Regulatory Update: National Association of Insurance Commissioners Summer 2023 National Meeting
1. NAIC Progresses Revisions to Statements of Statutory Accounting Principles Relating to Investments
At the Summer Meeting, the Statutory Accounting Principles (E) Working Group (SAP Working Group) adopted revisions to Statement of Statutory Accounting Principles (SSAP) No. 26R — Bonds, SSAP No. 43R — Loan-Backed and Structured Securities, and other related SSAPs in connection with its principle-based bond definition project (Bond Project). The SAP Working Group also adopted a limited-time interpretation to allow insurers to admit up to a specified percentage of negative interest maintenance reserve (IMR) under SSAP No. 7 — Asset Valuation Reserve and Interest Maintenance Reserve. The SAP Working Group also reexposed changes to SSAP No. 21R — Other Admitted Assets with respect to accounting for debt securities that do not qualify as bonds under the new bond definition and revisions to clarify that any pledged collateral must qualify as an admitted invested asset in order for a collateral loan to be admitted and to require the use of net equity value for valuation assessments when the pledged collateral is in the form of partnerships, limited liability companies, or joint ventures.
2. NAIC Continues Progress on its Review of Ratings for Insurer Investments
a. NAIC Discusses Proposed Amendment to Update Definition of NAIC Designation
The Valuation of Securities (E) Task Force (VOS Task Force) continued its discussion on a proposed amendment to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) that would, if adopted, consolidate the instructions defining an NAIC designation (NAIC Designation) and address questions and concerns raised over the years as to the purpose of an NAIC Designation versus credit rating provider (CRP) ratings.
b. NAIC Continues Discussion on a Proposed Amendment to Authorize Procedures for the SVO’s Discretion Over NAIC Designations Assigned Through the Filing Exempt Process
The VOS Task Force spent the majority of its time at the Summer Meeting discussing comments received to the VOS Task Force’s exposure of a proposed amendment to the P&P Manual that would set forth procedures for the exercise of the SVO’s discretion over NAIC Designations assigned through the FE process.
During the Joint Meeting of Executive (EX) Committee and Plenary, the NAIC adopted the interim solution to address residual tranches, which was developed and adopted by the Risk-Based Capital Investment Risk and Evaluation (E) Working Group (Investment RBC Working Group) prior to the Summer Meeting. During the Summer Meeting, the Investment RBC Working Group heard a presentation from the American Academy of Actuaries (Academy) related to the long-term project to update C-1 factors for collateralized loan obligations (CLOs).
During the Summer Meeting, the VOS Task Force reported that it has published its final list of proposed questions that it developed to aid in conversations with CRPs regarding issues raised with respect to CRPs’ role in financial regulation of insurance companies. Following its review of these questions and initial conversations with the CRPs, the VOS Task Force intends to undergo a more formal due diligence process of CRPs and the NAIC’s reliance on CRP ratings.
The Financial Stability (E) Task Force (Financial Stability Task Force) and its Macroprudential (E) Working Group (Macroprudential Working Group) met at the Summer Meeting in a joint session, 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).
4. NAIC Continues Efforts to Address Innovation and Technology in the Insurance Sector
The Innovation, Cybersecurity, and Technology (H) Committee ((H) Committee) continued its 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 and ongoing work to develop the new Insurance Consumer Privacy Protections Model Law (#674) (New Privacy Model Law).
5. NAIC Discusses Updates on Key Projects of the International Association of Insurance Supervisors
During the Summer Meeting, NAIC members heard an update on key projects of the International Association of Insurance Supervisors (IAIS), including the comparability assessment of the Aggregation Method (AM) to the Insurance Capital Standard (ICS), and the IAIS’ Global Monitoring Exercise (GME).
6. NAIC Task Force Reexposes Amendments to Property and Casualty Insurance Guaranty Association Model Act Following Working Group Adoption
During its interim meeting on July 24, 2023, the Receivership Law (E) Working Group (Receivership Working Group) adopted proposed amendments to the Property and Casualty Insurance Guaranty Association Model Act (#540) (Guaranty Association Model Act) to address (i) the effect of certain restructuring mechanisms, such as insurance business transfer (IBT) and corporate division (CD) transactions, on the availability of guaranty association coverage and (ii) guaranty association coverage for cybersecurity insurance. However, during the Summer Meeting, the Receivership and Insolvency (E) Task Force (RITF) reexposed the proposed amendments for a 30-day comment period in response to concerns raised by interested parties regarding the effect of the proposed amendments on guaranty association coverage for assumed claims.
During the Joint Meeting of Executive (EX) Committee and Plenary, the NAIC adopted amendments to the Mortgage Guaranty Insurance Model Act (#630) (MGI Model Act). The amendments were adopted by the Mortgage Guaranty Insurance (E) Working Group (MGI Working Group) prior to the Summer Meeting.
8. NAIC Adopts Updated Cannabis Insurance White Paper
During the Joint Meeting of the Executive (EX) Committee and Plenary, the NAIC adopted the Understanding the Market for Cannabis Insurance: 2023 Update white paper (2023 White Paper). The 2023 White Paper provides an update on activities and trends with respect to insurance coverage for the cannabis industry since the adoption in 2019 of the prior NAIC white paper, Understanding the Market for Cannabis Insurance.
At the Summer Meeting, the RFS Working Group discussed proposed revisions to the NAIC’s Financial Analysis Handbook and the Financial Condition Examiners Handbook that are intended to provide guidance to regulators in reviewing the fairness and reasonableness of affiliated service contracts and to incorporate the 2021 revisions to the NAIC’s Insurance Holding Company System Regulatory Act (related to continuity of affiliate services during a receivership). Following its discussion, the RFS Working Group agreed to refer the updated guidance to the Financial Analysis Solvency Tools (E) Working Group and the Financial Condition Examiners (E) Handbook Technical Group for consideration of adoption.
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