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Stoweflake Resort
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NALC Newsletter

June 30, 2010

CLICK HERE for the PDF version of this newsletter.

Inside this Issue

A Letter from the Executive Director

NALC Highlights

NAIC Focus

NCOIL Notes

News from the States

On the National Front

Industry News

Calendar of Industry Events


NALC Highlights

Register Now

2010 Fall Conference

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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NAIC Focus

NAIC Summer National Meeting

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.

Final Financial Regulatory Reform Package Preserves State Role

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.

NAIC to Consider Impact of Principles-Based Reserving

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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NCOIL Notes

2010 Summer Meeting

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.

NCOIL Weighs in on Financial Reform

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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News from the States

Hawaii Regulator Steps Down to Practice Insurance Law

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 Names Fourth Insurance Superintendent in Six Weeks

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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On the National Front

Conference Committee Agrees on Federal Insurance Office

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.

House to Vote on Financial Reform; Senate Likely Delayed Until Mid-July

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.

Congress Eyes Annuities as Way to Bolster Retirement Security

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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