That squeezing sound...

With global interest rate compression and all asset classes under pressure, the refusal of state insurance regulators to loosen capital requirements comes at a most unwelcome time.

U.S. life insurers denied looser capital requirements
Thu, Jan 29 16:18 PM EST
NEW YORK (Reuters) - State insurance regulators voted against a proposal to loosen capital requirements for the battered life insurance industry.

The National Association of Insurance Commissioners (NAIC), a group representing regulators in all U.S. states and territories, reached the decision on Thursday after weighing the proposal over nearly three months. It did not rule out taking up the matter again in the future.

"You need to be conscious of the message this will send to consumers," said NAIC president Roger Sevigny, ahead of a vote on the matter.

Many commissioners voted against easing capital rules, citing consumer rights, and that more time should be taken to consider such changes with financial regulation already under a microscope given the global credit crisis.

"The headline still will be that we diluted capital systemwide," said Eric Dinallo, New York insurance superintendent.

A group of regulators had voted earlier this week to recommend six of nine measures be approved, which could have given companies such as Prudential Financial (PRU.N), Hartford Financial (HIG.N) and Lincoln National (LNC.N) a boost at a time when credit is tight.

State regulators impose capital requirements on insurers to make sure money is set aside when policyholders have claims.

The changes had been called for by the American Council of Life Insurers (ACLI), a trade group, to revamp life insurers' regulatory capital requirements to eliminate redundancies in reserve requirements. The changes could have, based on ACLI's estimate, freed up about $25 billion to $30 billion in capital, or up to 7 percent of life insurers total adjusted capital in 2007.