Ohio grants insurers reserve relief

Mary Jo Hudson, director of the Ohio Department of Insurance, yesterday adopted three accounting rule changes that would grant insurers based there some reserve relief. The three changes, which apply to variable annuities with guaranteed living benefits, life insurance policies and accounting on carriers’ balance sheets, officially went into effect on Feb. 3. Carriers must go through the department’s review and gain its approval prior to using the changes. One change will allow insurance carriers domiciled in Ohio to include deferred-income-tax assets as up to 15% of their statutory capital and surplus reported on their balance sheets. Carriers can also estimate the amount of deferred tax assets looking forward three years. But there is a catch: Life carriers who apply for this relief measure must have a risk-based capital level of more than 250%. The extra surplus will not be used to determine regulatory triggers, including minimum-capital-surplus requirements. Another measure would require carriers seeking reserve relief to perform asset-adequacy tests on their variable-annuity business and make use of volatility assumptions for their investments. It would also require them to set assumptions for policyholder behavior. Any benefits to the insurer from using this method may not be used in dividends and distributions for shareholders. Finally, carriers are also required to use the preferred 2001 Commissioners Standard Ordinary mortality table to determine the length of a contract and to figure out reserve liabilities. In adopting these measures, Ohio has followed Iowa’s example to use reserve relief measures similar to the ones that were proposed by the National Association of Insurance Commissioners in Kansas City, Mo., in the hopes of meeting a middle ground with the American Council of Life Insurers of Washington. The ACLI had highlighted nine initiatives to loosen reserve requirements so that they could bulk up their balance sheets. Though all the measures were vetoed, some states have begun adopting portions and variations of the measures in their own jurisdictions through permitted practice bulletins.