February 2022 NAIC-Related Activity
The February NAIC activity level was almost nonexistent, which is a good thing for all that were involved in the preparation of the annual statements and other annual filings. That doesn’t mean NAIC activity wasn’t important—just not frequent.
A heads up for everyone concerning March/April NAIC activity: In April, the NAIC will be conducting its Spring National Meeting, once again using a hybrid format. Consequently, many of the groups will be meeting virtually in March in lieu of meeting in person in April. This is especially important to know for those waiting to see what the 2022 RBC formulas will look like. Much of that activity will take place in March, with Capital Adequacy Task Force final approval needed by the end of April. Now let’s review the February activity.
Group Capital Calculation Working Group – February 9, 2022
Based on the 2021 group capital calculation (GCC) testing process, industry had submitted suggested changes to certain areas of the calculation. Those comments were reviewed during the meeting, NAIC staff responses were provided, and in some cases changes were made. The first decision was to eliminate the current stress scenarios, with the idea that once the GCC is fully implemented, regulators may see a need for stress testing, which could then be added back. The group then moved on to a lengthy discussion of the debt allowance section of the calculation, with several changes adopted. The sensitivity test related to other debt was eliminated, and the non-risk-sensitive foreign jurisdictions charge was reduced to 50 percent of the carrying value. The discussion then moved on to several questions all having to do with Schedule 1 and its use in the template. Schedule 1 in the GCC is similar to Schedule Y in the annual statement, but as currently designed, is more inclusive than Schedule Y. Although breaking up Schedule 1 into several different pieces was debated, the Working Group decided to keep the current template for now. Possible instructional-only changes were considered regarding treatment of asset managers. Current instructions were maintained, but the chair commented the Working Group would consider future revisions if industry provided specific recommendations. NAIC staff is developing the changes discussed. Once those are completed, a 30-day exposure period will occur. The hope is for adoption to be finalized in time for year-end 2022 implementation.
Catastrophe Risk Subgroup – February 22, 2022
The main focus of this meeting was the discussion and possible adoption of Proposal 2021-17-CR, which would add wildfire peril to the Property Risk-Based Capital (PRBC) formula for informational purposes only. Three comment letters were received during the comment exposure period for this proposal and were briefly summarized. Most of the discussion concentrated on the cost to industry to obtain models in order to be able to provide the information. In addition, industry expressed concern that wildfire models are still very immature and possibly subject to numerous revisions in the future. Comments also indicated the belief that the informational-only status for wildfire peril should be for more than just one year. Ultimately, the proposal was adopted, but further discussion regarding these concerns will follow. The next item on the agenda, the use of independent catastrophe models by insurers, was delayed until a future meeting due to time constraints. The purpose of the next discussion was to remind the Working Group that each time a peril is added to the Rcat component in the PRBC formula, adjustments need to be made to the premium charge to eliminate the double counting of the peril in the formula’s R5 component. To wrap up the meeting, the group heard a presentation on the private flood market in light of the increasing need for flood coverage in the United States.
Health Risk-Based Capital (HRBC) Working Group – February 25, 2022
The agenda moved right along during this very brief meeting. The meeting began with the Working Group voting to submit a proposal for instructional changes to the current health test in the various annual statements to the Blanks Working Group. The revisions would update statement references in the test, remove the requirement that the reporting company be licensed and actively issuing or renewing business in at least five states, and remove the requirement that at least 75 percent of the current year premiums be written in the domiciliary state or that the premium and reserve ratios equal 100 percent for both the current and prior year. The group then decided to refer a letter to the Health Actuarial Task Force summarizing the proposed health test revisions and asking that the Task Force review the proposal and provide input. Proposal 2021-18-H, which was originally adopted in December, had been revised and re-exposed for comment in January. No comments were received, allowing the group to adopt the changes as proposal 2021-18-H-MOD. The revisions updated the investment income adjustment in the HRBC formula. The meeting wrapped up with the announcement that the Working Group will be meeting virtually on March 18 in lieu of an in-person meeting at the upcoming NAIC Spring National Meeting and that a vice chair for the group is being sought. (It actually took longer to write this summary than the 10 minutes the meeting lasted!)
Risk-Based Capital (RBC) Investment Risk and Evaluation Working Group – February 28, 2022
This session was the maiden meeting of the new Working Group. Technically, it may qualify as a new working group, although some might consider this the reconstitution of the previous Investment RBC Working Group, with a slightly different title. The chair began the meeting with background information on why the group was formed by the Financial Conditions (E) Committee. From there, the discussion moved to how the group viewed its work as being intertwined with projects of the Valuation of Securities Task Force (VOSTF), the Statutory Accounting Principles Working Group, and possibly the Blanks Working Group. Therefore, they would be closely working with these groups, where appropriate, and not in isolation. The Securities Valuation Office provided a brief summary of what securitizations are and why they are of concern to insurance regulators. As its next steps, a document listing six future projects was discussed. Those topics are listed below, but keep in mind this is the order of the listing, not necessarily the order of priority.
- Phase II bond factors – The E Committee had an exposure out on this topic at the time of this meeting
- Residual interest securities and their RBC treatment
- SVO-Identified bond fund on Schedule D-2-2
- Comprehensive fund review of bond and preferred stock funds
- Structured notes
- Aggregation of equity interest exposures on the Supplemental Investment Risk Interrogatories
The group plans on holding another meeting in March.
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