Released: February 4, 2009

On January 29, 2009 state insurance regulators voted down an insurance industry-backed proposal to loosen capital and surplus requirements for life insurers, saying carriers failed to demonstrate adequate need for aid. Louisiana’s Insurance Commissioner Jim Donelon, who is an Executive Committee member, was called an “insurance watchdog” by Bloomberg News in a January 29 article. He was one of 16 state insurance commissioners voting against the proposal. Only one voted for it.

On November, 11, 2008, the National Association of Insurance Commissioners (NAIC) officers received a letter from the American Council of Life Insurers (ACLI) indicating an immediate need for capital and surplus relief for the life insurance industry enabling the industry to operate with smaller financial cushions due to the nation’s economic crisis. The NAIC formed the Capital and Surplus Relief Working Group, which revised the ACLI’s nine proposals into six. The Working Group then made recommendations to the NAIC Executive Committee on those proposals based on appropriate changes in today’s financial downturn. The Executive Committee considered them as a single package and rejected the package during an open meeting of the Executive Committee on January 29, 2009, via conference call.

Commissioner Donelon was quoted in a January 27 Washington Post article as having written to the NAIC on this request, ‘“Lowering solvency standards on an emergency basis during a time of financial crisis is contrary to their very purpose,” Louisiana Insurance Commissioner James J. Donelon said in a letter dated Friday. “In addition, no study or analysis has been performed to show any sound reasoning or justification for these changes.”’

Commissioner Donelon stands firm in his belief that the insurance industry is in far better condition than most of the financial services sector because of state regulation of solvency and capital requirements of insurance companies. “To loosen regulatory requirements in a time of economic crisis would only weaken a system of strong state regulation now in place,” said Commissioner Donelon. “We at the NAIC and at state insurance departments are doing all we can to be vigilant protectors of not only the public’s investments in their life insurance products but all insurance products. We believe states are much better at this than the federal government could be at regulating insurance companies.”

Most of the proposals advanced by the American Council of Life Insurers (ACLI) related to reserve requirements. Although the proposed changes would have minimally impacted the industry’s capital and surplus, regulators believed supporting those changes would have sent the wrong signal to the financial markets and consumers by taking emergency action that appears to loosen the very solvency requirements that have kept the insurance industry financially healthy to this point.

State laws and statutory guidelines provide regulators with the discretion to supply measured relief on a case-by-case basis allowed by permitted practices. Some of the rejected proposals for capital and surplus relief do have merit, according to the NAIC, and are likely to reappear before the Capital and Surplus Relief Working Group this year. They are not likely to appear as emergency measures, which the ACLI failed to make a case for insurers’ 2008 accounting year-end.