NEW YORK–At a national conference of state legislators Saturday one lawmaker questioned the competence of state insurance regulators based on their plan to relax capital and surplus requirements for carriers during a financial crisis.
The comments came as leadership of the National Conference of Insurance Legislators, Troy, N.Y., prepared to send a letter to the National Association of Insurance Commissioners, Kansas City, Mo., urging them not to vote on the controversial proposal.
The move would be the latest bit of fractiousness in relations between NCOIL and NAIC. The two groups are united in protecting state insurance regulation, but NCOIL members have been frequent critics of the way NAIC operates and one lawmaker suggested if NAIC pursues its present course he would seek to have his state end its ties to that organization.
According to a source, a letter from NCOIL leadership will be sent to the NAIC, probably today, urging it to defer any decision on a proposal to relax capital and surplus requirements advanced by the American Council of Life Insurers, Washington.
An NAIC hearing will be held tomorrow to hear the pros and cons of the proposals and a vote of the NAIC executive committee and conference call is scheduled for Jan. 29. The ACLI and other supporters say that reserves are redundant and that its nine-point plan should be implemented to keep life insurers financially healthy and competitive.
Opponents counter that no real proof has been offered that such relief is needed and assail the lack of openness the whole process has been given.
New York State Sen. James Seward, R-Oneonta, the NCOIL president, said his group’s leadership would “urge the NAIC to slow down until consensus is reached” for two reasons: the process was not open and a “proper vetting of this issue is needed.”
He expressed the opinion that “frankly, the timing could not be worse. It leaves the appearance that standards are being relaxed when the rest of the world is calling for more oversight.”
If the NAIC votes on the issue Thursday, NCOIL leadership has not determined whether it will try to prevent its enactment in state legislatures, he said.
Kentucky State Rep. Robert Damron, D-Jessamine, said if the proposal is adopted, he will consider advancing legislation to prevent the proposal from being used in Kentucky and will advance a proposal to have Kentucky withdraw from NAIC membership. Mr. Damron said it is possible that action could be taken to remove references to NAIC and its models from state law.
On the ACLI request, Mr. Damron said “it takes more guts than a slaughterhouse” for ACLI to make such a request. “Asking regulators to reduce protection to policyholders is just absurd. If the NAIC does this, as far as I’m concerned, it is absolutely a good case for federal regulation.”
He said any congressman considering the possibility of federal regulation would have to ask “how the industry could have that much power over regulators. How can you tell Congress to leave us in charge of insurance when you are getting in bed with the industry? I think they will be handing over insurance regulation to the federal government if they go through with that.”
During a discussion on credit default swaps at the meeting–an issue NCOIL is considering taking action on during its spring meeting in February in Washington–Mr. Damron asked representatives of the National Association of Mutual Insurance Companies, Indianapolis, whether it planned to be “over at the trough” requesting the same relief that the ACLI had requested.
Nat Shapo, former Illinois insurance commissioner and a one-time NAIC officer, said that NAMIC did not intend to make a similar request and that NAMIC believes “reform efforts are best targeted to the market side rather than the solvency side.”
Speaking of credit default swaps regulation, one of the experts testifying urged action noting that failure to do so could lead to federal regulation. Michael Greenberger, a law school professor at the University of Maryland, said “the conventional wisdom” in Washington is that “insurance regulation has failed” and federal oversight is needed. “If you pass on this, you are [suggesting] that states are just not up to this responsibility.”