Insurers are faced with "a major issue," the American Council of Life Insurers said in a proposal dated Sept. 10 and posted on the Web site of the National Association of Insurance Commissioners. The capital carriers must hold against the slumping assets jumped fivefold to $11 billion in the six months ended June 30, according the ACLI.
Insurers including Allstate Corp. and Hartford Financial Services Group Inc. won capital relief from state regulators earlier this year as investment declines weighed on results. The ACLI proposal is opposed by the Center for Economic Justice, a consumer group, which said the plan may reduce funds available for policyholders.
Regulators “have been doling out relief like lollipops in a barber shop,” said Birny Birnbaum, executive director at the Center for Economic Justice. “My sense is when the ACLI asks for something the regulators stand up and pay attention.”
Andy Mais, a spokesman for the New York Insurance Department, declined to comment. Scott Holeman of the NAIC didn’t return two phone calls and an e-mail.
The 24-stock KBW Insurance Index has declined about 11 percent in the 12 months ended yesterday. Northbrook, Illinois- based Allstate is down 32 percent over the same period and Hartford has slipped 53 percent.
Rely Less on Ratings
The ACLI plan would reduce regulators’ reliance on rating firms like Standard & Poor’s and Moody’s Investors Service when determining the capital needed to support residential mortgage- backed securities. In their place, insurers, which last year owned more than $145 billion of RMBS without government guarantees, want watchdogs to base their standards on estimates of how much securities may lose, according to the ACLI.
“This makes a lot of sense to me,” said Robert Haines, an analyst with CreditSights Inc. “This is not a perfect solution. But this is much more sophisticated and reflective of the true economics of the securities.”
The ACLI plan calls for the NAIC to hire “an independent third party” to predict RMBS losses.
Insurers that bought top-rated RMBS in recent years are faced with higher capital requirements as the housing slump prompted S&P, Moody’s and Fitch Ratings to downgrade the securities. State watchdogs are conducting a hearing tomorrow to assess their use of the rating firms. Birnbaum is scheduled to speak, as is Eric Steigerwalt, head of finance at MetLife Inc.’s U.S. business. Grace Osborn of S&P and Fitch’s Keith Buckley are also among the planned participants.
‘Self-Evident’
“As a result of the downgrades during the course of the year, this problem became self-evident,” said Joseph Celentano, senior vice president at Pacific Life Insurance Co., who is working on the ACLI proposal.
The NAIC voted down an $18 billion ACLI relief package in January that would have lowered capital requirements as industry stock declines made raising funds from investors more expensive. State watchdogs including Connecticut Insurance Commissioner Thomas Sullivan and Michael McRaith of Illinois extended relief to individual companies on a case-by-case basis.
Allstate, which posted its biggest loss as a publicly traded company last year, won accounting relief of $1.38 billion, according to the NAIC. Hartford, based in the Connecticut city of the same name, said it got a benefit of about $987 million.