"In the midst of the current financial crisis, it is unseemly even to discuss the idea of weakening the conservative statutory accounting rules that have long been in place for insurance companies," Belth wrote in a letter protesting the change. He said regulators should first assess whether the proposal "is in the long-term best interest of the insurance-buying public."
Capital requirements are important because you want to be confident that a life insurer will be around a long time -- at least as long as you'll be around. That's true whether you own a life insurance policy or an annuity that's supposed to pay you a certain amount each month for the rest of your life.
The issue is especially crucial because the safety net designed to protect you if your insurance company fails is nothing like the federal deposit insurance that protects the money you put in the bank.
Insurance benefits are backed by a patchwork of state-regulated industry guarantee associations. Their coverage limits aren't very high.
In most states, the associations guarantee at least $300,000 of a life insurance policy's death benefit, $100,000 of a whole-life policy's surrender value and $100,000 of the present value of the remaining payments under a fixed annuity.
But California's guarantee association will pay only 80 percent of your benefits -- and no more than $250,000 of a death benefit.
Moreover, although the Federal Deposit Insurance Corp. will pay bank depositors within a day of a bank failure, insurance guarantees are often paid out over time.
That's because state guarantee funds generally hold no assets in reserve. Instead, they assess surviving insurers when a company fails. And they are barred from assessing more than a set amount of the remaining companies' assets. So when a big company fails, as California's Executive Life Insurance Co. did in 1991, it can take years to pay off policyholders.
In addition, most guarantee funds have the right to lower the interest rate paid to a failed company's policyholders. That could reduce the future cash value of a life insurance policy or the amount paid each month to an annuity holder.
To learn more about insurance guarantees in your state, go to the Website of the National Organization of Life and Health Insurance Guaranty Associations at www.nolhga.com, which has links to each state's guarantee laws.