Insurers concerned about the way a regulatory unit classifiessome of their investments have been reassured by regulators that itshould not impact their solvency picture.

The issue discussed at an April 19 conference call by insurersand regulators involved hybrid securities in carriers' portfoliosthat have been classified as common stock by the SecuritiesValuation office of the National Association of InsuranceCommissioners.

Mike Moriarty, director of the New York Insurance Department'scapital markets bureau, said that a change in classification ofthese securities should not impact a company's risk-based capitalratio.

“If it did impact a company's RBC ratio, the company is probablyalready stressed or the portfolio of hybrids is alreadysignificant.” The NAIC's RBC requirements are not an indicator offinancial strength, he added.

Insurers had expressed a concern that the hybrids'classification as common stock rather than as debt will increasethe risk-based capital that companies are required to hold toensure they are financially strong.

In 2005, the property-casualty industry held $3.6 billion inthese instruments, the discussion during the call indicated.Capital and trust preferred securities held by life insurers in2005 totaled $35 billion in 2005 compared with $29 billion in 2004,said Robert Carcano, SVO senior counsel and senior vicepresident.

Institutions on the call included Aegon, Credit Suisse, GenworthFinancial, HSBC, John Hancock, Merrill Lynch, Prudential Financialand TIIA-CREF.

Classification of hybrids first became an issue when a LehmanE-Capital Trust I security purchased by a New York-domiciledinsurer in August 2005 was required by the New York InsuranceDepartment to be filed with the SVO for analysis.

The required review was made in the fall of 2005 and in earlyMarch of 2006 the SVO notified the department that the securityshould be classified as common equity. An appeal was filed on March24.

Nine other insurers hold the same Lehman security, according tothe SVO. And, in mid-March, following the determination, the NewYork department requested other insurers to file various hybridsecurities with the SVO for analysis.

During the conference call, other points the SVO made inresponse to questions from institutions included:

o All rating agencies are given similar weight when evaluating asecurity.

o The SVO does not discuss the rationale behind theclassifications of securities and whether a precedent is beingestablished.

o An institution has the right to file an appeal to an SVOdecision.