The issue was raised during the NAIC's summer meeting earlier this month and will be brought up again during a public hearing being planned this summer. Details of the hearing are not yet available.

Insurer groups and the Bond Market Association in New York are criticizing the handling of the issue and calling for clear guidance and greater transparency over how hybrid securities will be addressed.

The Bond Market Association, as outlined in a June 19 letter from Mary Kuan, vice president and assistant general counsel, called for greater transparency and immediate and broad distribution of information impacting securities as well as a clear, certain resolution to whether hybrid securities will be treated as debt or as equity.

The treatment impacts the risk-based capital charge and, according to previous industry comments, impacts the spreads on these securities in the marketplace. The charge for common-stock treatment is higher than for securities categorized as debt or as preferred stock. That common stock charge is 15 percent for property-casualty companies and 30 percent for life companies.

For instance, industry comments note that the reclassification of $300 million in “Enhanced Capital Advantage Preferred Securities,” or ECAPS, issued by Lehman Brothers Holding Inc., New York, as common rather than preferred stock, resulted in spreads widening by 0.05 percentage points. Corporate spreads, however, widened by just 0.02 percentage points between March 15 and May 14. The SVO had announced its decision on hybrid securities on March 15.