Iowa Lawmakers Poised to Pass Principles-Based Reserving Bill
February 26, 2014 by Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com
DES MOINES, Iowa – Iowa lawmakers are poised to ratify principles-based reserving for life insurers, as the Senate passed legislation doing so, and a counsel for the Federation of Iowa Insurers said the House is likely to quickly follow.
The bill, SF 2131, passed the Senate 49-0 on Feb. 24. Either that bill or a House companion, HF 2219, is expected to clear the House soon, said Scott Sundstrom, legislative counsel for the Federation of Iowa Insurers. While HF 2219 is on the calendar for House debate on Feb. 25, Sundstrom said the Senate bill is likely to be the primary vehicle in the House. It has had no opposition among Federation members, primarily life and health insurers in the state. “We’ve heard nothing but support for the bill,” Sundstrom said.
If Iowa’s House passes one of the bills and Republican Gov. Terry Branstad signs a final version, Iowa would be the latest state to ratify principles-based reserving, a risk-based capital approach designed by the National Association of Insurance Commissioners. Supporters of principles-based reserving among the NAIC’s members believe its use is necessary to replace a formulaic approach that allowed for use of certain reserving tools that made reserves redundant.
The NAIC’s move in December 2012 to pass principles-based reserving put the issue in front of state lawmakers for ratification. Forty-three jurisdictions comprising 75% of premiums sold must pass the new reserving standard, which amends the standard valuation manuals of each state. Once ratified, it would be implemented during a three-year period and would only apply to new business.
As of Feb. 6, the NAIC reported seven states had ratified principles-based reserving. However, support among states to ratify principles-based reserving has been slowed by concerns about the impact on small insurance companies. The American Council of Life Insurers recently asked the NAIC principles-based reserving task force to include conditions under which small companies could be exempted from using the new reserving tool. Smaller companies objecting to principles-based reserving have managed to halt passage in some states, the ACLI said. Iowa Insurance Commissioner Nick Gerhart, who is a panel member, said the idea was worth exploring (Best’s News Service, Feb. 6, 2014).
But while more states are gradually ratifying the law, Sundstrom said it appears principles-based reserving use as a national standard could come down to whether lawmakers in California, Florida, Texas and New York ratify the change in order to meet the 75% premium requirement. New York Department of Financial Services’ Superintendent Benjamin Lawsky has been outspoken against principles-based reserving, saying its use would not have the desired impact, and California Insurance Commissioner Dave Jones has questioned whether individual states will have adequate resources to administer it. Texas lawmakers do not meet in 2014.
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)
