NEW YORK Dec 3 State insurance regulators have
approved a new standard for the way life insurers calculate
their reserves, a change blasted by some large states as too
risky for the economy and too costly to implement.
The National Association of Insurance Commissioners (NAIC)
approved the standard known as principles-based reserving, or
PBR, at a meeting on Sunday. The association represents state
insurance regulators and coordinates rules and oversight among
Under PBR, life insurance companies would calculate their
reserves using models of their own design that take into account
their product mix, investment portfolio and other factors.
It is a sea change from the current standard, which
calculates reserve requirements based on a formula that takes
into account interest rates and mortality.
NAIC officials said the change would make a wider variety of
less expensive life insurance products available.
"The adoption of this manual is a win-win for life insurance
consumers, as we expect it will lead to more choices in the
marketplace," Kevin McCarty, NAIC president and Florida's
insurance commissioner, said in a statement.
But adoption was far from unanimous. Both New York and
California, in particular, opposed the change.
"I am disappointed that the National Association of
Insurance Commissioners decided to move ahead with a dramatic
change to the system we use to make sure life insurance
companies have adequate reserves, without any fiscal analysis or
adopting a complete plan to address capacity and oversight
issues," California Insurance Commissioner Dave Jones said in a
New York's Department of Financial Services also voted
against the new rules. It has warned the changes might lead to a
decrease in insurers' reserves at a time of economic weakness.
Though the NAIC adopted the standard, it must be approved as
law by legislatures in 42 of the 55 states and jurisdictions
that are part of the association in order to take effect. The
approving states also have to represent at least 75 percent of
total nationwide written life insurance premiums.
Given California and New York's opposition, that is far from
certain. The two states represent some 18 percent of life
insurance purchases in 2010, according to data compiled by the
American Council of Life Insurers.