A wide-ranging agenda for policing insurer solvency, proposed by the new president of the National Association of Insurance Commissioners, is getting mixed reviews from the industry.
Many of the items on the agenda, proposed by North Dakota Commissioner Earl R. Pomeroy, already were embodied in various model laws drafted by the commissioners' association. (The states are free to enact, reject or change those laws as they see fit.) And some of the proposed activities merely call for reviewing existing studies.Some observers, including reinsurers, questioned whether the new agenda goes far enough in adapting solvency monitoring to some novel financial transactions that can threaten insurers' viability.
But insurers praised Mr. Pomeroy for acting quickly on a problem he had promised would be his highest priority once he took office.
"I think the NAIC has made a damn good start in solving these (solvency) problems," said Robert L. Zeman, assistant general counsel to the National Association of Independent Insurers.
"I don't think that anyone at this point is prepared to say, 'This is it, this is the panacea,' " he added. But the plan is a good start, Mr. Zeman said.
James Schacht, chief deputy director of the Illinois Insurance Department, and a member of the NAIC's committee on financial regulatory standards, said the agenda is an attempt to create a nationwide strategy for addressing the growing concerns over solvency.
"I think there's been more of a piecemeal approach to solvency regulation," said Mr. Schacht.
Although the commissioners' group has passed a variety of proposed bills that would enhance state regulation, "the reality is that not all of those NAIC model laws have been enacted by the states," said Mr. Zeman.
For that reason, Mr. Schacht said, the regulators may consider an accreditation system for state insurance departments. Such a system would make it more difficult for insurers based in non-accredited states to get licensed in other states, he said.
Among the more substantive changes Mr. Pomeroy proposed to a meeting of state commissioners in Las Vegas this month were suggestions to redefine minimum capitalization requirements, and possibly draft a model law that would
allow for different standards depending on the natureand volatility of an insurer's book of business.
The agenda also suggests reviewing various existing reports, including a General Accounting Office study released this month that was critical of states' abilities to monitor for solvency.
And it proposes requiring a new section in annual financial statements on management's discussion of financial and operating results, similar to what the Securities and Exchange Commission requires in its annual 10-K report for public companies.
The agenda, according to Mr. Schacht, is intended to expand the scope of
examinations from strictly financial standards to "looking at what makes companies fail - underwriting standards, reinsurance contracts, contracts with managing general agents."
Some of the agenda items, particularly those relating to reinsurance, are welcome, according to the Reinsurance Association of America, but do not go far enough.
"It really is nothing all that new," said Andre Mainsonpierre, president of the trade group. "The NAIC leadership has been talking for some time about improving the NAIC's central office capabilities."
He said the tests for primary insurer solvency aren't tough enough for the reinsurance industry, which is marked by higher volatility than the primary market.
The policing agenda only addresses the question of whether the states treat reinsurance contracts uniformly.