National Association of Insurance Commissioners (NAIC) Summer 2014 National Meeting Preview
Aug 9, 2014
The current maelstrom surrounding commercial transportation-sharing services takes the spotlight at the upcoming National Association of Insurance Commissioners (“NAIC”) Summer 2014 National Meeting, together with the ongoing debate over international capital standards. The event is scheduled to be held in Louisville, Kentucky from August 16 to 19.
To view complete meeting information, including the agenda and meeting preview, click here.
The two headline topics both are the subjects of special events, the first of which is the International Capital Standards Forum on Friday, August 15.
While U.S. state insurance regulators have concerns about the timing, complexity and necessity of developing a global capital standard, given legal and regulatory differences around the globe, commissioners remain fully engaged in the process as the International Association of Insurance Supervisors (“IAIS”) continues its work on the Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”). ComFrame is designed to provide a comprehensive framework for the supervision of internationally active insurance groups (“IAIGs”). The NAIC’s August 15 forum will feature open dialogue among U.S. regulators and interested parties on the progress of these developments, while focusing on the related main challenges, opportunities and issues of concern.
Having worked on ComFrame since 2010, the IAIS also has agreed to develop a risk-based global insurance capital standard (“ICS”) for IAIGs that would be included within ComFrame. In 2014, the IAIS devised basic capital requirements (“BCR”), which are expected to be ready for implementation by global systemically important insurers (“G-SIIs”) late this year. The BCRs will serve as the foundation for higher loss absorbency requirements for G-SIIs, which are to be implemented in 2019. It is anticipated that the BCRs’ development and testing will also guide development of the ICS.
The second featured event of the Summer 2014 National Meeting takes place the following day, August 16, as the NAIC’s Center for Insurance Policy and Research will host a discussion panel on commercial ride-sharing and car-sharing issues. Moderated by California Insurance Commissioner Dave Jones, the event will feature a panel of subject-matter experts, including representatives from ride-sharing and car-sharing companies, insurance regulators, insurers and consumer representatives, all of whom are expected to address related insurance and policy issues.
Commercial ride-sharing companies, such as Uber and Lyft, along with car-sharing companies, such as RelayRides and Zipcar, have gained in popularity in dozens of U.S. cities over the past few years. Commercial ride-sharing connects for-hire drivers with paying riders using smartphones apps. Car-sharing allows individuals to rent cars for a period of time as short as an hour. However, these industries also face numerous challenges, including opposition from taxi companies, which argue that the upstarts do not face the same stringent regulation as they do, such as commercial vehicle registrations, criminal background checks and vehicle safety inspections. Additionally, ambiguity still remains insofar as the insurance coverage provided through these programs.
Regularly Scheduled Meetings
Following are agenda highlights from the various NAIC committees, task forces and working groups scheduled to meet next week:
JOINT MEETING OF THE EXECUTIVE COMMITTEE AND PLENARY
As part of its agenda, the NAIC’s Executive Committee and Plenary will consider the adoption of the “Compendium of Reports on the Pricing of Personal Automobile Insurance,” along with amendments to the Annual Financial Reporting Model Regulation (#205).
Currently, the Annual Financial Reporting Model Regulation requires insurers to receive an annual financial statement audit. It also contains provisions relating to the establishment of audit committees and the maintenance of effective internal controls over financial reporting. An addition proposed by the NAIC’s Corporate Governance Working Group would require large insurers (exceeding $500 million in annual premiums) to maintain an effective internal audit function capable of providing an insurer’s audit committee with independent assurance of the insurer’s governance, risk management and internal controls. Of note, the requirement for insurers to maintain an internal audit function is a significant element of the IAIS Insurance Core Principles. Notwithstanding, the development of a U.S. requirement in this area was a direct recommendation of the 2009 Financial Sector Assessment Program (“FSAP”) and the 2012 US-EU Dialog.
Inasmuch as the Annual Financial Reporting Model Regulation is currently required for NAIC accreditation, this revision would likely be viewed as a significant element that would be required of states in order to maintain their accredited status. The importance given to this recommendation through the 2009 FSAP and 2012 EU/US Dialog process is considered to warrant the uniform adoption of this revision.
Also at the Executive Committee and Plenary meeting, progress reports will be provided on states’ efforts to implement NAIC model laws, regulations and/or amendments, including the Risk-Based Capital (“RBC”) for Insurers Model Act (#312), the Business Transacted with Producer Controlled Property/Casualty Insurer Act (#325), the Risk Management and Own Risk and Solvency Assessment (ORSA) Model Act (#505), the Model Risk Retention Act (#705), the Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786), among others.
To view the complete Executive Committee and Plenary agenda and materials, click on the hyperlinks below:
To view the Executive Committee Agenda and Materials, click on the hyperlinks below:
PRINCIPLE-BASED RESERVING IMPLEMENTATION TASK FORCE
The Principle-Based Reserving Implementation Task Force will hear a brief administrative update on the Rector & Associates, Inc.’s XXX/AXXX Reinsurance Framework charges sent to other NAIC committee groups along with a report on principle-based reserving (“PBR”) implementation activities. Members will further discuss a revised statistical agent framework.
The PBR Review Working Group will review proposed PBR review-related changes to the life and health annual statement blank. It will also discuss the PBR framework for risk-focused examination of principle-based reserves and issues related to the enhancement of review procedures.
PRODUCER LICENSING TASK FORCE
The Producer Licensing Task Force will consider the adoption of its final recommendations on which additional jurisdictions should be certified as meeting the heightened licensing reciprocity standards of the federal Gramm-Leach-Bliley Act.
Members also will discuss the type of producer license required to sell contingent deferred annuities, as well as the requirement for producers and consumers to sign insurance applications. The agenda further features a discussion on federal producer licensing issues and an oral report from the National Insurance Producer Registry Board of Directors. The Producer Licensing Working Group will discuss suggested revisions to the State Licensing Handbook and state implementation of the uniform licensing standards in adjuster licensing and continuing education.
LIFE INSURANCE AND ANNUITIES COMMITTEE
The Life Insurance and Annuities Committee’s Contingent Deferred Annuity (“CDA”) Working Group plans to continue to review and consider CDA-related revisions to the Annuity Disclosure Model Regulation (#245), the Suitability in Annuity Transactions Model Regulation (#275), the Advertisements of Life Insurance and Annuities Model Regulation (#570), and the Life Insurance and Annuities Replacement Model Regulation (#613). The Working Group also plans to hear a presentation from consumer representatives that may be used to develop a related guidance document.
The ERISA Retirement Income Working Group will not meet, but might continue its discussions via conference call related to the U.S. Department of Labor Annuity Safe Harbor Rules and possible ways of encouraging retirement plan sponsors to offer annuities to their employees as an option.
The Unclaimed Life Insurance Benefits Working Group will continue to discuss its recommendations on unclaimed death benefits, which could include a range of possibilities, such as determining that current state laws and practices are sufficient to address the issue; developing a new NAIC model law, regulation or guideline; or a hybrid thereof.
LIFE ACTUARIAL TASK FORCE
The Life Actuarial Task Force will consider amendments to the Valuation Manual and discuss coordination with the Principle-Based Reserving Implementation Task Force. Discussions will include the development of an actuarial method and actuarial guideline.
The American Academy of Actuaries (“AAA”) will report on nonforfeiture modernization, while the American Council of Life Insurers will provide an update on its proposal for small company considerations. The Task Force will hear updates on the Kansas field test of non-variable annuity reserve assumptions, as well as on the Society of Actuaries’ work on the 2014 Valuation Basic Table and the Commissioners Standard Ordinary Table. The Task Force will consider a proposal for a new actuarial guideline to address certain considerations in the illustrations of indexed universal life insurance products. Reserve-related items will also be discussed.
PROPERTY AND CASUALTY INSURANCE COMMITTEE
The Property and Casualty Insurance Committee will hear presentations on the TransUnion/CarFax rating model, as well as the Applied Insurance Research inland flood model. Members will also be updated on actions taken by state fire marshals related to yellow Corrugated Stainless Steel Tubing, also known as “CSST.”
Adoption of the “Best Practices for Creating Consumer Online Insurance Policy Resources” will be considered, along with a Data Collection Template that could ultimately be part of the NAIC’s Disaster Reporting Framework.
The Advisory Organization Examination Oversight Working Group will hear status reports from lead states on the following ongoing exams:
- Insurance Services Office, Inc.
- National Independent Statistical Service
- Surety and Fidelity Association of America
- National Crop Insurance Services
- Auto Insurance Plan Service Office
The Auto Insurance Study Group will discuss information related to price optimization and determine next steps in addressing the Study Group’s charges.
The Catastrophe Insurance Working Group will hear an update on the National Flood Insurance Program and catastrophe-related legislation. Members also will hear a presentation on disaster recovery.
The Climate Change and Global Warming Working Group plans to hear a joint presentation entitled “Overview of Actuarial Climate Index Research Project” from the Casualty Actuarial Society, the AAA and the Society of Actuaries, which will focus on the development of Phase I and Phase II of the Actuaries Climate Change Index and how it can be utilized by the insurance industry.
The Working Group will also hear a presentation from Standard & Poor’s on the impact of climate change on insurer ratings.
The Terrorism Insurance Implementation Working Group will discuss continued steps in support of the re-authorization of the federal Terrorism Risk Insurance Act (“TRIA”). Members also will review a model bulletin on filing procedures and the expedited filing form.
The Transparency and Readability of Consumer Information Working Group will receive presentations on smart disclosures. The Working Group continues to focus on ways to increase consumer accessibility to various carriers’ policy forms on a presale basis, as well as how to facilitate consumers’ understanding of insurance policy content and assessment of differences among insurers’ policy forms.
WORKERS’ COMPENSATION TASK FORCE
The Workers’ Compensation Task Force will discuss the impact on the workers’ compensation market if TRIA is ultimately not renewed in 2014.
Members also will hear a report on the Hostess Brands bankruptcy proceedings and the related possible impact on self-insurance securities held by Kansas and Rhode Island. They will further review 2014 mid-year statistical results for both the standard market and workers’ compensation residual markets.
FINANCIAL CONDITION COMMITTEE
The Financial Condition Committee’s Group Solvency Issues Working Group will consider potential changes to the NAIC’s Insurance Holding Company System Regulatory Act (#440) and the Insurance Holding Company System Model Regulation (#450).
The Private Equity Issues Working Group will continue its work on the development of procedures that regulators can use when considering ways to mitigate or monitor risks associated with private equity/hedge fund ownership or control of insurance company assets.
The Mortgage Guaranty Insurance Working Group will discuss changes to the Mortgage Guaranty Insurance Model Act (#630) and/or other areas of solvency regulation of mortgage guaranty insurers.
The Emerging Actuarial Issues Working Group will review pending responses to solicited feedback on interpretations of Actuarial Guideline XXXVIII-The Application of the Valuation of Life Insurance Policies Model Regulation (AG 38).
CAPITAL ADEQUACY TASK FORCE
The Capital Adequacy Task Force’s Catastrophe Risk Subgroup will continue its discussion on the implementation of the catastrophe risk charge in the property and casualty RBC formula.
The Property and Casualty Risk-Based Capital Working Group will review underwriting risk charges and credit risk for reinsurance.
RECEIVERSHIP AND INSOLVENCY TASK FORCE
The Receivership and Insolvency Task Force will continue its work on resolution plans, while the Receivership Reinsurance Recoverables Working Group will consider the adoption of a model guideline related to interest on overdue reinsurance recoverables.
REINSURANCE TASK FORCE
The Reinsurance Task Force will consider adopting the Uniform Application Checklist for Certified Reinsurers. Issues relating to information sharing and confidentiality agreements within the qualified jurisdiction and certified reinsurer processes may also be discussed, as well as the intent of the phrase “securities listed by the Securities Valuation Office” in the context of collateral that is provided for the purpose of credit for reinsurance.
RISK RETENTION GROUP TASK FORCE
The Risk Retention Group Task Force will continue its discussion on the definition of “control” and how this relates to captive managers. Members will also hear an update on the work of other NAIC groups related to captive insurers and risk retention groups.
VALUATION OF SECURITIES TASK FORCE
The Valuation of Securities Task Force will hear reports from the Invested Asset Working Group and the Securitization Data Quality Working Group, the latter which may have completed its work on data quality standards for annual surveillance for residential mortgage-backed securities (“RMBS”) or commercial mortgage-backed securities (“CMBS”) to enable insurers to ask the NAIC Structured Securities Group (“SSG”) for a determination of eligibility for financial modeling.
The NAIC’s Securities Valuation Office (“SVO”) will present and discuss proposed amendments to the Purposes and Procedures Manual of the Investment Analysis Office to: 1) provide an instruction for catastrophe-linked bonds not rated by a credit rating provider (“CRP”) or those rated on the basis of a non-approved methodology; 2) more precisely define the characteristics CRP credit ratings must have in order to be eligible for translation into NAIC designation; 3) clarify that NAIC designation is issue-specific (not issuer-specific) and 4) shorten the time period that insurers have to correct deficiencies in the documentation packages they provide to the SVO for an NAIC designation.
The Task Force may deliberate on whether the component investments in products involving pools of assets should be broken out for reporting. Members will also consider a proposal to review private letter ratings.
A proposed timeline for the 2014 annual surveillance (financial modeling) of insurer-owned RMBS and CMBS will be presented.
The Task Force may adopt amendments to the Purposes and Procedures Manual of the Investment Analysis Office to update descriptions of NAIC procedures and processes.
Members may discuss and refer: 1) a research memorandum on the statutory intent of the phrase “securities listed by the SVO” in the Credit for Reinsurance Model Law (#785) to the Reinsurance Task Force; 2) also to the Reinsurance Task Force, a proposed amendment to the Purposes and Procedures Manual that would equalize the credit rating a foreign bank must have to be listed on the NAIC Bank List to that required of domestic banks; and 3) proposed guidance on how the states may correct inaccurate references to NAIC designations and related processes in state investment laws to the Financial Regulation Standards and Accreditation Committee.
FINANCIAL REGULATION STANDARDS AND ACCREDITATION COMMITTEE
The Financial Regulation Standards and Accreditation Committee will consider the adoption of various items for accreditation purposes, including revisions to:
- The Financial Condition Examiners Handbook
- The Risk Retention Model Act (#705)
- The 2011 revisions to the Risk-Based Capital Model Act (#312) related to the life RBC trend test
- Reinsurance guidance for Risk Retention Groups Licensed as Captive Insurers
- A referral from the Corporate Governance Working Group related to the Part A Corrective Action Standard.
In addition, the Committee will discuss comments received on proposed revisions to accreditation guidance related to the definition of multi-state insurer for accreditation purposes, specifically as it relates to affiliated captive reinsurers and other multi-state reinsurers.
INTERNATIONAL INSURANCE RELATIONS COMMITTEE
The International Insurance Relations Committee will discuss progress on IAIS initiatives, including ComFrame–particularly the status of the various global capital developments. Cooperative efforts with the Federal Insurance Office on major issues such as the US-EU Dialogue Project will also be discussed.
The Committee will hear reports on work in progress at the Organisation for Economic Co-operation and Development, the Joint Forum, the Financial Stability Board and other relevant international organizations.
The ComFrame Development and Analysis Working Group will discuss progress on ComFrame, including its field testing phase, development of a global insurance capital standard for IAIGs, basic capital requirements for implementation by G-SIIs and their higher loss absorbency requirements.
NAIC/CONSUMER LIAISON COMMITTEE
The NAIC/Consumer Liaison Committee will discuss property and casualty, as well as life insurance reform issues like systemic risk and risky insurance products. Also on the agenda is a discussion on the December 2013 Federal Insurance Office insurance regulatory modernization report, title insurance shopping tools and the June 2014 IAIS meeting held in Quebec City.
JOINT MEETING OF THE IIPRC MANAGEMENT COMMITTEE AND COMMISSION
The agenda for the Joint Meeting of the Interstate Insurance Product Regulation Commission (“IIPRC”) Management Committee and Commission will include the consideration of amendments to 30 uniform standards pertaining to their five-year review for approval and adoption.
The Product Standards Committee will present a report and recommendation to the Management Committee regarding additional amendments to additional individual life and annuity Uniform Standards.
It is anticipated that the IIPRC’s recently formed Regulatory Counsel Committee will report on Florida’s participation in the Interstate Insurance Product Regulation Compact.
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