Regulators Cannot Afford To Miss The Boat On Solvency

Regulators Cannot Afford To Miss The Boat On Solvency

The central theme of this issue of National Underwriter–insurance oversight–remains the purview of 50 individual state regulatorsat least for now.

That being the case, our reporters interviewed a cross-section of the nations regulators, asking what issues ranked as key problems in their states, and how they planned to fix them.

Whether they came from states with populated urban areas, sprawling plains or coastal regions, the regulators all gave insightful responses, detailing an array of problems.

Readers didnt have to keep a scorecard to find that medical malpractice was identified as the Number One problem area. A total of nine commissioners ranked this “crisis” among the key issues in their states. Following close behind was credit scoring, which eight ranked among the issues consuming their time and energy.

Curiously, however, the answer we might have expected to be the most popular–indeed, the one that should have turned up somewhere on every regulators list–came up a total of just three times. Solvency regulation was conspicuous by its omission on the lists of issues cited by the majority of regulators included in our report.

Admittedly, this edition would have been boring had every one of 16 commissioner profiles opened like the Massachussetts regulators did: Commissioner Julie Bowlers “keeps a watchful regulatory eye on the financial solvency of companies doing business in her state.”

And while we have no doubt that regulators across the nation are watching the financial strength of carriers in their states for signs of deterioration–petitions for insolvency in record numbers provide the proof–the fact that it wasnt a top-of-mind issue gives us pause.

In marked contrast were the remarks of company executives and industry analysts at a recent conference put together by rating agency Standard & Poors in New York.

“My sense is that the rating agencies are more intense in solvency and risk regulation than the insurance regulatory system is,” said Ramani Ayer, chairman and chief executive officer of The Hartford Financial Services Group. The insurance regulatory system, he added, “is more focused on rate and form” regulation.

While one could easily conclude that the forum for his presentation prompted the remark, insurance analyst Alice Schroeder, who has been critical of rating agency sluggishness in reports for Morgan Stanley, also gave the nod to rating agencies on solvency. The raters “really did something right,” she said, noting that they downgraded the State Compensation Insurance Fund in California two years before regulators gave similar scrutiny.

Later, she reminded the audience that the last hard market prompted a Congressional review of the regulatory mechanism, suggesting that any department that missed the boat on the major insurer downfalls during this cycle might deserve “special attention” this time around.

We know that solvency preservation is an unspoken goal of every regulator. But if Ms. Schroeder is right in predicting that a federal review is looming, then the chorus should be louder.

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.