A work plan developed by actuaries to help reach a long-term solution for regulators' fiscal evaluation of insurers' hybrid securities was roundly criticized by insurers and Wall Street representatives yesterday.
Their objections centered on the fact that the plan was developed without input from the industry. Comments came during a conference call of the Hybrid RBC working group.
The group, at the direction of the leadership of the National Association of Insurance Commissioners, Kansas City, Mo., is seeking to supplement a short-term solution to RBC treatment for hybrids with a long-term resolution.
The issue was raised earlier this year when the Securities Valuation Office arm of the NAIC notified some companies that they would review the treatment of hybrid securities that companies held in their portfolios.
As part of that effort, it asked the American Academy of Actuaries, Washington, to develop a work plan that could be discussed during the NAIC call. That effort did not include industry, it was explained during the discussion, because Academy calls are open only to Academy members.
But, industry representatives said that time and effort in advancing the plan could have been saved if insurers had been involved from the start.
"What would have been so terrible? We wouldn't have been disruptive. We wouldn't have had a sit-in," said Martin Carus, a representative with American International Group, New York.
The Academy specifically says that it does not represent companies but actuaries in the profession, according to Doug Barnert of Barnert Global Ltd., New York. "Issues are different for a CIO or a risk manager than for an actuary. Actuaries are one element of the profession. They do not represent the industry."
At press time, the Academy had not responded to a request for comment.
But Lou Felice, chair of the working group, and Academy representatives David Berger and Nancy Bennett noted during the course of the discussion that the purpose of these discussions is to get input from all interested parties so that a final product will reflect everyone's opinion.
Participants at the working group session did start to work their way through the Academy draft.
The work plan includes a definition of hybrids, identification of risks associated with these instruments, and a section reviewing different methodologies to determine RBC charges, among other points.
Points raised by industry representatives during the course of the discussion included:
o Whether the issue was targeting hybrid securities or whether it was really risk characteristics that appeared in all securities that were at issue.
o How operationally both the SVO and insurers are going to implement points discussed in the plan.
o How specifically issues such as tax and accounting issues will be addressed.
o The potential complexities of analyzing volatility and liquidity risks.
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