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Regulators Table Risk-Loads Proposal Opposed by NAMIC, Other Trades

INDIANAPOLIS (April 18, 2005)—In the face of stiff opposition from property/casualty trade representatives, the National Association of Insurance Commissioner’s Casualty Actuarial Task Force has voted to table a proposed position that would have created a presumption against risk loads that afford insurers relatively greater return.

The National Association of Mutual Insurance Companies (NAMIC) and three other trade groups had written the Task Force to assert that the proposed position compromised insurers’ ability to accurately price risks that they underwrite via risk-load multipliers that reflect greater underwriting risk.

Several regulators who deliberated in a teleconference on Tuesday noted that competition is an integral factor in most situations in which risk-load multipliers are used and that the proposed position might be an unneeded interference in risks and underwriters reaching commercial agreement.

The proposed position, introduced last year by Nebraska regulator Alan Wickman, states that the insurer’s use of increased risk loads generally results in a positive contribution to the insurer’s expected underwriting profit “for all policy limits combined” and that such contribution:

  • “[A]long with investment income and other income, should be considered in the determination of the insurer’s basic limits underwriting profit or loss provision.”
  • That commingling of return from different risks creates potential for subsidy of some lines or risks from rates charged for those contracts with higher risks.
  • The proposed position, now tabled, included the assertion that its approach was consistent with the Casualty Actuarial Society’s principles on ratemaking. The remonstrating trade associations essentially asserted the opposite.

“We don’t know if this will be brought up again from the table any time soon,” said William Boyd, NAMIC’s financial regulation manager, “but we believe we heard a fairly strong majority of the Task Force questioning the proposal’s value.”

An additional argument of the trade associations against the proposed position was that “this proposal will put smaller companies at a disadvantage relative to larger companies, which can more readily offer and retain such [higher] limits.

Other signatories of the trade-association letter remonstrating against the proposed position were the Property Casualty Insurers Association of America, the Reinsurance Association of America, and the Physician Insurers Association of America.

The letter can be read at NAMIC Online.

Posted: Monday, April 18, 2005 12:00:00 AM. Modified: Monday, April 18, 2005 5:18:05 PM.

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