Earlier this week the NAIC announced a major policy shift related to the rules and regulations for life insurance companies as it relates to their reserve and surplus requirements. These modifications, first reported in the Wall Street Journal, could have a dramatic impact for the better on the capital requirements that companies such as Met Life, Prudential Insurance, American General, Hartford Financial and Genworth are struggling with.
One of the least reported elements of the recent capital crunch for life markets is the pressure caused by these annuity reserve requirements. Many of the negative financial reports of the last 90 days for life companies were directly related to their necessity to move huge amounts of current earnings or surplus into reserves to account for requirements to reserve variable annuity guarantees and future market yield calculations.
The proposed modifications will greatly reduce the pressure on life markets to pour huge amounts into reserves for this product line, free up current reserves and significantly lessen the need for capital at a time when raising capital is both expensive and difficult.
This is clearly very good news for life markets, and as I outline in my commentary, still provides for a high degree of safety for the annuity holders and life insurance beneficiaries.