The nation's insurance regulators, meeting via teleconference, have adopted motions on several issues, including how to rate insurers' hybrid securities investments.

The actions were taken in preparation for the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo. The meeting will take place Sept. 9-12 in St. Louis.

The NAIC hybrid RBC “E” working group adopted a definition of hybrid securities that will be used when it reviews various short-term scenarios that can be put in place until a long-term hybrid securities decision is made.

That definition will be used by the NAIC Securities Valuation Office, which rates the strength of insurer investments.

The group dealing with hybrid securities, under the direction of Lou Felice, a New York regulator, agreed to a “broader” definition of hybrid securities.

As voted by the group, the definition was amended to exclude perpetual preferred securities and surplus notes.

The definition states that hybrid securities are those securities accorded some degree of equity treatment by one or more nationally recognized statistical rating organizations or which are recognized as regulatory capital by the issuer's regulatory authority. The definition excludes subordinated debt issues with no coupon deferral features and “traditional” preferred stocks.

The Life and Annuities “A” Committee adopted a package that included Actuarial Guideline 38 for Universal Life products with secondary guarantees. The proposal uses lapse support assumptions in establishing reserves. The package, which was developed with assistance from the American Council of Life Insurers, Washington, also includes splitting the current 2001 CSO mortality table in order to create preferred mortality tables.

Commissioner Jim Poolman, North Dakota insurance commissioner and chair of the “A” committee, added two provisions, including a Dec. 31, 2010 sunset in anticipation of development of a full-fledged principles-based reserving system. Mr. Poolman also included a proposal to include asset adequacy testing to give regulators greater comfort that there was enough conservatism in the provision.

The motion was adopted and will in all likelihood go before the executive and plenary committee in St. Louis.

The measure was adopted by the Life & Health Actuarial Task Force on Aug. 29 amid concern that lapse supported assumptions are not consistent with the Standard Valuation Law and that it would have been preferable to wait 3-6 months until new preferred mortality tables were developed with newer data. During the call, the issue of “political expediency” versus actuarial science was raised.

Mr. Poolman also released a draft of proposed amendments to the Viatical Settlement Model Act. Those amendments include a five-year moratorium on entering into a viatical settlement contract after a policy is issued.

Mr. Poolman says that the draft he developed will be a point that can be used to advance discussion in St. Louis.

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