April 2022 NAIC-Related Activity

Thoughtware Article Published: Apr 27, 2022
Authors
Connie Jasper Woodroof, CJW Associates
Related Industries
Insurance

April began with the NAIC’s Spring National Meeting held in Kansas City. Therefore, the summary below will contain some groups that are included only when the NAIC holds a National Meeting. In addition, the Risk-Based Capital (RBC) groups continued to meet throughout the month to finalize the 2022 RBC reporting formats. 

Statutory Accounting Principles Working Group (SAPWG) – April 4, 2022
As usual, the SAPWG meeting began by discussing and considering items that had previously been exposed for comment. Some of the items below do not result in any accounting revisions but would change statutory statement reporting and were referred to the Blanks Working Group (BWG) accordingly. All adopted items are effective immediately unless otherwise noted.
 

Reference # Subject     Disposition
2021-24    
 
Addition of Cryptocurrency General Interrogatory.
 
Adopted. No accounting change; was referred to BWG.
 

2021-28      
Rejection of ASU 2021-03 as not applicable to SSAP No. 68. Adopted.

2021-29    
Rejection of ASU 2021-05 as not applicable to SSAP No. 22R.   Adopted.
 
2021-30     Rejection of ASU 2021-06. Adopted.

2021-23
Updates to SSAP No. 43R regarding financial modeling. Adopted option #1.
 

The language regarding financial modeling needs to be consistent between the Accounting Practices and Procedures Manual (AP&P Manual) and the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual). In October of 2021, the Valuation of Securities Task Force (VOSTF) adopted revisions to the P&P Manual regarding financial modeling. The same revisions needed to be reflected in SSAP No. 43R. Not only did the adoption of this item bring both publications into alignment, but in the process SAPWG used this opportunity to ask if the AP&P Manual should retain summarized financial modeling guidance in the future (option #1) or instead whether the SSAP should only refer users to the P&P Manual for guidance (option #2). Industry expressed a preference for option #1.

Reference #        Subject Disposition

2021-26EP       
 
Addresses remaining references to “substantive” and “nonsubstantive.” Adopted.

2021-27    
Rejection of most of ASU 2021-04 in regard to SSAP No. 72, but incorporates some changes on what is considered an exchange. Adopted.
 

2019-21
Proposed bond definition (reporting options). Two items exposed for comment through May 6.

Previously, a principles-based bond definition and corresponding issue paper had been released for comment. That comment period continues through May 6. The topic of conversation during this meeting was a discussion document regarding reporting options to be applied once a new definition is adopted. NAIC staff discussed its vision and then discussed feedback received from interested parties (IP) regarding reporting. Although staff was in agreement with IPs on some comments, there were other comments that staff disagreed with at this time. In the end, SAPWG instructed NAIC staff to continue its work with the reporting format, including developing substantial illustrations, with the goal of exposing the format for comment at SAPWG’s upcoming May meeting. 

Reference #  Subject   Disposition
2021-20 Revisions to SSAP No. 86 based on ASU 2017-12.
 
Re-exposed for comment through June 3.
2021-21  

Clarification of existing reporting and addition of some new reporting of affiliate transitions in the investment schedules through revisions to SSAP No. 25 and SSAP No. 43R. 

Revised and re-exposed for comment through May 6; referral to BWG.
2022-22    
 

Changes to Schedule D – Part 6 – Section 1 reporting.   

Adopted. No accounting changes but a referral to BWG. 
 
2021-25    
 

Amendments to SSAP Nos. 19 and 73 for leasehold improvements after lease termination.
 
Based on IP comments, staff was directed to continue work on this item. 
 

From there the group moved on to new items. Many of the new items were exposed for comment. Please note that there are two different exposures dates indicated below. Those items that have corresponding statement reporting changes have an earlier deadline for comment than the other items. This was done to meet the BWG deadlines for adopting items to be effective for this year-end reporting. 

Reference #   Subject   Disposition
2022-01 Review of new FASB conceptual framework for applicability to SSAP No. 4 and SSAP No. 5R. Exposed for comment through June 3.
2022-02 Revisions to SSAP No. 48 regarding U.S. GAAP audit exception; two options provided for consideration.  Exposed for comment through June 3.
2022-03 Premium adjustments allocated to Jurisdiction. Exposed for comment through May 6; no accounting changes but referred to BWG.
2022-04 Incorporates certain disclosures from ASU 2021-10 into SSAP No. 24. Exposed for comment through June 3.
2022-05 Rejects ASU 2021‐09 as not applicable to SSAP No. 22R.
Exposed for comment through June 3.
 
2022-06 Revises SSAP No. 104R to incorporate the practical expedient from ASU 2021-07 in determining the current price of an underlying share for underlying shares for equity-classified share-based awards.     Exposed for comment through June 3.
2022-07

Rejects ASU 2021‐08 as not applicable to SSAPs No. 47 and 68 with revisions to SSAP No. 68 indicating the intent is not to modify U.S. GAAP requirements for determining U.S. GAAP book value.

Exposed for comment through June 3.
2022-08 Establishes INT 22-01 indicating that Freddie Mac “When Issued K-Deal” certificates (“WI”) fall under SSAP No. 43R. Exposed for comment through May 6.

Exposures are posted on the SAPWG website

The group received an update on U.S. GAAP activities, the referral to the Casualty Actuarial and Statistical Task regarding the retroactive reinsurance exemption, and a letter received regarding Working Capital Finance Investments. 

Health Innovations Working Group – April 4, 2022
During this meeting, the group concentrated on the expected end of the COVID-19 public health emergency in relationship to restarting redeterminations of coverage in Medicaid. Accordingly, it heard presentations from the Centers for Medicare & Medicaid Services (CMS), the Oregon Health Authority, the Massachusetts Health Connector, and consumer representatives. The Center for Insurance Policy and Research (a division of the NAIC) provided an update on its research on the disparity impacts of telehealth services and alternative payment models. 

Accounting Practices and Procedures Task Force – April 5, 2022
It was business as usual for this Task Force. The group adopted some of its own meeting minutes, adopted the reports of the SAPWG and the BWG, and then adjourned. 

Valuation of Securities Task Force (VOSTF) – April 5, 2022 
There were several possible revisions to the Purposes and Procedures Manual of the NAIC Investment Analysis Office that were discussed; however, only one of them was adopted. 
 

Proposal Subject   Disposition
Updates the definition of principal protected notes.  Additional work with industry, to be revised and then released for comment.
Revises the definition of other non-payment risk assigned a subscript “S.”  Additional work with industry, to be revised and then released for comment.
Referral to BWG for the addition of nine columns to Schedule D – Part 1. Exposed for a 45-day comment period, ending May 20.

Further discussion is warranted on this item. This proposal can be traced back to a question asked by the Financial Conditions (E) Committee. The shortened version of that question is; does the NAIC rely too much on the nationally recognized rating organizations and should the NAIC consider alternatives including possibly expanding the role of the Securities Valuation Office (SVO)? As a result of this conversation, the SVO is proposing the addition of what it is calling “market-data fields” for bond investments. The proposal would add fields to bond reporting for market yield, market price, purchase yield, weighted average life, spread to life UST (U.S. Treasury), option adjusted spread, effective duration, convexity, and vision issued ID. Although answering the reliance question is important, the proposal will probably raise the question as to whether annual statement reporting is the best place to obtain this information. The exposure was posted the day after the meeting and can be found on the VOSTF website

 

Proposal Subject  Disposition
Adds guidance on the designations for Schedule BA assets with fixed income characteristics. Continue to work with industry on this issue.
Allows the assigning of NAIC designations based on the rating of the parent for unguaranteed and unrated subsidiary obligors in Working Capital Finance Investment transactions, with SVO approval and possible notching.      Adopted.
 

SVO staff provided information on other jurisdictions’ use of NAIC designations. The SVO reviewed a report on year-end carryover filings, the Structures Securities Office provided an update on new residential mortgage-backed and commercial mortgage-backed security thresholds and price breakpoints, and an update was provided by the ad hoc credit rating study group. 

Financial Conditions (E) Committee – April 5, 2022
The Committee adopted the reports of eight of its task forces and working groups and indicated it had held regulator-to-regulator meetings on January 26, February 23, and April 4. A time extension was granted for the completion of work being done by the Mortgage Guaranty Insurance Working Group on changes to a model act. The group then received updates on its supported initiatives—in other words, what the Committee considers its top priorities to be addressed. Those five items are:

  1. Clarification of investments that are permitted to be reported as long-term bonds.
  2. Reduction of reliance on rating agencies.
  3. Consideration of certain “high-yielding” assets within the annual asset adequacy analysis testing. 
  4. A modified economic scenarios generator that captures more low interest rates.
  5. A more risk-sensitive Life risk-based capital charge for structured securities. 

Innovation, Cybersecurity & Technology (H) Committee – April 5, 2022
This was the inaugural meeting of the newly formed Committee. Those groups that will now be under the umbrella of the H Committee are:

  • Privacy Protections Working Group (moved from the D Committee during this meeting)
  • Big Data and Artificial Intelligence Working Group
  • Cybersecurity Working Group
  • E-Commerce Working Group
  • Innovation in Technology and Regulation Working Group (newly formed during this meeting)

The Speed to Market Working Group, which had originally been reassigned to the H Committee, was moved back to the D Committee. Charges for the groups were then reviewed and revised as needed. The Committee then heard and adopted the reports of three of its working groups, while reports were received from the Casualty Actuarial and Statistical Task Force and the Privacy Protections Working Group. The group then discussed projects to be implemented, which included the creation of a forum for NAIC committees to collaborate on addressing foundational issues. The first item to be addressed will be algorithmic bias. Future projects include the development of a library of resources related to innovation, cybersecurity, data, and consumer privacy, as well as the creation of educational programs on technology-related topics. The H Committee does have its own webpage, but it does not yet appear in the NAIC’s meeting application, so materials will need to be accessed via the webpage. 

Financial Regulation Standards and Accreditation (F) Committee – April 5, 2022
The F Committee first met on Monday, April 4, in a regulator-only meeting. The public meeting then occurred on April 5. During this meeting, the F Committee discussed several items and then released them for comment. Those items were examination coordination guidelines, revisions to the Holding Company Models receivership updates that would not become accreditation requirements, and revisions to the preamble of the Accreditation Program Manual. The comment period ends May 6, and the exposure documents can be found on the F Committee’s website under the exposure drafts tab. 

Climate and Resiliency Task Force – April 6, 2022
During this meeting the Task Force heard two different presentations. Zurich North America and Resilient Cities Network provided information regarding their partnership in improving community resilience. In this instance, “resilience” is used to indicate the capacity to ensure infrastructure, business, institutions, communities, and individuals survive and thrive regardless of stresses and shocks experienced. Munich Re discussed solutions to improve community flood mitigation, using flood resilience insurance. 


Receivership and Insolvency Task Force, April 6, 2022
The Task Force received a report from the Receiver’s Handbook Subgroup and a referral from the Restructuring Mechanisms Working Group. The referral was the submission of a request for model law development, specifically changes to the Property and Casualty Insurance Guaranty Association Model Act (#530), as well as a memorandum explaining the need for the revisions. Both documents were exposed for a 30-day comment period ending May 6 and can be found on the Task Force’s website under the exposure drafts tab. The group heard a presentation from the National Conference of Insurance Guaranty Funds. 

Special Committee on Race and Insurance – April 6, 2022
The five workstreams provided reports on their activities. The workstreams have various charges including analyzing the level of diversity and inclusion for employment in the insurance industry, the NAIC, and the state insurance regulator population; examining practices or barriers that block or make it difficult for those of color or historically underrepresented groups to obtain insurance coverages; and making recommendations for improvements in all areas. 

Executive Committee – April 6, 2022
After hearing reports from the various groups reporting to it, the Committee adopted a proposal to establish a Catastrophe Modeling Center of Excellence with the National Insurance Producer Registry (NIPR) Board of Directors, which now awaits approval of Plenary. A redesigned NAIC Climate Risk Disclosure Survey was approved as a voluntary tool for state use and will now be considered by Plenary. The Committee voted to disband the System for Electronic Rates & Forms Filing (SERFF) Advisory Board. It was felt the Board was no longer necessary as several other NAIC groups can provide input for the operation of SERFF. The group received the 2021 annual report of the NAIC Designation Program Advisory Board. This advisory board oversees a credentialing program for regulators by regulators. Its report included statistics since the inception of the program in 2006. Status reports on the NAIC State Ahead program and model law development efforts were given. The meeting then turned to a report on model law amendments to the Model Regulation to Implement the Accident and Sickness Insurance Minimum Standards Model Act, the Mortgage Guaranty Insurance Model Act, the Nonadmitted Insurance Model Act, and the development of the new Pet Insurance Model Act. Reports from NIPR and the Interstate Insurance Product Regulation Commission wrapped up the Committee’s session. 

NAIC/American Indian and Alaska Native Liaison Committee – April 6, 2022
The goal of this Committee is to provide a setting for discussions between the NAIC members and the American Indian and Alaska Native communities concerning insurance issues. Accordingly, during this meeting the group heard the following presentations:

  • Communication and outreach within the Indian culture to aid in understanding, educating, and protecting tribal consumers (an interesting cultural comparison document can be found here). 
  • Montana’s experience with the federal Affordable Care Act and its COVID-19/pandemic response.
  • Consumer outreach and education about fraud within tribal communities. 

The Committee announced that two presenters from the Blue Cross and Blue Shield of New Mexico will speak at an interim meeting. Results from the state insurance regulator and consumer representative surveys regarding goals of the Committee were distributed and will be discussed at a later time. 

Life Risk-Based Capital Task Force – April 7, 2022
Although scheduled during the NAIC National Meeting, the Task Force meeting was not considered part of the “official” National Meeting. The conversation focused on comments and questions expressed during a previous discussion of the American Academy of Actuaries’ C2 Mortality Work Group recommendations. In particular, the topics discussed were zero expected mortality improvement, unknown sustained risk likelihood and severity, pandemic risk likelihood and severity, and support for the five-year risk exposure period for products with pricing flexibility. 

Property and Casualty Insurance (C) Committee – April 7, 2022
After adopting the reports of the task forces and working groups reporting to it, the Committee adopted revised charges for the Pet Insurance Working Group and approved an extension for revisions to the proposed Pet Insurance Model Act to be completed. The group heard three presentations, one from NAIC staff regarding private passenger auto insurance that provided statistics for the last 10 years, another addressing the effects of inflation on the auto and homeowners’ lines of business, and the last one covering a San Jose, California, ordinance enacted earlier this year requiring liability insurance for gun owners. The meeting ended with an update on federal activities in the areas of pandemic risk insurance, diversity and inclusion, the Federal Insurance Office’s congressional report on auto insurance availability, the expansion of the federal Liability Risk Retention Act, and the Secure and Fair Enforcement Act (also referred to as the SAFE Banking Act). 

Life Insurance and Annuities (A) Committee – April 7, 2022
The A Committee heard and/or adopted reports from several of the groups reporting to it. Next steps were discussed for the Accelerated Underwriting Working Group and the Life Insurance Online Guide Working Group. The group heard an update and held a discussion on the U.S. Department of Labor (DOL) Fiduciary Rule. Of concern to the state regulators is the shift of the regulation of ERISA plans and IRAs to the DOL. Traditionally, the oversight of retirement plans has been a shared regulatory responsibility between state insurance regulators, the DOL, the U.S. Securities Exchange Commission, and the Financial Industry Regulatory Authority. A review of the NAIC’s life insurance webpages was presented, which included use statistics and suggestions for future enhancement. 

Health Insurance and Managed Care (B) Committee – April 7, 2022
After hearing and adopting reports of its subgroup, working groups, and task forces, the Committee then heard an update from the CMS’ Center for Consumer Information and Insurance Oversight (CCIIO) on recent activities related to the federal No Surprises Act. The CCIIO’s report stated that a help desk has been established for the investigation of complaints, a process for payment dispute resolution has been established, and that webinars, social media outreach, and technical training have been put in place. The presentation included web resources for consumers and providers. At this point, the public meeting was adjourned and the gathering was switched to a regulator-to-regulator session. 

Market Regulation and Consumer Affairs (D) Committee – April 7, 2022
Nothing out of the ordinary occurred during this meeting. The D Committee adopted revised 2022 charges, adopted 11 reports of its working groups and task forces, shortened the name of the Advisory Organization Oversight Examination Working Group to the Advisory Organization Working Group, and disbanded the Antifraud Education Enhancement Working Group. 

NAIC/Consumer Liaison Committee – April 8, 2022
The usual format for this meeting is to hear presentations geared toward expanding the knowledge of regulators on specific topics. During this meeting the Committee heard the following presentations:

  • The demise of the auto insurance appraisal clause
  • Modernizing market regulation data collection
  • The role of state insurance regulators in addressing discriminatory benefit design
  • “The Urgency of Now: Mental Health Parity and an Ongoing Pandemic” 
  • “Standard Plan Design: Federal Developments and Lessons Learned in State”

Joint Meeting of Executive Committee and Plenary – April 8, 2022
Always scheduled as the last session during any of the NAIC National Meetings, it was business as usual. After roll call (all states and territories), the Long-Term Care Insurance Multistate Actuarial Review Framework was adopted and the selection of the state insurance regulator to represent the NAIC on the Financial Stability Oversight Council was ratified. All of the lettered committees (A, B, C, D, E, F, G, H) provided their reports, as well as the Executive Committee. Plenary approved the formation of the Catastrophe Modeling Center of Excellence and gave final approval of the NAIC Climate Risk Disclosure Survey. The status of state implementation of several model laws and regulations was provided. 

From this point forward are summaries of NAIC meetings that occurred after the Spring National Meeting had adjourned. 

Catastrophe Risk Subgroup – April 19, 2021
Proposal 2021-17-CR was adopted to be effective for 2022 reporting. The instructional changes affect the Rcat wildfire reporting in the Property RBC formula. As a reminder, the wildfire peril being added to the 2022 reporting is informational only. The adoption provides for the exemption of companies from the informational reporting if they meet specific requirements. However, as designed, the exclusion would only be during the collection period of the information-only data. If and when adopted, the exemptions already provided in the formula instructions would apply. In addition, those companies invoking the exemption from the data-collection period are required to complete a disclosure being added to wildfire page of the formula. The proposal now needs to be adopted by the Property Risk-Based Capital Working Group and the Capital Adequacy Task Force to be officially effective. 

The Working Group continued its discussion on the instructions included in the Property RBC regarding the use of a company’s internal catastrophe models. During the discussion, one regulator questioned whether the time being spent on this topic was productive, as only one insurer out of hundreds is using its own model. No changes were crafted at this time. A brief discussion occurred on which additional perils might be included in the Rcat. Both flood and convective storms were mentioned. Since the subgroup has already received some information on floods, the group decided it needed more education on the peril of convective storms. Lastly, the Subgroup was reminded that an impact analysis for adding wildfire to the formula still needs to be conducted. 

Health Risk-Based Capital (RBC) Working Group – April 20, 2022
The Working Group adopted minutes from its March 18 meeting and then heard a presentation from AM Best on Best’s Capital Adequacy Relativity (BCAR—pronounced “bee-car”) adjustment system. Because the American Academy of Actuaries had mentioned the BCAR as a possible methodology for use in its H2 underwriting risk work, the Working Group wanted a better understanding of what BCAR is and how the factors that are applied to the different underwriting risks were derived. The BCAR is similar in nature to the NAIC’s RBC. BCAR calculates an entity’s required capital using value at risk and then, like RBC, compares that to the company’s available capital. Also like the RBC, the BCAR ratio result triggers different confidence levels. The BCAR is not the only element used by AM Best to generate its credit ratings. Instead, it is really the starting point toward producing a credit rating. After a brief introduction of BCAR, the presentation then explained the different health coverages that are included and the general concepts in generating factors to measure those risks. Regulators were then given an opportunity to ask questions, of which there were several. As time ran out, the chair announced there will be a scheduled opportunity to ask more questions. 

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