November 2021 NAIC-Related Activity
NAIC-related activity was busy at the beginning of this month but tapered off considerably around Thanksgiving. Hopefully everyone was able to enjoy the holiday.
Interested Parties (IP) SSAP No. 43R Group – Various Dates
Although the IP group has not been meeting quite as often as in the past, its discussions with the group of regulators and NAIC staff involved in the crafting of a principles-based definition of bonds have continued. Much of the wordsmithing now being done to the definition appears to be an attempt to make the regulators feel more comfortable with a principles-based definition. The hope is if the limited number of regulators actively working on the project are comfortable with the definition, then other regulators who need to agree to the final product also will be comfortable with it. The Statutory Accounting Principles Working Group (SAPWG) will be meeting at the upcoming December NAIC National Meeting. Its recently released agenda indicates an update on the project will be provided. IPs would like to see another exposure at that meeting.
Health Risk-Based Capital (HRBC) Working Group – November 4, 2021
The first order of business was to expose Proposal 2021-18-H for a 30-day comment period ending December 3. This proposal is a follow-up to the 2021 revision of underwriting risk factors incorporating an investment income component. The current exposure would establish benchmarking guidelines for future adjustments for investment income, identifying the frequency and parameters to be used. The group’s working agenda was revised and adopted. The American Academy of Actuaries provided a brief update on the H2 – Underwriting Risk review, which had previously been requested by the Working Group. Updates also were provided by two ad hoc groups—one group is working on the excessive growth charge, while the other group is assessing the health test used to determine which statement type health insurers should be filing. The chair asked the Working Group members if they thought the group should be considering the addition of a pandemic risk component into the HRBC formula. It was decided that more complete information would be needed before such an addition could be considered
Property Risk-Based Capital (PRBC) Working Group & Catastrophe Risk Subgroup – November 5, 2021
On November 5, the PRBC Working Group and the Catastrophe Risk Subgroup jointly released for comment Proposal 2021-16-CR. The proposal lists 2021 U.S. and non-U.S. catastrophe events that occurred from January through October 2021. If needed, the list will be updated through the end of the year at a later date. Please note, this was a shortened exposure period scheduled only for seven days, ending November 11.
Group Capital Calculation (GCC) Working Group – November 8 & 22, 2021
With the 2021 Trial Implementation completed, NAIC staff composed a memo to the Working Group discussing possible GCC modifications. After discussing each of the issues listed on the seven-page memo, including why NAIC staff was making the recommendations, the document was exposed for a 45-day comment period. Revised GCC instructions that were addressed and implemented during the trial implementation period were exposed for 30 days. Procedural revisions to be used in proposing future changes to the GCC were adopted. The discussion then turned to comments that were received regarding a crafted referral to the Capital Adequacy Task Force. It was decided to revisit this issue at a later date. The last item to be discussed was previously exposed suggested revisions to the Financial Analysis Handbook. After listening to comments and making a few editorial changes during the meeting, the Working Group voted to send the suggested revisions on to the Financial Analysis Solvency Tools Working Group who will discuss incorporating the revisions.
The November 22 meeting was held in lieu of an in-person discussion at the upcoming NAIC National Meeting. The focus was results from the GCC trial implementation held this past summer. Besides providing results for industry as a whole, information was provided by business type and by stock companies versus mutual companies. (The one participating Fraternal was included as a mutual company.) Part of the presentation concentrated on proposed revisions and why the revisions were being suggested.
Life Risk-Based Capital (LRBC) Working Group – November 9, 2021
During this meeting, the Working Group exposed for comment a guidance document meant to help financial examiners and other state insurance regulators understand how the change in the bond factors may affect insurers’ LRBC results, without that insurer changing their overall risk profile. The comment period ends Thursday, December 9. After hearing an update from the American Academy of Actuaries’ (Academy) C2 Mortality Risk Work Group, the LRBC Working Group then released for comment the Academy’s recommendation for a 60-day comment period ending January 10, 2022. All exposures can be found on the Working Group’s website.
Statutory Accounting Principles Working Group (SAPWG) – November 10, 2021
The following activity occurred during the Working Group’s meeting.
|2021-15||Revisions to SSAP No. 43R regarding the handling of residual tranches.||Adopted with 12/31/2022 implementation date; early adoption is allowed.|
|2021-12EP||Multiple editorial revisions.||Adopted effective immediately.|
|2021-13||Additions added to SSAP No. 55 regarding the accounting and disclosure of salvage and subrogation.||Adopted effective immediately.|
|INT 21-02T||Extension of 90-day rule of impact of Hurricane Ida.||Adopted effective immediately but automatically nullifies on 1/24/2022.|
SAPWG will be meeting in person at the upcoming NAIC National Meeting in December, which is still offered in hybrid format. Those who will not be attending in person will have the ability to connect to the meeting’s audio broadcast.
Blanks Working Group – November 15, 2021
|2021-11||Addition of new P&C annual supplement and quarterly additional disclosure for specific lines of business.||Rejected.|
There had been a lot of discussion on this particular item by several different NAIC groups, including at least one NAIC Working Group that felt there would be no added value to this supplement. That sentiment was mirrored by interested parties. The discussion during this meeting included whether the proposal should be referred for a decision regarding existing NAIC policies, but that motion died for lack of a second. The group then decided to reject the proposal.
|2021-12||Changes to the L/F Analysis of Operations by Lines of Business – Accident & Health.||Withdrawn by sponsor. A new proposal will be submitted.|
|2021-13||Additional P&C supplement to capture premium and loss information for other liability sublines of business.||Deferred for a second time for more work.|
|2021-14||Modification of Schedule H in the L/F and P&C statements to match lines of business reported in the Health statement.||Adopted. Effective year-end 2022.|
The following items were exposed for comment.
|2021-15||Addition of a footnote to Exhibit 7 of the L/F statement to capture FHLB funding agreements reported.||Exposed until March 4.|
|2021-16||Revisions to Note 9 – Income Taxes.||Exposed until March 4.|
|2021-17||Changes to the L/F Analysis of Operations by Lines of Business (ANALOPS) – A&H and the addition of a health supplement to capture additional information.||Exposed until March 4.|
|2021-18||Modifies the L/F state page, adds new reporting, and revises definitions of life and annuity products for reporting purposes.||Exposed until March 4.|
|2021-19||Changes to the Health U&I, state page in both the annual and quarterly statements.||Exposed until March 4.|
|2021-20||Revision of L/F Five-Year Historical pages to reflect lines of business used in ANALOPS.||Exposed until March 4.|
|2021-21||Schedule BA reporting of residual tranches beginning year-end 2022.||Exposed until March 4.|
Editorial changes also were adopted, and the Working Group approved the State Filing Checklist for this year-end. The chair announced that Blanks IPs are looking at the amount of redundant information in all of the statements, searching for ways to combine or simplify the reporting. SAPWG informed the Working Group that some guidance for the 2021 reporting of residual tranches will be posted. Jake Garn, the chair of the WG for the last 14 years, announced he will no longer be serving in that capacity, citing he believes in “term limits.” This was the last regularly scheduled meeting of the year.
Valuation of Securities Task Force – November 17, 2021
The Task Force adopted the addition of U.S. International Development Finance Corporation to the U.S. Government Full Faith and Credit Filing exempt list and an amendment adding Bank Loans to the SVO’s corporate bond process. The group addressed a referral from SAPWG that exempts residual tranches from receiving any NAIC designation except a 6. Accordingly, an amendment to the Purposes and Procedure (P&P) Manual was exposed for comment. Since the amendment is needed for this year-end, the normal comment period was shortened to 15 days ending December 2, 2021. Also exposed until December 2 was an editorial correction clarifying the mapping of 5GI securities to an NAIC designation category of 5B. This instruction had appeared in the previous edition of the P&P Manual but had inadvertently been omitted from the current P&P Manual. The Structured Securities Group ended the meeting reporting it is on track for the year-end process and that the legacy and nonlegacy files have been distributed. This group will be meeting again at the December NAIC National Meeting.
Capital Adequacy Task Force (CATF) – November 17, 2021
After adopting the minutes of its working groups, the Task Force then moved on to proposal 2021-16-CR – 2021 Catastrophe Event Risk, which also was adopted. The Task Force voted to send a request to the Financial Condition (E) Committee asking for the formation of a new group charged with reviewing investment-related proposals being developed by various NAIC groups and determining the RBC impact (if any) if those proposals were to be adopted. The group would be called the RBC Investment Risk and Evaluation Working Group. Currently, there is an informal group that has been attempting to do the review process, but the Task Force feels a formal process needs to be established. The remainder of the meeting was spent listening to a presentation from Risk Management Solutions regarding its North America Wildfire High-Definition Model, with questions addressed afterward.
Financial Condition (E) Committee – November 19, 2021
The meeting began with the adoption of a response to the Financial Regulations and Accreditation Standards (F) Committee regarding its inquiry into the use of captives to reinsure variable annuity and long-term care insurance (LTCI) business. The response recommended replacement of the “to be determined effective date (TBD)” in the Accreditation Preamble for variable annuities with a reference to Valuation Manual-21, retaining the TBD for LTCI, and providing a brief reasoning for those recommendations. The Committee received a response from the Life Actuarial Task Force and the Valuation Analysis Working Group indicating the groups felt the current actuarial resources offered by the NAIC were sufficient to meet state insurance regulators’ needs to supervise principle-based reserving. The next action taken was to approve the request from CATF for a new RBC Investment Risk and Evaluation Working Group, beginning January 1, 2022. The Committee meeting concluded with the adoption of its revised 2022 charges.
Group Solvency Issues Working Group – November 30, 2021
The Working Group discussed comments received on the re-exposure of ComFrame (the International Association of Insurance Supervisors’ Common Framework for the Supervision of Internationally Active Insurance Groups) revisions to the NAIC’s Financial Analysis Handbook. Each party that submitted comments was given a chance to summarize its thoughts, and then the Working Group chair provided reasons for including or not including each of the suggestions. Updates were provided by the various drafting groups working to incorporate needed ComFrame revisions into various NAIC documents. Although the original goal of the drafting groups was completion during 2021, the new goal aims at 2022. A brief update on International Association of Insurance Supervisors Group-related activities was given.
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