NAIC Projects Revenues Up 4.9% In 2008

The National Association of Insurance Commissioners yesterday unveiled a $68.2 million budget for 2008.

In a meeting following a hearing yesterday the NAIC's Internal Administration (EX1) Subcommittee advanced the proposed budget, which now awaits approval from the full NAIC membership during the Winter National Meeting, Dec. 2-4 in Houston.

The subcommittee put forward a 142-page plan with a 4.9 percent increase in revenues, up $3.2 million from 2007's projected $65 million.

Expenses would increase to $66.4 million in 2008, up 2.2 percent from $64.9 million in 2007. The proposed budget would have net revenue of $1.9 million, up from 2007's $200,000. Operations are expected to improve in 2008 with revenues outpacing expenses, resulting in a $1.1 million projected improvement in 2008, according to the proposed budget.

Major trade groups offered their suggestions on how to shape a final budget in letters dated Oct. 26.

The American Council of Life Insurers, Washington, expressed a general concern about the level of revenues, expenses and accumulated surpluses as well as increases in those income items. ACLI said "annual revenues and expenses do not need to be on an automatic upward glidepath."

ACLI said database filing fees, Securities Valuation Office fees and National Insurance Producer Registry fees should be held in check.

American Insurance Association, Washington, wrote offering three suggestions including looking at reserves based on overall net assets rather than just a liquid asset ratio that can be "subject to manipulation" by investing liquid assets into fixed assets. Rather, AIA suggested, it would be better to use both liquid and fixed assets which could grow and be altered in order to stay below NAIC's existing liquid reserve target of 80 percent.

AIA said it supports the NAIC's plan to add a staff person to assist with matters of the International Association of Insurance Supervisors, Basel, Switzerland, noting the importance of participating in international venues as long as that person is qualified.

Finally, AIA urged the NAIC to consider reducing its meetings schedule from four down to three.

The Property Casualty Insurers Association of America, Des Plaines, Ill., mentioned concerns regarding the Securities Valuation Office as well as NAIC's budget growth.

On the SVO, PCI noted that the 2008 budget continues the $1.58 million per year assessment on insurers that hold over $1 billion in nongovernment bonds and preferred stock--an assessment it says was supposed to be short-term. It urged elimination of this assessment.

The National Association of Mutual Insurance Companies, Indianapolis, said that an 80 percent reserve is "beyond prudential and a cushion that invites expenditure without deliberation."

NAMIC expressed concern over NAIC's interest in international activities, not just in terms of the current proposed budget but also in terms of future expenses for insurers.

While NAMIC noted that capital markets and reinsurance markets are global, it asked whether primary insurers' businesses need to be so uniform that solvency requirements must be global. The organization expressed concern that principles-based regulation will just add another layer of regulation to the regulatory mix.

NAIC responded to trade group points. In a Nov. 2 memo, it noted that its operating reserves are maintained at a prudent level and disagreed with the assertion that the reserve level could be manipulated.

On budget growth, the NAIC responded that it understands the importance of cost containment and such awareness has helped the organization keep increases in operating expenses moderate.

On database fees, the NAIC noted that a 1 percent increase over 2007 is consistent with premium growth for U.S. insurers. It added that the proportion of database filing to total NAIC revenues continues to decline as the organization produces new products and services. And on SVO filing fees, NAIC explained that since 2004, only half of the $1.58 million assessment has been levied because of better than expected filing volumes.

On international issues, the NAIC said if it is not internationally active, "markets where U.S. companies are active will not be influenced by the regulatory practices that have been developed and fine-tuned over years of experience in the U.S." The result, according to NAIC, will be greater costs for companies when they operate abroad.