Friday, December 11, 2009

Insurers Get Capital Boost Out of Thin Air, Through More "Accounting Changes"

U.S. insurance regulators have approved accounting changes to allow insurers to temporarily use future tax benefits to boost regulatory capital, in other words, allowing them to use billions in future tax benefits to as capital (Reuters)

"Life insurers in particular had been clamoring for the change, eager for ways to boost capital after the sector was badly hit by the credit crisis".

"Insurance regulators have long understood the need for conservatism in insurer's financial statements," said NAIC President Roger Sevigny, in a statement. "This change recognizes that fact, but also recognizes that overconservatism can actually be detrimental to consumers."

Excuses us? Not counting possible future tax benefits today is conservative?

The Center for Economic Justice and the Consumer Federation of America disagrees, saying that the measure allows insurers to count more non-liquid assets as regulatory capital, undermining consumers who bought insurance from these companies.

Hexagon Securities' David Havens states well (yet obvious), saying that it would have been better if regulators had required companies to find more tangible ways to boost capital. "Simply changing regulations is not a way to strengthen capital for the industry, it is a little bit artificial," he said.

In order to count deferred tax assets toward the calculation of regulatory capital, insurers have to be more than likely to realize the tax benefit within three years, and it is limited to 15 percent of surplus.

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