NAIC Property and Casualty Risk-Based Capital Working Group Meeting Report: June 3
Jun 3, 2009
The National Association of Insurance Commissioners (“NAIC”) Property & Casualty Risk-Based Capital (E) Working Group (“Group”) met via teleconference on June 3, 2009. The Group, which functions as a subgroup of the Financial Condition (E) Committee’s Capital Adequacy Task Force, handles the property and casualty risk-based capital formula and instructions.
The central purpose of the meeting was to vote on Industry Average Reserve and Premium Factors. A motion to adopt the factors was seconded and passed. A copy of the Reserve and Premium Factors chart is attached.
NAIC Staff presented the 2008 Risk-Based Capital (“RBC”) Report for review. There was no discussion on the Report, although it was noted that the list of troubled companies has remained stable over several years. A copy of the Report is attached.
The Group discussed a proposal to expand the Schedule P two-year lines to 10 years. The NAIC uses Schedule P Summary data to determine the reserving risk and the written premium risk charges in the risk-based capital formula. Investment analysts and rating agencies use the Schedule to measure the adequacy of a company’s held reserves and thereby estimate its financial strength and expected market value.
NAIC Staff was asked to chart how development lines would look over the course of 10 years. It was noted that the auto physical damage line had significant change in cumulative paid numbers in 2006. At least one large company reported no changes up until 2006, making bad data the most likely explanation for the variance. Since the inaccurate reporting skewed the data, NAIC Staff was asked to study the factors again using 2008 data, in an attempt to create more accurate results. A Group member also acknowledged there were additional tax liabilities inherent in expanding Schedule P, but no interested parties at the meeting pursued the issue. A copy of Schedule P is attached.
The Group discussed making this segment of the RBC Report public and agreed to expand Schedule P’s scope of analysis by 10 years. This would require submitting a proposal to the NAIC Blanks Working Group, which considers revisions to various blanks and conforms them to changes made in other areas of the NAIC, thus promoting uniformity in reporting of financial information by insurers. It also oversees the development of additional reporting formats within the existing annual statements as needs are identified. Group members agreed to draft a proposal for submission.
Because there was no activity to report, a scheduled update from the NAIC Catastrophe Risk Subgroup was postponed until the Group’s next meeting in September.
Should you have any questions or comments, please contact Colodny Fass.
To unsubscribe from this newsletter, please send an e-mail to ccochran@cftlaw.com