|
NALC
PO Box 50053
Sarasota,
Florida 34232
Telephone:
941-379-6100
Fax: 941-379-6112
2008 Fall Conference
September 10 - 13, 2008
Westin
Bay Shore
Vancouver, BC
 The NALC held its 2008
Spring Conference April 2-5, at the Grand Hotel Marriott, Point
Clear, Alabama.
CLICK HERE for highlights of other
NALC conferences
NALC Members
• Contact Us • Feedback • Search •
|
HEARING BEFORE THE NAIC INTERNAL ADMINISTRATION
(EX1) SUBCOMMITTEE
ON THE PROPOSED 1999 NAIC BUDGET
TESTIMONY OF
THE NATIONAL ALLIANCE OF LIFE COMPANIES
DELIVERED BY SCOTT J. CIPINKO,
NOVEMBER 5, 1998
WESTIN CROWN CENTER,
ONE PERSHING ROAD
KANSAS CITY, MISSOURI
Mr. President, Ms. Executive Vice President,
Members of NAIC Internal Administration (EX1) Subcommittee and staff, on behalf
of the more than 200 Life Insurance Company Members of the National Alliance of
Life Companies (NALC), thank you for the opportunity to testify before you today
concerning the proposed 1999 NAIC Budget.
The NALC has a diverse Membership. However,
traditionally, our Members have been concerned about the ability of the smaller
companies to survive. The biggest obstacle that smaller insurers face today is
the cost of insurance regulation. Part of that cost includes the fees that are
paid to the NAIC as mandated by the states. It is as a result of these concerns
that the NALC has determined that our appearance at these hearings is an
important function for the NALC. Further, our participation gives the regulators
and NAIC staff an opportunity to better understand the concerns of our Members
in connection with these discussions.
We have reviewed the Budget and will comment on
the following areas:
1) Budget Growth
2) Fiscal Impact Statement
4) Program Budgeting
3) Specific Items
4) Surplus
While we are submitting our comments in writing
in advance, we may wish to comment on additional items at the Hearing on
November 5, 1999.
BUDGET GROWTH
The 1999 Budget projects an increase in Revenues
of approximately 4%. The Expenses are projected to increase by approximately 2%.
While we have voiced our displeasure at increases in the Budget in the past, it
is only fair to commend the leadership for exercising fiscal restraint and we do
so now.
FISCAL IMPACT STATEMENT
As we stated at the outset of our testimony, the
NALC is concerned with the survival of the smaller companies that are forced to
pay ever-increasing costs of regulation. As we discussed with the Industry
Liaison Committee, the NALC is working on quantifying the impact of new models
on smaller insurers.
We believe that a Fiscal Impact Statement should
be required in connection with all new models. The same concern arises in
connection with the NAIC Budget. As approximately 97% of the Revenues are
expected to come from the industry, and as the number of companies are shrinking
annually, it is clear that the cost per company must increase even if there is
no actual increase in Revenues. By definition, the burden on smaller companies
for the same dollars as the larger companies is greater. However, the burden on
larger companies must not be dismissed either. The cost to those companies will
also increase. Ultimately, it is the Consumer that must bear these costs per
policy.
Therefore, we feel that the projected cost per
insurer of the NAIC Budget should be determined. The calculation of the
projected cost per policy written may then be ascertained by a relatively simple
calculation.
Certainly, the cost of funding the NAIC is not
the total cost of regulation borne by Consumers and their insurers. The NAIC
does not have the ultimate ability to control all regulatory costs. However, we
believe that the Consumers have a right to know the costs of funding this
national association. We ask that, on a going forward basis, the NAIC produce a
Fiscal Impact Statement concerning the impact on insurers of the next year's
Budget.
PROGRAM BUDGETING
We understand that the Program Budget is not yet
available. We are unclear why this analysis is not available at the time of the
generation of the other Budget documents. In order for the Program Budget to be
useful to those outside of the internal budgeting process, or even those within
the process, it seems that the Program Budget should be available for analysis
along with the other Budget documents.
A discussion of this issue will be helpful.
SPECIFIC ITEMS
Publications
The cost of publications was increased due to a
delay in receipt of materials for publication. Please explain this statement.
What was not received? Why would the NAIC, who will again make a profit, decide
that an increase is necessary?
SVO Fees
The Executive Summary of the proposed Budget
does not reflect the full impact of the SVO Efficiency and Effectiveness
Project, which has been the subject of much work by regulators, SVO staff and
the industry for quite some time. In fact, the expected impact is limited and
the project appears to be linked with yet another project. Therefore, we seek
clarification on this issue and urge that there be no delay in implementation as
the time has come to move forward with these changes.
New Initiatives
In the past, the question of the cost of new
initiatives was tied to a need to increase the Budget. Given the current Budget
projections, it may seem to be a nonissue. However, the cost of any new
initiatives should be balanced with the question of the cost and whether the
function is better handled by a non-governmental or for-profit entity. This type
of question was addressed in the past in connection with IRIN and other
projects.
Specifically, the Data Warehousing project is
very costly. In the past, we have asked whether outsourcing, rather than data
reengineering should be explored as an option. The cost of these types of
projects are very high and often have a rather short life span. Whether the
regulatory community will benefit from any new initiatives, must be balanced by
the ultimate cost to the consuming public.
What type of analysis is currently used to
determine whether a project should be undertaken? Does or will this project
compete with the private sector?
Office Relocation
The NAIC office in Kansas City will be
relocating. There is no estimate of these costs as a separate line item, while
there is at least one place in the Budget where these costs are included. Will
the move be accomplished during 1999? If so, have the costs been estimated? If
not, will any of the costs for a 2000 move be incurred during 1999?
Interest Income
The NAIC will earn $1,163,981 in interest during
1998, rather than the projected $897,300. While some portfolios have benefitted
from the market over the past year, such a dramatic difference is remarkable.
What is the reason for this dramatic increase?
The projected interest income for 1999 is
$1,331,534. Does this take into account the factors that led to the dramatic
underestimate for 1998? Does the current market downturn impact the projection?
SURPLUS
This issue has come up at each Budget Hearing
and is upon us again. The projection of revenues over expenses for the 1999
Budget is $2,777,111. This is an increase of $1,063,339 over the actual revenue
projected for the 1998 Budget of $1,713,772. In addition, the 1997 Budget
yielded $1,071,910 revenues over expenses. During the discussion of the 1998
Budget, the issue concerning the possible refund of excess revenues back to the
industry, was discussed. The conclusion by the NAIC leadership, was that such a
refund would violate certain tax provisions and would not be possible. However,
at the same time, a parallel discussion was held concerning a reduction in
additional surplus in succeeding years. The surplus projected at the end of
1998, is $32,206,572, of which $20,837,881 is allocated. $5,700,000 is
designated for Financial Data Base Re-Engineering and $5,668,691 is unallocated.
The surplus, or net assets of the NAIC, have
been growing steadily since 1992. The analysis of Unrestricted Net Assets shows
an increase since 1992 from $15,636,201.00 to a projected $32,206,572.00 at the
end of 1999. Given the previously stated conclusion that, due to current tax
law, the NAIC cannot refund surplus revenues to the industry, the NALC continues
to question why each year the Budget is structured to raise revenues beyond
expenses, thus allowing for continued increases in the surplus.
Further, it is not clear why the NAIC requires
such a huge budget surplus. A number of years ago, it was common practice for a
trade association to maintain one year of operating expenses in surplus. Most
trade associations now carry an amount equal to, or less than, six months of
operating costs in reserve. Given the size of the current NAIC Budget, this
would amount to an approximately $20.8 million. This is still a rather large
surplus for any trade organization.
Therefore, the NALC, requests clarification on
the need of such a large surplus and further request that the NAIC leadership
adopt a policy on a going forward basis, beginning with the 1999 Budget, of
spending down the surplus by reducing revenues in order to actually reduce the
net assets of the NAIC to six months operating costs, or approximately $20.8
million.
CONCLUSION
We believe that the fair and open manner in
which these hearings have been conducted over the past several years, has truly
added to the dialogue and understanding of the process of which we are all a
part. The NALC would like to thank the Members of EX1 and the NAIC staff again
for the opportunity to comment on the proposed 1999 Budget.
Respectfully Submitted,
NALC
|
