August was the month of the NAIC’s Summer National Meeting. The meeting was once again offered in hybrid format, with the physical meeting held in Portland, Oregon. For those who attended virtually and were located in the East or the Midwest, Portland was good news. Allowing for the time difference, there were no 8 a.m. meetings! Of course, that also meant that 4 p.m. or 5 p.m. Portland meetings seriously cut into the Eastern and Midwestern evening hours! Surprisingly, there were no other NAIC groups meeting this month that are normally included in this summary. Let’s take a look at some of the sessions from the National Meeting.
Privacy Protections Working Group – August 9, 2022
According to the Working Group’s website, the charge of this group is two-fold. First, to review state insurance privacy protections in relationship to the collection, use, and disclosure of information gathered in connection with insurance transactions. Then to make recommended changes to NAIC models, in particular to Models #670 and #672, which are both several decades old. The current plan is to develop one new model to replace the current two models. An update was provided on state and federal privacy legislation. Five states have adopted state privacy laws, with bills currently pending in several other states. The federal government continues work on the American Data Privacy and Protection Act, which, as written, would preempt most state privacy laws. A brief summary of changes to the current version of the pending bill was provided. It also was noted that this is the first time there has been a federal privacy bill that has advanced out of committee. The Working Group indicated that although the Consumer Data Ownership and Use Survey was scheduled to end on July 28, replies are still being accepted. Those replies would then be used to help craft a white paper on Data Ownership and Use Rights. The goal is to expose the paper for comment the first part of December.
Joint meeting – Catastrophe Insurance Working Group and NAIC/Federal Emergency Management Agency (FEMA) Advisory Group – August 9, 2022
For those of us who usually focus on possible financial reporting and regulation catastrophes, this meeting serves as a reminder that there are many other types of catastrophes the insurance industry might face. Before getting started on the meeting summary, it is important to set forth a definition of “NAIC participation” that was so often mentioned. The membership of the NAIC consists of all of the state departments of insurance (DOI), or whatever state-named agency regulates the insurance industry. Below references to NAIC participation refer to participation by other state regulators, not the support offices of the NAIC, which are located in Kansas City, New York, and Washington, D.C. Any references to personnel in those offices use the term NAIC staff.
The group heard an update on federal legislation including the Inflation Reduction Act, climate and energy programs, resilience projects, and the extension of the National Flood Insurance Program (NFIP), which is scheduled to expire on September 30. A short-term extension is expected. As part of the renewal process, FEMA sent Congress a list of 17 proposals for NFIP consideration. The Working Group learned that the House had passed a package of bills meant to address the growing threat of wildfire and drought in the West, but it was not clear if the Senate will act on the package.
The discussion turned to updates of the Catastrophe Modeling Primer, which, by the way, used to be a handbook not a primer. The publication has not been updated for some time. The purpose of the Primer is to provide insurance regulators with basic information on catastrophe modeling.
The Alabama DOI reported on its private flood insurance initiatives, including what the DOI has been working on to enhance its flood coverage. Alabama conducted a survey of insurers to see what can be done to enhance possible growth of private flood insurance within the state. Based on the survey results, some changes have already been made to encourage private flood insurance growth.
NAIC staff provided an update on private flood insurance data based on data reported from the 2020 annual statement and from 2018 and 2019 data calls. Regulators were reminded that beginning with the 2020 Property/Casualty Annual Statement a new private flood supplement, collecting both residential and commercial coverage, was added to annual reporting.
Recent wildfires were the focus of an update from the New Mexico Office of Superintendent of Insurance (OSI) and, in particular, some details on wildfire from April 6 through May 13, which burned approximately 800,000 acres. To put the size of the fire in perspective, although that is 1% of New Mexico, it is equal to 77% of Rhode Island or 49% of Delaware. The OSI summary covered some of the issues that were encountered as well as some best practices and lessons learned. There was a significant uninsured issue. Although New Mexico has a Fair Access to Insurance Requirements (FAIR) plan, many residents did not know the plan exists and it appears the FAIR current cap might be too low. The OSI mentioned it really appreciated all of the NAIC participation it received.
The catastrophe team from the Northeast Zone provided a report. The team is a way for states to discuss issues within the zone, as well as a way to gather information from insurers in the zone.
There was an update from the Washington State Office of the Insurance Commissioner on the Cascadia Rising exercise. The exercise walks through the FEMA Region 10CSZ Earthquake and Tsunami Response Plan with the main emphasis on continuity plan. The drill was held to practice getting emergency services in place. The emergency action plan covers the first 0–24 hours and then the plan provides for continuity of operations beyond 24 hours. A pinpointed weakness is reaching out to community/consumers.
The group then heard an update on the NAIC/FEMA Region 6 event held in Oklahoma City. The event addressed how states are organized and plan for disasters, NAIC participation, and how to interact with FEMA at Disaster Recovery Centers.
Joint meeting – Catastrophe Risk Subgroup & Property Casualty Risk-Based Capital (RBC) Working Group – August 9, 2022
There was only one item considered for adoption, with two other items exposed for comment. Those items were:
|2022-04-CR||Addition of wildfire event for 2015–2021 to the Catastrophe Event List.||Adopted.|
|Revises PR035 lines of business to reflect additional granularity that was added to the reporting in the Underwriting & Investment Exhibit of the Property/Casualty Annual Statement.||Exposed for comment through September 8.|
|2022-08-CR||Revises instructions on obtaining permission for an insurer to use its own model for the preparation of the Rcat.||Exposed for comment through September 8.|
The Working Group adopted the 2022 Property/Casualty RBC Newsletter (Newsletter), which is produced annually and contains Property/Casualty RBC general information, as well as a listing of formula and/or instructional changes since the previous year-end. The Newsletter will be posted to the Working Group’s webpage prior to year-end, coinciding with the release of the RBC formula. Having previously been exposed for comment with no comments received, revised affiliated investment instructions and reporting structure were adopted. The proposal will now be addressed by the Capital Adequacy Task Force since these revisions would affect all RBC formulas. Any adopted affiliated revisions would NOT be for 2022, but for future reporting.
The American Academy of Actuaries (Academy) provided a brief update on projects it has been working on. The Academy hopes to release a complete report and its recommendations on these projects around September 1. Included in the report will be:
- The method used to credit premium and reserve risk RBC amounts for anticipated investment income prior to payout.
- Updated adjustment of proposed premium risk factors (line 4) for catastrophes.
- Alternative safety margins for consideration.
- An analysis of the combined impact of these changes.
The Working Group reviewed statistics of the 2021 Property/Casualty RBC filings, as well as changes to its and the Subgroup’s working agenda. As previously discussed, convective storms are being considered for inclusion in the Rcat. The Subgroup indicated it is hoping to collect information on these storms in the 2024 RBC. In the meantime, it is looking for a subject matter expert to help develop that part of the formula. The meeting ended with a presentation on severe thunderstorms given by the National Oceanic and Atmospheric Administration (NOAA). The presentation focused on forecasting ability and resilience. Although the presentation used the term “severe thunderstorms” in its title, tornadoes were emphasized. NOAA stressed that severe weather, including tornadoes, can happen anywhere, at any time. However, certain parts of the country are more likely to experience severe weather than other parts. Even more interesting, some parts of the country are more likely to experience severe weather not only at certain times of the year, but certain times of the day. Overall, when compared to anyone else who lives in a plains state, it was sheer luck (bad luck) that Dorothy and Toto even saw a tornado, let alone got entangled in one.
Big Data & Artificial Intelligence Working Group, August 10, 2022
The meeting included a collaboration forum on Algorithmic Bias, which presented different perspectives on artificial intelligence (AI) risk management and governance and bias detection methods and tools. The focus was on how bias can result in inaccurate decisions, even when using AI and algorithmic decision-making tools. The Working Group then received reports from two of its workstreams.
Financial Regulations and Accreditations (F) Committee – August 10, 2022
The meeting began with the announcement that Alaska, Iowa, Minnesota, and Ohio have been re-accredited. The Committee next adopted revisions to the Examination Coordination Accreditation Guidelines, which will be effective January 1, 2023 to insure consistency with the Financial Condition Examiners Handbook. A referral from the Receivership and Insolvency Task Force regarding receivership revisions to holding company models was adopted. The referral recommends that recent Holding Company model changes not be required for state accreditation but are important and all states are encouraged to enact them. Also adopted was a recommendation from the Financial Conditions (E) Committee to update the Preamble of the Accreditation Program Manual to reference V-21 requirements for principles-based variable annuities’ reserves as part of accreditation standards for captives reinsuring variable annuities. The Committee then received updates on the state adoption status of several model laws needed for state accreditation.
Besides this public meeting, the Committee also met in a regulator-to-regulator session on August 9, 2022.
Statutory Accounting Principles Working Group – August 10, 2022
As is usual, the session began with a hearing addressing items that had been previously exposed for comment. Those items were:
|Incorporates new guidance in SSAP No. 86 on assessing hedge effectiveness from ASU 2017-12 – Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. Also adds statutory-specific measurement for excluded components in hedging instruments.||Adopted effective January 1, 2023 with early adoption permitted. Considered a new statutory accounting concept.|
As a follow up to 2021-20, a Blanks proposal adding new electronic-only reporting columns to Schedule DB and additional Notes disclosures will be drafted and submitted to the Blanks Working Group.
|2022-01||Changes to SSAP No. 4 and the Preamble from FASB Concepts Statement No. 8. Issue Paper (IP) No. 166 – Definition of Assets.||Adopted definition of assets and issue paper, effective immediately.|
This item requires a little more discussion. The need for review on this issue arose from changes that the Financial Accounting Standards Board (FASB) made to its conceptual framework. This part of the discussion addressed only the definition of an asset. FASB concepts regarding the definition of a liability were carved out and addressed separately (see below). The most notable change was the elimination of the word “probable” and the phases “future economic benefit” and “past transactions or events” from the previous definition. The proposal was adopted. The definition of an asset was deemed as not being a fundamental change to the concepts of financial accounting/reporting but rather a clarification and is effective immediately.
|2022-02||Revisions to SSAP No. 48 clarify that U.S. tax basis equity audit occurs at the investee level.||Adopted effective immediately.|
|2022-04||ASU 2021-10 – Government Assistance; Revisions to SSAP No. 24 for disclosure of government assistance and will apply to all reporting entities.||Adopted with modifications from GAAP; effective immediately.|
|2022-05||Rejection of ASU 2021-09 – Leases, Discount Rate for Lessees.||Rejection adopted.|
|2022-06||ASU 2021-07 – Compensation – Stock Compensations; provides revisions to SSAP No. 104R regarding the practical expedient for the current price.||Adopted with modifications from GAAP, effective immediately.|
|2022-07||Rejection of ASU 2021-08 – Business Combinations.||Rejection adopted.|
The meeting part of the session included the following actions.
|2021-25||Revisions to SSAP No. 19 clarify that leasehold improvements are immediately expensed after lease termination.||Exposed through October 7.|
|2022-01||Changes to SSAP No. 5R and an accompanying Issue Paper resulting from FASB Concepts Statement No. 8 would revise the definition of a liability.||Exposed through October 7.|
This is the liabilities issue that was carved out from the definition of assets discussed above and resulted from FASB changes to its conceptual framework. A previous exposure of this item had resulted in IP comments indicating the new definition, without any consideration of the discussion of liabilities in specific SSAPs, could significantly change the concept of a liability for statutory accounting. The IP comments suggested that a SSAP-by-SSAP analysis should be conducted. NAIC did not recommend the SSAP review, but instead suggested a re-exposure giving IPS the chance to identify any specific concerns they had, should the new definition be adopted.
|Revisions to SSAP No. 86 for ASU 2022-01 – Fair Value Hedging – Portfolio Layer Method would allow for portfolio layer method and partial term method for assessing hedging effectiveness for current assets only, but not for liabilities.|
Exposed through October 7.
|2022-10||Rejection recommended for ASU 2022-02 – Troubled Debt Restructuring and Vintage Disclosures.|
Exposed through October 7.
|2022-11||Changes to SSAPs No. 20 and 21R indicate that for a collateral loan to be an admitted asset, the collateralized assets also must qualify as an admitted asset.|
Exposed through October 7.
|2022-12||Nullification of INT 03-02 – Modification to an Existing Intercompany Pooling Arrangement; resolves conflict between INT and SSAP No. 25.|
Exposed through October 7.
|2022-13||Updates SSAP No. 25 and No. 97 to indicate foreign open-end investment funds as a fund where ownership percentage does not reflect control, unless entity has power to direct the underlying company.|
Exposed through October 7.
|2019-21||A proposed new bond definition and an Issue Paper, which result in revisions to SSAP No. 26R and SSAP No. 43R indicating what securities are eligible for Schedule D – Part 1 reporting.|
Exposed through October 7.
Further explanation, a long explanation, is needed on this last item. There was not just one document that was released for comment, but four different items. The proposed bond definition has been in the works for over a year now and has once again been exposed for comment. The exposed definition document includes the definition (four pages), a glossary, an appendix that provides examples of securities that do not represent creditor relationships in substance, and another appendix that provides examples (four) of analysis of asset-backed securities under the criteria established in the definition.
The as of yet not-numbered exposed issue paper provides the background of the development of the bond definition and the rationale for incorporating the definition into SSAPs No. 26R and 43R. The proposed revisions to SSAP No. 26R were described by the NAIC staff as fairly straightforward, incorporating the new definition, excluding asset-backed securities from the scope of the SSAP, updating the glossary, providing examples, and revising reporting categories (which means Schedule D – Part 1 also will change). There also is a proposed revision clarifying that securities under SSAP No. 26R having a maturity date of one year or less from the date of acquisition are still subject to the accounting described in SSAP No. 26R.
The proposed changes to SSAP No. 43R were described as being complicated by the fact that NAIC staff decided to completely reorganize the SSAP for readability. SSAP No. 43R would be renamed as Asset Backed Securities. Besides the incorporation of material from the new bond definition and new reporting categories, other revisions are being proposed to clarify and update current guidance. Some of those revisions have nothing to do with the new bond definition. In other words, the SSAP is a marked-up mess.
Originally, the goal for the effective date of the bond work, including a new Schedule D – Part 1, was January 1, 2024. Although that remains the goal, NAIC staff has conceded implementation may have to be delayed until January 1, 2025.
The remainder of the meeting included an update of GAAP exposures, an update on the Life Actuarial Task Force coordination, the receipt of a referral from the Macroprudential Working Group, and a short discussion on the Inflation Reduction Act and the possible tax effects on insurance companies, which will need to be monitored. The meeting ended with a big surprise, in that it had been scheduled for two hours, but only lasted one hour!
NAIC Opening Session – August 10, 2022
The Opening Session never happens on the opening day of the National Meeting but is usually a nice departure from all of the technical meetings that occur. There is no published agenda, so no expectations of what might occur. New NAIC members were introduced. These are new insurance commissioners, or those with a corresponding title, who have taken office since the last National Meeting. Since Oregon was the host state, everyone heard a welcoming message from the Oregon governor, as well as a few remarks from the Oregon insurance commissioner. The NAIC president then discussed what has been accomplished in the last eight months and what is yet to be accomplished this year. Afterward, the public meeting was adjourned so regulators could conduct a regulator-to-regulator meeting.
Innovations, Cybersecurity, and Technology (H) Committee – August 10, 2022
The Committee adopted a request for NAIC model law development from the Privacy Protections Working Group. The new model law would replace two existing models, NAIC Insurance Information and Privacy Protection Model Act (#670) and Privacy of Consumer Financial and Health Information Regulation (#672), which were both adopted several decades ago and are out of date. The new model would be named the Insurance Consumer Privacy Protection Model Law. The request will be sent to the Executive Committee for further action. The Committee then heard and adopted the minutes of its Working Groups. An update was provided on the development of the Innovation, Cybersecurity, and Technology-Hub. A discussion on collaboration forums then took place. The purpose of the forums is to bring all NAIC groups whose work touches upon a common topic together to make sure the right hand knows what the left hand is doing and to provide a uniform front. The second part of the meeting was a collaboration forum on Algorithmic Bias, which was actually a continuation of the discussion that began in the Big Data & Artificial Intelligence Working Group meeting earlier (see summary above). Four different presenters discussed the topic, with the emphasis on mitigating bias in predictive models.
International Insurance Relations (G) Committee – August 10, 2022
The Committee heard a presentation on the Federal Reserve Board’s Insurance Policy Advisory Committee (IPAC) paper on the insurance capital standards (ICS) as established by the International Association of Insurance Supervisors (IAIS). IPAC was established in 2018 by Congress to provide information, advice, and recommendations to the Board of Governors of the Federal Reserve on international insurance capital standards and other insurance policy issues. IPAC conducted a target study on how ICS could impact U.S. insurers, policyholders, and markets with a focus on long-duration life insurance and retirement products. The presentation contains a great deal of information and can currently be found at content.naic.org, although it is not known for how long it will be available. The Committee then received an update on recent activities of the IAIS, as well as other international activities concerning regional supervisory cooperation, organization for economic co-operation and development, and the sustainable insurance forum.
Immediately following this meeting, a Q&A session with interested parties and the IAIS Secretariat was provided.
Group Solvency Issues Working Group – August 11, 2022
The Working Group summarized comments that had been received on the exposure of revisions to the Own Risk and Solvency Assessment (ORSA) Guidance Manual, the Financial Condition Examiners Handbook (FCEH), and the Financial Analysis Handbook (FAH). The Working Group indicated that based on those comments, some additional revisions had been made and were reflected in the material made available for the meeting. Revisions to the ORSA Manual were adopted and the revisions to the FCEH and the FAH were referred to the respective NAIC groups for further action.
Risk-Based Capital (RBC) Investment Risk and Evaluation Working Group – August 11, 2022
The Working Group discussed and adopted what the chair referred to as its “seemingly endless working agenda.” Acknowledging that there is “a lot of stuff on there,” he noted that one item had been relisted on the agenda and a few items that were currently not indicating a priority level, will be prioritized in the near future. It is easy to understand the chair’s comments. Since the group’s formation last year, it has inherited quite a few projects that other NAIC groups were handling. The group received updates on the work being done by the Valuation of Securities Task Force (VOSTF) and SAPWG, in relationship to items that may need to be considered for RBC. The discussion moved to next steps for the group. The chair emphasized that one of the group’s overall goals should be to align any investment RBC reporting with annual statement reporting and eliminate, as much as possible, the source for information coming from company records instead of the statement. To achieve this goal, it will be imperative that this Working Group, SAPWG, VOSTF, and other NAIC groups foster cooperation and awareness on issues that touch upon investments. It appears the next item to be tackled by the Working Group will be the handling of all tranches of collateralized loan obligations, both in the interim and long term.
Accounting Practices and Procedures Task Force – August 11, 2022
The Task Force adopted its 2023 proposed charges, which were unchanged from the previous year. It then adopted the reports of its two working groups, SAPWG and the Blanks Working Group, with the exception of separate handling of one item, the related party investment reporting to be implemented beginning this year-end. This requirement identifies related party involvement with investments, regardless of whether the related party is an affiliate or not. The goal is to provide more transparency into the involvement of related parties in investments, not only through credit exposure but also in the origination or servicing of an investment. Usually only controversial items are pulled out for separate handling, but that was not the case here. Most likely this special treatment was put into place because it was the direct result of a referral from the Macroprudential Working Group.
Examination Oversight Task Force – August 11, 2022
The Working Groups’ meeting minutes of the Task Force were presented and adopted. The meeting was adjourned.
Executive (EX) Committee – August 11, 2022
The Commissioners’ Roundtable ran long, delaying the start of this session. The good news for those attending virtually was the selection of music we listened to for 10 minutes during the delay. Nice. A brief summary of activities of the joint meeting of the Committee and the Internal Administration Subcommittee was provided. This meeting is always a regulatory-only meeting because of the subject matter covered; financial updates, NAIC budgets, NAIC audit committee, funding for projects of other NAIC groups, etc. Therefore, no details were provided. Requests for model law development for the Property and Casualty Insurance Guaranty Association Model Act (#540), the NAIC Insurance Information and Privacy Protection Model Act (#670), and Privacy of Consumer Financial and Health Information Regulation (#672) were received and adopted.
The Committee approved revisions to the NAIC Consumer Participation Plan of Operation (Plan). The Plan makes specific allowance for consumer views on insurance regulatory issues, through the NAIC Consumer Participation Board of Trustees and by consumer representatives attending NAIC meetings. Some consumer representatives are funded by the NAIC, while others are not. One of the changes made to the Plan was the allowance of unfunded representatives to be on the board, not just funded representatives. Status reports were provided on the NAIC State Ahead implementation and model laws that are currently under development. Reports were received from the National Insurance Producer Registry and the Interstate Insurance Product Regulation Commission.
Valuation of Securities Task Force – August 11, 2022
The following amendments to the Purposes and Procedures Manual of the Investment Analysis Office (P&P Manual) were discussed and acted upon.
|Clarification of the role of the Securities Valuation Office (SVO) regarding interpreting accounting and reporting of an investment.||Adopted.|
This is an interesting adoption. The P&P Manual will now emphasize that an NAIC Designation assigned by the SVO should not be regarded as an indication for reporting on a specific investment schedule. Reporting within the statement is determined by SSAPs, not by the P&P Manual. However, the SVO can assign an NAIC Designation to any obligation or asset that is filed by an insurer, if its credit quality can be assessed within the P&P Manual specified policies and methodologies. In addition, the SVO has the authority to notify regulators of any investment that was assigned an NAIC Designation that, in the SVO’s opinion, would not or might not be eligible for reporting in Schedules D or BA. Note, there is not an obligation to notify the insurer.
|Revisions to Part Four regarding NAIC Designation Categories and additional price points for modeled legacy RMBS and CMBS.||Adopted.|
|Updates the definition of principal protected securities (PPS).||Adopted.|
The following items were discussed and exposed for comment.
|Amend the definition of other non-payment risk assigned a subscript “S.”||Exposed through September 12.|
|2023 proposed charges.||Exposed through September 12.|
|Staff memorandum on alternatives to add fixed income analytical risk measures on Schedule D – Part 1.||Exposed through September 12.|
Originally, the SVO wanted to add market-data fields to Schedule D – Part 1. During the original comment period of the proposal, interested parties had argued that Schedule D – Part 1 was not the appropriate way to collect such data and that the NAIC should produce these fields. Accordingly, the SVO was asked by the Task Force to consider some alternative methods of collecting the information. The memo presents the pros and cons of having the NAIC produce the analytics versus having insurers produce the analytics. The memo recommends that the NAIC’s SVO be the source of the analysis, which also would require an approval process from the NAIC for the cost of the project. If the project does not get NAIC approval, then the memo recommends adding the data as a Schedule D – Part 1 requirement.
|The Structured Securities Group’s (SSG) responses to questions received on the Investment Analysis Office’s issue paper on the risk assessment of structured securities – Collateralized Loan Obligations.||Exposed through September 12.|
The Task Force received and discussed a referral from SAPWG on related party reporting. The SVO will review the referral to determine if revisions are needed to the P&P Manual. The group also received a referral from the Macroprudential Working Group and heard updates on SAPWG projects, the ad hoc Credit Rating Provider study group, and SSG modeling scenarios.
Capital Adequacy Task Force – August 11, 2022
The Task Force adopted the minutes of its working groups and subgroup, which consist of the Health RBC Working Group, Life/Fraternal RBC Working Group, Property/Casualty RBC Working Group, RBC Investment Risk and Evaluation Working Group, and the Catastrophe Risk Subgroup. The group then took the following actions.
|2022-04-CR||Addition of 2013–2021 wildfires to the catastrophe listing.||Adopted.|
|2022-09-CA||New instructions and reporting format for affiliated investments in all RBC formulas.||Exposed for comment through October 10.|
This last item had previously been exposed and adopted by all of the different RBC Working Groups. However, since the change would affect all formulas, the Task Force is required to re-expose the proposal. During a previous comment period, one comment was received by the Life/Fraternal RBC Working Group. The comment pointed out that the revision includes a charge for nonadmitted affiliated investments, when normally nonadmitted assets do not receive an RBC charge. The chair supported this new approach but indicated they would consider any further comments that might be received on the topic. The Task Force’s working agenda was reviewed and adopted. The Property/Casualty RBC Working Group revealed it had received a request from the Restructuring Mechanisms Working Group regarding RBC requirements for companies in run-off. The Working Group has drafted a response; however, it asked for input from the Life/Fraternal and Health RBC Working Groups on their thoughts since they also have run-off companies.
Joint Meeting of the Financial Stability Task Force & the Macroprudential Working Group – August 12, 2022
The groups received an update on the activity of the Financial Stability Oversight Council (FSOC). The FSOC is a part of the U.S. Department of the Treasury charged with identifying risks to the financial stability of the U.S. financial system. Since most of its meetings are confidential, only a limited update could be provided. We did learn that climate risk is a current priority of the FSOC. The Working Group then provided an update on its activities. Notices have been referred to other NAIC groups recommending actions that should be considered regarding private equity-owned insurers. Some of those referrals have already been acted upon, such as the recent addition of Schedule Y – Part 3. The group has identified some more items that need further discussion before they are ready to be shared. The Working Group reported that an initial review of the 2021 Liquidity Stress Test (LST) results has been conducted; however, since the due date was June 30, the analysis is still ongoing. Its current plan is to publish a summary of the LST results from the 21 participating groups in September. A study group is now looking at ways to include non-insulated separate accounts in the LST in the future. The meeting also had an international update, including the IAIS’s global monitoring exercise.
Market Regulation and Consumer Affairs (D) Committee – August 12, 2022
The Committee began by adopting several items. Those were:
- Revisions to the Market Regulation Handbook including language suggesting market regulators coordinate with a company’s domestic financial regulator regarding the Group Capital Calculation, liquidity stress test results, corporate governance, and Own Risk Solvency Assessment; addition of the Insurance Holding Company System Regulatory Act (#440) to the list of models to reference for guidance; and references to the Real Property Lender-Placed Insurance Model Act (#621).
- The addition of a new Mental Health Parity chapter in the Market Regulation Handbook.
- “Recommendations for the Incorporation of Artificial Intelligence (AI) in the NAIC Market Information Systems,” a report recommending that AI should be contemplated in the context of a long-range plan with state regulators considering the potential collection of data appropriate to AI.
- “Guidelines for Amending the NAIC Uniform Applications,” to be used for the review and adoption of changes to the Uniform Licensing Applications.
- The Antifraud Plan Repository Workflow that will serve as the guide for crafting a centralized filing system or insurers to report their antifraud plans. Having centralized data would eliminate the need to file with multiple states. Interestingly, one state voted against the plan.
- The reports of the Committee’s Task Forces and Working Groups.
The session then heard a presentation entitled Dark Patterns: Manipulative Digital Design. To clarify, this is the use of digital designs (dark patterns) on websites as user interface techniques attempt to lead consumers into making decisions they might not otherwise make. Some dark patterns are deceptive, while others exploit cognitive biases or shortcuts to manipulate or coerce consumers into choices that are not in their best interest. The presentation described different techniques used for dark patterns, as well as differentiated between a bad user experience and a dark user experience. Also presented were legislative and regulatory actions that are occurring to try to curb the use of dark patterns, why insurance regulators should become more involved, and suggested steps that the NAIC may take. The presentation was quite interesting and started a lot of people thinking about what they have seen on various websites that fit into this category.
Financial Condition (E) Committee – August 12, 2022
The Committee separately adopted the related party disclosure requirements previously adopted by SAPWG and the Blanks Working Group and then moved onto adopting the reports of its Task Forces and Working Groups. The Federal Reserve then provided a presentation on its Supervisory Framework as it relates to insurance companies. Included was an overview of how the Reserve works with other financial supervisors, including state regulators. At the end of the presentation, those attending were given a chance to ask questions. The room was silent. Which is probably not surprising when a federal regulator walks into a group of state insurance regulators and informs all as to the part the feds are going to have in the regulation of insurers.
Property and Casualty Insurance (C) Committee – August 12, 2022
After adopting the reports of its Task Forces and Working Groups, NAIC staff presented a federal activities update. The Committee heard a presentation on 2021 cyber insurance data as reported in the Cybersecurity Insurance and Identity Theft Coverage Supplement of the Property/Casualty Annual Statement. The presentation included a listing of the top 20 U.S. groups writing standalone and package cyber insurance. An update on the Collaboration Forum on Algorithmic Bias was given. The Committee heard an overview of the members’ visit to the Insurance Institute for Business & Home Safety. One of the charges of this Committee is to provide a forum for discussing issues related to parametric insurance and to consider developing a white paper or regulatory guidance on the issue. Parametric insurance is a type of contract that protects the contract holder against a specific event by paying a set amount based on the severity of the event. For example, if an earthquake with a magnitude of 5.0 or greater occurs, a set amount will be paid regardless of the amount of damage. But if the earthquake is less than a 5.0 magnitude, no payment would be made regardless of damage. There is some disagreement as to whether this type of arrangement is actually an insurance contract or not. The presentation outlined what research steps have been taken and what more is planned in the future. More information about parametric insurance can be found here.
Joint Meeting of Executive Committee and Plenary – August 13, 2022
There are certain items that cannot be adopted through the adoption or receipt of Committee minutes but must be voted upon separately. Those items have been noted. The meeting began with the adoption of the August minutes of the Executive Committee as well as the minutes of NAIC Committees, Subcommittees and Task Forces from the Spring NAIC Meeting in April. All of the reports from current August meeting of the lettered Committees (A, B, C, D, E, F, G, H) were received. Items that were then adopted through separate actions were:
- Amendments to the Valuation Manual by a required super majority vote.
- New Actuarial Guideline for Asset Adequacy Testing.
- New Pet Insurance Model Act.
- Several revisions to the Market Conduct Annual Statement.
- The Regulatory Considerations Applicable to (But Not Exclusive to) Private Equity Insurers.
- NAIC List of Jurisdictions that Recognize and Accept the Group Capital Calculation.
The group then heard a status report on the state implementation progress of 10 different NAIC-adopted model laws and regulations. The adjournment of this meeting ended the NAIC Summer National Meeting.
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