October 2021 NAIC-Related Activity

Thoughtware Alert Published: Nov 11, 2021
Business people shaking hands in a conference room

Before diving into October’s NAIC-related activity, everyone should be aware that the next NAIC National Meeting, scheduled for December, will once again be a hybrid meeting. However, a look at the preliminary agenda shows a few more of the Task Forces and Working Groups that had only been meeting virtually outside of the National Meeting dates are now scheduled in person during the Meeting dates. In a little twist maybe meant to encourage more in-person attendance, only the audio for those particular groups’ meetings will be available online; no video. Oh well.

Now let’s dive into October. As autumn started to show itself in many parts of the country, October NAIC-related activity was a little on the slow side. Maybe everyone was outside enjoying the change of seasons. Or maybe it was because it also was quarter-end and everyone was extremely busy. Whatever the reason, here is a summary of activity.

Interested Parties (IP) SSAP No. 43R Group – October 6, 14, 20, & 28, 2021

This IP group was originally formed to provide feedback to regulators and NAIC staff on anticipated revisions to SSAP No. 43R – Loan-Backed and Structure Securities. As those of you who have been following this project know, the first step in that process was to craft a definition of “bonds”—that is, securities that will qualify to be reported in Schedule D – Part 1 of the statutory statement. During the drafting of a definition, it became apparent that a different definition of “bond” than that which is currently being used also will affect SSAP No. 26R – Bonds. Therefore, the project is now being referred to as the Bond Project, instead of the SSAP No. 43R project. The first draft of a bond definition was released for comment on August 26 and has not been formally discussed since that time, although the informal discussions between regulators, industry, and NAIC staff have continued. However, during the creation of the definition, several other issues were raised by regulators, some dealing with specific types of investments. Consequently, the IP group has been dealing with these other side issues and providing feedback accordingly. Those extra projects have included residual tranches, possible changes to Schedule D and BA reporting, what happens to an investment that may no longer meet the definition of a bond, and various other miscellaneous topics as they arise. 

Blanks Interested Parties – October 20, 2021

As reported in September, the Blanks IPs began meeting proactively to address possible revisions to Schedule D reporting, and maybe other investment schedules, as a result of the Bond Project. Although they only met one time in October, Blanks IPs are in the process of setting up regularly scheduled meetings to continue work on Schedule D as the Bond Project progresses. BKD will not continue to provide a description of each of those meetings at present but do want to make sure everyone is aware they are taking place. If you or someone you know might like to volunteer or would like to be part of this effort, contact Tip Tipton, co-chair of the Blanks IPs, at tip.tipton@thrivent.com. 

Property and Casualty Risk-Based Capital (PRBC) Working Group – October 25, 2021

The Working Group heard an update from the Catastrophe Risk Subgroup on its work in developing wildfire risk for the PRBC formula. Proposal 2021-14-P was released for a 30-day comment period ending November 24. This proposal would remove an embedded 2 percent operational risk contained in the R3 reinsurance credit risk component beginning with the 2022 filing. When the R3 credit risk charge for reinsurance receivable was first implemented into the PRBC, there was no separate operational risk in the formula. Now there is, so it is appropriate to adjust the existing R3 factors accordingly, eliminating double counting of operational risk. The group also released for comment a response to a referral received from the Restructuring Mechanisms Subgroup. The Subgroup had requested that the Working Group consider possible changes to the PRBC formula for companies in a runoff situation. After several discussions by a PRBC ad hoc group, the Working Group composed a response indicating that it felt the best course of action at this point in time was to monitor these companies through state analysis and the exam team function. The Working Group, however, may consider some suggestions provided by the ad hoc group, including the removal of the trend test, the premium growth charge, and the catastrophe risk charge for companies in runoff. The ad hoc group also suggested that a general and RBC interrogatory be added to the reporting of runoff companies, making it easier for regulators to identify those companies.

Statutory Accounting Principles Working Group (SAPWG) – October 25, 2021, e-vote

Although SAPWG did not hold a meeting during October, it did release four items for comment by an October 25 e-vote. The comment period for the below items ends on November 12. 

Reference # Subject
2021-16 No accounting revisions, but a referral to the Blanks Working Group to include additional data capture for FHLB borrowings classified as deposit-type contracts and reported in Exhibit 7 of the Life/Fraternal statement.
2021-17 Revisions to SSAP No. 32R remove previously overlooked language indicating that cost is an allowable valuation for redeemable preferred stock. 
2021-18 Changes to SSAP No. 108 would provide consistency with revisions to VM-21, removing references to the “standard scenario.”
2021-19EP Editorial revisions to SSAP No. 16R and SSAP No. 43R

Catastrophe Risk Subgroup – October 27, 2021

This meeting was in lieu of an in-person meeting that would have been held at the upcoming NAIC National Meeting in December. After adopting the minutes of its September 28 meeting, the Subgroup then moved onto the continuing discussion of allowing third-party models for calculating catastrophe model losses. This included a discussion and exposure of proposal 2021-15-CR, which would add KCC earthquake and hurricane models to the NAIC “approved” list of models companies can use for the preparation of the catastrophe risk in the risk-based capital (RBC) calculation. The KCC hurricane model had previously been approved by the Florida Commission on Hurricane Loss Projection Methodology. The proposal was exposed for a 30-day comment period. The CAT Model Technical Review Ad Hoc Group provided an update on its work reviewing the technical documents of third-party vendor models. The Subgroup had been scheduled to hear a presentation on another wildfire model, but the presentation will be rescheduled at a future meeting. Wildfire is being considered as the next catastrophe for addition to the RBC. 

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