Life insurers strike back at regulator's claim on cash reserves

ACLI chief calls N.Y. superintendent's comments 'inaccurate' and 'irresponsible.'
NOV 13, 2013
Responding to sharp criticism of how they set aside cash reserves, the life insurance industry fired back, calling a New York insurance regulator's claims “inaccurate” and irresponsible.” In a Sept. 11 letter to insurance regulators, Benjamin Lawsky, superintendent of the New York Department of Financial Services, said a “modified” principles-based reserving approach — a method that permits carriers to determine how much they should hold in reserve based on the business they conduct — leads to insurers' holding smaller capital cushions and thus leaving them financially vulnerable during times of economic crisis. “To stay on the present track, and to disregard clear evidence that demonstrates even a modified PBR framework can yield industry-favorable results that are entirely unexpected by regulators, is a recipe for disaster — not only for policyholders but for the broader system of state-based insurance regulation,” Mr. Lawsky wrote in the letter. (See N.Y. insurance chief knocks life insurers for cutting capital reserves) In response, Dirk Kempthorne, chief executive of the American Council of Life Insurers penned his own letter, calling Mr. Lawsky's comments both “inaccurate” and “irresponsible.” “Every state insurance regulator should be outraged at this direct assault on the system they have worked so diligently to ensure operates in the best ways possible to protect insurance customers,” Mr. Kempthorne wrote. He noted that while Mr. Lawsky had indicated that regulators had estimated insurers' reserves would rise by $10 billion because of these modified principles-based reserving standards, “a targeted increase was never stated or agreed upon by the regulators. Never.” Mr. Kempthorne added that Mr. Lawsky was wrong to imply “that life insurers do not support strong solvency regulation.” “If a life insurer fails, other life companies must pick up the tab for that insolvency,” he wrote. “It is in the best interest of the entire industry and its policyholders to ensure that all companies are well-capitalized.” To be sure, not all regulators have agreed with Mr. Lawsky's letter. “I admire Superintendent Lawsky and consider him one of my closest colleagues at the National Association of Insurance Commissioners. However, we simply differ on this important policy issue,” Connecticut insurance commissioner Thomas Leonardi said in a response to Mr. Lawsky's comments. He noted that regulators can order companies to change unreasonable assumptions, recalculate their reserves and raise them if necessary. “We have been using principle-based reserving in the property/casualty business without incident for quite some time,” Mr. Leonardi wrote. “Most developed countries have been using it for life and annuity, as well.” A call to the New York Department of Financial Services was not immediately returned.

Latest News

Trump to name new Fed governor, jobs data head in coming days
Trump to name new Fed governor, jobs data head in coming days

President says he has a ‘couple of people in mind’ for central bank role.

JPMorgan’s asset management arm targets Europe retail investors in active ETF tie-up
JPMorgan’s asset management arm targets Europe retail investors in active ETF tie-up

Wall Street firm partners with Dutch online broker to fuel push into EU market.

UBS to settle outstanding Credit Suisse RMBS case with $300M payment
UBS to settle outstanding Credit Suisse RMBS case with $300M payment

Agreement with the US Department of Justice comes eight years after settlement.

GeoWealth secures $38M in funding round led by major alternative investment manager
GeoWealth secures $38M in funding round led by major alternative investment manager

Series C funding will accelerate unification of TAMP’s model portfolios.

No succession plan? No worries. Just practice in place
No succession plan? No worries. Just practice in place

While industry statistics pointing to a succession crisis can cause alarm, advisor-owners should be free to consider a middle path between staying solo and catching the surging wave of M&A.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.