$25 Billion Insurance Brouhaha

Economic hard times are gnawing away at what appears to be the last solid bastion of financial stability - the insurance industry.

Changes in the amount of reserves that insurers must hold by law are being sought by the American Council of Life Insurers (ACLI) and are under very active consideration by the National Association of Insurance Commissioners (NAIC), the organization of all 50 State Insurance Commissioners. The proposed changes would reduce the reserves of life insurers by about $25 billion.

Just a few months ago, NAIC was proudly announcing that state-mandated reserve requirements were buoying insurance companies, keeping them afloat and solvent while financial giants such as Lehman Brothers were going belly up. Now, at the behest of ACLI, NAIC is on the cusp of reducing the reserve requirements because the market downturn has reduced the insurance industry's capital levels.

The move to reduce insurance reserve rules is opposed by the Consumer Federation of America and the Center for Economic Justice. These groups believe any reduction in reserves, especially in these tough economic times, increases the risk that an insurer might fail to pay its obligations under life policies and annuity contracts.

The NAIC has scheduled a public hearing on the issue for Tuesday, January 27, 2009, from 10 AM to 2 PM at the Marriott Wardman Park Hotel, 2660 Woodley Road, NW, Washington, DC 20008. Written comments should be submitted by Friday, January 23 to tsells@naic.org.