The NAIC Fall National Meeting was held in Orlando, Florida, which was a nice change of pace for those of us who had already received a taste of winter in November. Attendance at the meeting was the highest it had been since the end of the pandemic, although almost as many still attended the meeting virtually. The weather was great, the venue was gorgeous, and the food was expensive. What more could one ask for? Here’s a summary of some of the meeting’s activities.
NAIC/Consumer Liaison Committee – November 30, 2023
Prior to the official business of the Committee, the awarding of the Bonnie Burns Consumer Representatives’ Excellence in Consumer Advocacy Award to Commissioner Andrew R. Stolfi of Oregon was observed. The Committee then heard presentations from the following consumer groups. A summary of the Consumer Participation Board of Trustees meeting was received. During that meeting, the Board selected consumer representatives who will serve during 2024. The Committee then heard several presentations, as listed below.
- Federal Health Policy Update
- The Leukemia & Lymphoma Society
- National Health Law Program
- HIV+ Hepatitis Policy Institute
- Drivers of Medical Debt, Current State Protections, and Recent Federal Actions
- American Heart Association
- Health Care for All
- Georgetown University, Center of Health Insurance Reforms
- How Insurance Commissioners Can Improve Maternal Health Outcomes
- National Women’s Law Center
- Addressing Property Insurance Market Failures with a Federal Catastrophe Reinsurance Program
- United Policyholders
- Addressing Property Insurance Market Failures
- Center for Economic Justice
- Pet Insurance: No Longer a Niche Product Line
- Center for Insurance Research
- Not Much of the Life Insurance Purchased in the U.S. Winds Up As a Death Claim
- Life Insurance Consumer Advocacy Center
Statutory Accounting Principles Working Group (SAPWG) – December 1, 2023
Leading the agenda were several proposals that had previously been exposed for comment. Most of those ended up being re-exposed for comment, with only four adoptions. However, review those adoptions carefully as two will be effective for 2023 year-end, one on January 1, 2024 and one in 2025. In addition, two of the items exposed for comment have a shortened comment period, with the goal of having them in place for year-end 2023 reporting.
| Reference # | Subject | Disposition |
|---|---|---|
| 2019-21 | Revisions to Statement of Statutory Accounting Principles (SSAP) No. 21R – Other Admitted Assets covering debt securities that do not qualify as bonds. | Re-exposed modifications through January 22, 2024. |
This exposure could seem confusing as the principles-based bond definition in 2019-21 was adopted in August. That is true, but some details for the accounting and reporting of debt securities that will no longer qualify as bonds beginning in 2025 were carved out of that adoption. Previously received comments objected to the suggested measurement method for residual tranches as well as language providing guidance on other-than-temporary impairments. This recent exposure addresses both issues. A shortened comment period reflects the need to have the language finalized to allow the Blanks Working Group (BWG) to implement reporting guidelines for January 1, 2025 implementation.
| Reference # | Subject | Disposition |
|---|---|---|
| 2022-12 | Nullification of INT 03-02: Modification to an Existing Intercompany Pooling Arrangement. | Deferred at this time. |
| 2022-14 | Revisions to SSAP No. 93 – Low-Income Housing Tax Credit Property Investments and SSAP No. 94R – Transferable and Non-Transferable State Tax Credits and a few other related SSAPs. | Re-exposed with modifications through February 9, 2024. |
| 2023-14 | Establishes a long-term project to review the Interest Maintenance Reserve (IMR) and Asset Valuation Reserve (AVR), resulting in revisions to SSAP No. 7 – AVR and IMR. | Further action to follow. |
| 2023-15 | Revises the Life/Fraternal Annual Statement Instructions for the IMR and AVR regarding specific allocation guidance for gains/losses. | Adopted effective January 1, 2024. |
Heads-up on the above item, as it is effective January 1, 2024. This is considered a new statutory accounting principles concept. The revisions remove instructions that previously appeared to allow the allocation of non-interest-related losses to the IMR, rather than the AVR. Mortgage loans with valuation allowances and debt securities with known credit events are the focus of the changes.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-16 | Changes to SSAP No. 48 – Joint Ventures, Partnerships, and Limited Liability Companies clarify the Schedule BA reporting categories. | Re-exposed through January 22, 2024. |
The original exposure provided reporting categories for non-registered private funds, joint ventures, partnerships or limited liability companies, and residual interests based on the underlying characteristics of assets, as well as more complete definitions of those categories. Based upon comments received, modifications to the proposal have been made for the re-exposure. As part of the re-exposure, it was noted that some of the category descriptions are broad and additional regulator and industry feedback on those definitions would be appreciated.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-17 | Modifications to SSAP No. 2R – Cash, Cash Equivalents and Short-Term Investments prohibits the reporting of certain assets as cash equivalents and/or short-term investments. | Adopted effective January 1, 2025. |
The above is another direct result of the bond definition project. Adopted revisions to this SSAP prohibit asset-backed securities, Schedule BA-like assets, mortgage loans, and derivative instruments from being classified as cash equivalents or short-term investments. Securities that reset at predefined rates, or have other features that investors believe result in a different term than the contractual maturity, are to be accounted for based on the contractual maturity date at acquisition and classified accordingly (except where directed differently by another SSAP).
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-22 | Clarification to SSAP No. 54 – Individual and Group Accident and Health Contracts state that gross premium valuation and cash flow testing are both required if indicated under A-010 – Minimum Reserve Standards for Individual and Group Health and Actuarial Guideline LI – The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves. | Adopted, effective immediately. |
| INT 23-04 | Life Reinsurance Liquidation Questions. | Re-exposed through December 29, 2023. |
INT 23-04 provides accounting and reporting guidance for ceding entities with the life reinsurance counterparty, Scottish Re, which as of September 30 is in liquidation. The INT requires following existing life reinsurance guidance (SSAP 61R) and requires nonadmission of unpaid claims and other amounts that are either in dispute or not collateralized by an Appendix – 785: Credit for Reinsurance (A-785) compliant trust. It allows admission of undisputed claims incurred before contract cancellation and paid before the reporting period, as well as undisputed amounts secured by an A-785 compliant trust. The length of the discussion on the INT during the meeting seemed to catch most by surprise. Since guidance needs to be in place for year-end 2023 reporting, the INT has a very short re-exposure period, after which SAPWG will schedule a meeting in early January to take final action, which will then be retroactive to December 31, 2023.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-23 | Changes to SSAPs No. 30R – Unaffiliated Common Stock and No. 32R – Preferred Stock now indicate that investments that are in substance residual interests are to be reported in Schedule BA. | Adopted effective December 31, 2023. |
Heads-up on the above adoption, as it is effective for this year-end. This means companies need to perform a review and analysis of investments that have been reported as common stock and/or preferred stock to determine if in substance they are actually residuals. Any of the investments determined to be residuals must be moved to Schedule BA for reporting.
Items that were introduced or re-introduced and exposed for comment or otherwise were acted upon were as follows.
| Reference # | Subject | Disposition |
|---|---|---|
| 2016-20 | ASU 2026-20 – Credit Losses. | Disposed of without revisions to statutory accounting. |
| 2023-24 | Rejects Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments and related subsequent ASUs. | Exposed through February 9, 2024; then changed to December 29, 2023. |
At the request of industry, the original comment period on this issue was shorted so action to formally reject the ASU guidance could occur in early January 2024, but the rejection would be applicable to audited statutory financial statements as of December 31, 2023.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-25 | Rejects ASU 2023-03, Amendments to SEC Paragraphs. | Exposed through February 9, 2024. |
| 2023-26 | ASU 2023-06, Codification Amendments in Response to the SEC’s Disclosure Update. | Deferred at this time. |
| 2023-27 | Rejects ASU 2023-04, Amendments to SEC Paragraphs—Cryptocurrency. | Exposed through February 9, 2024. |
| 2023-28 | Provides additional transparency for the reporting of collateral loan reporting via the type of collateral supporting the loan to SSAP No. 21R – Other Admitted Assets. | Exposed through January 22, 2024. |
| 2023-29 | Would revise the Life/Fraternal Annual Statement Instructions to clarify realized gains/losses on perpetual preferred stock are not to be added to the IMR, regardless of NAIC designation. | Exposed through February 9, 2024. |
| 2023-30 | Updates language in SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities on audits and admissibility to better align with the look-through methodology. | Exposed through February 9, 2024. |
| 2023-31 | Calls for review of the Mortgage Guaranty Insurance Model Act (#630) for incorporation into SSAP No. 58 – Mortgage Guaranty Insurance and Appendix A-630: Mortgage Guaranty Insurance. | Exposed through February 9, 2024. |
| 2023-03 | New C-2 Mortality Risk Note disclosure. | Dismissed, as it is being replaced by a BWG proposal for a general interrogatory. |
The Working Group heard updates on U.S. GAAP exposures, the Life Actuarial Task Force Coordination memorandum, and activities of the International Association of Insurance Supervisors Audit and Accounting Working Group.
Opening Session – December 1, 2023
Unlike other sessions at NAIC National Meetings, this session has little to do with process of insurance regulation, but instead usually concentrates on the individuals serving as insurance regulators. The session was opened by the current NAIC President, Missouri Director of Insurance Chlora Lindley-Myers, with a greeting for all and announcing a record in-person attendance of the National Meeting since the pandemic. Afterward, Florida’s Insurance Commissioner Michael Yaworsky welcomed everyone to Florida for the meeting. One of the usual activities of the NAIC Fall National Meeting is the presentation of the Robert Dineen Award. The award was established to recognize outstanding service and contribution to the state regulation of insurance and is named after the founder of the NAIC’s support and services office. There were four recipients of the award for 2023. Those recipients were:
- George Bradner – Deputy Commissioner of Connecticut
- Denise Gardner – Louisiana Department of Insurance
- Joy Little – Tennessee Department of Insurance
- Jackie Obusek – North Carolina Department of Insurance
In addition, three individuals were awarded the Raymond G. Farmer Award for Exceptional Leadership. The Farmer Award is given at the president’s discretion. It honors an NAIC member who has shown exemplary leadership through a sustained length of industry service and has contributed to advancing the NAIC’s mission. Those receiving the award were:
- Beth Kelleher Dwyer, Rhode Island Department of Business Regulation Director
- Ricardo Lara, California Department of Insurance Commissioner
- Lori Wing-Heier, Alaska Division of Insurance Director
Since this was Ms. Lindley-Myers last meeting serving as president, she provided an overview of her experience and thanked all those who assisted her. President-Elect Andrew Mais then took over the meeting to present Ms. Lindley-Myers with tokens of the outgoing president’s term. Since Ms. Lindley-Myers is rather famous for her passion for scarves, it seemed very appropriate that those gifts included a scarf.
Risk-Based Capital (RBC) Investment Risk and Evaluation Working Group – December 2, 2023
After hearing updates from the Valuation of Securities Task Force and SAPWG, the group then moved on to a presentation from the American Academy of Actuaries (Academy) on the Principles of Structured Securities. The presentation had been discussed at previous meetings, with the Academy then taking regulator feedback from those sessions and crafting revisions to the principles. Those revisions were discussed during this session and a few more revisions were suggested. The Working Group then gave the Academy approval to use these principles to begin its work on the development of RBC requirements for structured securities. During the session, it was clarified that if the factor for residuals changes in 2024, treatment will still remain as a single factor for all residuals, since there is not time to adopt RBC format changes for multiple factors. Multiple factors might be developed for future reporting. The group also asked that any other NAIC groups working on permanent changes regarding the handling of residuals to please notify this group of that activity.
Life RBC Working Group – December 2, 2023
Previously, a presentation by the American Council of Life Insurers (ACLI) concerning repurchase agreements had been released for comment. The ACLI suggests aligning the treatment of repurchase agreements with the current treatment of securities lending. No comments were received during the exposure period. The Working Group will schedule a call in January to further discuss this topic. As part of the process, SAPWG and BWG will be notified of the project. A memorandum regarding the handling of C2 risk component for 2023 was released for a 10-day comment period. Once approved, the memorandum will be posted on the website to provide companies with the needed guidance. Brief reports on economic generators, longevity, and variable annuities were provided by the subgroups working on those issues. The Academy announced that it had procured a consultant to conduct the VM-22 field testing and wanted to inform the Working Group that the testing will include a capital test and consequently may indicate needed changes to the current C3 risk component.
Joint Meeting of the Catastrophe Risk Subgroup & Property RBC Working Group – December 2, 2023
The groups took the following action.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-13-CR | Proposes an additional disclosure in the Property RBC regarding catastrophe reinsurance programs. | Exposed for 60 days, ending January 30, 2024. |
| 2023-14-P | Adds pet insurance as a separate line of business for the Property RBC. | Exposed for 60 days, ending January 30, 2024. |
| 2023-15-CR | Would add convective storms to the Property RBC formula for informational purposes only. | Exposed for 60 days, ending January 30, 2024. |
| 2023-16-CR | 2023 Catastrophe Events List. | Adopted. |
In addition, both groups adopted their working agendas for the upcoming year, discussed the wildfire impact analysis, and received updates from the Convective Storm Model Review Ad Hoc Group. The Academy provided an update on its work on the underwriting risk factors and investment income adjustment factors. Some factors indicate significant changes and, consequently, the Academy asked if changes should occur all at once or be applied gradually. No decision was made at this time, but meetings will be scheduled after the first of the year for more detailed discussions. The meeting ended with a presentation and discussion from the Florida Commission on Hurricane Loss Project Methodology.
Accounting Practices and Procedures Task Force – December 2, 2023
Nothing exceptional was accomplished during this meeting. The Task Force adopted the minutes to its Summer National Meeting, adopted the minutes of its two working groups, and then adjourned.
Executive Committee – December 2, 2023
The Committee adopted several different reports during its meeting. Those reports included a joint, regulator-to-regulator session of the Committee and the Internal Administration Subcommittee, actions taken by the Committee to file an amicus brief in Delaware Department of Insurance v. United States of America (IRS), and reports of its task forces. The Committee heard a status report on the State Connected strategic plan and the development and/or revisions of several model laws. The National Insurance Producer Registry and the Interstate Insurance Product Regulation Commission provided reports on their work.
Valuation of Securities Task Force (VOSTF) – December 2, 2023
After adopting its Summer National Meeting minutes, the Task Force heard a staff report on the history of the filing exemption (FE) process. The discussion then turned to a referral from SAPWG summarizing the work it has been doing on the bond project and noting that debt securities that will no longer qualify as bonds will be reported on Schedule BA. As such, SAPWG wanted to reaffirm with VOSTF that the Securities Valuation Office (SVO) will maintain the existing procedure of assigning NAIC designations for use in determining RBC for Schedule BA assets “that have the underlying characteristics of a bond or other fixed income instrument …” The continuation of this policy will remain in place and be communicated to SAPWG and the Capital Adequacy Task Force. The following proposed revisions to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) were exposed or re-exposed for comment, with the comment period ending January 26, 2024.
- Updating of the definition of NAIC designation and locating the definition in only one section of the P&P Manual.
- Amendments authorizing procedures for the SVO’s discretion over NAIC designation assigned through the FE process.
- Addition of a practical expedient to determine the issue date for private letter (PL) ratings.
The Task Force received a report on the proposed collateralized loan obligation modeling methodology and projects of the SAPWG. The SVO announced it will defer the deactivation of the PL rating rationale report until year-end 2024 and asked that insurers submit those reports.
Capital Adequacy Task Force – December 2, 2023
The Task Force adopted the report of the Actuarial Opinion Working Group, which had in turn adopted the Regulatory Guidance on Property and Casualty Statutory Statements of Actuarial Opinion, Actuarial Opinion Summaries, and Actuarial Reports for the Year 2023. The Task Force then adopted the report of the Statistical Data Working Group, received reports about other committee activities that might eventually impact RBC, received an update from the NAIC Rate Model Review Team, and heard reports from professional actuarial associations.
Financial Conditions (E) Committee – December 3, 2023
The meeting began with the usual adoption of the minutes to the Committee’s task forces and working groups. Since no items were considered controversial in nature, the adoption happened en masse and not individually. The Committee then adopted the newest information regarding qualified and reciprocal jurisdictions. Next came what might be considered the meeting’s headline event, comments received on the Committee’s paper, Framework for Insurer Investment Regulation: A Holistic Review. Sixteen comment letters were received during the exposure period and each organization submitting a letter was given two minutes to provide general comments. Surprisingly, all managed to stay within their allotted two minutes. The comments made were generally supportive of the approach outlined in the paper. The Committee announced that starting in 2024, it will be scheduling meetings to address specific issues raised by the comment letters.
Cyber Risk and Assessment: An Insurance Industry and Market Prospective – December 3, 2023
This was a special session that included a historical overview of insurance industry cybersecurity loss events, a discussion of the work being done by state departments of insurance and the NAIC to develop best practices, provided an understanding of the modeling and challenges of cyber risks, and an assessment of employing cyber models for more widespread cyber insurance marketplace development.
New 2024 NAIC Officers
As is usual for the NAIC Fall National Meeting, new officers for the next year were elected at the end of the Meeting. Those new officers are:
- President: Andrew N. Mais, Connecticut Insurance Commissioner
- President-Elect: Jon Godfread, North Dakota Insurance Commissioner
- Vice President: Scott A. White, Virginia Insurance Commissioner
- Secretary-Treasurer: Elizabeth Kelleher Dwyer, Rhode Island Superintendent of Financial Services
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