Accounting Change to Boost Insurers' Books by $11 Billion

By Leslie Scism
Wall Street Journal
December 8, 2009


State insurance regulators approved an accounting change tied to income taxes expected to add more than $11 billion in capital to life insurers' balance sheets at year-end.

The change represents one of the biggest single capital-relief items sought by the life-insurance industry in a package of overhauls presented by a major trade group late last year.

With Monday's vote by the regulators, over the objections of several consumer groups, the insurers have obtained changes that together will free up more than $16 billion in capital, according to estimates from the American Council of Life Insurers, a big trade group.

Voting at its winter quarterly meeting in San Francisco, the National Association of Insurance Commissioners approved the tax-related measure 33 to 22, a spokesman for the organization said Monday.

The ACLI had proposed the change as part of a package of overhauls originally intended to help insurers get through the worst of last year's financial-system meltdown. The regulators rejected approving the package on an emergency basis but took up many of the items this year, putting them through the organization's regular review process.

Under the measure, insurers will be able to count more of the so-called deferred-tax assets as part of their capital cushions.

As with some of the other changes they have approved, regulators put their stamp on the income-tax-accounting measure. The NAIC approved a less-generous version of the change sought by the trade group, and the group put "guard rails" in place, as some regulators dubbed it, to restrict use of the more-favorable treatment to the healthiest insurers.

Consumer groups have complained that these are paper assets that won't help pay claims if companies hit the skids.

In a statement, the ACLI said Monday's changes will provide a "much more accurate picture of an insurer's financial strength" and give insurers "greater access to capital and credit," which helps serve policyholders.

State insurance regulators have required deferred-tax assets and deferred-tax liabilities to be recognized in statutory financial statements since 2001, but the amount of such assets that can be recognized is significantly limited under an admissibility formula.

With the adopted change, the amount of deferred income-tax assets is still "significantly limited, but some of the over-conservatism has been reduced," the NAIC said in a statement.

James Wrynn, New York insurance superintendent, said the change provides for uniformity and transparency that would "further strengthen the industry and ultimately the protection of insurance consumers."

The change is effective for insurers' year-end 2009 statutory financial statements.

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