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Building NAIC Reserve Further Not Justified; Reduce Fees Instead, Says NAMIC

INDIANAPOLIS (Nov. 10, 2004)--The risks cited by the National Association of Insurance Commissioners (NAIC) as reasons for generating a 100 percent reserve within two years are only "minimally defined or improbable," according to comments on the NAIC's 2005 budget proposal submitted Monday by the National Association of Mutual Insurance Companies (NAMIC).

Commenting on the budget for NAMIC, William Boyd, financial regulation manager, noted that the proposed overall increase to the NAIC's revenues in 2005 was a "modest" 1.9 percent and that reductions in expenses for the coming year should result in no increase in the NAIC budget. Instead, he said, the projected $3.7 million difference between revenues and expenses is being added to enhancement of reserves rather than "to reduce what is extracted from the industry" in the form of various fees.

The pending NAIC budget includes measures that would move the NAIC toward holding operating reserves of 100 percent of annual revenues. NAMIC said in comments for the NAIC's Nov. 17 budget hearing that the current reserve level of about 73 percent is fully adequate. The NAIC's budget document showed intent to bring reserves to about 84 percent of revenues by the end of 2005 and 100 percent by the end of 2006.

Boyd said the NAIC's assertion that risks to its revenue stream required the increased reserve were not persuasive and that the NAIC "has manageable risks, no imminent reduction of revenue sources, and a broad base for generation of revenue." The NAIC's budget document had asserted risks from unfunded federal mandates and other changes that might come from the federal government, plus possible reductions to publishing revenues via new technology. "What we are impelled to observe is that 1) none of these in our knowledge is imminent and 2) the probability of all of these or any significant number of them occurring at the same time would seem remote," said Boyd.

The NAMIC testimony characterized the NAIC as a "quasi-governmental" organization that had responsibility for "fully open and transparent decision-making to which regulated insurers have all reasonable access. The quasi-governmental status, the NAMIC comments noted, argued against generation of large reserves in advance of decisions for use of such funding.

Boyd will testify at the Nov. 17 public budget hearing conducted by teleconference.

• Read the full text of NAMIC's comments

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For further information contact:
Robert Detlefsen at rdetlefsen@namic.org
or (317) 875-5250