December 2021 NAIC-Related Activity

Thoughtware Alert Published: Jan 12, 2022

Most of the activity this month was either the NAIC Fall National Meeting or meetings held in lieu of the Fall National Meeting. The National Meeting was almost back to normal this time—that is, several of the sessions were held over the weekend. And although the National Meeting was offered in hybrid format (some attendees participating in person while others opting to attend over the internet), the hybrid format was not the same as in the past and a little confusing. Those choosing to attend remotely were limited to audio only for many of the sessions, and that meant dialing in. A handful of meetings were broadcast via Zoom, so there were both audio and visual available. Frankly, with the success of the previous hybrid meetings, this new format was a disappointment. On the first day there were a lot of technical problems with those dialing in not always being able to hear the entire meeting. That eventually got better. Thankfully, the sessions were recorded. But the one thing that continues to be baffling is after almost two years of mostly remote meetings (of all kinds), how some people still don’t understand the “mute” function. Most annoying!

For those of you that like to skim articles like this looking for topics that may apply to your circumstances, main topics have been bolded. Good luck. 

Restructuring Mechanisms Working Group – December 6, 2021

The purpose of the meeting was to discuss comments received on the previously exposed draft white paper entitled Restructuring Mechanisms. The white paper discusses and explores the laws within the U.S. regarding the various regulatory and legal issues involving insurance business transfer (IBT) and corporate division (CD) used for the restructuring of insurance companies. The paper is considered an update to previous white papers issued in 1997, Liability-Based Restructuring White Paper, and 2009, Alternative Mechanisms for Troubled Companies. After listening to comments and discussing some of them, the Working Group decided its next step would be to work with NAIC staff to review comments and look for overlap. Future discussion is expected. 

Statutory Accounting Principles Working Group (SAPWG) – December 11, 2021

SAPWG began the meeting by adopting minutes of its August and November meetings, as well as the adoption of four e-votes that took place from July to October. The topics of the e-votes were:

  • July 12 – Adoption of meeting minutes from May 20, April 20, and March 15
  • July 20 – Exposure of revisions to SSAP No. 32R to provide clarification of effective call price 
  • September 10 – Exposure of revisions to SSAP No. 43R for the handling of residual tranches and Interpretation 21-02 extending the “90-day rule” for policies affected by Hurricane Ida
  • October 25 – Exposed revisions to SSAP No. 30R on a Federal Home Loan Bank (FHLB) disclosure, SSAP No. 32R covering permitted valuation methods, and SSAP No. 108 to ensure consistency between the SSAP and the Valuation Manual (VM) 

SAPWG also met in three regulator-to-regular sessions on December 2, August 10, and July 29. 

During the hearing part of this meeting, the following actions were taken. Remember, items handled in the hearing had been previously discussed and exposed for comment. 

Reference # Subject Disposition
2019-24 Issue Paper No. 165 was adopted documenting recent revisions to SSAP No. 71. Adopted as substantive.
2021-11 Revisions to SSAP No. 43R recognize SVO-Identified CTLs as being in the scope of the SSAP and nullifies INT 20-10. Adopted as nonsubstantive.
2021-16 Changes to SSAP No. 30R add a disclosure requirement; referral to Blanks Working Group (BWG) for Exhibit 7 footnote disclosure.
Adopted as nonsubstantive with no accounting change but a referral to BWG.
2021-17 Amendments to SSAP No. 32R remove historical cost as a permitted valuation methods option. Adopted as nonsubstantive.
2021-19EP Various editorial updates to SSAP Nos. 16 and 43R. Adopted as nonsubstantive. 
2021-18 Modifications to SSAP No. 108 to mirror VM-21 scenarios. Re-exposed as nonsubstantive until 1/14/2022. Will then be addressed in e-vote, as revisions are needed for year-end 2021. 
2021-14 Policy statement terminology change – substantive & nonsubstantive. Adopted as nonsubstantive effective January 1, 2022. 

Let’s review this last item, which came about because of a referral from the Financial Condition (E) Committee (E Committee). When the recent clarifying revisions to SSAP No. 71 were adopted, they were adopted as nonsubstantive changes, which are normally effective immediately upon adoption. Adoption was in March, just prior to first-quarter end. However, the insurers that would be hardest impacted by implementing these clarifying revisions argued the revisions were substantive changes because of the financial impact that would be experienced. The definitions of substantive and nonsubstantive, however, have never been built around financial impact. Eventually this discussion made its way to the E Committee. The E Committee then asked SAPWG to work on those definitions in an effort to try to eliminate future confusion. 

The language that was adopted will eliminate the terms “substantive” and “nonsubstantive.” Instead, what has been called substantive changes will now be a “new SSAP or new SSAP concept,” while what had previously been call nonsubstantive now becomes a “SAP clarification” and is effective immediately upon adoption unless otherwise stated. Please note that because these terms have been extensively used historically, the language modifications to the Accounting Practices and Procedures Manual will be used on a go-forward basis, with current updates limited to any guidance that describes the use of the terms. This means no changes in language to existing SSAPs, issue papers, or agenda items. Proposal 2021-26EP (see below) was exposed for comment and lists the limited updates to current guidance describing the use of the terms. 

During the exposure of the new definitions, industry recommended eliminating the two classifications altogether and, instead, all revisions would have a stated implementation date. SAPWG ultimately rejected this idea stating, “the Committee was not proposing that the Working Group reassess the classification criteria, and the suggestion from the interested parties’ comment letter goes beyond the Committee’s requested intent.” 

SAPWG then moved on to items that were new, items that had previously been discussed but not exposed for comment, and/or items that were aging and needed a discussion on whether to move forward or drop them. Accordingly, the following actions were taken. 

Reference # Subject Disposition
2021-20 Seeks public comments on expanding guidance in SSAP No. 86 for determining highly effective hedging derivatives. Exposed as nonsubstantive until 2/18/2022.
2021-21 Changes to SSAP No. 25 and SSAP No. 43R regarding reporting and disclosure for investments that involve related parties.  Exposed as nonsubstantive until 2/18/2022.
2021-22 Modification of Schedule D-Part 6-Section 1 to require supplemental reporting via electronic columns in the statement; no accounting change, but a referral to BWG. Exposed as nonsubstantive until 2/18/2022.

The electronic-only reporting columns being suggested in Proposal 2021-22 above would provide information on prior-year book-adjusted carrying value, prior-year nonadmitted amount, prior-year Sub-2 verified value, and prior-year VISION filing number. 

Reference # Subject Disposition
2021-23 Adjustments to SSAP No. 43R would reflect recent adoptions by the Valuation of Securities Task Force to the financial modeling process. 
Exposed as nonsubstantive until 2/18/2022.
2021-24 Proposes a cryptocurrency general interrogatory be added to statement reporting; no accounting changes, but a referral to BWG. 
Exposed as nonsubstantive until 2/18/2022.

Time out! Let’s review. Earlier this year INT 21-01 Accounting for Cryptocurrencies was adopted reaffirming that directly held cryptocurrency investments were nonadmitted. Now it looks like regulators are more than a little bit curious about the use of cryptocurrencies by insurers. Below is a copy of the proposed general interrogatory that would be submitted to BWG if 2021-24 is approved. 

Proposed General Interrogatory

Ok, let's move on.

Reference # Subject Disposition
2021-25 SSAP No. 19 and SSAP No. 73, leasehold improvements after lease termination. Exposed as nonsubstantive until 2/18/2022.
021-26EP Editorial updates to several SSAPs where terms substantive and nonsubstantive are defined.  Exposed as nonsubstantive until 2/18/2022.
2021-27 ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. Recommended rejection exposed as nonsubstantive until 2/18/2022.
2021-28 ASU 2021-03, Intangibles— Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events. Recommended rejection exposed as nonsubstantive until 2/18/2022.
2021-29 ASU 2021-05, Variable Lease Payments. Recommended rejection exposed as nonsubstantive until 2/18/2022.
2021-30 ASU 2021-06, Amendments to SEC Paragraphs. Recommended rejection exposed as nonsubstantive until 2/18/2022.
2021-31 2021 life and health reinsurance disclosure clarifications.  Exposed as nonsubstantive until 2/18/2022.

Notice the shortened exposure period on the last item. This item is meant to focus on questions received by the AICPA/NAIC Task Force regarding the life and health insurance disclosures and related audited notes that were first implemented in December 2020. The exposed revisions were developed to provide additional clarification on whether the disclosures apply to ceding and assuming contracts, the format regulators expect to see in the audited notes, and how broadly to interpret the scope of some disclosures. Because guidance should be in place for year-end 2021, SAPWG decided to use a shortened exposure period. 

SAPWG heard an update on what was originally referred to as the SSAP No. 43R update project which now, according to NAIC staff, is being called the principles-based bond proposal. With the work on developing a principles-based bond definition, it appears that the development of new Schedule D – Part 1 reporting will be needed. Keeping that in mind, a discussion document had been prepared indicating possible reporting changes and was exposed for comment. Also exposed for comment as part of this overall project were revisions to the proposed principle concepts to determine whether asset-backed securities can be reported as bonds. The exposure deadline for both is February 18, 2022. 

NAIC staff reminded everyone that INTs 20-03 & 20-07, both covering trouble debt restructuring due to COVID-19, had been extended through this year-end but will automatically expire on January 2, 2022. 

SAPWG disposed of Proposal 2020-24 – Accounting and Reporting of Credit Tenant without any accounting revisions. 

A review of GAAP exposures was provided and an update on the SAPWG referral to the Casualty Actuarial and Statistical Task Force (CASTF) was provided. CASTF met earlier this month and exposed preliminary recommendations for SAPWG reference item 2019-49; Retroactive Reinsurance Exception. SAPWG is still waiting on a response. 

NAIC staff revisited some agenda items that had previously been put on hold and that staff now feels need to be brought back to the forefront. The following four items were prioritized and will be brought out of their temporary retirement. 

  • The Financial Accounting Standards Board (FASB) Current Expected Credit Loss (CECL) Model. Although implementation of CECL has been delayed three times by FASB, SAPWG still needs to determine in what direction statutory accounting will go. Whether SAPWG rejects or adopts CECL, or does something in between, the Accounting Practices and Procedures Manual would need to be revised. To move forward with this issue, SAPWG is looking for comments from regulators and industry on the topic.
  • Derivatives hedging fixed indexed products (reference item 2020-36) made the list. However, current SAPWG activity is still on hold pending activity to be taken by the Life Actuarial Task Force (LATF). Previously received comments on this topic indicated it would be ideal for both the reserve calculation and derivative guidance to be implemented at the same time. Once SAPWG hears back from LATF, activity will resume. 
  • State Affordable Care Act (ACA) reinsurance programs being run under Section 1332 waivers are in use by many states, yet principles-based accounting guidance has not been finalized. NAIC staff will use a previous exposure and comments received to restart its work on this item. 
  • Although there was a fair amount of work on goodwill accomplished by SAPWG during 2020 and 2021, NAIC staff feels more work is needed. However, this topic will wait for its formal resurrection until the NAIC has had a chance to review 2021 annual statement filings and the new goodwill disclosures that should have been included. 

Accounting Practices and Procedures Task Force – December 11, 2021

This was a routine meeting for the Task Force. The minutes from its Summer National Meeting were adopted, as were the minutes from its two working groups, SAPWG and the BWG. The meeting ended. 

Improper Marketing of Health Insurance Working Group – December 12, 2021

This group is so new that at the time of this writing it is not yet listed under the Committees tab on the NAIC website. However, it can be found here or by doing a search within the NAIC website. According to the Working Group’s homepage, its charges are to coordinate with state and federal regulators in the monitoring of improper marketing of health plans, help coordinate appropriate enforcement, and review existing NAIC Models and guidelines to determine which may need to be updated, or even newly developed, to address current health marketplace activities. This meeting was its first public meeting, having only previously met regulator-to-regulator. The chair briefly summarized why the Working Group was necessary and mentioned that in Pennsylvania, Florida, and Texas federal agencies (including the FBI) already have open cases. The Working Group then heard three presentations on various topics, including the use of robocalls, misrepresentation through aggressive marketing, and recommendations for state regulators. Unfortunately, there always seems to be at least one person who just does not understand the concept of putting their phone on mute during meetings. During this particular meeting, that noise was terribly distracting and rude. 

Valuation of Securities Task Force (VOSTF) – December 12, 2021

The Task Force adopted the following amendments to the Purposes and Procedures Manual of the Investment Analysis Office (P&P Manual)

  • The removal of residual tranches from receiving an NAIC designation. This revision aligns the P&P Manual with recent changes adopted by SAPWG. The revision solidifies the concept that residual tranches that have been reported on Schedule D – Part 1 in the past can remain there for year-end 2021, but must be reported with a NAIC designation of 6*. (Actually, SAPWG says a designation 6, but the VOSTF adoption says 6*.) The use of the 5GI designation is prohibited. Beginning with year-end 2022, all residual tranches are to be reported on Schedule BA and will have no NAIC designation. Residual tranches are not, nor will they be, eligible for filing exemption (FE). 
  • Language indicating that designation 5GI securities should be mapped to the 5B designation category had been inadvertently omitted for the December 2020 version of the P&P Manual. The adopted amendment reinserts the language. 

The following items were exposed for comment. 

Subject Disposition
Adds securities that have “other non-payment risks” to the list of specific securities not eligible for FE Exposed until February 11, 2022.
Would update the definition of principal protected securities to include alternative structures that have similar risk.  Exposed until February 11, 2022.
Expands guidance related to assigning designations to investments with characteristics of bonds or fixed income instruments for reporting in Schedule BA.  Exposed until February 11, 2022.
Allows the Securities Valuation Office (SVO) to assign designations to WCFI transactions issued by unrated subsidiaries, based on the rating of the parent company. The SVO would also have the option to notch down the parent’s rating where it felt it appropriate.  Exposed until February 11, 2022.

The Task Force heard a report on the use of NAIC designations by other jurisdictions for the regulation of insurers. The P&P Manual is very specific in stating that NAIC designations are only intended for NAIC members’ use. However, the SVO has become aware of non-U.S. jurisdictions either referencing NAIC designations, or wanting to reference them, in their regulatory processes. The report asks VOSTF if the use should be allowed, pointing out that if so, there are several places in the P&P Manual that would need revised. In addition, the report recommends cautionary language be part of the revisions. The Task Force exposed the report for a comment period ending February 11, 2022. In another report, SVO staff continues to express concern of the extensive reliance on rating agency ratings of privately rated securities. After conducting a review of privately rated securities, it found the SVO results often were materially lower than the Accepted Rating Organizations’ (ARO) ratings. The expressed concern, however, on the reliance of rating agencies was not limited to privately rated securities. Citing the results of an “in-depth review” of the ratings of several publicly and privately rated securities, the review showed significant differences between AROs for the same security. The session ended with the announcement that Keven Fry, current chair of VOSTF, is retiring. 

Reinsurance Task Force – December 13, 2021

The Task Force adopted the report from Reinsurance Financial Analysis Working Group (ReFAWG). Because of the nature of its responsibilities, ReFAWG usually meets in regulator-to-regulator sessions. During these meetings ReFAWG approved the first four reciprocal jurisdiction reinsurers for passporting and indicated that a few more reinsurers may be processed before year-end. All approved reciprocal jurisdiction reinsurers will be posted on the Task Force’s website. The Task Force adopted the ReFAWG Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers. The document had been exposed for comment four times before being adopted by ReFAWG. The Mutual Recognition of Jurisdictions Working Group provided a status report on its activities, although it now reports directly to the E Committee and not this Task Force. The report indicated the Working Group had finalized its policies through the adoption of the Process for Evaluating Jurisdictions that Recognize and Accept the Group Capital Calculation. In addition, it had reapproved Bermuda, France, Germany, Ireland, Japan, Switzerland, and the United Kingdom as qualified jurisdictions and added Bermuda, Japan, and Switzerland as reciprocal jurisdictions. The Task Force then heard a status report on the states’ implementation of the 2010 revisions to the Credit for Reinsurance Model Law and Credit for Reinsurance Model Regulation. As a reminder, these are the two models that must be adopted by all U.S. jurisdictions by September of 2020 in order to preempt a possible takeover of reinsurance regulation by the federal government. And finally, a status report was given on the states’ implementation of the Term and Universal Life Insurance Reserve Financing Model Regulation

NAIC/Consumer Liaison Committee – December 13, 2021

After adopting its previous meeting minutes, the Excellence in Consumer Advocacy Award was presented to Commissioner Jessica Altman of Pennsylvania presented by the NAIC consumer representatives. 

The Committee then saw the following presentations:

  • “Federal Policy that will Affect Patients and Consumers of Health Care,” presented by Deborah Darcy of the American Kidney Fund and Carl Schmid of the HIV+HEP Policy Institute. 
  • “Insurance Privacy Protection: Do the “Right” Thing, A Consumer Perspective,” presented by Harry Ting of Ting Healthcare Advisory Services. 
  • “Regulatory Failures in Credit-Related Insurance,” presented by Birny Birnbaum of the Center for Economic Justice.
  • “When private options shrink for insuring properties…..Residual market entities and consumer challenges,” presented by Amy Back of United Policyholders. 
  • “Demand Surge,” presented by Ken Klein, an NAIC consumer representative and law professor researching how natural disasters expose and exacerbate issues of insurance affordability, insurance availability, and underinsurance. 

In looking at what occurred during the meeting, one might ask, “Why so many presentations?” All of these presentations are brought to this NAIC group by different consumer representatives with different goals in mind. Ultimately, the overall goal of these organizations is to inform regulators of events or circumstances occurring of which regulators should be aware. Sometimes the presentations bring good news, showing recent results that may have been instigated by regulation or regulatory involvement. Usually, however, the consumer representatives are trying to point out situations that currently exist and suggesting that regulatory action may be needed. 

Big Data and Artificial Intelligence Working Group – December 13, 2021

The chair of the Working Group began by reminding everyone that, pending action to be taken later during this National Meeting ratifying the formation of a new NAIC committee, this Working Group will be transferred to the new H Committee. A quick review of the Working Group’s proposed 2022 agenda then took place, with the chair commenting that its 2021 charges continue to be relevant for 2022. Jillian Froment, a former insurance regulator and now an insurance regulatory advisor, then gave a presentation entitled “Applying Cybersecurity Lessons Learned for Artificial Intelligence (AI) Regulation.” This was followed by two additional presentations covering AI regulatory frameworks and governance. The first presentation was entitled “Perspective on a Possible AI Regulatory Path” given by Anthony Habayeb of Monitaur. The report focused on steps needed to implement principle-based regulatory oversight. That was followed by “Overview of AI Governance,” presented by Kashyap Murali of SigmaRed. This presentation concentrated on specific needs for well-defined AI governance. The presentations then moved to “Private Passenger Auto Artificial Intelligence (AI)/Machine Learning (ML) Survey.” The topic here was a survey that had been conducted regarding the use of AI by selected private passenger auto (PPA) insurers, with 192 insurers responding. Of the responding companies, 168 indicated they are using or exploring the use of AI/ML. The survey opened in September, asking that responses be submitted by the end of October. Analysis of the information received is in its preliminary stage and will continue. The group then briefly discussed the next line of insurance to survey. With the PPA analysis still continuing, the group felt it should move on to another area to begin collecting data. Although no decision was made, the overall thought was to stay with the personal lines of business rather than the commercial lines, or perhaps include life insurance. 

NAIC Opening Session – December 13, 2021

The meeting began with the presentation of the Robert Dineen Award, honoring regulators who have made significant contributions to state-based insurance regulation. This year’s honorees were:

  • Doug Slape, Texas
  • Judy Weaver, Michigan
  • Nancy Cross, Mississippi 

NAIC’s president, David Altmaier, Florida Insurance Commissioner, then summarized the year’s activities, including those revolving around COVID-19. He also set goals for next year. Altmaier than presented the President’s Award for Distinguished NAIC Leadership to South Carolina’s Director Raymond D. Farmer for his 53 years of industry service. Although this recognition is not given out every year, President Altmaier announced it will be the last time it is presented. Okay, kind of. The award will now be known as the Raymond D. Farmer Award for Exceptional Leadership. The meeting then ended with Altmaier being recognized as outgoing president with the presentation of the usual plaque and certificate, and the not-so-usual Lego rocket ship kit. (It’s a long story.)

Innovation & Technology Task Force – December 13, 2021

The meeting began by receiving and adopting the reports of its Working Groups. The Task Force then heard an update on Colorado SB21-169, Restrict Insurers’ Use of External Consumer Data. The goal of SB21-169 is to protect Colorado consumers from discriminatory insurance practices resulting through the use of external consumer data and information sources, algorithms, and predictive models (big data). Next were two presentations from insurtech coalitions. The first presentation, “The American InsurTech Council (AITC),” was an introduction to AITC. AITC is dedicated to advancing the development of ethical, technology-driven innovation in insurance, while also ensuring consumer protections. Its top priority is to make sure regulators and policymakers have access to policy research and education. The second presentation, “InsurTech Coalition,” was also introductory. The Coalition is a group of Property & Casualty insurance technology companies. Like the AITC, the Coalition wants to be a resource to regulators, increase accessibility to the consumer, and build a better future. In other words, both presentations were commercials. An update from the Ad Hoc Drafting Group on draft charges for the proposed new Innovation, Cybersecurity, and Technology (H) Committee (H Committee) was presented. In November a draft of the charges was publicly exposed for comment and a new draft was produced, but no vote occurred. Voting on the charges will occur at a later date by the new H Committee. The Task Force heard updates from other NAIC committees and working groups addressing data activities that may overlap with the work of this group. The Working Group then moved on to a presentation on MIB’s algorithmic bias testing for life insurers and how it can help the life insurance industry. Another commercial. There was a brief presentation on the SERFF Modernization Project. Demonstrations of the upgrade were available during the National Meeting. This will likely be the last meeting of this Task Force, as it is scheduled to disband when the new H Committee takes over in 2022. 

Financial Condition (E) Committee – December 13, 2021

The Committee adopted the minutes of 15 of its Task Forces and Working Groups en masse. Two items had to be pulled from the normal adoption of meeting minutes and handled separately by the E Committee. Those items were the Process for Evaluating Jurisdictions that Recognize and Accept the Group Capital Calculation and the ReFAWG Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers. Both items were adopted. That took the meeting to other matters, which actually took more time than the “regular” part of the meeting. The first item addressed was a letter from the Center for Economic Justice indicating it thought the work assigned to the Special Committee on Race and Insurance was moving too slowly and asked that the E Committee consider tackling some of the issues itself in 2022. The chair responded that the idea was discussed, but that the E Committee dealt with solvency issues and it did not consider the work being referenced as a solvency issue. The suggestion was rejected. The last subject addressed was the newly implemented risk-based capital (RBC) bond factors. The chair pointed out that during the development of the bond factors for the Life RBC, the original work was done by the American Academy of Actuaries. Later, Moody’s Analytics also became involved, with the result being two sets of factor recommendations that were considered. The factors adopted came from the Moody’s model. Moody’s had indicated from the beginning of its involvement that the new bond factors should be considered phase 1 of the process. The E Committee chair suggested that the NAIC should now move into phase 2, either with Moody’s or with another organization. The second phase would be to consider a revised approach to the RBC requirements for structured securities and other asset-backed securities. As part of moving forward, the E Committee authorized the formation of the Investment Risk & Evaluation Working Group. 

Climate and Resiliency Task Force – December 14, 2021

The Task Force heard a recommendation from the Technology Workstream to establish a Catastrophe Modeling “Center of Excellence” within the NAIC’s Center for Insurance Policy & Research. The discussion included the steps that Technology Workstream had taken to date, including exposure periods. No action was taken at this time, but there will be an interim meeting held later to address the proposal. The Task Force next saw a presentation regarding the proposed redesigned NAIC Climate Risk Disclosure Survey from the Climate Risk Disclosure Workstream. The comment period for the proposed survey changes is still ongoing, ending January 10, 2022, but the Workstream provided an overview of the new disclosures and why it felt the revisions are needed. Status reports were received from the Solvency Workstream, Innovation Workstream, and the Pre-Disaster Mitigation Workstream. NAIC staff provided an update on both federal and international activities related to the work of this Task Force. 

Special Committee on Race and Insurance – December 16, 2021

After receiving status reports from its five workstreams, the Committee heard an update on Colorado SB21-169 (see discussion under the Innovation & Technology Task Force write-up above). The Committee then heard a presentation from the American Property Casualty Insurance Association entitled “Diversity, Equity, and Inclusion (DEI).” The presentation provided a variety of statistical information on the programs and progress of DEI within the property & casualty industry, but also looked at these issues on a company level. This was followed by two additional presentations from Blue Cross Blue Shield of Illinois and Zurich regarding their DEI programs. 

Executive Committee – December 14, 2021

Nothing unusual happened here. The committee began by adopting the December 12 report of the Executive Committee and Internal Administration Subcommittee, its interim meeting report, the reports from its Task Forces, and its 2022 charges. Activity then moved to receiving status reports on the State Ahead, a three-year strategic plan, implementation, and model law development efforts. Oral reports were then heard from the National Insurance Producer Registry and the Interstate Insurance Product Regulation Commission. 

Property and Casualty Insurance (C) Committee – December 15, 2021

This was a most interesting session, or at least the first part of it was. The Committee heard a series of presentations related to auto insurance refunds and the call for possibly more refunds emanating from COVID-19, in particular the idea of additional mandatory refunds for 2020 private passenger auto coverage. Some of the consumer-oriented organizations supported the idea of additional refunds, providing their statistics as support. Other organizations took the opportunity to remind regulators that insurance premiums are based on experience over years, i.e., long-term experience, and not on short periods of time, i.e., short-term experience. Their ultimate argument being that a “good year” for profits in 2020 does not indicate profitable years in the future, nor does it wipe out the last several years of unprofitability. The interaction between regulators and some of the presenters got quite agitated at times. The Committee then adopted the reports of its task forces and working groups and moved on to adopting its charges for 2022. An update was provided on federal activity that could/would affect the world of property/casualty insurance. 

Life Insurance and Annuities (A) Committee – December 15, 2021

The Committee adopted its task force and working groups’ reports. A memorandum from the Life Actuarial Task Force (LATF) and the Valuation Analysis Working Group on the Financial Sector Assessment Program (FSAP) Recommendation was received. The document addresses the need for adequate NAIC and state insurance actuarial staff to support principles-based reserving (PBR) for the life industry. The chair then commented that the NAIC has hired seven additional actuaries to help with PBR. The Committee then adopted the 2022 charges for two of its working groups. As part of the charges’ discussion, there was a concerted plea not to disband the Life Insurance Illustrations Working Group. Comments were heard from both regulators and consumer groups urging the continuation of the Working Group. However, the chair of the A Committee was unable to find a volunteer to chair the Working Group in order to continue its work. The Working Group was then disbanded. The session continued with the Committee adopting the Actuarial Guide XXV – Calculation of Minimum Reserves and Minimum Nonforfeiture Values for Policies with Guaranteed Increasing Death Benefits Based on an Index and the 2022 Generally Recognized Expense Table.

Health Insurance and Managed Care (B) Committee – December 15, 2021

The Committee adopted its subgroup, working group, and task forces’ reports, its 2022 charges, and the 2022 charges of its task forces. The Center for Consumer Information and Insurance Oversight (CCIIO), a part of the Centers for Medicare & Medicaid Services, provided an overview of its recent and future activities. The CCIIO helps implement Affordable Care Act reforms related to private health insurance. In particular, the CCIIO is working with states to establish new health insurance marketplaces. The discussion then turned to the federal No Surprises Act (NSA), summarizing activity that has been taken to help with the implementation of NSA. The NAIC has prepared guidance documentation to be distributed to the states covering the NSA. In addition, templates have also been crafted for the healthcare providers, facilities, and air ambulance services that will be subject to the NSA requirements beginning in 2022. The next item on the agenda was a summary of findings from the Kaiser Family Foundation on its 2021 Employer Health Benefits Survey. The summary included overall trends in health coverages including average premiums, trends in deductibles, what small employers are doing, and changes that have been seen because of the ensuing COVID-19 environment. The meeting wrapped up with an update from the Special Committee on Race and Insurance Workstream Five’s work.

Market Regulation and Consumer Affairs (D) Committee – December 15, 2021

Like most of the other NAIC groups at this meeting, the Committee adopted its 2022 charges. The meeting continued with a brief summary of the Policy In Force Standardized Data Request and Claims Standardized Data Request for the Title line of business. Both were adopted for inclusion in the Market Regulation Handbook, replacing the previous formats that were put into place in 2008. A state may use these two requests to determine if an insurer is following appropriate procedures for issuing and underwriting of title policies as well as claims handling. Revisions to Chapter 24 – Conducting the Health Examination and Chapter 25 – Conducting the Medicare Supplement Examination of the Market Regulation Handbook were then adopted. The Chapter 24 revisions added quality of care complaints to the list of documents to be reviewed. Although there were several changes to Chapter 25, most were reference updates pointing to specific sections of the Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act (#65) and the emphasis that certain items should have documented verification programs, not just written verification programs. The Committee then adopted the reports of its task forces and working groups and received some updates on specific projects. Prior to adjourning, the group heard comments from the Center for Economic Justice regarding certain charges it feels should be added to the Committee’s current to-do list. 

Joint Executive Committee and Plenary – December 16, 2021

This was the last scheduled session as part of the National Meeting. Unfortunately, it was scheduled on Thursday, December 16, at the same time that the Life Risk-Based Capital Working Group (LRBCWG) was holding a meeting (not as part of the National Meeting). Never fear, this session was recorded, so after attending the LRBCWG meeting “live,” listening to the recording still allowed for a summary of activities. Almost as good as being there. In fact, it was better than being there; the recording could be stopped and restarted at will!

During the meeting, the minutes of the Executive Committee and the A, B, C, D, E, F, and G Committees were all either adopted or received, depending upon the actions taken by each of the groups. The formation of a new committee, the Innovation, Cybersecurity, and Technology (H) Committee, was approved beginning January 1, 2022. The 2022 NAIC Budget was adopted, as well as the 2022 committee charges. According to NAIC protocol, certain items are pulled from normal group minutes and adopted separately. For this meeting, those items were:

  • 2022 Generally Recognized Expense Table
  • Actuarial Guideline XXV
  • Travel Insurance Market Conduct Annual Statement Blank
  • Short-Term, Limited-Duration Market Conduct Statement Blank
  • Regulatory Information Retrieval System Coding Structure
  • Process for Evaluating Jurisdictions that Recognize and Accept the Group Capital Calculation
  • Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers

The Pet Insurance Model Act was scheduled for final adoption at this meeting, but “late breaking developments” caused this item to be pulled from the agenda. It will be revisited at a later date. The addition of the 2020 revisions to the Insurance Holding Company System Regulatory Act (#440) and the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (#440) as accreditation standards was exposed for comment. A status report of model adoptions in process by the states was provided, and the NAIC 2022 zone election results were announced. 

Before addressing the 2022 nominating and election of officers, the Commissioner of Oklahoma shared an interesting story. He indicated that one of his state senators attended this NAIC Meeting. Although the senator is a long-time insurance professional, it was the senator’s first NAIC Meeting. The Commissioner asked the senator about his thoughts on the NAIC Meeting. First, the senator indicated that attending was very helpful. Second, he acknowledged the NAIC worked a “whole lot harder” than he had thought at these “things.” Third, he conceded the Meeting was a lot more political than he realized. Fourth, the senator asked if the NAIC ever got around to talking about insurance? That last comment is kind of telling, as it seems to indicate that the senator hung out with the commissioners and directors and not with the regulators that do most of the work through the various committees, task forces, working groups and subgroups. Too bad! If that is true, he missed an opportunity to see the “real” work of the NAIC and its interactions with the insurance industry and consumers. 

At the Fall National Meeting, the last action by this group is always the nomination of officers for the upcoming year. Nominations took place during the session, candidates were given the opportunity to sell themselves to the voters, and then the public meeting was adjourned so the voting can take place privately. The new NAIC officers for 2022 are: 

  • President: Dean Cameron, Idaho
  • President-Elect: Chlora Lindley-Myers, Missouri
  • Vice President: Andrew Mais, Connecticut
  • Secretary-Treasurer: Jon Godfread, North Dakota

So ends the official NAIC Fall National Meeting summaries. But, as many of you are being buried in the year-end process, NAIC groups keep looking to the future. The Risk-Based Capital groups in particular are continuing to consider changes to the 2022 formulas as the April 30 deadline for adoption gets closer and closer. They wrapped up December (and 2021) with the following activities. 

Life Risk-Based Capital (LRBC) Working Group – December 16, 2021

The meeting began with the adoption of a year-end guidance document to be distributed to regulators. The document explains that there were significant changes to the LRBC bond factors for this year-end. Although the aggregate impact to industry is expected to be less than a 2 percent increase in the authorized control level, individual companies may see a much larger impact. In addition, the 2021 LRBC also has changes to the real estate factors, reinsurance, and the addition of longevity risk. The Working Group expects these LRBC changes will result in more companies triggering the LRBC Trend Test. The guidance serves to alert regulators that an insurer reporting a significant decline in its RBC ratio and/or triggering the trend test may not be an indication that the company’s risk profile has changed. Instead, the change may be caused by all of the formula changes, and regulators should have additional discussions with the company to make the determination of its change in results. The remainder of the meeting was spent discussing the work of the American Academy of Actuaries’ C2 Mortality Work Group and its recommendations. This included completing a presentation that had been started during a previous meeting. 

Catastrophe Risk Subgroup – December 16, 2021

The Subgroup adoption of Proposal 2021-15-CR adds Karen Clark & Company (KCC) as one of the approved third-party commercial catastrophe model vendors, beginning in 2022. After a short discussion, Proposal 2021-17-CR was exposed for a 60-day comment period ending February 13, 2022. This proposal adds wildfire as one of the catastrophe risk perils for informational purposes only in the Rcat component of the Property Risk-Based Capital (PRBC) formula for 2022. The goal is to conduct research and eventually add this risk formally to the PRBC. (Earthquake and hurricane risks took four years of testing before being added to the PRBC.) Although factors are being shown in the proposal, these are for testing purposes only and will not affect the Rcat component of the formula or the overall official formula results for a while. 

Health Risk-Based Capital Working Group – December 16, 2021

After a brief discussion of comments received, Proposal 2021-18 was adopted. The adoption establishes benchmarking guidelines for the Working Group to follow in updating the investment income adjustment of the underwriting risk factors for comprehensive medical, Medicare supplement, dental, and vision lines of business going forward. The adoption is effective 2022 and clarifies the frequency and parameters to be used for the adjustment. The discussion then moved to a proposal that will change to the health test general interrogatory in the Life, Accident and Health, the Property & Casualty, and the Health annual statements. The test is meant to determine which insurers offering health coverages should be instructed to report on the Health Statement, regardless of how they are licensed. Because of recent format changes to each of the statements, revisions to the instructions for the test need to be updated. The proposal was exposed for a 40-day comment period ending January 24, 2022. 

Capital Adequacy Task Force – December 20, 2021

This meeting was actually a follow-up to the E Committee’s approval of the formation of the new RBC Investment Risk & Evaluation Working Group. The new group will be chaired by Philip Barlow, who also chairs the LRBCWG. The first order of business was to issue a call for other volunteer regulators to serve on the Working Group, including a co-chair. There were several states that volunteered during the meeting. Others were encouraged to volunteer privately to ensure a well-rounded membership. The E Committee had already assigned two charges to the Working Group, which are:

  1. Begin phase 2 of the bond study as suggested by Moody’s Analytics. 
  2. A review and evaluation of the residual tranches of Collateralized Loan Obligations as defined in SSAP No. 43R

Other suggestions for additional charges included:

  1. Prioritize requests to have separate RBC charges for different investments. 
  2. Review investment classifications used in the RBC formulas.
  3. Analysis of consistency versus nonconsistency of investment treatment between the different formulas. 

The website for this Working Group has already been established and can be found here. Those wanting to be included on the interested parties list for the group can contact Jane Barr at The new Working Group is scheduled for a meeting with the E Committee on January 12, 2022. Details can be found on its website. 

With this, we wrap up 2021 and move into the new year. Here’s wishing everyone a smooth transition. 

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