December hosted the last NAIC National Meeting of the year. Although the NAIC still conducted the meeting in hybrid format, more of the groups met at the actual meeting than had earlier this year. It was almost back to “normal,” but not quite. What was missing was industry. In-person industry attendance was noticeably less than normal. And, interestingly, Monday’s meetings were almost all regulator-only meetings. That was a little out of the ordinary, but once things got started with open meetings, a lot was discussed and accomplished.
Catastrophe Risk Subgroup – December 12, 2022
The Subgroup heard an update from the Catastrophe Model Technical Review Ad Hoc Group, which was organized in September with the goal of learning more about severe convective storm models by meeting with various model vendors. The Subgroup is considering adding convective storms as the next risk to be covered by the Rcat in the Property/Casualty Risk-Based Capital. Attention then turned to the Wildfire Peril Impact Analysis (Analysis). Only a few states were able to participate in the Analysis reviewing process in December because of concerns from CAT modelers regarding propriety information. Currently, nondisclosure agreements are being put in place to allow the Analysis to proceed. The group hopes to provide a status update at its next meeting. After updating and revising the working agenda, the rest of the meeting was spent viewing and listening to a presentation by Verisk on its Severe Convective Storm model.
Health Risk-Based Capital (HRBC) Working Group – December 12, 2022
The Working Group took action on two proposals that had previously been exposed for comment.
|2022-10-H||Removes outdated discussion on development of preferred stock factors.||Adopted for 2023 formula|
|2022-11-H||References to annual statement on XR013 and XR014 updated to be reflected on the Analysis of Operations.||Adopted for 2023 formula|
After a short discussion of its working agenda, the newly revised agenda was adopted. The group then heard a presentation from the American Academy of Actuaries (Academy) outlining its approach on revising the H2 – Underwriting Risk Component. The initial focus is to be on areas of the underwriting risk calculation that have the most impact. The core Experience Fluctuation Risk pages will include more detail with the creation of risk factors that match actual underwriting volatility. The Managed Care Credit section will be revised around current provider contracting norms and contracting elements. The Academy’s Health Underwriting Risk Factors Analysis Work Group’s goal is to have pages redesigned by the end of March 2023, with corresponding factors in place by June 2023. The Managed Care redesign also should be completed by the end of March 2023. If this timeline can be met, it is possible all could be implemented in the 2023 HRBC.
The Working Group then discussed the response to the run-off companies referral from the Capital Adequacy Task Force. The request had originally been sent to the Property and Casualty RBC Working Group (PRBCWG). In its response, the PRBCWG suggested that the best course of action is to monitor run-off companies through state analysis and exam functions. Prior to drafting a response, the HRBC Working Group drafted and requested comments on a set of questions from its members, interested state insurance regulators, and interested parties. The Working Group received no comments. The drafted HRBC Working Group response agrees with the suggested recommendations of the PRBCWG; that is, monitoring of run-off companies would be best accomplished through the state analysis and exam functions. The comment letter was exposed for a 30-day comment period ending January 13, 2023.
The chair commented that current stop-loss factors in the HRBC were put in place in 2017 and that, at that time, very little data was available. He felt it was now time to revisit those factors within the formula. The group voted to ask the Academy to review this issue.
The meeting ended with updates on the activities of the Excessive Growth Charge Ad Hoc Group, which is analyzing companies whose member-month growth is in excess of 10% and have underwriting losses. The Health Test (Test) Ad Hoc Group reviewed the work it is doing on the reserve and premium ratios of the Test.
Life RBC (LRBC) Working Group – December 13, 2022
The focus of this meeting was the C‐2 Mortality Risk guidance that had been prepared by the Academy and previously exposed for comment. The discussion was in the form of responses to various questions that had been raised by the American Council of Life Insurers (ACLI) and consumed almost the entire meeting. The next step for the guidance document, which needs to happen as soon as possible for use this year-end, is a few revisions and then adoption by an email vote of the Working Group. During the discussion, the need for some 2023 changes became apparent and will be handled after the first of the year. The Academy also acknowledged that adjustments to the C-2 will probably need to be made for several years. The NAIC announced that the original distribution of the Life Forecasting Tool contained formula errors in the C-2 section. The NAIC has reissued the Forecasting Tool and those with the original download should update to the newer version. The conversation then moved to a discussion of a received referral regarding run-off companies and the LRBC. (See discussion in the HRBC Working Group summary above.) The LRBC Working Group agreed with the assessment of both the PRBC and HRBC Working Groups and will prepare a response accordingly.
Following the National Meeting, members of the LRBC Working Group were asked via email on December 20 to vote on adoption of the C-2 Mortality Risk guidance, submitting their vote by December 28.
Statutory Accounting Principles Working Group (SAPWG) – December 13, 2022
The following action was taken on items that had previously been exposed for comment.
|2021-25||Revisions to SSAPs No. 19 & 73 clarify that with limited exceptions, leasehold improvements are to be immediately expensed upon lease termination.||Adopted, effective immediately.|
|2022‐01||Modifies the SSAP No. 5R definition of a liability to match that of FASB’s Concept Statement, as well as the Preamble. An issue paper also was included.||Re-exposed through February 10, 2023.|
The above item resulted from work that has been completed by FASB on its conceptual framework. (The asset side of FASB’s work has previously been handled by SAPWG.) SAPWG has maintained that the FASB revisions do not change the definition of a liability for statutory accounting. This is the third exposure for these revisions, allowing industry to continue to review the proposed language as related to various other Statements of Standard Accounting Practice (SSAPs). NAIC staff will be working with interested parties on clarifying language.
|2022-09||Changes to SSAP No. 86, adopt, with modifications, ASU 2022‐01 to include the portfolio layer method and partial-term hedges.||Adopted, effective January 1, 2023, with early adoption allowed.|
|2022-10||Adds ASU 2022‐02 to the relevant literature section of SSAP No. 36 as a rejected item.||Adopted, rejecting ASU 2022-02.|
|2022‐11||Revises SSAP No. 21R clarifying that collateral held for collateral loans must qualify as an admitted asset.||Re-exposed for comment through February 10, 2023.|
|2022‐12||Nullification of INT 03‐02: Modifications to an Existing Intercompany Pooling Arrangement since inconsistent with SSAP No. 25.||Re-exposed for comment through February 10, 2023.|
Amends SSAPs No. 25 & 97 to recognize foreign open-end investment funds as a fund where the ownership percentage does not indicate control unless the entity actually controls the power to direct the underlying company.
|Adopted, effective immediately.|
|INT 22-02||Revisions extend the guidance for December 31, 2022 and the first quarter of 2023.||Adopted, effective through first-quarter 2023.|
The above INT states that reporting entities are not required to assess valuation allowance, deferred tax asset impacts, and tax estimates from the Inflation Reduction Act for third-quarter 2022 through first-quarter of 2023. Subsequent event exceptions also are provided.
The following actions were taken on new items.
|2017-33||New issue paper detailing revisions previously adopted with the review of ASUs 2017-12 and 2022-01 for SSAP No. 86.||Exposed for comment through February 10, 2023.|
|2022-14||This exposure proposes a revised SSAP No. 93 or a replacement SSAP to expand capture of all tax equity investments qualifying under specified criteria for federal tax credit or state premium tax credits.||Exposed for comment through February 10, 2023.|
|2022-15||Revisions to SSAP No. 25 would clarify that an invested asset held by the reporting entity, which is issued by an affiliated entity or which includes the obligation of an affiliated entity, is an affiliated investment.||Exposed for comment through February 10, 2023.|
|2022-16||Adopts with modifications ASU 2022-03 on the fair value measurement of restricted assets to SSAP No. 100R.||Exposed for comment through February 10, 2023.|
|2022-17||Additional disclosure requirement to SSAP No. 34 for reporting of interest income due and paid-in-kind interest included in current principal balances.||Exposed for comment through February 10, 2023.|
|2022-18||Changes to SSAP No. 105R would reject ASU 2022‐04.||Exposed for comment through February 10, 2023.|
|2022-19||Asks for more information on possible handling of negative IMR within SSAP No. 7.||Exposed for comment through February 10, 2023.|
Everyone was reminded that in addition to the above activity, revisions to SSAP Nos. 26R, 43R, other SSAPs, an issue paper, and proposed new Schedule D reporting, all resulting for the current work on a principal-based definition of a bond, were previously released for comment with a February 10, 2023 deadline.
Updates were provided on items that had been referred to SAPWG by the Macroprudential Working Group and current U.S. GAAP exposures.
Following the National Meeting, SAPWG announced via email the referral from the Capital Adequacy Task Force of its reference item 2022-09-CA. SAPWG asked that its members send comments, if any, to SAPWG NAIC staff. All others were asked to respond to the Task Force. (See discussion of this item below).
Property/Casualty RBC Working Group – December 13, 2022
This meeting began with the routine adoption of previous meeting minutes and then adoption of its subgroup minutes. Proposal 2022‐07‐P was then adopted for the 2023 PRBC formula. This adoption increases the line of business categories on page PR035 of the formula, providing consistency between the PRBC and changes made to the Underwriting and Investment Exhibit of the Property/Casualty Annual Statement in 2022. As a reminder, PR035 is used to determine the percentage of accident and health premiums written by the company for the current and two previous years. Revisions were made and adopted to the group’s working agenda. The Academy furnished an update on its current PRBC projects, which include updating of R4 and R5 factors and utilizing a new way of deriving the investment income component of the factors. The Academy’s goal is to have the new factors ready for use in the 2023 formula. Toward the end of the meeting, the chair indicated that the Working Group needs some additional members and anyone interested should reach out to him or the NAIC support staff. The final act of the group was to recognize the upcoming retirement of Ralph Blanchard (Travelers) with acknowledgment of his contributions and the presentation of a gift (an NAIC ball cap).
Financial Regulation Standards & Accreditation Committee – December 13, 2022
The Committee adopted its 2023 charges, which did not change from 2022. It then heard an update on a referral it had sent to the Life Actuarial (A) Task Force asking if sections of the Actuarial Opinion and Memorandum Regulations (#822) regarding statement of actuarial opinion, appointed actuary, and adequacy of reserves are the same as the requirements in the Valuation Manual. Currently, both are required under accreditation.
Joint Meeting of the Financial Stability Task Force & the Macroprudential Working Group – December 13, 2022
During this meeting, the 2022 Liquidity Stress Test (LST) Framework was adopted for those life insurers meeting the established scope criteria. Updates were received summarizing the 2021 LST results submitted by 21 life insurance groups, the progress being made by several other NAIC groups on private equity ownership of insurance companies, and excerpts from the draft of the Macroprudential Risk Assessment Report. The Groups also heard an international update, including an update on the International Association of Insurance Supervisors’ (IAIS) Global Monitoring Exercise. The Global Monitoring Exercise includes an individual-insurers monitoring exercise, a sectorwide monitoring exercise, and three additional topics of interest: private equity, climate, and cyber.
RBC Investment Risk & Evaluation Working Group – December 14, 2022
This was the Working Group’s first meeting since the August NAIC National Meeting. One new item was added to the working agenda and then the agenda was adopted. The Academy then provided a presentation on Collateral Loan Obligations (CLOs), indicating that the current RBC treatment for the CLOs is not appropriate and needs to be revised. The presentation was exposed for a 45-day comment period, but the group will continue discussions on the topic during that time. Also exposed for comment was a revised structural proposal for the temporary handling of residuals until such time as the Academy can conclude its work. The chair commented that besides this Working Group, other groups also are looking at CLOs and the work will continue as a collaborative project. Comment on both exposures is due by January 27, 2023.
Group Solvency Issues Working Group – December 14, 2022
A common theme running through several of the NAIC groups during this set of meetings was referrals from the Macroprudential Working Group. This meeting was not an exception. There were two referral topics previously given to the Group Solvency Issues Working Group regarding issues associated with private equity ownership of insurers. Discussions on both issues occurred during this meeting.
- Concern that regulators may not be obtaining a clear picture of risk due to the way holding companies structure contractual agreements. The fear is these agreements may be constructed in such a way to avoid regulatory disclosures and requirements. The referral asked what can be done to help mitigate this issue.
- Control is presumed to exist where ownership is ≥10%, but control and conflict of interest considerations may exist with less than 10% ownership. (Examples were provided in the referral.)
The discussion on both of these issues was a spontaneous sharing of ideas and regulators’ personal experiences. Nothing was finalized at this time, but it was an excellent beginning on which to build. The Working Group decided to form a drafting group to develop a work plan to address these issues. The group then received an overview of the Uniform Certificate of Authority Application redevelopment project from the National Treatment and Coordination Working Group. The Working Group was urged to monitor and participate in the part of the project involving changes to Form A. The group’s attention then turned to takeaways from the IAIS’ Targeted Jurisdictional Assessment program that recently ended, as well as receiving an update on international activities. Stressed was the need for state insurance regulators to work with internationally active insurance groups in recovery and resolution planning. The meeting ended with an update on other international activities related to group supervision.
Practices & Procedures Task Force – December 14, 2022
The Task Force met just long enough to adopt its own meeting minutes from the Summer National NAIC Meeting and the minutes from its two Working Groups, SAPWG and the Blanks Working Group (BWG).
Valuation of Securities Task Force – December 14, 2022
The meeting began with the handling of three items that had previously been exposed for comment. Those three items are summarized below.
|Revises the handling of CLOs. CLOs would be treated as a structured security and modeled; SVO to assign NAIC designation and designation category with no administrative symbol; not filing exempt (FE).||Re-exposed for 15 days, ending January 9. When adopted, effective January 1, 2024 year-end.|
|Expands the definition of subsidiary, controlled, and affiliated (SCA) and related-party-debt to include structures where the non-issuer underlying credit exposure qualifies as a related party; amends SCA investment, SCA debt, and SCA preferred stock definitions to include related parties.||Adopted.|
This revision for SCAs was a direct result of the revisions adopted by SAPWG for SSAP No. 25R, which resulted in questions about the eligibility for filing exemption for various affiliated structures. At first, the revisions appear to be just the renaming of the SCA “Debt or Preferred Stock Investments” section to SCA and “Related-Party-Debt or Preferred Stock Investments.” But, like the revisions adopted by SAPWG, it is more complicated than that. The revisions are meant to clarify that the guidance in that section includes non-control relationships. The proposal includes the addition of a new category called “SCA and Related-Party-Filing-Exempt-Investments,” but it should be noted that not all of the SCA and related-party investments would be filing exempt.
|Clarifies definition of an NAIC designation in parts one and two of manual.||Staff instructed to continue work.|
The Task Force then moved onto new items.
|Addition of instructions for structured equity and funds; referrals to Capital Adequacy Task Force and RBC Investment Risk and Evaluation Working Group.||Exposed for 60 days, ending February 13, 2023.|
|Non-substantive technical amendments update references to a 5GI designation.||Exposed for 60 days, ending February 13, 2023.|
|Procedure for proposed CLO modeling methodology.||Exposed for 60 days, ending February 13, 2023.|
The Task Force then received reports on the investment projects of SAPWG and the 2022 year-end modeling process from the Structured Securities Group.
Capital Adequacy Task Force – December 14, 2022
After adopting the minutes of its four working groups, the Task Force referred proposal 2022-09-CA – Revised Affiliated Investments Structure and Instructions, to the BWG and SAPWG. The proposal would result in uniform reporting of SCA investments among all of the RBC formulas, greatly expand the granularity of reporting categories for the SCAs, and increase the number of type codes to be used in the formulas. The Task Force then adopted the following items. (Remember, although all of the below have been adopted by at least one of the working groups, adoption is not considered final until this Task Force also completes adoption.)
|2022-10-H||Removes outdated discussion on development of preferred stock factors in the HRBC.||Adopted for 2023.|
|2022-11-H||References to annual statement on XR013 and XR014 updated to reflect new line of business reporting on the Analysis of Operations in the HRBC.||Adopted for 2023.|
|2022-07-P||Modification of lines of business on PR035 in the PRBC.||Adopted for 2023.|
|2022-08-CR||Revised instructions on how a company can obtain permission to use its own catastrophe model in the PRBC.||Adopted for 2023.|
The group reviewed and adopted its Working Agenda. Proposal 2022-13-CA was exposed for a 45-day comment period ending January 28, 2023. If adopted, this proposal would be implemented in 2023 to update the Schedule H – Part 1 references in the PRBC Health Premiums and Underwriting Risk section for comprehensive medical, Medicare supplement, dental, and vision lines of business. The Task Force briefly discussed the referral from the Restructuring Mechanisms Subgroup regarding companies in run-off, indicating it will continue work on the topic. The chair indicated it will discuss a referral from VOSTF regarding the risk assessment of structured securities and CLOs in its next meeting.
Financial Conditions (E) Committee – December 15, 2022
The E Committee’s meeting was fairly routine. The Committee adopted some of its previous meeting minutes and then in one vote adopted the minutes of 14 of its task forces, working groups, and one subgroup. The National Conference of Insurance Guaranty Funds discussed the research it had performed regarding cybersecurity insurance coverage that led it to recommend the current Property and Casualty Insurance Guaranty Association Model Act (#540). Afterward, the Committee voted for amending the model act. A report presented from the Mutual Recognition of Jurisdictions (E) Working Group indicated that the annual review process of current qualified and reciprocal jurisdictions had been completed and recertification of all currently approved jurisdictions was recommended. The Committee then voted to adopt the recertification. The last item on the agenda was the receipt of a report from the chair of SAPWG summarizing work that was currently being done regarding industry’s request for a negative Interest Maintenance Reserve to be allowed as an admitted asset. No definitive action will be taken prior to this year-end, but it was noted that individual companies had the option of requesting a permitted practice from their domiciliary state regarding this matter.
Executive/Plenary – December 16, 2022
The National Meeting came to an end as it always does with a combined meeting of Executive and Plenary. Traditionally, this meeting is not as well attended by industry as other meetings, but this time industry attendance was very, very low. Both the NAIC 2023 proposed budget and proposed 2023 committee charges were adopted. The minutes of all of the “lettered” committees were either adopted or received, as appropriate. This activity included adopting the 2023 Generally Recognized Expense Table, revisions to Actuarial Guideline XLIV, the new 2022 Group Term Life Waiver Mortality and Recovery Tables, guidelines for Uniform Licensing Applications, and the U.S. version of the Common Framework for the Supervision of Internationally Active Insurance Groups (more commonly referred to as ComFrame). The group then received a report on the state implementation of model laws and regulations and heard the zone election results. Commissioner Scott White’s birthday was recognized by the singing of “Happy Birthday.” The Raymond G. Farmer award (formerly the President’s Award) for exceptional NAIC leadership was then presented to Commissioner David Altmaier (Florida) and Commissioner Gary Anderson (Massachusetts). The meeting ended with the election of the NAIC’s 2023 officers. Normally, regulators adjourn to a regulator-only meeting for the election. Since all positions were uncontested, that was not necessary. Officers for 2023 are:
- President – Chlora Lindley-Myers, Missouri
- President-Elect – Andrew Mais, Connecticut
- Vice President – Jon Godfread, North Dakota
- Secretary-Treasurer – Scott White, Virginia
The National Meeting then officially ended.
Interested Parties (IP) Activities
December saw the reconstitution of regular IP calls regarding the work being done by SAPWG on the principles-based bond definition. The latest round of discussions will address the newest version of documents released for comment during SAPWG’s November meeting.
For more information, reach out to a professional at FORVIS or submit the Contact Us form below.