In last week’s blog, I highlighted the Alliance’s major political advocacy victory as we recruited the 100th co-sponsor for House Congressional Resolution 19 – the “Fraternal Resolution.” This week, I’d like to showcase another successful policy initiative that may have an even greater impact on fraternals and other small life insurers.
As many of you are aware, enough states have enacted Principles-Based Reserving (PBR) enabling legislation to permit PBR to become effective nationally on January 1, 2017. With the three-year phase-in period, insurers can defer the actual implementation until January 1, 2020. PBR regulation has been in the works for almost a decade. The PBR methodology has been supported by most large life insurers because under PBR rules these insurers would likely have to allocate fewer assets to their reserves to meet regulatory standards. Fair enough.
Because PBR methodology was not as applicable to smaller insurers, regulators agreed to include a Small Company Exemption(SCE) from PBR rules for insurers with less than $300 million in annual life insurance premium and a Risk-Based Capital (RBC) ratio of 450%. The Alliance supported the application of RBC for larger insurers and agreed with notion of a small company exemption. But the 450% RBC threshold to qualify for the exemption had us concerned that the new regulation could result in many small insurers – fraternal and commercial – having to comply with PBR rules which were never intended for them.
For the past year, Alliance staff and Board members have been meeting with key regulators to point out that current RBC ratio expectations in most states is 300% and that a 450% RBC standard to qualify for the PBR exemption would, in effect, raise the minimum RBC ratio requirements by 150% for no good reason. You can learn more about the details of the Alliance’s advocacy efforts in our most recent CEO Bulletin. Long story short, regulators agreed with our position and have drafted an amendment to the SCE provisions that would exempt all insurers with less than $50 million in annual life insurance premium from the 450% RBC requirement when seeking an exemption from PBR rules. This amendment is likely to be adopted in 2018, well in advance of the January 1, 2020, effective date of PBR rules.
This is a significant accomplishment for the Alliance and its members. This initiative enhanced our credibility with regulators in key fraternal states and among NAIC leadership. It also improved our standing with our commercial insurance company peers as our policy position and the amendment being proposed by regulators impacts all insurers – not just fraternals. ‘Nuf said…
If Leif Erikson ran into these problems he would have never left Norway!
You think complying with insurance regulation is expensive? Try navigating a tall ship through the Great Lakes! The Drakan Harald – the world’s largest modern Viking ship – sailed across the Atlantic on its way to the Tall Ships Challenge Great Lakes 2016 without a hitch. But when it arrived in North America, the crew discovered that it needed $430,000 to cover “pilot fees” to help the ship navigate the locks and channels of the Great Lakes. You read that right — $430,000.
What’s the captain of a Viking sailing ship to do? Call the Sons of Norway to the rescue!
The Sons of Norway, an Alliance member society headquartered in Minneapolis (where else?) has partnered with the Drakan to raise money to help the ship reach its destinations. You can learn more about – and participate in – the Sons of Norway’s effort by CLICKING HERE. You can also take a look at some of the media coverage of this ship’s journey HERE and HERE. I made a contribution to the cause last week (which was difficult for an Italian who was raised on the belief the Christopher Columbus got here first) and I’m hoping that gets me a tour of the ship when it docks in Chicago next month!!!