BUSINESS & FINANCIAL: NAIC Working Group's Model Investment Practices Act Objected To By 3 Major Trade Associations.

BOSTON, Mass. -- A working group of the National Association of Insurance Commissioners, which is attempting to develop a nationwide model act to regulate the investment practices of insurers, was urged here September 19, to moderate its approach.

Stephen W. Broadie. vice president - tax and finance for the Alliance of American Insurers, told the Model Investment Law Working Group that the draft, which was released for public comment on September 3, "goes overboard in restricting investment discretion and may keep some companies from earning investment income they need."

A similar position was taken by M. Staser Holcomb, chief financial officer for USAA, that the model, as drafted, would severely impose unduly strict and rigid limitations on insurer investment options and harm customers because insurers would have to increase rates to compensate for lower investment returns.

The American Insurance Association, in testimony delivered by Phillip Schwartz, vice president -financial reporting and associate general counsel, said the model act draft would stifle successful investment practices.

The working group session was part of the NAIC's Fall Northeastern Zone Meeting. (Insurance Advocate reported other actions at the meeting in its September 25 issue -ed.).

Broadie told the working group that the insurance industry needs reasonable investment flexibility in order to earn returns that help keep insurance affordable. He said, "a primary goal of any regulatory initiative must be to promote insurer solvency, but if this draft were to be enacted it would more likely promote insolvency."

Among specific objections to the working group draft, Broadie cited a requirement that would force property/casualty insurers to maintain a rigid level of asset liquidity as an "entirely unjustified limitation of investment flexibility." He said the proposal would make asset-liability matching more difficult for many companies and pointed out that even highly-liquid common stock investments would not meet the liquidity test under the working group proposal.

Broadie also said that the new draft attempts to prescribe the corporate structure of insurers by limiting insurer holdings in insurance subsidiaries to 25 percent of admitted assets.

"This amounts to mandating the corporate structure of insurance groups, something we believe is beyond the jurisdiction of this Working Group," Broadie said. "It also unreasonably restricts the ability of mutual companies to...

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