NAIC Spring 2010 National Meeting Preview

The National Association of Insurance Commissioners (“NAIC”) Spring 2010 National Meeting is scheduled for March 25-28 in Denver, Colorado.  To access complete meeting information, including daily updates, an agenda and complete preview, click here. 

Highlights from the preview are provided below.

 

SPECIAL SESSIONS

In addition to the normally scheduled committee meetings, the following NAIC special sessions are planned on emerging insurance-related issues:

Workers’ Compensation

The NAIC’s Center for Insurance Policy and Research will hold a forum on March 26 to discuss specific recommendations cited in a recent RAND Corporation study entitled “California’s Volatile Workers’ Compensation Insurance Market Study” for consideration by other state insurance departments.  Other topics will include:

• Lessons learned from open rating
• Increasing pricing discipline in an open-rating setting
• Improving the reliability of cost projections
• Better aligning incentives created by reinsurance and managing general agency contracts
• Improving reliability of actuarial opinions and financial oversight
• Improving formula and reporting requirements for risk-based capital

Insurance Contract Readability Standards

The NAIC’s Consumer Connections Working Group has scheduled a public hearing on insurance contract readability standards on March 28.  The hearing will focus on the following issues pertaining to insurance contracts and related documents:

• To which lines of insurance should the readability standards apply?
• Should the entire contract be required to be scored?
• Should defined terms be included in the scoring process?
• Should the standard score continue to be the Flesch Reading Ease Score (a number from 0 to 100) asit is now, or should it be changed (e.g. a Flesch-Kincaid Grade Level, or some other measure)?
• What other logistical questions are states likely to encounter if they move forward to revise their standards?

 

COMMITTEE HIGHLIGHTS

Executive Committee

• The Producer Licensing Task Force will focus on how to simplify and create greater uniformity for both the business entity and limited lines licensing processes. An update on the current status of states’ recertification of the reciprocity mandates of Gramm-Leach-Bliley will be given.
• The Producer Licensing Working Group will discuss the progress of three key initiatives:
  • Updating the NAIC’s State Licensing Handbook;
  • Developing a limited line that:
    • encompasses several insurance products in which the business of insurance is ancillary to the business of the person offering the product;
    • includes licensing requirements of individuals selling limited line insurance products; and
    • integrates fingerprinting of individuals selling limited line insurance products;
  • Creating specifications for electronic licensing applications, like a centralized filing point for notification of administrative/criminal actions and new system text alerts for state regulators related to producer licensing.
• The newly formed Regulatory Modernization Task Force will meet for the first time.
• The Group Solvency Issues Working Group will continue discussions on draft revisions to the Holding Company System Model Act (#440), Holding Company System Model Regulation (#450) and the Holding Company Best Practices document.
• The Life and Health Actuarial Task Force will focus on the valuation manual section VM-20: Requirements for Principle-Based Reserves for Life Products referenced in the NAIC Standard Valuation Model Law (#820). The discussion of VM-20 will focus on a net premium reserve method, economic scenarios and default costs on fixed income investments. Other valuation manual discussions will include experience studies, the scope of the initial implementation of principle-based reserves, and reporting requirements.
• The Accident and Health Working Group will continue discussions on the Medicare Supplement Refund Formula and guidelines for rate filings.

 

Life Insurance and Annuities Committee

• The Annuity Disclosure Working Group will continue to discuss revisions to the Annuity Disclosure Model Regulation (#245), including the addition of guidelines on the use of illustrations in the sale and solicitation of fixed annuities. Drafts of the proposed annuity buyer’s guides for fixed deferred, fixed indexed and variable annuity types also will be discussed.

 

Property and Casualty Insurance Committee

• The Property and Casualty Insurance Committee will discuss a risk classification survey, especially as it relates to credit-based insurance scores.
• The Casualty Actuarial and Statistical Task Force will consider the Guideline for Implementation of Medical Professional Liability Closed Claim Reporting to supplement the Medical Professional Liability Closed Claim Reporting Model Law (#77).   Ancillary issues relating to business definitions, workers’ compensation large deductibles and statistical reporting also will be discussed.
• The Catastrophe Insurance Working Group will continue discussions on the Chinese drywall issue and the aftermath of the January 12 Haiti earthquake.
• The Crop Insurance Working Group will discuss progress made by state regulators to avoid the possible pre-emption of crop insurance adjuster licensing, which could begin on a state-by-state basis as early as July 1, 2011. In addition, the Risk Management Association will report on U.S. Department of Agriculture on activities affecting crop insurance. Representatives from National Crop Insurance Services will give an update on the Crop Adjuster Proficiency Program.
• The Surplus Lines Task Force will discuss methods of implementing the requirements of the Non-Admitted and Reinsurance Reform Act.
• The Title Insurance Issues Task Force anticipates appointing a Title Statistical Plan Working Group that will assist jurisdictions in developing an agent statistical plan to help analyze the marketplace and begin identifying data elements to be considered for collection.  Appointment of a Title Annual Statement Instructions Subgroup to review how to improve filing instructions and crosschecks will be made.   Whether title insurers should be subject to risk-based capital requirements will be considered.
• The Workers’ Compensation Task Force plans to consider the “Implementation Commentary: Guidelines for Regulations and Legislation on Workers’ Compensation Coverage for Professional Employer Organization Arrangements” for adoption. These guidelines were drafted as a companion document to the adopted 2007 NAIC Guidelines for Regulations and Legislation on Workers’ Compensation Coverage for Professional Employer Organization Arrangements (#1950). It is believed that this companion paper will assist states, professional employer organizations and the insurance industry in implementing a regulatory framework consistent with the adopted Professional Employer Organization (“PEO”) Guidelines. Progress on the draft Third Party Administrator Guidelines will be reviewed, along with a recommendation relating to the 1994 NAIC Twenty-Four Hour Coverage Pilot Project Model Act (#960) that would either delete, amend or retain the Model Act in its current form. H.R. 635, a federal bill to establish a National Commission on State Workers’ Compensation Laws, also will be reviewed.

 

Market Regulation and Consumer Affairs Committee

The Market Regulation and Consumer Affairs Committee will continue its work on centralized data collection and storage of a Market Conduct Annual Statement, along with policy considerations surrounding market regulation accreditation.

• The Antifraud Task Force will review comments on the current proposed draft of the Antifraud Plan Guidelines, as well as revisions to the 18 USC 1033 Guideline.   Representatives from the Ohio Department of Insurance and Liberty Mutual Insurance Company will present on roof and siding fraud schemes.
• The Market Information Systems Task Force, which was formed in December 2009, will hold its first meeting.

 

Financial Condition Committee

• The Blanks Working Group will consider proposed changes to the Annual and Quarterly Financial Statement, including a proposal for a new supplement to report insurance company directors’ and officers’ coverage.  Several proposals to revise the financial statement instructions due to various disclosure changes made within the Statements of Statutory Accounting Principles also will be considered.
• The Statutory Accounting Principles Working Group will consider proposed changes to statutory accounting principles, including SSAP No. 5R-Liabilities, Contingencies and Impairments of Assets – Revised related to guarantees issued by insurers.
• The Life Risk-Based Capital Working Group may consider adoption of an American Academy of Actuaries C-3 Phase III proposal, as well as discuss the commercial mortgage calculation and a derivatives risk mitigation proposal.
• The Examination Oversight Task Force will review states’ adoption of the recently revised Hazardous Financial Condition Model Regulation (#385). A regulator-to-regulator session also will be held to discuss internal services to be offered in support of risk-focused examinations.
• The Receivership and Insolvency Task Force will discuss possible solutions for timely collection of reinsurance recoverables held by insurers that are currently in receivership. An update will also be provided on states’ adoptions of the recently revised Life and Health Insurance Guaranty Association Model Act (#520) and Property and Casualty Insurance Guaranty Association Model Act (#540).
• The Reinsurance Task Force will discuss implementation of the Reinsurance Regulatory Modernization Framework Proposal Memorandum.  Updates will be given on legislative work related to reinsurance, which is actively being pursued by the U.S. Congress and the International Association of Insurance Supervisors’ Subcommittee on Reinsurance and Other Forms of Risk Transfer.
• The Risk Retention Group Task Force will receive an update on other NAIC groups’ work related to risk retention groups (“RRGs”) incorporated as captives.  How accreditation-related guidance should be considered in the future will be discussed.
• The Valuation of Securities Task Force will provide a progress report on the residential mortgage-backed securities (“RMBS”) project, which involves insurer-held RMBS securities that were placed under regulatory review in 2009.  Discontinuing the use of outside ratings agencies’ credit ratings to help determine an appropriate NAIC Designation for these security types will be discussed.  The Securities Valuation Office will propose whether to extend the modeled intrinsic price methodology for NAIC’s 2010 reporting and consider whether other structured securities should also be excluded from use of NAIC acceptable rating organization credit ratings.   Also on the agenda:  A definitional standard will be proposed for RMBS and commercial mortgage-backed securities first-lien securities with some second-lien content.   Amendments to the Purposes and Procedures Manual of the NAIC Securities Valuation Office will be proposed to provide instructions for analysis of military housing bonds and address the use of NAIC designations as rating triggers in private insurer contracts.
• The NAIC/ American Institute of Certified Public Accountants Working Group will receive a progress report on states’ adoption of the Model Audit Rule revisions and begin consideration of SEC Rule No. 33-9089 from an insurance regulatory perspective.

 

Financial Regulation Standards and Accreditation Committee

Revisions made to NAIC 2009 publications that are referenced in the accreditation standards will be considered by the Financial Regulation Standards and Accreditation Committee, including the “Accounting Practices and Procedures Manual and Financial Condition Examiners Handbook.”  Revisions also will be considered to the following NAIC models that are currently referenced in the accreditation standards:

• Actuarial Opinion Model Regulation (#822)
• Standard Valuation Law (#820)
• Life and Health Guaranty Association Model Act (#520)
• Property and Casualty Insurance Guaranty Association Model Act (#540)

The Committee will consider adoption of the implementation guidance related to the new Part D: Organization, Licensing and Change of Control of Domestic Insurance Standards, which will become effective January 1, 2012, along with adoption of Part B: Regulatory Practices and Procedures and Part C:  Organizational and Personnel Practices Standards as they relate to RRGs licensed as captive insurers 

 

International Insurance Relations Committee

The International Insurance Relations Committee will continue discussions on initiatives of the International Association of Insurance Supervisors (“IAIS”), including:   

• common framework for internationally active insurance groups;
• an internal review of efficiency, effectiveness and structure of the IAIS;
• macroprudential surveillance and market analysis; and
• papers on regulation of insurer remuneration practices and non-regulated entities.