Report Predicts Ongoing Regulatory Uncertainty For The Insurance Industry

Global audit and consulting firm Deloitte LLP is warning life and annuity insurers in its 2015 Life Insurance and Annuity Industry Outlook report that regulatory uncertainty will be "an ongoing way of life rather than a passing conundrum" as the multiple jurisdictional layers of state, federal and international regulators "compete for supremacy." Moving forward, the new and enhanced standards that have been placed on some of the more significant insurers may trickle down through those layers of jurisdiction to effect smaller companies.

The Deloitte report describes 2015 as "an active year on the compliance front" with insurers trying to "adapt to a host of regulatory changes."

As primary evidence of this, the report sites Own Risk and Solvency Assessment ("ORSA") Summary Report, the first filing of which is due by U.S. domestic insurers this year. The ORSA Summary Report is part of ongoing efforts by the National Association of Insurance Commissioners ("NAIC") to strengthen the state-based regulatory framework, and it focuses on looking forward, as opposed to the historical perspective traditionally taken by most state-based solvency analysis.

The report describes this change as replacing "static examinations conducted every five years" with "an ongoing dialogue between regulators and the regulated, engineered on a framework of real-time, in-depth, customized, relevant information." While that sounds like a progressive and advanced system, the reality may mean more reporting of more information more often.

The NAIC is also moving certain corporate governance and holding company supervision model laws through its internal approval process, according to the report, which may mean these regulatory models will soon be introduced to state legislatures for incorporation into state regulatory laws.

While the capital standards adopted by associations like the International Association of Insurance Supervisors in 2014 will only directly affect those few insurers designated as systematically important, the Deloitte report suggests that ongoing work by the NAIC, the Federal Insurance Office and the Federal Reserve could sweep other insurers into the increased capital standard fold.

As group capital standards become the norm internationally, the report suggests that – despite opposition by both U.S. regulators and industry officials – domestic insurers with international operations will have to comply with such standards.

The Deloitte report lists a "host of tax issues" that may impact life and annuity insurers in 2015, including:
…the regulation of affiliated captives, the potential elimination of the interest deduction related to the purchase of company-owned life insurance, a modification of the deferred acquisition costs rule (which should mean essentially more capitalization), and a new method of computing the separate account dividend-received deduction that would reduce the benefit.[1]
However, the report notes a beneficial ruling from the IRS may allow companies to take significant losses earlier, referring to a directive on variable annuity contracts and the timing of certain deductions.

Another positive noted by the Deloitte report is the adoption of an amendment to the Dodd-Frank act which prohibits the Federal Reserve from requiring insurers that use only statutory accounting principles to use generally accepted accounting principles.

Read the full report:

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