The motion exempts companies from the need to file highly rated simple securities, ranked 1 and 2 securities with the. SVO. The SVO is the securities rating arm of the Kansas City, Mo.-based NAIC.

SVO filings are rated from 1 through 6, with the highest rated securities in the 1 and 2 range.

The motion, adopted by the SVO Oversight working group, is contingent upon a determination by regulators that the exemption of these securities would be revenue neutral for the NAIC.

Revenue generated from SVO filing fees totaled a respective $6 million and $7 million in 2001 and 2002, exceeding budgeted amounts of $5.7 million in each year, according to NAIC Chief Financial Officer Brady Kelley. Revenue budgeted for 2003 totals $6.1 million, he said.

Mr. Kelley explained, "It is very difficult to respond specifically in terms of revenue generated from 1 and 2 rated securities versus 3-6 rated securities, primarily because the composition of these security filings can fluctuate significantly from year to year. Fluctuations are driven by market conditions, various factors affecting the capital markets and the investment strategies of the industry."

According to Mr. Kelley, an NAIC evaluation of the proposal, "based on the actual filing volumes in 2001 and 2002, estimates a 43 percent impact on the $6.1 million revenue budget from SVO filing fees.

"Of the 45.8 percent population of rated securities filed with the SVO, approximately 43 percent is comprised of those securities designated NAIC 1 or 2, while the remainder relates to rated securities designated NAIC 3 through 6," he said.

Regulators are working to ensure neutrality, a project that they want to run parallel to the Jan. 1, 2004, time frame, the effective date of the first phase of the streamlining project.

Plans are in place, according to Mr. Kelley, to ensure that both parts of the project are "considered and resolved by the NAIC membership in unison."

Both the rating exemptions and revenue neutrality components of the project must ultimately be adopted by the full NAIC body before it would become effective.

The effort has been advocated and advanced by New York Insurance Superintendent Greg Serio. It involves two stages. Phase I involves exempting 1 and 2 securities, and Phase II would ultimately exempt 3-6 securities. A general goal of the project would change the deployment of SVO resources to act more as an analytic tool for state insurance regulators.

During the discussion of the project, Mr. Serio noted the need for better communication and use of data currently available so that regulators can "make it our think tank, our research arm."

Regulators expressed support for the project if revenue neutrality is established and the SVO's work "fits into the larger mechanics of departments and examinations."

Industry has also enthusiastically supported the effort. Among the trade groups supporting adoption of the streamlining effort are the American Council of Life Insurers, Washington; the American Insurance Association, Washington; the Alliance of American Insurers, Downers Grove, Ill.; the National Alliance of Life Companies, Rosemont, Ill.; the National Association of Independent Insurers, Des Plaines, Ill.; and, the National Association of Mutual Insurance Companies, Indianapolis.

The change will "help regulators supervise the industry in an efficient and appropriate manner," said Bill Schreiner, a life actuary with the American Council of Life Insurers, Washington.

There will be a great savings of staff time for companies, he adds.

The project is a benefit to the industry, but how funding for the streamlining is resolved is a concern for insurers, says Bill Boyd, financial regulation manager with NAMIC.

Currently, he explains, companies with very conservative investment policies that include highly rated securities pay very little to the SVO for ratings. Under a revised system of payment, these costs could increase if companies have to contribute to make up the difference in revenue the SVO receives for rating securities.

However, he adds, the total dollar amount that would be allocated to both life and property-casualty insurers would be a small amount of $2-3 million compared an enormous investment portfolio that the industry is holding.

On the issue of making the SVO the "eyes and ears" of regulators, Mr. Boyd commented to regulators that if that role entails analyzing individual companies' portfolios at the time of a financial examination or periodically, then NAMIC would have reservations.

Removing duplication of work done by rating agencies that does not add value and creates administrative costs for insurers is "really a great thing for the industry," said David Steirer, manager-insurance accounting and investment with the NAII.

Solutions to the revenue neutrality issue including pro rata distributions are being discussed, and a number of approaches looked at, he added.

The AIA supports the concept, but is cautious about the funding issue, according to Phillip Schwartz, vice president and associate general counsel.