Friday, December 19, 2008

What Could Go Wrong?

Dec. 19 (Bloomberg) -- State insurance regulators are seeking to ease reserve requirements for life insurers, increasing the companies’ liquidity as investors and banks curtail funding of the industry.
National Association of Insurance Commissioners advanced a proposal to reduce the amount of money carriers must hold against guarantees made to variable annuity clients. The potential reform, criticized by a consumer advocate, may be adopted in time for 2008 financial results, the NAIC said yesterday.
“Typically insurers would turn to the capital markets for reserve relief,”
Roger Sevigny, president of Kansas City, Missouri-based NAIC, told reporters yesterday on a conference call. By relaxing standards, “it becomes easier for the companies to meet the requirements of banks and other credit facilities.”
That sounds to me like a plan put forward by insurance lobbyists, not regulators. Of course when capital and reserve requirements are out of whack it is inconvenient to go out and raise new money. Now has got to be a very dangerous time to lower reserve requirements for anybody.

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