Deductible Recovery Dominates Debate

The question of who should gain deductible recoveries dominated solvency-related discussions in the past year, according to a report from the National Conference of Guaranty Funds.

In its first “Trends In Insolvency” report, the NCGIF said three states in the 2006-07 period are looking at their solvency laws, where the large deductible debate will emerge.

Earlier this year, the National Association of Insurance Commissioners in the Insurance Receivership Model Act settled on the so-called “Delaware” approach, in which the estate gained the deductible recoveries and collateral draw-downs.

The industry and guaranty funds, however, favored the “Arkansas” method in which guaranty funds got first crack at the monies.

But while the regulators in their model approved the approach favoring the estate, most states seem to veer toward the model favoring the guaranty funds. Last year Michigan became the fifth state adopting the Arkansas approach, joining the ranks of Pennsylvania, Illinois, Texas, California and possibly Utah later this year.

The states' aversion to the NAIC model will play a large role in the upcoming accreditation debate, according to the NCGIF, since some regulators and lawmakers are concerned that provisions unpopular in the legislatures are being forced upon them with the accreditation “club.”

“Any NAIC process is fraught with unpredictability,” according to the NCGIF newsletter. “However, the use of the phrase 'hot potato' during Financial Regulation Standards and Accreditation Committee may be an indication that the regulators have lost any appetite they may have ever had to force IRMA on legislators.”