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June 30, 2010
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HERE for the PDF version of this newsletter.
Inside this Issue
A Letter from the Executive Director
NALC Highlights
NAIC Focus
Final Financial Regulatory Reform Package
Preserves State Role
NAIC to Consider Impact of
Principles-Based Reserving
NCOIL Notes
NCOIL Weighs in on Financial Reform
News from the States
New Mexico Names Fourth Insurance
Superintendent in Six Weeks
On the National Front
House to Vote on Financial Reform; Senate
Likely Delayed Until Mid-July
Congress Eyes Annuities as Way to
Bolster Retirement Security
Industry News
Calendar of Industry
Events
 Register
Now
September 22 – 24, 2010
Stoweflake Resort
Stowe, Vermont
- The NALC will hold its 2010 Fall Conference September 22 –
24, at the Stoweflake Resort, Stowe, Vermont.
- Online conference registration, hotel reservation, golf
registration, and sponsorship information are available at
http://www.nalc.net/conference/registration.htm. You
have the option of registering online, or completing the forms
on your computer.
-
 Conference
registration fees are subject to a $75.00 late fee, if not
received by September 3, 2010. Registration fees are
non-refundable after September 8, 2010.
- Make Hotel reservations by phone, fax or USPS mail. The NALC
room block expires on August 9, 2010. Reservations received
after the cut-off date are subject to availability.
Watch your e-mail for Conference updates and reminders!
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 The
NAIC Summer National Meeting will be held August 14 - 17, 2010 in
Seattle, Washington, at the Seattle Convention and Visitors Bureau.
Registration is now open at
http://www.naic.org/meetings_home.htm. Information about
the meeting venue is available at
http://www.visitseattle.org.
State Regulators’ Continued Role Will Protect Consumers
WASHINGTON, D.C. (June 29, 2010) - The National Association of
Insurance Commissioners (NAIC) thanked the House and Senate
financial reform conferees for largely preserving the critical role
of state insurance regulators in protecting consumers and ensuring
the viability of the insurance industry.
Throughout the debate on the financial regulatory reform
legislation, state insurance regulators emphasized the myriad
problems that upset the banking and securities sectors during the
recent economic crisis were largely absent in the insurance sector.
"Quick and decisive action by state insurance regulators worked
to head off such concerns and ensure that insurance consumers were
fully protected," said Jane L. Cline, NAIC President and West
Virginia Insurance Commissioner. "We commend the conferees for
recognizing this important distinction and for preserving the key
role of state insurance regulators in the nation’s financial
markets."
Cline highlighted several provisions of the legislation that are
of particular importance to state insurance regulators. "We were
pleased to see that the Federal Insurance Office (FIO) set up under
the bill is narrowly designed to carry out its mission while not
unnecessarily undermining strong state regulation," she said. "In
similar fashion, the addition of a state insurance regulator to the
Financial Stability Oversight Council (FSOC) created by this
legislation will add an important safeguard for consumers and
provide an early warning system for other financial regulators if an
insurance company were to become subject to systemic risk."
"The package provides senior investment protection grants for
annuity suitability, an area where the NAIC and the states have a
solid track record," continued Cline. "The bill also provides
important clarification in regulatory authority for indexed
annuities, ensuring that these guaranteed products are under the
clear authority of state insurance regulators."
The measure also makes clear that state insurance regulators will
continue to have the ability to "wall off" insurance companies from
troubled holding companies, protecting insurance policyholders from
other risks in the financial system. State regulators, with boots on
the ground across the country, will also continue to police consumer
protections in the insurance sector.
The final measure awaits approval from both the House and Senate.
LHATF to Develop Study Recommendations by Midsummer
WASHINGTON, D.C. (June 3, 2010) — A task force of the National
Association of Insurance Commissioners (NAIC) appointed a new
subgroup to study the impact of principles-based reserving (PBR) on
the life insurance industry. The NAIC Life and Health Actuarial Task
Force (LHATF) formed the PBR Testing Subgroup to provide
recommendations for consideration by the Principles-Based Reserving
Working Group and the Life Insurance and Annuities Committee.
"As we near completion of the NAIC Valuation Manual, it seems
prudent to study its impact on all major lines of life insurance to
avoid different sets of rules among insurers writing different lines
of products," said Adam Hamm, Chair of the Principles-Based
Reserving Working Group and North Dakota Insurance Commissioner.
"Regulators believe that principles-based reserving will foster a
more competitive playing field with better insurance products and
prices for consumers."
When complete, the NAIC Valuation Manual will define the methods
used by regulators and insurers to calculate the reserves of
insurance companies. The manual incorporates elements of the NAIC’s
Solvency Modernization Initiative, particularly principles-based
reserving, designed to improve regulators’ ability to protect
consumers from insurer insolvency.
PBR more completely identifies the obligations created by every
insurance policy written by an insurer. It would provide regulators
new information about how much insurers must hold in reserve. In
particular, PBR is intended to better identify tail risks, which are
rare and extreme events that are not accounted for with current
methods.
Recommendations from LHATF will address the scope of the study,
how the study should be conducted, qualifications of any third-party
consultants, product lines to be reviewed and the number and type of
insurers involved in the study.
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Plan now to attend the NCOIL 2010 Summer Meeting, July 8 through
11, 2010. The meeting will take place at the Boston Park Plaza Hotel
& Towers, Boston, Massachusetts. For more information or to
register, go to
http://www.ncoil.org/schedule/boston10.html.
The NCOIL has written the following letter the congressional
leaders regarding financial stability oversight council/federal
insurance office provisions in S. 3217/H.R. 4173. The entire letter
is available on the NCOIL website at
http://www.ncoil.org.
Dear Senators Reid and McConnell, Speaker Pelosi and
Representative Boehner:
We write on behalf of the National Conference of State
Legislatures (NCSL) and the National Conference of Insurance
Legislators (NCOIL) to express our views on two key initiatives
to be decided during conference negotiations on financial
services regulatory reform—S. 3217 and H.R. 4173. With the
breakdown of the financial regulatory system at the federal
level, we understand the need to review the regulatory structure
in place during our nation’s recent crisis. However, we continue
to be concerned that pending legislation would override the
states’ role in monitoring and regulating financial services,
much to the detriment of consumer safeguards and economic
security.
While we have not taken a position on creation of a Financial
Stability Oversight Council (FSOC), the lack of state officials
on the Council proposed in S. 3217 ignores the pivotal role
states play in financial oversight. If the goal of a council is
to identify financial risk, it seems inefficient to omit state
regulators—who typically are the first to recognize emerging
risk—from the Council. We urge conferees to support the
inclusion of state banking, securities, and insurance regulators
on the FSOC, as House Members did in H.R. 4173.
We also continue to be concerned that both bills open the
door for further federal intrusion on states’ right to regulate
the business of insurance. For the last 150 years, states have
continually proven that they can effectively protect consumers
and provide accessible, accountable and responsive service. As
noted in previous communications, of the nearly 600 financial
institutions that received money through the Troubled Asset
Relief Program, only three were insurers.
The Office of National Insurance proposed in S. 3217 and the
less-intrusive Federal Insurance Office envisioned in H.R. 4173
would both duplicate and interfere with state insurance
regulation. We oppose the creation of either office, as any
changes to the current framework must completely preserve state
flexibility and authority to meet the goals of modernization.
On behalf of our colleagues throughout the country, we
respectfully request that you consider the role states play in
financial regulation, as states and the federal government look
to achieve regulatory reform. Without maintaining state
authority over insurance regulation, NCSL and NCOIL—organizations
devoted to sound insurance public policy—see no good outcome for
proposed federal financial services reform.
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Hawaii Insurance Commissioner J.P. Schmidt will resign July 1 to
return to practicing law with a focus on insurance issues. Schmidt
will join the Hawaii firm of Bays Deaver Lung Rose Holma, where he
will practice general business, corporate and government regulatory
law with a concentration in insurance, health and captive insurance
matters. The firm has no existing insurance practice, but will be
expanding into that sector, Schmidt said. His successor has not yet
been named.
Schmidt said he sought to create a more cooperative and efficient
department for insurers and consumers. An adversarial approach
toward the industry is counterproductive, he said. "It’s bad for the
industry, it’s bad for the consumer and it’s bad for the regulatory
agency," Schmidt said.
With Gov. Linda Lingle nearing the end of eight years in office,
Schmidt said it was time to return to the private sector. In office
since February 2003, he is Hawaii’s longest-serving insurance
commissioner. Previously, Schmidt served as corporation counsel of
Maui County and was a partner in the Wailuku law firm of Crockett
Nakamura and Schmidt.
"I think he showed a real commitment to the position," said
Samuel Sorich, vice president and Western regional manager for the
Property Casualty Insurers Association of America. "I really thought
that he accomplished much. He was a very respected and fair
regulator."
His tenure included a taming of once-skyrocketing workers’
compensation premiums to a reduction of 60% over a five-year period,
according to a statement from the Department of Commerce and
Consumer Affairs, which oversees the Division of Insurance. The
number of hurricane insurers also increased, according to the
department. The commissioner also played an international role as
chairman of the National Association of Insurance Commissioners’
International Regulatory Working Group.
Hawaii is the second-largest captive domicile in the United
States, with 162 at the end of 2009. Another handful of captives
have formed this year and more are in the pipeline, Schmidt said.
The Captive Insurance Branch has attracted several Japanese
companies such as Sanyo, Kubota Tractor and Citizen Watch to form
captives in the state.
In taking an insurance-related position in the private sector,
Schmidt said he is mindful of potential comments about the
"revolving door" of regulators and industry. Under Hawaii ethics
laws, he is barred from representing clients before the insurance
division for one year after leaving office. People who leave public
service should not have to abandon years of professional experience
in the field, whether earned in office or in private sector, he
said. "It’s an important issue, but it needs to be approached in a
rational matter," Schmidt said.
New Mexico has its fourth insurance superintendent in six weeks
following the appointment of Johnny L. Montoya to serve until the
naming of a permanent leader for the Division of Insurance this
summer.
The New Mexico Public Regulation Commission named Montoya acting
superintendent of insurance at a June 10 meeting. Montoya will
continue to also serve as acting chief of staff until July 6, when
the recently hired Michael A. Rivera, the former tribal
administrator for the Pueblo of Nambe, takes the post. Montoya was
the insurance division’s director of compliance before becoming
acting chief of staff, PRC spokesman Gerald Garner said.
The PRC also appointed Craig Dunbar, who was named acting
superintendent in late May, as deputy superintendent of insurance.
There was a potential legal issue with Dunbar and the three-year
residency requirement for being named superintendent, Garner said.
While Dunbar has 20 years of residency in New Mexico, he spent much
of the past several years residing in Texas, Garner said. The deputy
appointment avoids any potential complication, he said.
Superintendent Morris Chavez resigned as leader of the PRC’s
Insurance Division May 4. Deputy Superintendent Thomas Rushton
became interim boss, but later announced his resignation.
A 17-member search committee, including the five PRC
commissioners, is expected to submit the names of five finalists for
a permanent new superintendent by July 13. The commission will
interview the finalists and will appoint a replacement by late July
or early August, the commission announced. The search committee
consists of seven representatives from insurance and related
industries, two appointees from each of the five elected
commissioners and co-chairmen Fabian Chavez, a former state
superintendent of insurance, and Loretta Armenta, president of Qwest
Communications in New Mexico.
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Un June 24, House and Senate conference committee negotiators
reached agreement on the creation of a new Federal Insurance Office
as part of financial regulatory reform legislation. The final
version includes provisions supported by those leery of the new
office, including a requirement that the office first seek data from
state regulators before pursuing a reporting burden for insurance
companies. FIO would have authority to determine when state laws
conflict with international agreements, but those decisions will be
subject to judicial review. Those issues were sticking points for
lawmakers trying to make a deal on H.R. 4173, The Wall Street Reform
and Consumer Protection Act.
The final language moved closer to the House bill’s position of
strong protections against the pre-emption of state laws, said West
Virginia Insurance Commissioner Jane Cline, president of the
National Association of Insurance Commissioners. While the NAIC,
which backed earlier proposals to create a limited federal office,
has not taken a formal position on the new language, the concept of
state-based regulation is upheld, she said. "We are
encouraged...that the FIO would protect the strong consumer
protections and state laws," Cline said.
The office, part of the Treasury Department, would monitor the
U.S. insurance industry and negotiate on its behalf for
international prudential matters. Treasury would have to work
jointly with the U.S. Trade Representative in securing international
insurance agreements, and those agreements would require
consultation with relevant congressional committees.
"Major events this decade highlighted the inherent limitations of
the current insurance regulatory system as well as the critical need
for insurance expertise at the federal level," American Insurance
Association spokesman Blain Rethmeier said in a statement welcoming
the agreement.
As proposed, the FIO would give the United States a stronger
voice in international insurance matters and the ability to reach
international agreements, Rethmeier said, but it still doesn’t go
far enough. "We continue to have concerns with provisions that could
restrict the ability of the federal government to reach agreement on
international matters regarding insurance and thus hinder the
competitiveness of the U.S. insurance industry," he said.
Lawmakers previously agreed to add two nonvoting members to a new
Financial Services Oversight Council, which would regulate risks to
the U.S. financial system. There would be one representative each
from the FIO and state insurance regulators.
The state presence may come from Treasury asking the NAIC for a
representative, Cline said. "If you’re going to have an oversight
council that is going to be looking at the overall financial sector,
insurance is an important segment," she said.
The U.S. House is expected to approve the financial reform bill
after lawmakers re-worked a few details of the bill in an effort to
win needed Republican votes in the Senate. But the timing for final
Senate approval of the major legislation will not meet the original
intention to get it done this week before the July 4 holiday recess.
That means the legislation’s possible passage — and the resulting
formation of a Federal Insurance Office and some other
insurance-affecting changes — can’t happen until mid-July, assuming
Democratic leaders round up the necessary three-fifths vote in the
Senate to sidestep a potential Republican filibuster.
The lawmakers’ unusual return to negotiations this week on the
financial reform bill that they had already supposedly completed
last week was marked by a brief session — the goal of which was to
win back support from Republicans, such as Sen. Scott Brown,
R-Mass., who objected to a tax on banks. When the bill emerged again
in final form, the House started its floor debate, anticipated to
end with a passage of this financial reform bill, leaving only the
Senate’s approval standing in the way of the bill being signed into
law.
The controversial bank tax, according to the National Association
of Mutual Insurance Companies, could have potentially have hit some
of the largest property/casualty companies that have thrifts or
depository institutions in their corporate structures. "In
Washington, once you’ve got part of the industry wrapped into
something, what’s to stop them next year from expanding it a little
bit further?" said Jimi Grande, NAMIC’s senior vice president of
federal and political affairs.
Grande’s view was echoed by others in the industry. Ben McKay,
senior vice president of federal government relations for the
Property Casualty Insurers Association of America, said the bank tax
"would only lead to more unintended consequences for consumers and
ultimately delay long-term economic recovery." And the American
Insurance Association was glad to see the tax replaced by revenue
streams that don’t affect insurers. "By striking the tax and
replacing it with an FDIC premium increase combined with the early
termination of TARP, insurers will no longer face the potential
front-end assessments as were originally proposed in that title of
the bill," said Blain Rethmeier, an AIA spokesman.
Now the tax is just a historical footnote in this long reform
debate that is soon approaching its two-year mark. However, Senate
Majority Leader Harry Reid announced that — even after the lawmakers
scrambled to make those compromises quickly — the final votes on
financial reform in his chamber will have to wait until after the
week-long holiday recess.
Though Brown seems to have liked what he saw with the last-minute
tweaks and Sen. Susan Collins, R-Maine, has indicated she’ll support
the bill, it’s so far unclear whether two of the other Republicans
who had supported an earlier Senate version of the financial reform
bill will also vote for this final unified version. With the recent
death of Sen. Robert Byrd, D-W.Va., Democratic leaders have no
wiggle room to beat the filibuster margin.
"I appreciate the conference committee revisiting the Wall Street
reform bill and removing the $19 billion bank tax," Brown said in a
statement. "Over the July recess, I will continue to review this
important bill. I remain committed to putting in place safeguards to
prevent another financial meltdown, ensure that consumers are
protected, and that this bill is paid for without new taxes."
Grande said the insurance industry is fine with this legislation
being put off a little further. "Any delay is a good thing," he
said, because there’s nothing in the bill that the industry is
anxious to get started on. However, he suggested it will be a relief
to move on to other business. "We’re looking forward to turning the
page on this chapter of our debate in Washington," he said.
Annuities, which have been getting a lot of attention from
lawmakers and federal agencies hoping to strengthen Americans’
retirement plans, were the subject of a congressional hearing
analyzing their place in the employer-based retirement system. At
that hearing of the Senate’s Special Committee on Aging, federal
agencies who have been seeking input on guaranteed income said the
response has been vigorous and they would soon host a public hearing
on this topic.
"We need to provide employers with more guidance, more tools and
more protection to encourage them to offer a range of options to
their employees," the committee’s chairman, Sen. Herb Kohl, D-Wis.,
said at the Senate hearing. He said he’s been "encouraged by the
recent innovations in the financial services industry to develop new
products that will help retirees manage their savings. This is a
rapidly developing area and we want to encourage employers to
consider offering such products to meet their workers’ needs."
But he said he wanted to be clear that he opposes any kind of
mandatory use of annuities. "No one should be forced to purchase a
lifetime income product," he said. "I will not support any kind of
mandate for consumers, because we recognize there is a wide range of
circumstance and need."
At the same time, Kohl also sent a letter to the Government
Accountability Office to request a review of how current regulators
make sure that financial institutions that sell annuities will be
able to meet those financial commitments and how state guarantee
funds may figure into that.
"Annuities can certainly be a very good and appropriate part of
many individuals’ retirement and financial planning," said Brian
Atchinson, president and chief executive officer of the Insurance
Marketplace Standards Association. "The whole thing, I think, is
moving in the right direction," he said. But his organization’s
primary focus is on making sure that "the necessary safeguards are
in place, and that there be very clear and high standards."
The American Council of Life Insurers has been excited to see
such an interest from lawmakers and the administration. "This is
just great that the Hill is engaged in this topic," Alane Dent, a
vice president for federal relations at ACLI, said in a telephone
interview. She said the organization is realistic about the
difficulty in getting anything done in this current, hectic
congressional session as it winds down toward elections, but she
said this attention is a good signal for the future. "The groundwork
is getting laid for a very robust discussion next year."
Sen. Susan Collins, R-Maine, pointed out the importance of the
topic, saying during the hearing that a "tidal wave of retiring baby
boomers will be imposing unprecedented burdens and challenges for
both the Social Security system and for private pensions."
Fourteen percent of employers offer annuities as a rollover or
outside option in retirement planning, according to a recent survey
by Hewitt Associates. Though Kohl cited that number in his remarks
at the hearing, suggesting it as a low number, he didn’t mention the
Hewitt survey’s additional statistic that — in 2010 — 28% of
employers said they were likely to add annuities as a retirement
planning option. However, the same survey showed that only 2% of
employers offered annuities as internal components to plans for
current participants, and few companies said they were likely to
grow that percentage.
"Encouraging workers to consider guaranteed lifetime income
options, such as by facilitating the availability of longevity
insurance and partial annuitization, represents sound public policy
as the baby boom generation reaches retirement age," William
Mullaney, president of the U.S. business division of MetLife Inc.,
told the committee in his testimony.
Kohl has already supported legislation that would encourage
annuity use. In December, he and other lawmakers introduced a bill
that would designate a new requirement for retirement plan
statements, having them outline the expected monthly income payment
from each account rather than just the overall value — an idea to
simplify planning for how much money is needed to sustain a
retirement
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