NAIC December Activity

Thoughtware Alert Published: Jan 05, 2021
Authors
Connie Jasper Woodroof, CJW Associates
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Topics
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There were two kinds of NAIC activity seen during December—the NAIC Fall National Meeting and “regular” meeting activity by various NAIC groups or NAIC-related groups. Let’s take a look at the National Meeting activity first.

NAIC Fall National Meeting

Although the NAIC has been holding virtual National Meetings throughout the year, it used a different format for the last National Meeting of the year. Not only was the time frame condensed from the other virtual National Meetings, but the number of groups meeting also was fewer. Unlike in-person meetings, however, none of the meetings occurred at the same time or overlapped. This provided an opportunity to drop in on groups that one might not normally follow. Individual group meetings began on December 2 with a brief hearing on the NAIC 2021 budget. The National Meeting began in earnest on December 3.

December 3, 2020

Life Actuarial Task Force (LATF)

LATF held more than one session, which is normal for this group. They held both a morning and afternoon session on December 3. The Task Force has several groups reporting to it, so accordingly during these sessions it adopted reports from the Longevity Risk Subgroup, Guaranteed Issue Life Valuation Subgroup, Experience Reporting Subgroup, Indexed Universal Life Illustration Subgroup, Variable Annuities Capital and Reserve Subgroup, and Valuation Manual (VM)-22 Subgroup. LATF heard updates from the Interstate Insurance Product Regulation Commission and Academy Life Practice Council, as well as an update on research and education from the Society of Actuaries. NAIC legal staff provided information on how HIPAA guidelines may affect the NAIC acting as an experience reporting agent under VM-50 and VM-51. Proposal 2019-33 providing for the application of principle-based reserving (PBR) requirements for group life insurance contracts with individual risk selection criteria issued under insurance certificates was re-exposed for comment. An amendment allowing for exemption of policies from prior issue years when there is a change in the life PBR exemption requirements, proposal 2020-11, was exposed for comment. Proposal 2020-08, providing an alternative method for mortality aggregation, was adopted. The American Academy of Actuaries requested the Task Force consider a one-year time lag for PBR mortality reporting. No action was taken on that suggestion at this time. The meeting concluded with an overview of the Economic Scenario Generator (Generator) timeline and model; however, an additional meeting to continue discussions on the Generator has been scheduled for January 21, 2021.

Zone Meetings

In addition to NAIC committee meetings, December 3 was the day for the regulator-only Zone Meetings. What is a Zone Meeting, you ask? Good question. The NAIC Bylaws divide the United States, its territories, and insular possessions into four geographical zones. Each zone elects a chair, vice chair, and secretary, who then serve on the NAIC’s Executive Committee to provide oversight and direction of the organization. Members of each zone meet at the NAIC National Meetings to discuss issues and NAIC activities germane to their interests.

Other Groups Meeting on December 3 (no summary provided)

  • NAIC/Consumer Liaison Committee

December 4, 2020

Climate and Resiliency Task Force – December 4, 2020

This group serves as the coordinating NAIC group for climate-related risk and resiliency issues among state insurance regulators, industry and others. During its meeting, the Task Force heard a presentation from the Sustainable Insurance Forum (SIF) on past, current, and future SIF resources available to state insurance regulators. Updates on international activity related to analysis of insurers’ investment exposure to climate risk were provided. The American Academy of Actuaries discussed its analysis of the recent NAIC Climate Risk Disclosure Survey data, while the NAIC Center for Insurance Policy and Research provided its assessment of the same survey data. The meeting ended with updates related to potential federal climate initiatives.

Other Groups Meeting on December 4 (no summary provided)

  • Long-Term Care Task Force
  • Joint Meeting of the Insurance Compact Management Committee and Commission
  • Innovation and Technology Task Force – December 4, 2020

December 7, 2020

Opening Session

Despite the official name of this session, it was not the first session of the National Meeting. It never is. This session was conducted by NAIC President and South Carolina Director of Insurance Ray Farmer. It was entirely prerecorded. Most of the session was devoted to the awarding of the 2020 Dineen Award, an annual NAIC award given each year to honor insurance regulators for their efforts and accomplishments. This year’s award winners were Gordon Ito, Chief Deputy Commissioner of Hawaii, Doug Stolte, Deputy Commissioner of Virginia, and Paul Lombardo, Director of the Life and Health Division of Connecticut. President Farmer summarized the actions the NAIC and state regulators took during the pandemic emergency and recent racial tensions, including ongoing projects. The session concluded with President Farmer giving a brief farewell speech and President-elect David Altmaier’s incoming speech. President-elect Altmaier is the current Florida Commissioner of Insurance.

Life Insurance and Annuities (A) Committee

The Committee adopted the reports of the Annuity Disclosure Working Group, Accelerated Underwriting Working Group, Annuity Suitability Working Group, Life Insurance Illustration Issues Working Group, Life Insurance Online Guide Working Group (OGWG), and Life Actuarial Task Force. Two of the reporting groups requested time extensions for completing work on model laws. The OGWG report provided a discussion on the development of “an online resource on life insurance, including the evaluation of existing content on the NAIC website, to be published digitally for the benefit of the public.” The Committee decided to revisit its 2021 charges for possible revisions early in 2021.

Financial Regulation Standards and Accreditation (F) Committee

This group is one of the NAIC’s standing committees and is charged with maintaining, overseeing, and strengthening accreditation standards. As part of that process, it conducts yearly reviews of accredited jurisdictions, updates the NAIC Accreditation Program Manual (Manual), and considers changes to accreditation standards based on the work of other NAIC groups. During this meeting, the Committee began by adopting its 2021 charges. The group then adopted a referral from the Risk-Focused Surveillance Working Group that revises Part C: Organizational and Personnel Practices of the Manual. The revision will help to determine if insurance department staff are being adequately compensated. Another referral from the Risk Retention Group Task Force also was adopted and will make changes to the Risk Retention Group Analysis Guidelines.

Other Groups Meeting on December 7 (no summary provided)

  • Special Committee on Race and Insurance
  • Health Insurance and Managed Care Committee

December 8

Property and Casualty Insurance (C) Committee

The meeting began with the adoption of the reports of 11 of the Committee’s task forces and working groups. The Real Property Lender-Placed Insurance Model Act, developed by the Lender-Placed Insurance Model Act Working Group, was adopted and will now continue up the NAIC ladder of committees to the Executive Committee for further action. The discussion then moved to the Regulatory Review of Predictive Models White Paper, developed by the Casualty Actuarial and Statistical Task Force. A revision to the paper was proposed and discussed. After a lengthy discussion on the proposed amendment and parliamentary procedures, the White Paper was adopted without any revisions. The Committee’s 2021 charges were amended and adopted, and the Committee than authorized work to update the Nonadmitted Insurance Model Act. At this point, the meeting was significantly over its allotted time, so further agenda items were delayed for a future meeting.

Financial Condition (E) Committee

The E Committee began by adopting the reports of 11 of its task forces and working groups en masse. It then moved on to the next agenda item, which was to consider adoption of the Guidelines for Administration of Large Deductible Policies in Receivership. The original work on the guidelines was accomplished by the Receivership Large Deductible Workers’ Compensation Working Group earlier this year and also had previously been approved by the Receivership and Insolvency Task Force. The guidelines were adopted. The last action of the meeting was the adoption of the Group Capital Calculation and Template and Instructions. The E Committee had previously adopted needed revisions to the Holding Company Models that enforce this new calculation. There were no other items brought up for discussion.

Other Groups Meeting on December 8 (no summary provided)

  • CIPR Fall Program: Pandemic Business Interruption Federal Insurance Mechanism Learning from the Past, Thinking About the Future
  • Market Regulation and Consumer Affairs Committee

December 9

Executive Committee

The Committee adopted the report of six of its task forces, with a note that the Financial Stability Task Force had been instructed to refer crafted revisions to the Holding Company Model to the Financial Condition (E), which it had done. The Committee adopted its charges for 2021. After an activity summary presented by North Dakota Commissioner of Insurance Jon Godfread, amendments to the Unfair Trade Practices Act were adopted. During the adoption conversation, it was noted an award was clearly visible in the Commissioner’s background (this was a Zoom meeting). Although one could plainly see the award was from Guinness World Records, the print was too small to see what record the Commissioner held. A little internet investigation revealed that in 2019 the Commissioner was named the tallest male politician (6’10”). The Executive Committee received status reports on the State Ahead implantation and different model law development. Oral reports on the activities of the National Insurance Producer Registry and the Interstate Insurance Product Regulation Commission were given.

Executive/Plenary

The joint meeting of Executive Committee/Plenary is always the last meeting of the National Meeting. Because this group is the top rung of the NAIC’s ladder of committees, there is always a lengthy agenda. Accordingly, meeting minutes of committees, subcommittees, and task forces are adopted by consent, with items that need specific approval handled separately. The minutes were adopted by consent. The group then adopted the following:

  • NAIC 2021 budget
  • NAIC 2021 proposed committee charges
  • 2021 Generally Recognized Expenses Table as submitted by the American Academy of Actuaries
  • Amendments to Actuarial Guidelines XLIX – The Application of the Life Illustrations Model Regulation to Policies with Index-Based Interest (AG 49) (with strong dissention from New York and New Mexico)
  • Amendments to Standard Nonforfeiture Law for Individual Deferred Annuities (there was strong opposition by several states, but they were adopted by two-thirds majority)
  • Amendments to Health Maintenance Organization Model Act
  • Workers’ Compensation Policy and the Changing Workforce Whitepaper
  • State Disaster Response Plan
  • Amendments to the Market Conduct Annual Auto and Home Data Call and Definitions
  • Amendments to the Insurance Holding Company System Regulatory Act and Insurance Holding Company System Model Regulation with Reporting Forms and Instructions

Some committee activity does not to be adopted by Executive/Plenary, but rather can be received. The following reports were received:

  • Life Insurance and Annuities (A) Committee
  • Health Insurance and Managed Care (B) Committee
  • Property and Casualty Insurance (C) Committee
  • Market Regulation and Consumer Affairs (D) Committee
  • Financial Condition (E) Committee • Financial Regulation Standards and Accreditation (F) Committee
  • International Insurance Relations (G) Committee

The group heard an update on the status of statement implementation of various model laws and regulations, as well as the results of the recently held zone elections (see discussion above). Outgoing NAIC President Farmer gave a brief farewell speech, and then the focus of the meeting moved on to the election of officers for the coming year. The nominations were as follows:

  • President – David Altmaier (Florida Insurance Commissioner)
  • Vice President – Chlora Lindley-Myers (Missouri Insurance Director)
  • 2022 President-elect – Dean Cameron (Idaho Insurance Director)
  • Secretary/Treasurer – Vicki Schmidt (Kansas Insurance Commissioner) and Andrew Mais (Connecticut Insurance Commissioner)

The public meeting was then adjourned so the voting could take place. Voting is not open to the public. As one can see, most of the officer candidates ran unopposed. Commissioner Mais was elected to the Secretary/Treasurer office.

Other Groups Meeting on December 5 (no summary provided)

  • International Insurance Relations Task Force

Other NAIC or NAIC-Related Activity

That wraps up the official NAIC Fall National Meeting activity; now let’s take a look at other NAIC or NAIC-related activity that occurred.

Interested Parties (IP) SSAP No. 43R – December 2, 9, & 17, 2020

During this series of meetings, Interested Parties met to finalize its response letter to the Statutory Accounting Principles Working Group (SAPWG) regarding the exposure of the Iowa Insurance Division proposal to establish principles on which investments are intended to be reported in Schedule D – Part 1 of the statutory annual statement. Rather than a detailed response letter, the IP’s letter is a brief response listing the key areas it feels need to be addressed to arrive at a principles-based definition of investments to be classified as “bonds” and reported in Schedule D – Part 1. In the letter, IP reaffirmed its continued willingness to work with SAPWG and Iowa on the issue. With the comment letter submitted, calls with NAIC and Iowa regulators will continue and hopefully will focus on the points addressed in the IP letter. This series of IP calls will continue after the first of the year and will be scheduled for the day after the NAIC/Iowa regulator calls occur.

Interested Parties SAPWG Releases – December 14, 2020

IP met to discuss four specific items that had been released for comment, with a comment deadline of January 11, 2021. The four specific items were:

  • 2019-34 – Revisions to SSAP No. 25. This was a re-exposure, which was supposed to include some revisions previously suggested by IP, as well as a new recommended disclosure from the Group Solvency Issues Working Group. IP was concerned that its revisions were not included.
  • 2020-35 – Requesting comments on possible revisions to SSAP No. 97 regarding the audit opinion and situations that exist for admittance of 8.b.iii Subsidiary Controlled and Affiliated entities where there is no ability to quantify their departure from U.S. GAAP.
  • 2020-39 – Revisions to Appendix F; policy statement revisions to clarify issuance and adoption of accounting interpretations.
  • 2020-40 – Revisions to the Accounting Practices and Procedures Preamble on the reporting of permitted and prescribed practices of nondomiciliary states.

Interested Parties had some significant concerns on each of these issues. So much, in fact, that it felt a preliminary conversation with SAPWG staff was needed prior to submitting a comment letter.

Blanks Working Group – December 16, 2020

This was the last scheduled meeting of the Blanks Working Group for 2020. The following items were withdrawn, adopted, or exposed for comment.

Key for summaries:

L/F – Life, Accident and Health/Fraternal statement

P/C – Property/Casualty statement

H – Health statement

T – Title statement

Key Summaries

 

Key Summaries continued

 

After approving some editorial changes for already adopted items, the Working Group then adopted two reporting guidance documents to be posted to its website prior to this year-end. Reporting guidance is being provided for the Notes to Financials #22 ACA Section 9010 Assessment and for the reporting of Health Care Receivables in the Health Statement. A memo from SAPWG discussing additional disclosures that need to be included in the 2020 Annual Statement was reviewed. Specific guidance on the disclosures will be posted to the Blanks Working Group’s website and cover:

Note 17C wash sales disclosure of certain “rolling” short-term investments Changes to the narrative reporting in Note 10O for Subsidiary, Controlled and Affiliated and SSAP No. 48 entity loss tracking

All items that were adopted and/or exposed for comment are posted on the Working Group’s website.

Life/Fraternal Risk-Based Capital Working Group (LRBCWG) – December 17, 2020

The purpose of this meeting was to reintroduce the American Council of Life Insurer’s (ACLI) real estate proposal for the Life/Fraternal RBC calculation. The ACLI first brought up the idea of revising the current real estate RBC handling in 2015. In 2017, the ACLI proposed a 10 percent factor for real estate reported on both Schedule A and Schedule B, an adjustment for unrealized capital gains, and updating the factor for real estate encumbrances. In 2018, further real estate factor discussions were put on hold to allow focus on the revision of RBC bond factors. The ACLI feels now is the time to continue with the review of the handling of real estate. After the ACLI briefly reviewed its proposal, regulators and the industry were given an opportunity to ask questions. During the questioning, the Working Group was told there was updated data available that still supported a decrease in the RBC factors. The ACLI also affirmed that the proposal is not just to update the factors but would require RBC structural changes. The material presented during this call, however, did not demonstrate what structural changes would be needed. The chair announced the Working Group would discuss the issue further during its next call on January 21, 2022, and by then they would like to see an updated proposal including the needed structural changes, as well as updated data to support the proposal. Prior to concluding the meeting, the group received a report on the status of the review of the bond factors. Moody’s Analytics is performing the modeling review with a final report due February 1, 2022.

Statutory Accounting Principles Working Group (SAPWG) – December 18, 2020

The Working Group met specifically to address two new proposed Interpretations (INT) that need to be addressed for this year-end. INT 20-11 – Extension of Ninety-Day Rule for the Impact of 2020 Hurricanes, California Wildfires and Iowa Windstorms was adopted. As has been done in the past, the INT extends the usual 90-day rule for the nonadmission of uncollected premium balances, bills receivable and amounts for uncollected premium balances, bills receivable for premiums, and amounts due from agents and policyholders by an additional 60 days. The INT is effective for year-end 2020 reporting, expiring on February 28, 2021. The INT applies to the following disasters:

  • Hurricanes Isaias, Laura, Sally, Delta, Zeta, and Eta, as well as the related tropical storms and/or flooding from them.
  • California wildfires declared a disaster on or after August 1, 2020.
  • Iowa straight-line windstorms impacted policies in the counties that declared a state of disaster in August 2020.

A great deal of discussion occurred regarding the possible adoption of INT 20-10 – Reporting of Nonconforming Credit Tenant Loans (CTLs). It was finally decided to revise the INT, expose it for a shortened comment period ending December 22, 2020, and then adopt by January 4, 2021, to be applicable for year-end 2020 reporting. The revised INT will allow nonconforming CTLs previously reported on Schedule D – Part 1 to remain on that schedule for 2020 as long as the CTLs are filed with the SVO by February 15, 2021. In addition, companies will have to include information on the amount of nonconforming CTLs that are reported in Schedule D – Part 1 as part of their 2021 Notes to Financials #1 in a manner similar to a permitted practice. During 2021, these nonconforming CTLs can remain on Schedule D – Part 1 if the SVO assigns an NAIC Designation by December 31, 2021, or unless more permanent guidelines are adopted. CTLs that have previously been reported on Schedule B or Schedule BA are to remain on those schedules. Remember, this INT is temporary in nature, as the Working Group will continue work on the issue of nonconforming CTLs.

During a December 28 e-vote, SAPWG adopted the INT. It is now posted on SAPWG’s website.

Valuation of Securities Task Force – December 18, 2020

The focus of the Task Force meeting was editorial updates to the Purposes and Procedures Manual of the NAIC Investment Analysis Office correcting amendments adopted earlier on the mapping of modeled RMBS/CMBS securities to NAIC Designation Categories. The editorial updates were exposed for a very short comment period, ending December 22. If adopted, the previously mapped NAIC Designations to NAIC Designation Categories for modeled RMBS/CMBS will change for those that modeled to an NAIC Designation 1 from 1.A to 1.D. Industry pointed out that many company systems have already been set up for the 1.A Designation Category and that it is too late to change it for this year-end. The Task Force decided the Securities Valuation Office to the use of 1.A for this year. Also discussed were the break points and other issues surrounding modeled RMBS/CMBS that have zero-loss in 2020. Industry expressed concern that modeling is more conservative this year than in the past and coupled with low interest rates is causing a modeling breakpoint problem. Although the issue was discussed, no definitive action was taken.

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