Life Insurers: Cash-Strapped or Just Complaining?

Today, the executive committee of the National Association of Insurance Commissioners (NAIC) — the state officials who regulate America’s multi-trillion insurance industry — may rule on whether to loosen capital standards for the nation’s life insurers, allowing them to operate with less cash to back up their obligations to policyholders. Is this an indication that huge companies like Prudential and MetLife are about to experience the same problems as big banks that have come close to collapse in the last year? That’s not entirely clear.

The American Council of Life Insurers (ACLI), which represents these companies, says “the industry remains well-positioned to withstand the crisis.”

But at the same time, the ACLI is hard at work pushing state commissioners, whose job is to protect life insurance policyholders, to relax their standards on capital. That would make the insurers — who, along with the rest of the investment community, have lost tons of money on their investment portfolios — look better.

The NAIC, which is not known for acting quickly, has scheduled today’s hearing on six proposals only two days after one of its committees reviewed the evidence. More than 150 people attended that Washington hearing.

“It’s very suspicious,” Consumer Federation of America insurance director J. Robert Hunter told the Washington Post last week. “If there’s no problem, why are you (the life insurers and the NAIC) acting like this?”

Some insurance commissioners are already considering the looser standards, according to the ACLI. But since insurance is a state-run system, the life insurers want everyone to get on board. So they need the NAIC, which represents all the commissioners, to give its approval.

If they get it, it may be an indication that things are worse than anyone thought. But of course if they do get it, the yardstick for keeping assets against potential liabilities will be lower, so it may also be harder to tell.