Regulatory Update: National Association of Insurance Commissioners Fall 2022 National Meeting
At the Fall Meeting, the Statutory Accounting Principles (E) Working Group (SAP Working Group) continued its work on the principle-based bond definition (Bond Project), including the exposure of proposed revisions to Statement of Statutory Accounting Principles (SSAP) No. 26R — Bonds and SSAP No. 43R — Loan-Backed and Structured Securities. The SAP Working Group also requested industry comments on existing guidance regarding interest maintenance reserve (IMR) under SSAP No. 7 — Asset Valuation Reserve and Interest Maintenance Reserve and exposed revisions to SSAP No. 25 — Affiliates and Other Related Parties with respect to further clarifications with respect to the reporting of affiliated investments.
The Financial Stability (E) Task Force and its Macroprudential (E) Working Group (Macroprudential Working Group) met at the Fall Meeting in a joint session, during the Fall Meeting during which the Macroprudential Working Group provided an update on its review of private equity (PE) ownership in the insurance industry and on the status of the Regulatory Considerations for Private Equity Owned Insurers (List of PE Considerations).
3. NAIC Discusses Update on International Association of Insurance Supervisors Initiatives Regarding Review of Systemic Risk in the Insurance Sector and Aggregation Method Comparability Assessment to the Insurance Capital Standar
During the Fall Meeting, the NAIC discussed updates with respect to the activities of the International Association of Insurance Supervisors (IAIS). On December 9, 2022, the Financial Stability Board (FSB) announced that, in consultation with the IAIS, the FSB had decided to discontinue the annual identification of global systemically important insurers (G-SIIs) and endorsed the use of the IAIS’s Holistic Framework for Systemic Risk in the Insurance Sector (Holistic Framework) to inform its considerations of systemic risk in the insurance sector. The NAIC, which was supportive of the Holistic Framework and actively contributed to the IAIS’s work to inform the FSB decision, was supportive of the announcement.
4. NAIC Working Group Proposes Amendments to the Mortgage Guaranty Insurance Model Act
In 2022, the Mortgage Guaranty Insurance (E) Working Group (MGI Working Group) resumed in earnest activities related to drafting amendments to the Mortgage Guaranty Insurance Model Act (#630) (MGI Model Act). In October 2022, the MGI Working Group exposed for comment draft revisions to the MGI Model Act. During the Fall Meeting, the Private Mortgage Guaranty Insurance Industry Group provided an overview of their comments on the exposure draft. In early 2023, the MGI Working Group plans to prepare a revised draft of the amendments to the MGI Model Act, with the goal of adopting the amendments at or before the NAIC’s Spring 2023 National Meeting (Spring 2023 Meeting).
5. NAIC Continues Efforts to Address Innovation and Technology in the Insurance Sector
The Innovation, Cybersecurity, and Technology (H) Committee ((H) Committee) continued its ongoing work to address the insurance and privacy implications of emerging technologies, including big data and artificial intelligence (AI). Key updates include the development of a model interpretive bulletin outlining the regulatory framework for the use of AI by the insurance industry, ongoing work to develop a replacement for the Insurance Information and Privacy Protection Model Act (#670) (Privacy Model Act) and the Privacy of Consumer Financial and Health Information Regulation (#672) (Privacy Model Regulation), and the exposure of Model and Data Regulatory Questions that can be used by regulators in connection with the examination of models and data used by insurance companies.
6. NAIC Considers Revisions to Unfair Trade Practices Act to Address Unfair Health Insurance Marketing Practices
The Market Regulation and Consumer Affairs (D) Committee ((D) Committee) adopted a Request for NAIC Model Law Development to amend the Unfair Trade Practices Act (#880) to provide state insurance regulators with appropriate regulatory authority over the activities of lead generators in the health insurance marketplace. The Improper Marketing of Health Insurance (D) Working Group initially requested review of the model in furtherance of its ongoing work to review existing NAIC models that address the use of lead generators for sales of health insurance products and to identify models that need to be updated or developed to address current marketplace activities.
The Valuation of Securities (E) Task Force (VOS Task Force) exposed an updated amendment to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) to add reporting instructions for the financial modeling of collateralized loan obligations (CLOs), which is intended to be the first step in allowing the NAIC Structured Securities Group (SSG) to model CLOs, which will be followed by development and exposure of a proposed methodology. The VOS Task Force anticipates that the proposed changes would be implemented with an effective date of January 1, 2024.
8. NAIC Task Force Adopts Updated Instructions for Filing Exemption of Related Party and Subsidiary, Controlled, and Affiliated Investments
The VOS Task Force adopted an amendment to the P&P Manual to update the instructions for the filing of related party and subsidiary, controlled, and affiliated (SCA) investments to clarify when SCA or related party investments are filing exempt.
9. NAIC Exposes Instructions for Structured Equity and Funds
The VOS Task Force exposed an amendment to the P&P Manual to add instructions that would require transactions meeting the criteria of “Structured Equity and Funds” (as specified in the P&P Manual) to be ineligible for filing exemption and thereby be subject to assessment by the SVO. The VOS Task Force also directed SVO staff to refer the proposed amendment to the Capital Adequacy (E) Task Force and the Investment RBC Working Group for additional consideration.
10. NAIC to Amend the Property and Casualty Insurance Guaranty Association Model Act to Address Cybersecurity Insurance Coverage
The Financial Condition (E) Committee adopted a Request for NAIC Model Law Development to amend the Property and Casualty Insurance Guaranty Association Model Act (#540) (Guaranty Association Model Act) to address cybersecurity insurance coverage. The request was prompted by the trending of cybersecurity insurance coverage into the admitted market as reported by the National Conference of Insurance Guaranty Funds. The proposed amendments to the Guaranty Association Model Act include (a) clarification that cybersecurity insurance is included within guaranty association coverage; (b) an optional definition of “cybersecurity insurance,” which is not defined in the current Guaranty Association Model Act; (c) a coverage limitation of $500,000 per single cybersecurity incident and an authorization for the guaranty association’s engagement of service providers to mitigate losses from a cybersecurity incident; and (d) optional pay and recovery language for guaranty association coverage that is subject to net worth exclusions.
11. NAIC Continues Efforts to Adopt Actuarial Guideline ILVA to Address the Applicability of Nonforfeiture Benefits to Index-Linked Variable Annuities
The Life Actuarial Task Force adopted a new Actuarial Guideline (Actuarial Guideline ILVA) to prescribe conditions under which index-linked variable annuities (ILVAs) can be considered variable annuities exempt from the scope of the Standard Nonforfeiture Law for Individual Deferred Annuities (#805) (Standard Nonforfeiture Law).
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