connecticut-based Hartford fell $2.31, or 13 percent, to $15.40. Lincoln National Corp. dropped 18 percent.

Surplus Losses

Insurers lost $77 billion in surplus last year on declines in mortgage bonds and losses from guarantees on slumping retirement products, according to consulting firm Conning & Co. Life insurance stocks lost about half their market value in 2008, while Hartford plunged 81 percent and Newark, New Jersey-based Prudential lost 67 percent.

The ACLI was pushing regulators to act after New York last month allowed insurers in the state to reduce some reserves based on hedges they purchased against equity-market declines. New York-based MetLife Inc., the largest U.S. life insurer, said the rule change provided a $1.8 billion benefit.

The ACLI wanted to expand the ability of carriers to count future tax benefits as capital, among other measures. The Washington-based trade group also wanted carriers to report 2008 results using the proposed relief.

"The American Council of Life Insurers is disappointed with the failure of the NAIC to provide uniform guidance," ACLI President Frank Keating said in a statement after the vote. "Adoption of the proposal would have provided a financial cushion and operational flexibility during these turbulent times."

Insurance is regulated by the states, and commissioners oversee companies based within their jurisdiction. The NAIC is a forum for watchdogs from the 50 states, many of which follow the association's guidelines.

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