American Fraternal Alliance Applauds NAIC Approval of Amended Principle-Based Reserving Small Company Exemption.
OAK BROOK, IL August 9, 2017 — The American Fraternal Alliance (Alliance), the national trade association representing 63 fraternal benefit societies in the U.S. and Canada, applauds the adoption by the National Association of Insurance Commissioners Executive and Plenary Committee (NAIC) of an Alliance-proposed amendment to the existing Principle-Based Reserving Small Company Exemption (PBR SCE). The amendment will exempt truly small life insurers from complying with burdensome and unnecessary reserving regulations that do not make sense for the insurers or the regulators responsible for their oversight.
“The current PBR rule contains an exemption for companies with less than $300 million in annual life premium,” said Joseph Annotti, American Fraternal Alliance President and CEO. “The problem with the unamended rule is that, in order to qualify for the exemption, an insurer had to have a Risk Based Capital (RBC) ratio of 450%, which is well above current 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.”
The Alliance, which initially proposed and advocated for the amendment, first explained their position on this issue to regulators from a few key states where fraternals do a great deal of business more than two years ago. Subsequently, the Alliance 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. The language of the amendment was approved by the NAIC Life Insurance (A) Committee in July and the Executive and Plenary Committee finalized and approved the measure this week at their meeting in Philadelphia. The newly adopted amendment will be included in the NAIC’s model guideline for PBR that is used by state insurance departments to develop regulations for approval by state legislatures across the country.
Approval of the amendment takes on even more significance in light of proposed changes to the bond rating formula for insurers currently under consideration by NAIC. If approved as drafted, the new formula could result in reductions to all insurer’s RBC ratio by as much as 25 percent. Without the new amendment, this could have resulted in dozens more financially sound small insurers being forced to comply with the PBR regulation.
“We feel that the NAIC’s approval of the amendment really results in a victory for small insurers, their policy holders and regulators,” said Annotti. “Policy holders can rest assured that their insurers are sound and sustainable by virtue of the need for companies to comply with RBC minimum rules and the smaller insurers avoid costly and unnecessary compliance with a rule for which they are unsuited.”
About the American Fraternal Alliance
The American Fraternal Alliance promotes and supports the missions of its 63 not-for-profit fraternal benefit society members operating in 50 states, the District of Columbia and Canada. Alliance member societies provide a variety of life insurance and financial products for their members and nation-wide represent nearly 9 million individuals, making it one of America’s largest member-volunteer networks.