The exceptions state insurance departments are granting insurersreporting their capital and surplus under permitted practices ruleswill create a level of inconsistency and raise issues ofcomparability, an analyst with the rating agency Standard &Poor's Corp. said.

The observation came in response to questions asked during ateleconference call today addressing rating actions and relatedcriteria on U.S. life insurers. However, the practice is also beingapplied to some property-casualty companies.

In response to a question over the "flurry of permittedpractices" being granted by state insurance departments, S&Panalyst Kevin Ahern said that S&P would look at companies on acase by case basis but did note that an issue of comparability iscreated.

Recently, Illinois joined other states in announcing that it isproviding exceptions to capital and surplus requirements. Theexceptions were given to Allstate Life Ins. Co., Northbrook, Ill.,and Continental Casualty Co., Chicago, department bulletinsstate.

In respective Feb 11 and Jan. 28 letters, Allstate was grantedrelief in requirements for deferred tax assets and a switch from amarket value approach to a book value approach for market valueadjusted annuities.

The Feb. 11 letter to Allstate Life granted an exception ondeferred tax assets, allowing the use of either the gross DTAexpected to be realized within three years of the balance sheetdate or 15 percent of statutory capital and surplus. The exceptionswill be allowed for reporting from Dec. 31, 2008 through Dec. 30,2009.

The Jan. 28 letter to Allstate allows the conversion of theaccounting and valuation methodology for Allstate's market valueadjusted annuities from a market value approach to a book valueapproach for the year ending 2008 through Sept. 30, 2009.

A spokesperson for the department could not immediately bereached for clarification.

The practices are being extended to property-casualty companiesas well. For example, in Connecticut regulators granted HartfordFinancial Services Group a capital and surplus dispensation underits permitted practices rules.