NAIC Waives $790,000 Industry Assessment Fee

The National Association of Insurance Commissioners (NAIC) announced that the second installment of a 2004 fixed fee assessment for the NAIC’s Securities Valuation Office (“SVO”) will be waived. The assessment, totaling $1.58 million for the 2004 filing year, is related to a revenue-neutral policy agreement between the insurance industry and state insurance regulators made in September 2003.

Under the agreement, the industry would be exempt from filing Nationally Recognized Statistical Rating Organization (NRSRO)-equivalent securities with the SVO effective Jan. 1, 2004. This agreement was implemented on a “revenue-neutral” basis to offset lost SVO revenue from these exempt securities. The agreement called on the industry to pay a fixed assessment of $1.58 million in 2004 based proportionately on each company’s holdings of non-government bonds and preferred stocks limited to companies with a minimum $1 billion of these holdings.

The mutual agreement called for the NAIC to adjust the 2004 assessment as a result of variances between actual 2004 non-NRSRO rated filing volumes and the volumes projected as part of the NAIC’s 2004 budget. The non-NRSRO filing fee revenue anticipated and budgeted for 2004 totaled $4.5 million.

With the 2004 securities filing year complete, the SVO reports that the volumes of 2004 non-NRSRO rated security filings fell short of the projection by 9.4 percent, resulting in a revenue shortfall of $387,850. However, the SVO performed credit and pricing assessments on other securities consisting of two components: a) insurance companies’ 2003 non-NRSRO rated securities filed very late in 2003 and completed in 2004; and b) insurance companies that continued to submit 4,097 of the exempt NRSRO-rated securities in 2004. Although this represents a large reduction in the volume from 2003 of 24,790 securities, the resulting filing revenue helped to reduce the industry’s fixed assessment.

The additional revenues arising from these unanticipated components reduced the shortfall to approximately $61,000, and while the agreement allows for the recouping money, the NAIC has decided to waive the assessment.

“We are in the process of writing companies to inform them of the assessment waiver,” said Michael Moriarty, a New York state regulator and Chair of the NAIC’s Valuation of Securities Task Force. “We are most pleased with the efficiencies gained in the SVO during 2004, which has made a direct and significant impact on the industry.”

The SVO, located in New York City, is responsible for the day-to-day credit quality assessment and valuation of securities owned by state-regulated insurance companies. Unlike the ratings of nationally recognized statistical rating organizations, NAIC designations are not intended for use by investors or the public at-large and therefore are not suitable for use by anyone other than state insurance regulators.