Interest Rate Roundup

Friday, November 14, 2008

Puzzling move in the insurance sector

So let me see if I understand this: There are some concerns in the marketplace about insurance company solvency. There are worries about whether life insurers and other insurers are going to be able to live up to their commitments. So in response, regulators are ... considering EASING capital requirements? That sounds like a confidence-instilling move to me. From the Wall Street Journal

"At the prompting of a major life-insurance trade group, state insurance regulators are considering moves to loosen capital requirements for the battered industry, a development that could buoy companies but also could raise concerns about consumer protection.

"State regulators impose steep capital requirements on life insurers to help make sure the companies can deliver on customer commitments. But as stock markets have sunk, insurers appear increasingly likely to need billions of additional dollars to satisfy those requirements. And the decline in their own stock prices makes it more difficult to raise capital.

"Let's be honest, we're in new territory here," said Susan Voss, commissioner of insurance in Iowa and secretary-treasurer of the National Association of Insurance Commissioners, in an interview Thursday. "We want to be as nimble as possible and address these issues."

"She added: "I can tell you, we won't do anything that puts our consumers in a vulnerable position. It's a balancing act."

"The balance concerns keeping requirements steep enough to protect consumers, while not so steep as to damage insurers.

"Ms. Voss says NAIC's leadership generally agrees with the American Council of Life Insurers, which submitted the proposals this week, that the conservative accounting used for regulatory purposes contains reserve redundancies, and some could be eliminated without hurting policyholders."

2 Comments:

  • Why should we be surprised? That's the same thing they have allowed the insolvent commerical banks to do. The banks have turned around and hoarded it or used it to purchase other weaker entities. Maybe this ability to free up capital requirments would allow stronger insurance companies to gobble up weaker companies.

    By Anonymous Anonymous, at November 15, 2008 at 11:01 PM  

  • The insurance world can definitely be tricky. This was a very interesting article. Thanks

    By Blogger K, at November 18, 2008 at 2:07 PM  

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