The Week Where Your Dues Investment Paid For Itself…

There’s a lot going on out here in public policy land.  Here’s a recap of the week that was and why a strong, independent, and effective trade association is so important to fraternals…

  • On Monday, July 17, the Alliance-sponsored amendment to the existing Principle-Based Reserving Small Company Exemption (PBR SCE) took another huge step toward final enactment when the NAIC Life Insurance (A) Committee approved the measure by a 12-1 vote. As you know, the current PBR rule contains an exemption for companies with less than $300 million in annual life premium. The catch is that in order to qualify for the exemption, an insurer had to have an RBC ratio of 450%, well above statutory minimums in most states. The unintended consequence of this measure is that many small and mid-sized life insurers, including a significant number of fraternals, with RBC ratios between 300-449% would have been forced to comply with PBR regulations for which they are completely unsuited. There are those within the fraternal and regulatory communities that argued that these insurers should have to meet a higher RBC standard in order to qualify for the exemption. This may be particularly true for fraternals because they do not participate in state guaranty funds. The Alliance is more than willing to engage in a debate over what the appropriate RBC level is for fraternals. But we felt strongly that this should be addressed separately, rather than arbitrarily tied in to the discussion on the applicability of PBR. The Alliance explained our position on this issue to regulators from key fraternal states more than two years ago, and worked with policymakers to craft an amendment that would exempt insurers with less than $50 million in annual life premium from PBR requirements so long as they met their state’s minimum RBC requirement. That’s the language that was approved by the (A) Committee and now moves on for consideration by the NAIC Executive and Plenary Committee at the August NAIC meeting. We’ll keep you posted on the outcome of that vote.
  • And the enactment of that amendment may be more important than ever as regulators keep up their efforts to revise the way insurers bond portfolios are evaluated – efforts that, if put in place, would significantly reduce RBC ratios for all insurers by as much as 25%. Based on our research, an insurer with a 550% RBC ratio today could drop as low as 425% under the proposed NAIC rules. Without the Alliance-sponsored amendment to the PBR SCE, this insurer would be forced to comply with PBR rules – a needless and costly exercise that would deliver no benefit to the insurer, its policyholders, or regulators.  Even more disturbing, insurers with RBCs in the 400% range could see their ratios drop to levels that would spur regulatory action. The Alliance is joining forces with other trade groups, most notably ACLI, to express our concern about these proposed changes to regulators in an effort to amend the measure so that it is less punitive to small and mid-sized insurers, fraternals included. Dozens of Alliance members have responded to our survey and provided us feedback on the potential impact of these changes to their RBC ratios. Armed with that information (with the identities of individual organizations redacted, of course), we’re alerting regulators to the unintended consequences of their actions. The August NAIC meeting will give us a better idea of what’s ahead for the bond rating issue. The Alliance will be there and provide members a full update following the meeting.
  • Meanwhile, in the nation’s capital…  I met with tax counsel from eight lawmakers this week (Senator Isakson (R-GA) and Representatives Pascrell (D-NJ), Roskam (R-IL), Chu (D-CA), Johnson (R-TX), Bishop (MI), Schweikert (R-AZ), and Davis (D-IL) – all members of the Senate Finance or House Ways and Means Committee. The feedback I received ranged from “We know fraternals and we love them!” to “We had no idea what a fraternal was prior to this meeting, but they sure sound like some worthwhile organizations.” If I was a handicapper, I’d say the odds are better than 80% that we’ll secure at least seven more co-sponsors for our Senate and House Fraternal Resolutions. We’ve got a great story to tell, and when we tell it people really respond positively. That said, while all tax counsel expressed support for the fraternal exemption, all of them also cautioned that “everything is on the table” in the coming tax debate – which could begin in earnest soon after the August recess. That means we’ll need to be exceptionally vigilant and when a bill finally emerges from either or both of these committees, we’ll likely require broader grassroots participation from Alliance member society executives, staff, and local chapter leaders to ensure that policymakers know who we are and what we do in their own back yards.  Stay tuned and BE PREPARED!
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