The original proposal?aimed at creating a better mechanism to put an early focus on insurers with financial difficulties?would have raised the factor used to calculate the "authorized control level" of the RBC calculation to 75 percent from the current 50 percent.

But opponents of this idea have been arguing that this increase in the RBC level could force many p-c insurers to come up with more than $35 billion in additional capital and raise premium rates to compensate. They argued there was no concrete proof that raising the RBC level could improve the effectiveness of regulators' oversight.

(When an insurer's surplus is at the authorized control level, regulatory action is discretionary, but an insurance commissioner is "authorized" to take control of a company.)

At the NAIC ad hoc subgroup meeting for the risk-based capital taskforce, the regulators also said that in place of the previous proposal, they would now move toward adopting "a trend test" to try to identify insurers that might be headed toward insolvency.

William Boyd, financial regulation manager at the Indianapolis-based National Association of Mutual Insurance Companies and a vocal opponent of the previous proposal, told National Underwriter that "a trend test would seem to be a better direction to take."

The NAIC proposal to increase the risk-based capital standard for the authorized control level from 50 percent of risk-based capital to 75 percent had "a potential to create many problems," Mr. Boyd said.

Mr. Boyd theorized that if the proposal were to have been implemented about 12 percent of the property-casualty universe would have been in trouble in meeting the new requirement. "Also, billions and billions of dollars in more capital would have been needed for the industry to meet the new risk-based capital standard," he said.

Mr. Boyd observed that regulators have been bombarded with negative feedback from companies and trade associations on this issue, "and now the previous proposal has been completely abandoned."

The new "trend test" that regulators are now embracing is still in a very early development stage. The test, which will be developed by the American Academy of Actuaries, is expected to include methodologies that would look at changes in risk-based capital scores through time.

"The test would measure these scores, and if the scores were to deteriorate at a certain rate over time, then that would be a signal that regulatory intervention should take place," Mr. Boyd said. "Nobody knows yet, though, what that certain rate will be," he said.