January 2021 NAIC Activity

Thoughtware Article Published: Feb 01, 2021
Authors
Connie Jasper Woodroof, CJW Associates
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NAIC-related meeting activity will most likely be minimal during January and February, allowing industry time to complete their year-end 2020 regulatory filings. However, expect some risk-based capital (RBC) groups to continue meeting, as they have an end-of-April deadline for adopting any format changes for the 2021 formula. Here is what occurred in January. 

Interested Parties (IP) SSAP No. 43R Group – January 7, 14, 21, & 28, 2021 

As a reminder, a small group of IPs has been meeting with NAIC staff and regulators regarding substantive revisions to SSAP No. 43R – Loan-Backed and Structured Securities. After each of those meetings, the larger IP group meets to discuss happenings of the latest regulatory meeting and offer additional ideas for moving forward. Currently, the work is focused on arriving at a principles-based definition of bonds. This includes providing examples of investments that would be and would not be considered bonds under the definition including Asset Backed Securities as a bond. 

Statutory Accounting Principles Working Group (SAPWG) 

On January 5, SAPWG released for comment updates to INT 20-03: Troubled Debt Restructuring Due to COVID-19 and INT 20-07: Troubled Debt Restructuring of Certain Debt Investments Due to COVID-19. Both INTs were adopted via e-vote on January 25. The updates extend the effective date of both INTs until January 1, 2022. The extension results from the passage of the 2021 Consolidated Appropriations Act adopted by the federal government. The newly revised INTs are posted to SAPWG’s website. 

Life Risk-Based Capital (LRBC) Working Group – January 21

The focus of this 90-minute meeting was the resurrection of the American Council of Life Insurers’ (ACLI) real estate proposal for the LRBC calculation. The Task Force would like to implement any changes in the real estate component of the RBC at the same time as new bond factors are put in place. The ACLI proposal was first presented to the Investment RBC Working Group (now disbanded) about five years ago and has been referred to the LRBC Working Group for consideration. The group decided to expose most of the proposed revisions and instructions until March 8. The chair announced the scheduling of several additional calls for the discussion of proposed real estate revisions as well as the new bond factors. The group replied to a memorandum from the Capital Adequacy Task Force indicating that recent revisions to the Life and Health Insurance Guaranty Association Model Act will not require revisions to the LRBC calculation. 

Health Risk-Based Capital Working Group – January 22

There was one main item on the agenda for this meeting—the inclusion of an investment income credit in the Underwriting Risk in a manner similar to that used in the Property/Casualty RBC. Work performed by the American Academy of Actuaries had been previously exposed for comment. Those comment letters were discussed. The chair   mentioned the inclusion of investment income could be achieved by changing the current underwriting risk factors, not requiring any format changes. The chair asked the Working Group to consider several questions that need to be addressed before moving forward. The current goal is to try to implement any changes for the investment income at the same time as the new bond factors. 

Group Capital Calculation Working Group – January 28

The Working Group began its first meeting of 2021 by introducing the new chair, John Rehagen of the Missouri Department. The group heard a brief report on the 2019 field test data of the developing possible group capital calculation. Afterward, industry asked what the next steps are and, in particular, whether the 2019 test results would be exposed for comment. The chair indicated the Working Group had not gotten that far yet in its thinking. Although no decision was made, the group may decide to conduct another data call for testing of the current formula. The chair ended the meeting with a reminder that the group has exposed for comment a memo to the Financial Condition (E) Committee suggesting revisions to the Insurance Holding Company System Model and the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions with a comment deadline of February 9, 2021. 

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