Last month the NAIC proposed a budget for next year that calls for a 2.06 percent increase in revenues to $58.8 million and projected expenses at $55 million, representing a decrease of 2.83 percent from 2004 spending.

But the reserving level remains the burr in the industry's side, as it has for the past several years.

"We see an organization that will have over $46 million dollars in reserve at the end of 2004," the industry letter stated. "What costs or events against which the NAIC is reserving will not be covered by that amount in 2005 and beyond?"

In her budget message, NAIC chief executive officer Catherine J. Weatherford said that the introduction of federal insurance regulatory tools measures and dual charter legislation in Congress and participation in the U.S. Treasury in the Terrorism Risk Insurance Act and initial start-up capitalization of the Interstate Compact Commission were reasons for the 100 percent reserve factor.

But industry representatives maintained that the mere introduction of dual charter and federal tools legislation will not add any expense burden to the NAIC.

Passage of federal tools legislation will result in costs throughout the states, but the industry believes the states themselves should fund them.

"We don't believe the NAIC should try to pre-fund possible unfunded federal mandates," the letter stated.

While the industry passage of an optional federal charter law could result in a shrinking revenue base, the way to counteract that is not by increasing reserves at the level the NAIC proposes.

"Should dual chartering ever become a reality, the NAIC should consider reserves as only a stopgap to allow an orderly transition to a smaller organization or enhanced revenue generation," the letter stated.

The letter was signed by the American Council of Life Insurers, the National Alliance of Life Companies, the Life Insurers Council, the Property Casualty Insurers Association of America, the National Association of Mutual Insurance Companies and the American Insurance Association.

Consumer activist Birny Birnbaum, director of the Austin, Texas-based Center for Economic Justice, faulted the budget for the funding devoted to market regulation activity, taking note of its increased responsibilities in developing and implementing market regulation accreditation standards and more centralized data collection.

A telephone conference call hearing has been set for Nov.17. Final approval is expected at the NAIC meeting next month in New Orleans.