State regulators trying to help life insurance companies cope with the financial crisis have granted $6 billion of relief from requirements meant to ensure financial stability, according to data released yesterday.
The top recipients were Allstate Life Insurance Co. with $1.4 billion; Jackson National Life Insurance Co. with $825.6 million and Hartford Life Insurance Co. with $655.2 million, according to the National Association of Insurance Commissioners.
The relief typically came in the form of accounting changes that allowed companies to pad their financial cushions, in effect making them appear stronger than they otherwise would. Insurance companies are required to maintain such cushions, known as capital and surplus, to absorb losses and pay claims.
Much of the padding involves increased counting of potential tax benefits that could end up being worthless to the companies.
For the top three recipients, the regulatory relief accounted for 42.6 percent, 22 percent and 16.1 percent, respectively, of their financial cushions as of Dec. 31, 2008, according to an analysis of the NAIC data.
Like other investors and financial institutions, life insurance companies have seen the value of their investments reduced by the financial crisis. Unlike banks, though, insurers have yet to receive federal bailouts to replenish lost capital.
Industry leaders have argued that regulatory relief could help insurers weather the crisis. They have expressed hope that it will stave off downgrades to their credit ratings, which can be damaging to their business. They also want to avoid having to raise capital from investors, which could cost a lot of money and dilute the value of shareholders' stock.
Critics such as the Consumer Federation of America have argued that the relief could weaken insurance companies and leave policyholders at greater risk.
The American Council of Life Insurers, an industry group, sought blanket relief earlier this year from the NAIC, an umbrella group for state regulators. When the NAIC refused, many state regulators filled the breach, granting special dispensations to individual companies headquartered in their states.
Some state regulators said they wanted to make sure their home-state companies weren't left at a competitive disadvantage.
The result is an accounting hodgepodge that makes it harder to compare insurers and gives some companies an edge over others.
When insurers' finances deteriorate below certain levels, state regulators can take a number of steps, such as requiring companies to submit a recovery plan or taking them over altogether. With few exceptions, the relief granted by regulators did not allow companies to escape increased supervision, the NAIC data suggest.
The data were culled from annual reports filed recently with state regulators. Some companies received extensions and have not yet filed.
The relief was generally granted this year but made retroactive to Dec. 31.
Other big recipients included Pacific Life Insurance Co. with $529.8 million, Transamerica Life Insurance Co. with $505 million, Metlife Insurance Co. of Connecticut with $396.1 million, and Lincoln National Life Insurance Co. with $313.4 million, according to the NAIC data. Many of the companies listed are part of larger families, such as the MetLife group, that operate multiple insurers.
Pacific Life said it requested the regulatory action "to allow it more financial flexibility to better respond to the market volatility."
"This action does not affect Pacific Life's ability to meet its obligations to contract owners and policyowners," the company said in a statement. Like other insurers, Pacific Life said standard regulatory requirements are overly conservative.
In a recent securities filing, Allstate said its dispensations involve areas where "statutory accounting is not reflective of the underlying economics during this period of extreme market conditions."
Property and casualty insurers also received relief.
At a U.S. subsidiary of troubled Scottish Re, Delaware's decision to grant $197.2 million of regulatory relief accounted for 99.9 percent of the company's $197.4 million financial cushion, according to the NAIC data.
Scottish Re, a reinsurance company that backstops life insurers, sought the relief to offset financial setbacks related to the diminished value of subprime and other mortgage-related investments.
The action "in no way impacts our ability to satisfy our obligations" to client companies, said Meredith Ratajczak, chief executive of Scottish Re's U.S. unit.
Ohio insurance regulator Mary Jo Hudson said in a statement last week that her department granted special dispensations "only where they would make strong companies stronger."
In a competitive market, that approach could have the unintended effect of making weak companies weaker.
The Ohio Department of Insurance reported that it gave several property and casualty subsidiaries of Nationwide relief totaling $447.5 million.
Regulators allowed many companies to count as capital so-called deferred tax assets that otherwise would be treated as worthless because they can be used only when companies have sufficient income to apply the deductions to their tax bills.
Giving companies more credit for the tax assets is a case of making lemonade out of lemons. One thing many companies have in abundance is deferred tax assets, because declining investment values can give rise to deferred tax assets.
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