Life insures were feeling confident that a hoped-for proposal would get the OK from regulators last month – but to their surprise, the proposal got shot down. Insurers were unhappy to lose a source of potential help in troubled times, but some insurers have paused to grumble that the proposal’s death had more to do with political maneuvering than pure policymaking.

The proposal would have allowed insurers to lower capital and surplus reserve requirements by about 6 percent, a move industry representatives say would have freed up more money to make investments and do business.

The National Association of Insurance Commissioners was considering the proposal until the NAIC’s executive committee shot it down, saying the industry hadn’t demonstrated a strong enough need for such changes now.

“I was just baffled,” said Bob Sheridan, head of Savings Bank Life Insurance of Massachusetts, who couldn’t speculate as to the proposal’s demise, but said it had seemed like regulators had consensus and were moving forward.

Peter Tedone, president of Connecticut’s VantisLife Insurance, said: “I do not believe it [the proposal] was rejected on its merits … I think there’s politics in every environment, and this is just one of them.”

Tedone had been watching the NAIC’s actions on the proposal, even though they wouldn’t have directly affected his company. Regardless, he said, it was frustrating to see the idea get derailed.

Not So Free And Easy

The plan of loosening capital and surplus requirements had garnered its share of controversy. Consumer groups argued it was the height of irresponsibility to lower requirements at a time when the nation was learning the harsh consequences of free-and-easy finances. Insurers countered the capital requirements for the industry were long considered overly conservative, and freeing up more capital would have allowed them to do business in a constricted financial environment.

Now, individual state commissioners might allow those capital changes within their state borders. This, though, would only apply to insurers domiciled at these states, and critics have said piecemeal regulatory changes would create an uneven playing field, not to mention public confusion when different companies start playing by different rules.

Jack Dolan, spokesman for the American Council of Life Insurers, said the industry had hoped to avoid this mishmash of different rules by getting the NAIC to approve the regulations for the entire country.

Dolan also expressed surprise at the proposal’s demise. It had solid support from the committee that initially reviewed it, he said, so it caught everyone off guard when the executive committee put the kibosh on the idea.

He pointed to New York insurance superintendent Eric Dinallo as being particularly vocal about dismissing the proposal during the executive discussion.

“You could put a lot of the leadership for killing this on the shoulders on Eric Dinallo,” he said.

According to a statement from the NAIC, association president and New Hampshire Insurance Commissioner Roger Sevigny said, “Simply put, the industry has not made a credible case for why we need to make changes on an emergency basis.”

As for the New York superintendent, first deputy superintendent Kermitt Brooks said that yes, Dinallo had been vocal in his belief that the proposal was too broad.

“Eric took the charge and framed the issues, that the broad industry relief at the NAIC level was not good.”

Meanwhile, individual states met last week to discuss allowing such changes within their own borders.

Connecticut Commissioner Thomas Sullivan had been the only member of the executive group to approve the industry’s proposal.

A flurry of attention surrounded the issue in Connecticut when The Hartford, facing a $2.7 billion net loss in its latest filings, asked the commissioner to be allowed such a change. Last week The Hartford announced that Sullivan had approved its requests. However the move drew controversy, as Sullivan is a former employee of The Hartford.

Regulators who rejected the proposal disagreed with the proposal’s particulars, and disagreed the measure deserved the “emergency” status the industry had given it, according to an NAIC release.

Ohio’s insurance director, Mary Jo Hudson, approved the capital requirements proposal on Jan. 22, even before the NAIC’s executive committee issued its decision. Ohio spokeswoman Carly Glick demurred from discussing the politics of the NAIC’s decisions, and said the Ohio director’s decision was based on concern for consumers. If other states lowered capital requirements, she said, it would leave Ohio insurers lagging behind and forced to raise prices on their products. â–