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

Texas man says SEC and fund could make him pay twice
Texas man says SEC and fund could make him pay twice

A $141M judgment and a federal asset freeze collide over one shrinking pool

Osaic executives Kristy Britt and Greg Cornick to leave
Osaic executives Kristy Britt and Greg Cornick to leave

The firm's CFO and EVP of Wealth Management Solutions are the latest executives to exit the broker-dealer.

Estate planning becomes a client retention issue for financial advisors, survey finds
Estate planning becomes a client retention issue for financial advisors, survey finds

Clients are saying they would consider switching advisors if another professional offered estate planning services, according to a new Trust & Will survey.

Candidly adds AI agents for Trump Accounts, workplace benefits
Candidly adds AI agents for Trump Accounts, workplace benefits

CEO Laurel Taylor says the fintech's composable AI stack helps workers optimize dollars across Trump Accounts, 529s, 401(k)s, and other employee benefits.

BMO adds three advisors in Dallas amid Y'all Street wealth boom
BMO adds three advisors in Dallas amid Y'all Street wealth boom

The bank has swiped three private banking veterans from BNY as the city climbs the ranks of America's fastest-growing wealth hubs.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.