In the aftermath of the recent financial crisis, insurance regulators are reassessing the tools they have at hand to monitor and regulate the solvency of insurance companies, including life insurance company separate accounts. In addition to proposing new holding company reporting and inspection requirements and heightened corporate governance standards, U.S. insurance regulators at the National Association of Insurance Commissioners (NAIC) are focused on how to improve the regulation and monitoring of separate account products (particularly non-variable products) and minimize their potential negative impacts on insurer solvency.
FAWG Report on Separate Accounts.
During a conference call of the NAIC’s Financial Condition (E) Committee on March 8, 2011, the NAIC made public for the first time the summary of a report on separate accounts prepared by the influential Financial Analysis (E) Working Group (FAWG).1 A copy of the summary report is here. In presenting the report, Roger Peterson,2 Chair of FAWG, noted that there is a concern at FAWG about the solvency risks posed by non-variable, non-unit linked products written in separate accounts and how such products would interact with the general account in a troubled company situation. There is also concern about how such products would interact with state guaranty funds.
In a survey of state insurance departments, FAWG identified 300 non-variable products in separate accounts, including market value adjusted annuities, BOLI/COLI, group annuities and modified guaranteed annuities, of which 81 were not legally insulated (although the FAWG report notes that there are “different views on what is defined as legally insulated”). The FAWG report also noted that state insurance departments place widely different limitations on investments that may be held within separate accounts, potentially increasing solvency risks.
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