NAIC Focus puts you in closer touch with current regulatory issues. Our StoneRiver liaison to the NAIC, Connie Jasper Woodroof, uses this forum to share information and insight into regulatory reporting requirements, electronic filing directives, instructions, testing specifications and much more. Subscribe now to receive an email notice when new issues are posted.
Date April 1, 2010
Author Connie Jasper Woodroof
Email connie.woodroof@stoneriver.com
The first NAIC National Meeting of 2010 was just held in Denver. Denver in March! Now the Denver area in March might be a great place to be if you are a skier, but I am not a skier nor was I there to learn skiing. I would suggest to the NAIC that Denver would be a great place for a summer meeting, but maybe March is a little early?
The March meeting is always a slow start for they NAIC because of changes in NAIC leadership, committee leadership, committee charges – you know, all the housekeeping items that have to be handled for the upcoming year. Consequently, I decided to start this NAIC Focus with a little editorial comment before reporting on the different groups’ activities.
Modernization
Lately one of the NAIC buzzwords has been “modernization.” This push for modernization regularly occurs at about the same time the Federal government expresses interest in taking over regulation of some part of the insurance industry. In addition, the NAIC is under pressure from international sources to make changes. Currently the NAIC has a Regulatory Modernization Task Force and the Solvency Modernization Task Force with five working groups under it. The work of all of these groups often crosses into areas of other task forces or working groups, so the word modernization pops up a lot.
What is my problem with modernization? The negativity of the concept. In searching for a definition of modernization, I decided to use the one provided at www.thefreedictionary.com.
To make modern in appearance, style, or character; update.
To accept or adopt modern ways, ideas, or style.
(I thought you were not supposed to use a form of the word to define the word, but all the sources did!) The implication that the NAIC needs to modernize is very negative and implies they are behind the times. I, for one, believe that is not the case. Yes, the NAIC needs to implement changes in a changing environment. That is always the case; things are always changing. But isn’t there a more positive word to describe that process rather than modernization? How about evolutionary; the Regulatory Evolutionary Task Force? Okay, maybe that is too close to revolutionary. How about development; the Solvency Development Task Force? Other words that might be considered are growth, advancement, innovation, or transformation. Let’s get the NAIC thinking in positive terms!
Now back to our regularly scheduled program! Although I am covering the “regular” groups first, don’t skip to the end. There are some new groups listed that we will be hearing from in the coming months.
Blanks Working Group
One of the first things this group decided was that the new three-meeting schedule adopted by the NAIC beginning this year was not going to work well for Blanks. The group exposed new guidelines that allows for a June conference call each year. This allows proposals to be adopted via the June call and be implemented the same year. Changes for the next year’s quarterly statement must be adopted by the August meeting.
During the meeting, 10 proposals were adopted, all of them effective this year-end. Almost all of the adopted proposals addressed Notes to the Financials. Other affected areas were the General Interrogatories and Schedule DB. The adopted proposals will be available at http://www.naic.org/committees_e_app_blanks.htm within the next two weeks. Twelve proposals were exposed for comment with a comment deadline of May 21. (The items are already available at the above website.) The exposed proposals will be discussed during a June 21 conference call.
Statutory Accounting Principals Working Group (SAPWG)
Emerging Accounting Issues Working Group (EAIWG)
There was no substantive action taken by either of these groups, but several items were exposed for comment, setting the scene for later meetings. The list of exposed items is quite extensive and should be available for review shortly at http://www.naic.org/committees_e_app_sapwg.htm and http://www.naic.org/committees_e_app_eaiwg.htm. Some of the items exposed include revisions to SSAP Nos. 35R, 43R, 90 and 91R.
Valuation of Securities (VOS) Task Force
During the meeting, the group voted to recommend to the NAIC membership that the RMBS treatment be continued during 2010 and that the numbers be rerun semi-annually. The Task Force also recommended extending the use of modeling to CMBSs for year-end 2010 valuation and using financial modeling for asset backed securities. The group released some documents for comment, including changes to the Purposes and Procedures manual on the use of NAIC Designations as rating triggers in private agreements. The VOS website should be updated soon, http://www.naic.org/committees_e_vos.htm. In addition, be sure to watch the RMBS website regularly for updates on this issue, http://www.rmbs.naic.org/.
Capital Adequacy Task Force
The Task Force requested NAIC staff to research the impact of changing the LRBC trend test percentage from 250% to 300%. Exposed for comment with an April 16 deadline was a changed in the LRBC formula for the Mortgage Experience Adjustment Factor to change from 2.6% to 4%.
Additionally, they received reports from the RBC Working Groups.
The LRBC group reported that the C-3 Phase 3 proposal will not be completed in time for 2010 implementation and instead will have to be deferred to 2011 implementation. Work on the derivatives risk-mitigation proposal will also not be completed for 2010 and 2011 has been set as the new target date. The group continues to work on a long-term solution for the mortgage experience adjustment of commercial loans.
The PRBC Working Group released for comment a report from the American Academy of Actuaries (AAA) regarding the updating of underwriting risk factors. The AAA is also researching the issue of state deposits. The Working Group continues to work on Schedule P reporting issues and the effect on the PRBC calculation. By the way, it looks like the Health RBC Model Law will become a state accreditation standard soon. When that happens, states will have to adopt the model law and enforce it or lose their accreditation.
The HRBC group continues to work on updating the healthcare receivables factor and reviewing Stop Loss business. Additionally, they will begin reviewing possible changes to the covariance calculation within the formula.
Reinsurance Task Force
This group received several updates regarding various reinsurance activities. The updates included Congressional activity on the Restoring American Financial Stability Act, the Nonadmitted and Reinsurance reform Act, the Office of National Insurance Act, and the Reinsurance Regulatory Modernization Act. In addition, the group was brought up to date on reinsurance-related activities by the International Association of Insurance Supervisors (IAIS). The Task Force is also asking of the development of a revision to the Credit for Reinsurance Model Law that would reduce the trusteed surplus requirement by an assuming company in run-off.
Climate Change and Global Warming Task Force
The Task Force decided to proceed with the new Climate Survey, but then some drastic filing changes were made at the Plenary session of the NAIC, which ended the March meeting. Plenary decided that filing the survey was now voluntary and that the premium guidelines still shown in the survey are “suggested guidelines.” In addition, the survey will now be a confidential filing. The questions, however, remain the same. Confused? You are not alone. The newly adopted 3/28 version can be found at http://www.naic.org/documents/committees_explen_climate_survey_032810.pdf.
Rating Agency Working Group
This Working Group did not meet in Denver, but did provide its final report to the Financial Condition (E) Committee. The report underwent some substantial changes from its original version, which was the subject of the February 1 edition of the NAIC Focus, http://www.stoneriver.com/content/back-future, entitled “Back to the Future.” There are still some far reaching recommendations, but the recommendation to eliminate the filing exempt (FE) process for securities was removed from the report. So far I haven’t been able to find a copy of the final report posted by the NAIC, but maybe it will show up eventually. The E Committee is going to be meeting via conference call to review some of the report recommendations that need to be referred to other NAIC groups.
Investments of Insurers Model Act Revisions Working Group
Although this group did not meet in March, there is some activity going on that everyone should be aware of. The group exposed for comment the result of a survey that was distributed to state insurance departments related to possible changes to the NAIC’s to Investments of Insurers Model Acts, model #280 and #283. The survey indicated regulators felt the NAIC needed to make changes to the acts to address securities lending, structured securities, rated credit investments, hybrids, references to rating agencies, control documentation and new limitations on pledged securities for activities outside the ordinary course of business. Comments are due April 30. The exposed survey results can be found at http://www.naic.org/committees_e_iimar.htm.
Health Reform Solvency Impact (E) Subgroup
This new group was organized at the March meeting to assess the solvency impacts and concerns resulting from the recently passed Affordable health Care for America Act (H.R. 3590). This will be a group that should carefully be watched by those entities in the health insurance business. Their website has already been established at http://www.naic.org/committees_e_health_reform_solvency_impact.htm, although the only thing posted there at the current time is their goal and the listing of Todd Sells as NAIC staff support for the subgroup.
International Accounting Standards Work Group
With typical NAIC efficiency in mind, this working group has been organized to focus on the accounting area of the NAIC’s Solvency Modernization Initiative. No, this group is not under the Accounting Practices and Procedures Task Force, nor is it part of the SAPWG or EAIWG; but they have promised to coordinate with those groups. And just for good measure, the Financial Conditions (E) Committee also decided they needed to form a commissioner level subcommittee to discuss if statutory accounting should be replaced by IFRS. Commissioners? Great!
Live long and prosper!
Although StoneRiver, Inc. takes all reasonable steps to ensure that the information in this document is current and correct, it neither warrants nor guarantees its accuracy.
StoneRiver, Inc. does not render legal services or advice. This newsletter is not intended to substitute for legal advice, which can be rendered only by an attorney.