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Date June 9, 2011

NAIC Still Debating Year-end Changes

Adoption of 2011 statement changes is predictably behind schedule
Reduced meeting schedule hampers coordination

The NAIC meeting schedule now has a long period of time without any NAIC National meetings, from March to August.  However, that does not mean that NAIC committee work comes to a halt.  In fact, this summer promises to be a very interesting time. There are some logistical problems that are inherent to activity happening outside of the National Meetings; such as tracking the events and finding out what transpired. (Most minutes of interim conference calls and meetings are not posted to the NAIC website until after the next National Meeting.) Here are some of the NAIC activities scheduled prior to the NAIC August National Meeting. 

Blanks Working Group
On June 30, the Blanks Working Group will hold a conference call to consider adopting 34 different proposals.  Of the 34 proposals, all but a few indicate implementation for year-end 2011. This was not supposed to happen.  When the NAIC switched to its current 3-meeting schedule, the majority of statement changes for the year were supposed to be adopted at the March meeting. Yet it is no surprise that things are not working out according to that schedule; it happens frequently with the NAIC. 

The proposals being considered would affect Schedule D – Parts 1 and 2, Schedule DL, several Notes to Financials, the reinsurance schedules, Schedule Y, the Supplemental Exhibit of Health Care, and the General Interrogatories.  In addition, there are several proposals that are specific to the Title statement. Interested parties (IPs) have submitted quite a lengthy comment letter covering most of these proposals. In several instances, it has been suggested that the implementation date be postponed until the first quarter of 2012 to avoid reporting one way for the first three quarters of 2011 and reporting a different way at  year-end 2011.

If you are interested in being part of the call, the proposals can be found at http://www.naic.org/documents/committees_e_app_blanks_supplement_to_agenda_1103.pdf and details about the call can be found at http://www.naic.org/meetings_calendar.htm.  We will also post the results for you in the July edition of the NAIC Focus.

Statutory Accounting Principles Working Group (SAPWG)
This Working Group wants to adopt and implement SSAP No. 101 -  Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10, for this year-end.  Why the hurry? SSAP No. 10R has already received a one-year extension and regulators want something more permanent in place. That is, as permanent as anything is in statutory accounting. SAPWG has been conducting a series of conference calls to try to meet their agenda. The industry has submitted a myriad of comments on the new SSAP and there appears to be several miles difference between the regulators and industry. You can find all the scheduled calls at http://www.naic.org/meetings_calendar.htm and a copy of the proposed SSAP No. 101, as well as minutes to previously held conference calls, at http://www.naic.org/committees_e_app_sapwg.htm

The Group Solvency Issues Working Group (GSIWG)
This group will begin its assigned work on ORSA, Own Risk and Solvency Assessment, on a conference call June 10. Materials for the call, and other related items, are posted at http://www.naic.org/committees_ex_isftf_group_solvency.htm. Other calls that have been scheduled include more ORSA discussion on June 24, 30, July 8; discussion of the group capital assessment proposal on July 29; and two calls, August 5 and 12, for wrap up. The group’s goal is to have the ORSA proposal adopted by October of this year. At the time of this writing, none of the calls appear on the NAIC’s calendar posted on their website. It appears that only a limited audience is receiving these notifications – not the general public.

The work on ORSA falls under the Solvency Modernization Initiative and is part of their assignment to assess and monitor insurers’ and groups’ risk management processes. This is the Working Group that has already brought you the implementation of Supervisory Colleges for US domiciled companies and other major changes to group regulation through amendments to the Insurance Holding Company System Regulatory Act and the Insurance Holding Company System Model Regulation.

Interestingly, last week I had an opportunity to attend a presentation by one of the NAIC staff that works with this group and other groups that fall under the umbrella of the Solvency Modernization Task Force. It was a very unusual presentation, in that this person stated numerous times he personally did not think that several of the items being researched were going to be implemented. I am skeptical. Why? Because the NAIC does not traditionally spend a lot of time or money “researching” items they are not interested in implementing. Yes, it has happened occasionally in the past. However, this person mentioned more than one item being researched would go nowhere. As I said --- I am skeptical.

Jacksonville, Florida
Need a reason to take a trip to Florida this summer? The Solvency Modernization Initiative Task Force, Corporate Governance Working Group and the Group Solvency Issues Working Group are holding an interim meeting scheduled July 20 and 21 in Jacksonville, FL. Although there has not been an official agenda released at this time, it appears that on July 20 the Corporate Governance Working Group will conduct a meeting from noon to 5:30 pm. July 21 will offer an ERM (Enterprise Risk Management) symposium from 9 am to 5 pm. The symposium will consist of selected companies presenting their ERM systems in an effort to expand regulators knowledge of current industry practices. Both of these sessions will enhance the regulators’ understanding of risk management by insurers, allowing them to make a more educated decision regarding ORSA.

Principles-Based Reserving (PBR)
If you are a life company and have been anxiously (or not) awaiting the implementation of PBR, you should know that the NAIC is feverishly working to finish up this process. Conference calls are being held regularly by several groups involved with PBR. There have been rumors floating around industry that PBR is never going to happen. Let’s look at that possibility. The NAIC adopted the needed Standard Valuation Law (Model) in 2009. Since that time, the Life Actuarial Task Force has been developing the Valuation Manual, which is targeted for completion this summer. I personally find it difficult to believe that the NAIC would spend this amount of time and money on a project that will not come to fruition. So do I think it will happen ---- yes! Do I have a definitive date ----- no!

If you are a life company that has not been watching this process, you might want to start getting yourself up-to-date. This is a major change in the life reserving process and will include reporting to a statistical agent, as the P&C companies do now.

There is a lot of activity happening at the NAIC this summer --- these are but a few examples. We here at StoneRiver will attempt to keep you up-to-date on what transpires at least on financial issues, but there is so much more. So please don’t think you can skip over any summer conference calls and/or interim meetings and then catch up with the reports at the NAIC August National Meeting. It is almost impossible!

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