The following is a summary of select developments and discussions addressed at the NAIC Spring National Meetings held in Houston, Texas on April 5-9, 2013.1
1. Executive (EX) Committee/Plenary
The Executive (EX) Committee and Plenary met on April 9, 2013. During this meeting, the Committee took a number of actions, including, but not limited to the following:
- Adopting the April 7 Executive (EX) Committee meeting report, including (i) adopting a model law development request to amend the Creditor-Placed Insurance Model Act (#375), (ii) creating the NAIC/American Indian Liaison Committee, and (iii) ratifying the 2013 SERFF Board members;
- Adopting its March 1 conference call minutes, which includes the Committee’s 2013 charges;
- Receiving reports from the Life Insurance and Annuities (A) Committee, Health Insurance and Managed Care (B) Committee, Property and Casualty Insurance (C) Committee, Market Regulation and Consumer Affairs (D) Committee, Financial Condition (E) Committee, Financial Regulation Standards and Accreditation (F) Committee, and International Insurance Relations (G) Committee;
- Adopting the 2011 revisions to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) for accreditation purposes;
- Receiving an update on the states’ implementation of NAIC model laws and regulations; and
- Referring an issue to the Health Insurance and Managed Care (B) Committee regarding treatment of fixed indemnity coverage under the federal Affordable Care Act.
2. Principle-Based Reserving Implementation (EX) Task Force
The Principle-Based Reserving Implementation (EX) Task Force met on April 6, 2013, and released a new draft of its principle-based reserving (“PBR”) implementation plan (“Plan”) for comment. The Plan calls for replacement of the current formulaic approach to determining life insurance policy reserves with the PBR approach, a reserving methodology which more closely aligns policy reserves to product risks. The Valuation Manual setting forth the PBR reserving requirements was adopted by the NAIC in December 2012. The Plan varies from prior drafts in certain respects, including addition of a new Section IV calling for the NAIC to further examine the solvency implications of life insurer-owned captive insurers and other alternative mechanisms, such as special purpose vehicles in the context of PBR. It notes that this will largely be based on the report of Captives and Special Purpose Vehicle Use (E) Subgroup's Report, and that a new working group will likely be created to focus on this issue. The attendees of the meeting discussed the captive issue in some detail, and noted that reserve redundancies expected to be eliminated upon implementation of PBR may reduce the need for captives and SPVs. The draft Plan also covers the resources necessary to implement and administer the new reserving regime, among other things. The comment period for the Plan is 30 days.
3. Producer Licensing (EX) Task Force
The Producer Licensing (EX) Task Force is charged with developing uniform standards of producer and adjuster licensees and licensing terminology, monitoring and responding to developments in licensing reciprocity, coordinating with industry and consumer groups regarding licensing reform priorities, and coordinating and consulting with the National Insurance Producer Registry (“NIPR”) Board of Directors to develop and implement uniform producer licensing initiatives. The Task Force met on April 7, 2013. During the meeting it received the report of the NAIC Producer Licensing Working Group (see below). The Task Force also discussed navigators under the Patient Protection and Affordable Care Act, which will serve at the first point of contact between consumers and state health care exchanges, essentially helping consumers “navigate” the system. The Task Force considered certification and education requirements with respect to navigators, among other things.
4. Producer Licensing (EX) Working Group
The Producer Licensing (EX) Working Group met on April 7, 2013. The Working Group discussed its 2013 charges, which include reviewing the process for examination development and delivery of education materials for pre-licensing education, providing oversight and ongoing updates to the State Licensing Handbook, maintaining and reviewing reciprocity guidelines, and providing input and feedback to NAIC/NIPR staff regarding the development of electronic-licensing applications, among other things. During the meeting, the Working Group indicated that it plans to develop a unified document with respect to continuing education (“CE”) course approvals, and discussed the proposed CE Education Standardized Terms and Definitions document developed by CE providers. The Working Group is accepting comments on this document until April 19, 2013. The Working Group also discussed uniform applications and is accepting comments with respect to the applications until April 19 as well.
Life and Annuities (A) Committee
1. Life Insurance and Annuities (A) Committee
The Life Insurance and Annuities (A) Committee, charged with considering issues relating to life insurance and annuities, and reviewing new life insurance products, met on April 7, 2013.
During the meeting, the Committee received a federal legislative update including a report of Congress’ current attention to retirement products. It was noted that Senator Harkin (IA), in considering development of a new national retirement savings plan, has reached out to the NAIC for information with respect to state regulation of annuities. The Committee also received and adopted reports of the Committees’ various working groups. It adopted language for new Annuity Buyer’s Guide proposed by the Annuity Disclosure (A) Working Group as described below, and re-appointed the Working Group to finish its work in connection with formatting and developing an electronic form of the Annuity Buyer’s Guide. The Committee also received a briefing on implementation issues relating to the Annuity Disclosure Model Regulation, and the activities of the Principle-Based Reserving Implementation (EX) Task Force as described above.
2. Annuity Disclosure (A) Working Group
The Annuity Disclosure (A) Working Group, charged with reviewing and updating the NAIC Annuity Disclosure Model Regulation, met on April 6, 2013, to discuss revisions to the Annuity Buyer’s Guide for Fixed Deferred Annuities (which is attached to the Model Regulation as Appendix A). The purpose of the Buyer’s Guide is to help consumers better understand the product in question, as well as their various product options, before purchase.
The Working Group reviewed the draft Buyer’s Guide and agreed to make certain technical revisions, which would be advanced to the Life and Annuities (A) Committee for consideration. The Working Group also discussed the possibility of making the Buyer’s Guide available electronically, a proposal supported by Chair of the Group, Jim Mumford (IA). Under this proposal, insurers disseminating the Buyer’s Guide would be required to password protect the electronic version, as it is licensed by the NAIC. Currently, consumers may obtain the various buyers guides from the NAIC at no charge, however, insurers are required to pay for the guides, and as such, certain industry representatives raised the issue of cost to insurers that disseminate the guides to consumers. Commissioner Mumford indicated that this was outside the charge of the Working Group at this time, but could be raised later. The Working Group agreed to request that the Life Insurance and Annuities (A) Committee re-appoint the Working Group to finish its work in connection with formatting and developing an electronic form of the Annuity Buyer’s Guide.
3. Contingent Deferred Annuities (A) Working Group
The Contingent Deferred Annuities (A) Working Group, charged with evaluating the adequacy of existing solvency and consumer protection laws and regulations as applied to contingent deferred annuities (“CDAs”), met on April 7, 2013. In his opening remarks, the Chair of the Working Group, Commissioner Ted Nickel (WI), acknowledged that CDAs are complex products that require study, and that it is unclear whether the existing legal framework applicable to fixed and variable annuities is sufficient to cover CDAs, which offer longevity protection by guaranteeing a stream of payments if the value of underlying investment account falls below zero (thereby making the benefit contingent upon the value of the investment account).
The Working Group discussed the draft report and recommendations to the Life Insurance and Annuities (A) Committee with respect to CDAs, and, due to the complexity of the product, recommended referral of certain issues to other existing working groups and committees of the NAIC for further evaluation, such as a referral to the Life Risk-Based Capital Working Group to determine the implications of the possible increased solvency risk posed by CDAs.
A number of interested parties addressed the Working Group. Of note, one consumer representative requested that companies with existing filed and approved CDAs notify the state that it approved such products, due to concern that the state may not have been aware of the nature of the product it approved. The Working Group noted that such a request to require re-filing of existing products is outside the charge of the Working Group.
The Working Group adopted its report and voted to send its recommendations to the Life Insurance and Annuities (A) Committee.
The Health Insurance and Managed Care (B) Committee
1. Health Insurance and Managed Care (B) Committee
The Health Insurance and Managed Care (B) Committee met on April 7, 2013. During this meeting, the Committee focused on issues relating to implementation of the Affordable Care Act. Among other things, the Committee heard a presentation from the Council for Affordable Quality Healthcare regarding its coordination of benefits initiative, as well as a presentation from the Georgetown Health Policy Institute about tracking and analysis of state activities relating to the Affordable Care Act 2014 market reforms and essential health benefits benchmark plans.
The Committee adopted reports from its various subgroups. Of note, it adopted the Regulatory Framework (B) Task Force report, which included adoption of revisions to the Coordination of Benefits Model Regulation (#120) and a memorandum to NAIC members regarding adoption of the revision. In adopting the Task Force’s report, the Committee approved appointment of a new working group, the Affordable Care Act (ACA) Model Review (B) Working Group, as well as reappointment of the ERISA (B) Working Group.
2. Senior Issues (B) Task Force
The Senior Issues (B) Task Force met on April 6, 2013. The Task Force is charged with examining policy issues, developing regulatory standards and revising existing NAIC models, consumer guides and training material, as appropriate, on long-term care (“LTC”) insurance, Medicare supplement insurance, senior counseling programs and other insurance issues impacting older Americans.
The topic of LTC was discussed during the meeting. Specifically, Commissioner Goodwin (NC), the new vice-chair of the Task Force, expressed concern over increasing LTC premium rates. He noted that the North Carolina Department of Insurance has received several complaints about rate increases and indicated that North Carolina has subsequently proposed legislation aimed at better managing these increases. The chair of the Task Force, Commissioner Kipper (NV), stated that individual state responses to rate increase requests have been inconsistent, making it a challenge for the Task Force to develop uniform standards that both protect consumers and promote market stability. Additionally, Commissioner Kipper recommended review of existing model laws and regulations to determine whether they appropriately address hybrid LTC products. Commissioner Kipper indicated that he plans to schedule a meeting during the summer to discuss recommendations made.
Market Regulation and Consumer Affairs (D) Committee
1. Market Regulation & Consumer Affairs (D) Committee:
The Market Regulation and Consumer Affairs (D) Committee met on April 8, 2013. During the meeting, the Committee received a referral from the Corporate Governance (E) Working Group to review certain corporate governance inquiries which are being considered for annual collection from insurers and provide recommendations regarding market conduct matters that should be included. Consumer representative, Mr. Birny Birnbaum requested that the Committee perform a costs-benefits analysis of collecting transaction-level data as part of market conduct examinations, on the grounds that collecting such data would give regulators the ability to conduct more targeted exams. It is expected that the costs-benefits analysis report will be presented at the Indianapolis NAIC meeting in August 2013. Various other matters were discussed during the meeting, including adoption of the reports from a number of working groups.
Financial Condition (E) Committee
1. Mortgage Guaranty Insurance (E) Working Group
The Mortgage Guaranty Insurance (E) Working Group, charged with recommending to the Financial Condition (E) committee, what changes, if any, are necessary with respect to solvency regulation of mortgage guaranty insurers, including changes to the Mortgage Guaranty Insurers Model Act (#630), met April 5, 2013.
During this meeting, the Working Group, in a regulator-to-regulator session, met with the Federal Housing Finance Agency. It received and discussed comments from regulators and interested parties on a “Concepts List” (previously exposed) setting forth possible regulatory changes to the solvency regulation of mortgage guaranty insurers. The discussion focused on the need: (a) for a risk-based approach to minimum capital requirements; (b) for new reporting requirements; (c) to prohibit mortgage insurers from investing in mortgage-backed securities (without preventing investments in certain other asset-backed securities); (d) to prohibit captive reinsurance agreements between mortgage insurers and originating banks; and (e) to refer accounting issues to the Statutory Accounting Principles (E) Working Group for consideration.
2. Risk Retention Group (E) Task Force
On April 6, the Risk Retention Group (E) Task Force voted to recommend that risk retention groups (“RRG’s”) licensed as captives be exempt from the requirement that reconciliation of surplus from generally accepted accounting principles to statutory accounting be an audited component of the audited financial report. That recommendation was adopted by the Financial Condition (E) Committee on April 8 and approval is expected by the NAIC at the next meeting in August.
3. Federal Home Loan Bank Legislation (E) Subgroup
The Federal Home Loan Bank Legislation (E) Subgroup met on April 6, 2013 to discuss proposed revisions to state receivership laws. The Federal Home Loan Banks (“FHLBs”) are a group of government-sponsored banks that provide stable, on-demand, low-cost loans to its members, which include insurance companies. Banks within the FHLB system have expressed concern about their rights with respect to re-payment of loans made to insurers in the event of insolvency under state insurance company receivership laws. In response to this concern, in 2012 the FLHBs introduced to the Receivership & Insolvency (E) Task Force proposed amendments to states’ receivership laws. In particular, they proposed to amend the Insurer Receivership Model Act (Model #555) by providing for an exclusion from the stay and voidable preference provisions for security agreements with an FHLB. At the 2012 Fall NAIC National Meeting, the Receivership & Insolvency Task Force charged the Subgroup with reviewing the proposed amendments.
At the Subgroup meeting on April 6, representatives of certain FHLBs presented on the proposed legislation. The topics discussed included the Shenandoah Life receivership, and the amount and types of collateral required to secure FHLB loans, among other things. The Subgroup adopted a memorandum to inform the state insurance regulators of its efforts in studying the FHLBs’ proposed legislation, and indicated that it may draft an insert to the Receivers Handbook to give guidance as to uniformity of application. The Subgroup requested that FHLBs not introduce legislation is additional states until it completes its study.
4. Reinsurance (E) Task Force
The Reinsurance (E) Task force met on Monday April 8, 2013 and received the reports from (a) Commissioner Michael Consedine on State Implementation of Revised Credit for Reinsurance Models; (b) Commissioners Michael Consedine and John Huff on a Draft Process for Developing and Maintaining the NAIC List of Qualified Jurisditions; (c) Commisioner Michael Consedine the Minutes from the March 6, 2013 Conference Call of the Qualified Jurisdiction (E) Drafting Group; (d) Steve Johnson the Reprort for the Reinsuance Financial Analysis (E) Working Group; (e) Michael Consedine the Nonadmitted and Reinsurance Reform Act; (f) Ryan Couch the Report on Referrals from Other NAIC Groups; and (g) Michael Consedine and Ryan Couch the Report on International Reinsurance Issues.
Since the main purpose of this Task Force was to receive reports, the amount of discussion on many of these topics was limited. Of course there was a fair amount of discussion on the Draft Reports for both the Draft Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions and State Implementation of Revised Credit for Reinsurance Models. Regarding the List of Qualified Jurisdictions, the Task Force heard presentations from Emily Micale (ACLI), John Mathews (Allstate), Brad Kading (Association of Bermuda Insurers and Reinsurers, Bill Marcoux (DLA Piper on behalf of the IUA of London, Tracey Laws (RAA), Ed Kelley (Transatlantic Reinsurance Company), Steve Broadie (PCI and Larry Mirel (Nelson Levine). The views of these presentations was diverse but it seemed that everyone has now accepted that this is going to become a reality and they were specifically requesting that the Task Force be aware of specific issues while working on the draft.
5. Solvency Modernization Initiative (E) Task Force
The Solvency Modernization Initiative (E) Task Force met on Sunday, April 7, 2013. The Task Force received the following reports: (a) Corporate Governance; (b) Group Solvency Issues; (c) International Solvency and Accounting; (d) Principle-Based Reserving Implementation (EX) Task Force; and (e) SMI/RBC Subgroup of the Capital Adequacy (E) Task Foce.
There was a substantial amount of discussion concerning the draft White Paper titled, The U.S. National State-Based System of Insurnce Financial Regulation and the Solvency Modernization Initiative. This White Paper was developed by the NAIC based upon the belief that the international community does not fully understand our system and how successful it has been. The purpose of this White Paper is to explain the practical and theoretical mechanizations of the US Systems. The White Paper is being exposed with comments expected by June 6, 2013. It is our belief that this paper is very important for several reasons. First it provides us with a look at how the regulators view our system and second, it is important for us as users to ensure that we agree with its contents and the explanations provided. To that end, we will be producing a summary of it for your review and comments.
International Insurance Relations (G) Committee
1. International Insurance Relations (G) Committee
The International Insurance Relations (G) Committee, chaired by Commissioner Tom Leonardi (CT), met on Saturday, April 6. The Committee received reports from and/or about: (a) the International Association of Insurance Supervisors (“IAIS”) Consumer Representative Observer Program; (b) the International Regulatory Cooperation (G) Working Group; (c) the NAIC Solvency Modernization Initiative (E) Task Force; (d) Joint Forum issues; (e) the U.S./E.U. Dialogue; (f) activities of the Organisation for Economic Co-operation and Development; (g) the North American Free Trade Agreement Supervisory Forum; (h) international trade agreements; and (i) various activities of the IAIS.
2. International Regulatory Cooperation (G) Working Group
The International Regulatory Cooperation (G) Working Group met on Saturday, April 6. The Working Group is charged with collaborating with non-U.S. insurance regulators to share information and provide training and expertise on insurance regulation. The International Insurance Relations (G) Committee promotes U.S. regulatory practices globally through the Working Group.
During the meeting, the Working Group received a report from the NAIC on the International Fellows Program, which is a program designed to advance working relations with overseas markets, focusing on the exchange of regulatory techniques and technology. Nine regulators will take part in the upcoming the spring program. Next, the Committee discussed international training programs, and received reports on the various IAIS projects. The Working Group also received a report on the various bilateral regulatory dialogues of the NAIC, among other things.
1 Edwards Wildman Palmer LLP New York office attendee: John Dearie. The summaries contained in this Client Advisory are based on personal observations of the attorney in attendance, as well as materials published on the NAIC website, available here: http://www.naic.org/meetings1304/agendas_materials_summaries.htm.