Regulatory Update: NAIC Summer 2021 National Meeting
1. NAIC Adopts Revised Risk-Based Capital Bond Factors for Life Insurers
The NAIC adopted revised risk-based capital (RBC) factors for bond investments of life insurers, otherwise known as C1 RBC charges, which will apply commencing with year-end 2021 financial statements and RBC schedules. It is anticipated that the revised bond factors will cause certain life insurers to reevaluate their investment portfolios to assess whether any adjustments should be made to maintain or improve their RBC levels.
2. NAIC Adopts Amendments to SSAP No. 71 — Policy Acquisition Costs and Commissions Related to the Payment of Levelized and Persistency Commissions
The NAIC voted to adopt changes to Statement of Statutory Accounting Principles (SSAP) No. 71 — Policy Acquisition Costs and Commissions that will accelerate the timing for many insurers to recognize liabilities for initial sales commission owed to third parties. The changes are effective December 31, 2021.
3. Valuation of Securities (E) Task Force Adopts an Amendment to the Purposes and Procedures Manual to Add Instructions for Review of Funds
The Valuation of Securities (E) Task Force (the VOS Task Force) adopted an amendment to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) to add instructions for the review of funds on the NAIC’s Fixed Income-Like SEC Registered Funds List.
4. NAIC Adopts FAQ Document to Facilitate Uniformity in State Adoption of Revised Suitability in Annuity Transactions Model Regulation
The NAIC adopted a frequently asked question (FAQ) document to address issues that are likely to arise as states adopt the 2020 revisions to the Suitability in Annuity Transactions Model Regulation (SAT). The revised SAT, which the NAIC adopted in February 2020, incorporates a requirement for producers to act in the “best interest” of a retail customer when making a recommendation of an annuity. As adopted, the FAQ document addresses topics such as general background, the intersection of state insurance regulation and federal regulation, how to satisfy the best interest standard of conduct (including guidance regarding the care obligation, the disclosure obligation, and the conflict-of-interest obligation), and insurer supervision and producer training requirements. The FAQ document is intended to facilitate uniformity in state adoption and implementation of the revisions to the SAT. As of August 3, 2021, the revised SAT had been adopted in approximately 15 jurisdictions, with legislation pending in another five jurisdictions and with two jurisdictions (including New York) having adopted similar provisions regulating annuity transactions.
5. NAIC Adopts Amendments to Insurance Holding Company Act to Ensure Continuity of Essential Services and Functions by Affiliates in Receivership
The Executive (EX) and Plenary Committee adopted amendments to the Insurance Holding Company System Regulatory Act (Model 440) and the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (Model 450), which were previously adopted by the Financial Condition (E) Committee on July 8, 2021. The revisions are intended to address the continuation of essential services provided through affiliated intercompany agreements in the event of an insurer’s receivership.
6. NAIC Special (EX) Committee on Race and Insurance to Evaluate Use of Credit Scores in Auto Insurance Pricing
Ahead of the Summer Meeting, the NAIC Special (EX) Committee on Race and Insurance (Special Committee) met to discuss the progress on each of its five workstreams in the areas of (i) diversity in the insurance industry workforce, (ii) diversity in the NAIC and regulatory community, (iii) property and casualty (P/C Insurance), (iv) life and annuities, and (v) health, which are intended to meet the objective of identifying issues related to practices within the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups.
7. Long-Term Care Insurance (EX) Task Force Continues Development of Long-Term-Care Insurance (LTCI) Multistate Review Framework
During the Summer Meeting, the Long-Term Care Insurance (EX) Task Force heard comments from regulators and other interested parties on the actuarial section of the draft LTCI multistate rate review framework, which were exposed on June 10, 2021.
8. NAIC Continues Implementation of 2019 Revisions to the Credit for Reinsurance Model Law and Regulation Ahead of Upcoming Deadlines
The NAIC continues to move forward on its implementation of aspects of the 2019 revisions to the Credit for Reinsurance Model Law and Regulation (together, the Revised CFR Model Laws).
9. NAIC Exposes Amendments to the Insurance Holding Company System Model Act to Add the Group Capital Calculation and Liquidity Stress Test as Accreditation Standards
During the Summer Meeting, the Financial Regulation Standards and Accreditation (F) Committee voted to expose for a one-year public comment period beginning January 1, 2022, the December 2020 revisions to Model 440 and Model 450 as an accreditation standard. If adopted, the accreditation standard would be effective for all states on January 1, 2026.
10. NAIC Proposes New Letter Committee to Address Innovation, Technology, and Cybersecurity in the Insurance Sector
During the Summer Meeting, the Innovation and Technology (EX) Task Force announced plans to form a new letter committee on innovation, technology, and cybersecurity. The new committee would continue the work of the task force and would oversee a variety of workstreams relating to big data, artificial intelligence, e-commerce, cybersecurity, and data ownership, among others. The charges for such committee and related procedural requirements for its formation are expected to be considered at the next national meeting in December 2021.
11. NAIC Vote to Adopt Pharmacy Benefit Manager Licensure and Regulation Model Act Fails
At the Joint Meeting of the Executive (EX) Committee and Plenary, the proposed Pharmacy Benefit Manager Licensure and Regulation Model Act (the PBM Model Act) failed to receive the required two-thirds majority vote for adoption, with 20 states abstaining from the vote and another 12 states voting against adoption.
12. Statutory Accounting Principles (E) Working Group Affirms Principle-Based Bond Definition and Proceeds With Developing Issue Paper and Proposed Revisions to SSAP No. 43R — Loan-Backed and Structured Securities
On August 26, 2021, the SAP Working Group met to discuss comments received on the May 20, 2021, exposure of a proposed principles-based bond definition in connection with the SAP Working Group’s continuing review of proposed revisions to SSAP No. 43R — Loan-backed and Structured Securities. During that meeting, the SAP Working Group directed NAIC staff to use the principle-based bond definition to move forward with drafting an issue paper and revisions to SSAP No. 26R – Bonds and SSAP No. 43R, which will be undertaken by a 43R study group. The earliest effective date for proposed SSAP revisions is expected to be January 1, 2024.
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