New York's top financial regulator said the state plans to opt out of new U.S. insurance rules as the framework does not compel life insurers to hold adequate capital reserves for paying out customer claims.
The National Association of Insurance Commissioners (NAIC) formulated a new set of rules known as principles-based reserving, or PBR, last year. The association represents state insurance regulators and coordinates rules and supervision 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 change from the current standard, which calculates reserve requirements based on a formula that takes into account interest rates and mortality.
New York Department of Financial Services (DFS) had earlier warned the changes might lead to a decrease in insurers' reserves at a time of economic weakness. Both New York and California, two major states, voted against the PBR rules last year.
Benjamin Lawsky, the superintendent of DFS, said in a letter dated September 11 addressed to other state insurance regulators that preliminary results showed the new rules did not meet the expected result of increased reserves.
He said that since the rules didn't achieve the desired objective the New York State would no longer implement the PBR approach from Friday. (link.reuters.com/qas92v)
"The companies not only failed to increase their reserves, but in fact would have been allowed to reduce their reserves by nearly $4 billion," Lawsky said in his letter.
Lawsky said that under PBR, insurance companies have increased their reserves by only $668 million instead of an expected increase of about $10 billion.
"This cannot possibly be the 'compromise' that we insurance regulators had in mind," Lawsky said.
Lawsky added that in its current form, PBR "represents an unwise move away from reserve requirements that are established by formulas and diligently policed by insurance regulators in favor of internal models developed by insurance companies themselves."
The news was first reported by the New York Times.
(Reporting by Sakthi Prasad in Bangalore; Editing by Greg Mahlich)