Life insurers have asked state regulators to loosen standards linked to souring residential mortgage investments as capital requirements surge.
The insurers are faced with "a major issue," the American Council of Life Insurers said in a proposal dated Sept. 10 and posted on the Web site of the National Association of Insurance Commissioners. The capital that carriers must hold against the slumping assets jumped fivefold to $11 billion in the six months ended June 30, according to the council.
Insurers including Allstate Corp. and Hartford Financial Services Group Inc. won capital relief from state regulators earlier this year as investment declines weighed on results. The council's proposal is opposed by the Center for Economic Justice, a consumer group, which said the plan may reduce funds available for policyholders.
Regulators "have been doling out relief like lollipops in a barber shop," said Birny Birnbaum, executive director at the center. "My sense is when the ACLI asks for something the regulators stand up and pay attention."
Andy Mais, a spokesman for the New York Insurance Department, declined to comment. Scott Holeman of the insurance commissioners' group did not return two phone calls and an e-mail.
The insurers' plan would reduce regulators' reliance on rating firms like Standard & Poor's Corp. and Moody's Investors Service Inc. when determining the capital needed to support residential mortgage-backed securities.
In their place, insurers — which last year owned more than $145 billion of residential mortgage-backed securities without government guarantees — want watchdogs to base their standards on estimates of how much the securities may lose, according to the council.
"This makes a lot of sense to me," said Robert Haines, an analyst with CreditSights Inc. "This is not a perfect solution. But this is much more sophisticated and reflective of the true economics of the securities."
The insurers' plan calls for the insurance commissioners' group to hire "an independent third party" to predict losses on residential mortgage-backed securities.
Insurers that bought top-rated mortgage bonds in recent years are faced with higher capital requirements as the housing slump prompted S&P, Moody's and Fitch Inc. to downgrade the securities.
State regulators are conducting a hearing today to assess their use of the rating firms. Birnbaum is scheduled to speak, as is Eric Steigerwalt, head of finance at MetLife Inc.'s U.S. business, Grace Osborn of S&P and Fitch's Keith Buckley.
The commissioners' group voted down an $18 billion council relief package in January that would have lowered capital requirements as industry stock declines made raising funds from investors more expensive.
But state watchdogs including Connecticut Insurance Commissioner Thomas Sullivan and Michael McRaith of Illinois extended relief to individual companies on a case-by-case basis.