Hartford Financial Services Group (HIG) became the first major life insurer to receive approval from its state regulator to make use of controversial statutory accounting practices that will boost its surplus capital by around $1 billion.

It won't be the last.

"Quite a few" life insurers have made similar requests to their state regulators, and decisions should start coming soon, said Commissioner Thomas E. Hampton of the D.C. Department of Insurance, Securities and Banking, in an interview with Dow Jones Newswires Thursday.

Life insurers that receive permission to use the accounting treatments in their statutory financial statements could find themselves on more solid capital footing, at least on paper, and the change could allow some insurers to write more business.

"The decisions will provide The Hartford with added financial flexibility while ensuring that the company is appropriately capitalized for its customer commitments during this challenging economic period," said spokeswoman Shannon Lapierre, in an emailed statement.

The change didn't impress investors Thursday as Hartford led a downward trend among life insurers, closing at $12.54 Thursday, down 7.7%.

Last month, the National Association of Insurance Commissioners voted against making the changes standard for all insurers, but left the door open for state regulators to allow the changes for insurers that are domiciled in their state, where regulators may have individualized knowledge of an insurer's standing.

Insurance departments in Iowa, Illinois, Ohio and New York have all said they will consider the requests, according to rating agency A.M. Best.

That doesn't sit well with some observers.

"Life insurers are obviously having some problems with their portfolios, and I don't see the purpose of trying to hide it," said Ernie Csiszar, insurance industry director with Bridge Strategy Group, and former president of the NAIC. He is also a former director of the South Carolina insurance department.

He said the changes are controversial among insurance commissioners, and he doesn't know how that will play out as insurers seek to do business in states with stricter rules in place.

The NAIC is developing a process for states to review requests made in others states, and some may decide not to extend the relaxed rules to business done in their state, said Washington D.C.'s Hampton, who chaired the committee hearings considering the changes.

If a state says no, an insurer would be limited to the more restrictive rules in that state, which could affect how much business the insurer could write in that state, or even whether an insurer falls below regulatory levels, Hampton said.

Companies that receive permission to use the relaxed capital standards may not see a bump in their ratings due to the change.

Andrew Edelsberg, an A.M. Best vice president, said via email that the agency assesses "the underlying adequacy of an insurer's balance-sheet strength on a realistic economic basis," and "to some extent and where appropriate," A.M. Best is already taking the changes into account in its analysis.

One change allows Hartford to account for deferred income taxes over a three-year period instead of one year, and increase the asset recognition limit from 10% to 15% of adjusted statutory capital and surplus.

Deferred-tax assets are credits that a company aims to use to offset future taxes. They have value to the extent that a company generates a profit in future years and can put them to use.

Another change relates to the company's statutory reserving requirement for variable annuities with guaranteed living benefit riders.

The guidelines prescribed by the NAIC require a stand-alone asset adequacy analysis reflecting only benefits, expenses and charges that are associated with the riders for variable annuities with guaranteed living benefits.

The change allows all benefits expenses and charges associated with the variable annuity contract to be reflected in the stand-alone asset adequacy test.

"That surplus account is the critical piece on the insurer's balance sheet and determines how much business they are allowed to write," Csiszar said. "It is the crux of everything an insurance company does."

Other life insurers that have asked their regulators for permission to make the changes are the Principal Financial Group Inc. (PFG) and Lincoln National Corp. (LNC).

The change that Connecticut permitted for Hartford increases its capital surplus by $987 million at the end of 2008, pushing surplus capital in its life operations to $6.047 billion.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com