“I love the smell of napalm in the morning…”
The Alliance achieved a significant victory last week, and it did not require an attack fueled by jellied gasoline. After over two years of prudent, thoughtful, and effective advocacy, the NAIC Executive and Plenary Committee approved an amendment to the Principles-Based Reserving Small Company Exemption (PBR SCE). The amendment allows insurers – commercial and fraternal – with less than $50 million in annual life insurance premium to apply for an exemption to PBR rules so long as the meet the minimum RBC ratio requirement in their domiciled state, and not the 450% RBC ratio stipulated in the exemption language for companies with less than $300 million in annual life premium.
The Alliance put this on regulators’ radar screens when we realized that as many as 20 fraternals with perfectly acceptable RBC ratios, not to mention countless other small commercial insurers, would fall short of the 450% RBC threshold to qualify for the PBR exemption. This would have forced these organizations to comply with regulations for which they are completely unsuited. The 450% threshold became even more of an issue when the NAIC announced plans to revise the way it evaluates insurers’ bond portfolios, a revision that could reduce companies’ RBC ratios by as much as 25%.
After initially making our arguments known, and earning the support of, regulators in those states where most fraternals are domiciled, we successfully introduced language to amend the PBR SCE at the NAIC. And, after making its way through a maze of Working Groups, Task Forces, and Committees, the amendment was officially adopted by the NAIC last week. It will become effective on January 1, 2018 – two years before the PBR regulation is fully implemented nationwide.
The PBR SCE story demonstrates the need for even the smallest sectors of the industry to come together under the banner of a trade association. It took us nearly six months of internal deliberations to establish the Alliance’s policy position on the issue – which speaks to the difficulties that a diverse membership can create. Birds of a feather do not always stick together. And when they don’t, the whole flock can be endangered.
But, despite what at times seemed to be insurmountable hurdles, the Board – led through the process by the incomparable leadership of Past Chairs Harald Borrmann and Pat Dees – had the courage to press forward and get the policy position just right. Once we knew where we stood, advocating our position before regulators and the NAIC became much more straightforward. And winning the day after such a prolonged effort? Well, that certainly smells like victory to me.
May 21, 2018