ATR Submits Comment Letter Defending Life Insurance and Annuities

Today, Americans for Tax Reform submitted a comment letter to the National Association of Insurance Commissioners (NAIC). The letter was sent in response to a proposal from the NAIC that would increase the risk-based capital (RBC) charge for residual tranches and interests of asset-backed securities (ABS) from 30% to 45%. ABS include, but are not limited to, securitizations of credit cards, auto loans, student loans, and corporate debt.

ATR requested that the NAIC delay the implementation of the 45% RBC charge by at least one year. If the NAIC were to refuse to delay the implementation of the 45% capital charge, ATR requested that the NAIC vote to establish the interim charge for residuals at 30%.

Life insurance companies invest in ABS residuals, which in turn makes it easier for these companies to offer more affordable annuity products. ATR is concerned that raising the RBC charge for residuals to 45% will make annuities more expensive for American workers and retirees.

The letter points out that:

The NAIC is arbitrarily increasing regulations on life insurance companies that invest in residual tranches and interests of ABS. It appears that the NAIC’s goal is to push life insurance companies out of residual tranches without any quantitative analysis to justify this change. The implementation of the proposed regulations will disincentivize life insurance companies from investing in residual ABS tranches, which could increase the cost of Americans’ life insurance and annuities. ATR is deeply concerned the NAIC will deter financial companies from keeping life insurance and annuity products affordable for Americans.

NAIC’s proposed regulations will force annuity providers to hold significantly more cash on hand. Essentially, this will raise costs for consumers—acting as a de facto tax increase. This is especially harmful to Americans considering the guaranteed lifetime income that annuities provide.

A report from Oliver Wyman provides evidence for why 30% makes more sense than 45%:

Third-party data and analysis provide evidence that NAIC’s proposed regulations go too far. The OW report finds that common stock losses are higher than losses on residual ABS tranches on a portfolio level. The NAIC’s proposed equity capital increase from 30 percent to 45 percent for residual ABS tranches is not commensurate with the residual tranche risk observed within the OW report. Meanwhile, the common stock charge is 30 percent. The OW report offers support for a 30 percent capital charge, not a 45 percent charge.

The NAIC should not copy federal regulators to create parity with similar bank regulations:

Additionally, NAIC’s proposed RBC charge should not be implemented simply to create parity with federal regulators’ implementation of the Basel III Endgame bank capital requirements. These bank regulations were originally formed by unelected bureaucrats in Basel, Switzerland. The NAIC should not implement rules for life insurance companies that will align with heavy-handed European-based regulations.

The letter concludes by stating that:

The NAIC should avoid hindering American families from maximizing their nest eggs. Increasing the RBC charge for residuals to 45 percent would increase costs on annuities—effectively increasing costs on retirement options for American workers and retirees. Currently, there is no quantitative evidence to substantiate this RBC charge increase. Consequently, ATR requests the 45 percent RBC charge on ABS residuals be delayed and remain at 30 percent.

Click here to read the full letter.