NEW YORK 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 them.
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 statement.
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.
(Reporting by Ben Berkowitz; Editing by Jeffrey Benkoe)