Regulators Ditch RBC Proposal
Regulators at the National Association of Insurance Commissioners winter meeting in California, facing fierce opposition from insurers, have abandoned a proposal to boost risk-based capital levels required for property-casualty insurers to support operations.
The decision, announced at an ad hoc subgroup session by the risk-based capital taskforce at the NAIC meeting in Anaheim, drew a collective sigh of relief from insurers and industry associations, according to trade group representatives. The industry, for months, has been vocal in urging regulators to ditch the proposal.
The original proposalaimed at creating a better mechanism to put an early focus on insurers with financial difficultieswould have raised the factor used to calculate the "authorized control level" of the RBC calculation to 75 percent from the current 50 percent.
But opponents of this idea have been arguing that this increase in the RBC level could force p-c insurers to come up with more than $35 billion in additional capital and raise premium rates to compensate. They argued there was no concrete proof that raising the RBC level could improve the effectiveness of regulators oversight.
(When an insurers surplus is at the authorized control level, regulatory action is discretionary, but an insurance commissioner is "authorized" to take control of a company.)
At the NAIC ad hoc subgroup meeting for the risk-based capital taskforce, regulators said that in place of the previous proposal, they would now move toward adopting "a trend test" to try to identify insurers that might be headed toward insolvency.
William Boyd, financial regulation manager at the Indianapolis-based National Association of Mutual Insurance Companies, told National Underwriter that "a trend test would seem to be a better direction to take."
He theorized that about 12 percent of the property-casualty universe would have been in trouble if the original proposal had been implemented.
The new "trend test" that regulators are now embracing is still in a very early development stage. The test, which will be developed by the American Academy of Actuaries, is expected to include methodologies that would look at changes in risk-based capital scores through time.
"The test would measure these scores, and if the scores were to deteriorate at a certain rate over time, then that would be a signal that regulatory intervention should take place," Mr. Boyd said. "Nobody knows yet, though, what that certain rate will be," he said.
Additional NAIC Reports
In a future issue, NAIC President Ernst Csiszar talks to NUs Michael Ha about a range of issues. Additional NAIC meeting reports on NUs Online News Service (www.nationalunderwriter.com/pandc) include:
NAIC No Help For Foreign Reinsurers On Collateral Rule
NAIC: E-Filing Program On Target
Lawmaker Urges NAIC, Congress Teamwork
NAIC Projects $55.3M For 04 Expenses, 2.2% Jump
NAIC May Exempt Some Securities
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 12, 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.
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