Regulatory Update: National Association of Insurance Commissioners Summer 2024 National Meeting

The List of PE Considerations was adopted by the NAIC in August of 2022 and was developed after the topic of private equity (PE) ownership in the insurance industry gained attention internationally as well as at the state and federal levels in the U.S. The Macroprudential Working Group developed the List of PE Considerations to address, among other things, perceived regulatory gaps with respect to the increase in PE ownership of insurers, the role of asset managers more generally in insurance, and the increase in private investments in insurers’ portfolios.

Following the adoption of the PE List of Considerations, various NAIC groups received referrals from the Macroprudential Working Group to further assess the considerations and have been providing regular updates to the Macroprudential Working Group on the progress of their assessment and/or the projects being undertaken to address the considerations, some of which were in progress prior to the adoption of the List of PE Considerations.

A copy of the current List of PE Considerations setting forth the most current updates can be found here, which include the following updates of note:

• On July 16, 2024, the Financial Analysis Solvency Tools (E) Working Group (FASTWG) adopted guidance for the NAIC’s Financial Analysis Handbook and Financial Condition Examiner’s Handbook (NAIC Handbooks) related to affiliated investment management agreements and services that will be included in the 2025 publications of the NAIC Handbooks. A description of the adopted revisions to the NAIC Handbooks is included in Section 2 of this update. 
• At the same meeting on July 16, 2024, FASTWG exposed revisions to the Financial Analysis Handbook related to the review of complex ownership structures in the context of Form A and Disclaimer of Affiliation filings. A summary of the exposed revisions to the Financial Analysis Handbook is included in Section 3 of this update.
• On June 21, 2024, the Risk-Based Capital Investment Risk and Evaluation (E) Working Group (RBC IRE Working Group) met to discuss the 45% risk-based capital (RBC) factor that was adopted to apply for year-end 2024 for residual tranches. After consideration of alternative proposals and various comments to the current and alternative proposals, the RBC IRE Working Group adopted a motion to retain the 45% RBC factor for all residual tranches for year-end 2024 as an interim solution. 
• The American Academy of Actuaries (Academy) is continuing its work to develop a methodology for the RBC charges for collateralized loan obligation (CLO) tranches. This work is part of a larger, long-term project with the Academy to develop an RBC framework for asset-backed securities (ABS). In December 2023, the Academy presented a list of six principles that will guide this work, which were adopted by the RBC IRE Working Group. The Academy is working to identify a set of comparable attributes that can be used to segregate CLOs into risk buckets for which the Academy expects to present its findings in early 2025 for review by the RBC IRE Working Group. Ultimately, the Academy will develop factors and extend the project from CLOs to other ABS. 
• The Life Actuarial (A) Task Force (LATF) has exposed a draft actuarial guideline on a proposed asset adequacy testing methodology for reinsurance transactions to be used for life and annuity reinsurance transactions. A summary of the proposed actuarial guideline is included in Section 4 of this update.
• The Valuation of Securities (E) Task Force (VOS Task Force) adopted an amendment to the Purposes and Procedures Manual (P&P Manual) of the NAIC Investment Analysis Office (IAO) to authorize procedures for the review by the IAO of NAIC designations assigned through the filing exemption (FE) process. This amendment was subsequently adopted by the Financial Condition (E) Committee (E Committee) on August 29, 2024. A summary of the P&P Manual amendment is included in Section 5 of this update.

The Macroprudential Working Group will continue to monitor updates on the progress of these and other workstreams identified in the List of Considerations.

The following considerations were added to the NAIC Handbooks to provide additional guidance for examiner review of affiliated investment management agreements to assist in addressing fairness and reasonableness.

• Selection of Investments. It should be clear from the investment management agreement how the investment adviser will select investments. The insurer should provide guidance to its affiliated asset manager on investment selection by providing clear investment guidelines that comply with the insurer’s investment strategy and applicable laws and regulations.
• Authority for Transactions. The investment management agreement should describe the level of discretion that the affiliated asset manager has and address transactions that require prior approval from the insurer where total discretion may not be appropriate (e.g., for investments that are very complex or illiquid or represent large exposures).
• Conflicts of Interest. The investment management agreement should specifically indicate the manner in which conflicts of interest will be considered.
• Fiduciary Responsibility. The investment management agreement should acknowledge the investment adviser’s role as a fiduciary in advising the insurer.
• Calculation of Fees. The manner in which fees are calculated should be defined in the management agreement, including whether there are any performance or incentive fees over and above a base management fee. Management fees should reflect the current market conditions and should reflect the kind of assets and type of asset management. The fee structure should take into account management’s assessment of the adviser’s performance.
• Subadvisers. The insurer should retain the right to consent to any subadvisers as well as the ability to terminate such consent. Either the subadviser’s fees should be paid by the primary investment adviser or, if paid by the insurer, the assets managed by the subadviser should not be included in the calculation for the primary investment adviser. Oversight of the activities of subadvisers does not warrant a significant fee even if permitted.
• Reporting. The agreement should include clear language on responsibility and expectations for the reporting of portfolio performance.
• Termination. There should be appropriate termination provisions, both with and without cause.
• Review of Performance and Compliance. The investment management agreement should include consideration of information that will be provided to the company to permit the company to perform adequate review of the adviser’s performance and execution of the investment strategy, including compliance with adopted investment guidelines.

Provisions relating to procedures for financial examinations were also added to the NAIC Handbooks, including the following:

• confirming that all affiliated and unaffiliated investment advisers are disclosed in the annual statement interrogatory, including subadvisers
• confirming that all investment management agreements required to be filed with the department have been filed
• understanding the types of investments being managed by each of the advisers, including subadvisers, including whether investments are appropriate for the insurer’s portfolio
• understanding the adviser’s expertise in any complex or nontraditional assets (e.g., structured securities, mortgage loans, investment funds)
• identifying any investments that may represent a potential for conflict of interest and, if so, whether such conflicts of interest have been reviewed and approved
• understanding whether the insurer is paying any overlapping fees

As described above, these revisions will be included in the 2025 NAIC Handbooks.

The following considerations have been proposed to the Financial Analysis Handbook in relation to complex ownership structures:

• Determination of Control/Identification of the Ultimate Controlling Person. Regulators should review the information provided in the Form A application to understand the ownership structure, each parties’ rights and responsibilities conveyed by the relevant ownership documents/agreements, who has responsibility for decisions, and who controls the insurer, including the rights of voting and nonvoting share classes. Regulators should also review the investment, management, and operational agreements to determine whether any delegate control or decision making to another specific person or entity.
• Review of the Acquiring Party. Regulators should consider the ultimate controlling person’s ability to provide future capital support to the insurer, if needed, along with any dividend expectations and projections, including amounts expected to be paid from the insurer to the owner or other capital commitments and support to the insurer from the new owner.
• Monitoring of the Ongoing Financial Condition. Regulators should review the insurer’s financial condition, including the projections as well as the impact of the acquisition on the risk profile of the insurer.

In connection with the review of a disclaimer of control/affiliation the following considerations and best practices have been proposed to the Financial Analysis Handbook:

• Review of the Disclaimer of Control/Affiliation. Regulators should understand all material relationships between the insurer and the disclaiming party, including all applicable agreements and the rights of the disclaiming party to nominate, appoint, or designate individuals to the board of directors of the insurer or an affiliate of the insurer, management positions held by members of the disclaiming party, covenants in lending agreements, and organizational charts.
• Required Notice. The disclaiming person/entity should provide notice before changing any of the facts and circumstances presented in the original disclaimer filing on which the disclaimer approval was based, including taking any action regarding its exercise of its rights or privileges with respect to its voting or nonvoting shares, transferring any voting or nonvoting shares, or taking any positions with the insurer or its affiliates.
• Conditions to Approval. Regulators should consider adding the following conditions to the disclaimer approval:
  • requiring the disclaiming party to reapply for approval of the disclaimer if the percentage ownership exceeds a specified percentage set forth in the disclaimer approval
  • requiring 30-day notice to the department if a disclaiming party is acting counter to management recommendations for proxy voting
  • requiring that the domestic insurer is responsible for notifying the department if any of the conditions/stipulations in the disclaimer approval are violated

Comments on this exposure were due on August 30, 2024. The FASTWG will consider comments and adoption of this exposure at its next meeting, which is scheduled for September 26, 2024.

LATF initially began discussing this proposal on February 8, 2024, following the receipt of a memorandum from several regulators recommending changes to the AAT methodology for assets that support reinsurance transactions. The memorandum noted that there is a risk that domestic life insurers may enter into reinsurance transactions that materially lower the total asset requirement (the sum of reserves and capital) in support of their asset-intensive business and thereby facilitate releases of capital that prejudice the interests of their policyholders. The memorandum recommended that for all reinsurance transactions, (i) AAT be performed using a cash flow methodology and (ii) AAT be performed at the line of business and treaty level.

The Proposed Guideline notes that it is anticipated that the requirements contained in the Proposed Guideline will be incorporated into the NAIC Valuation Manual at a future date, effective for a future valuation year.

The Proposed Guideline includes various options relating to scope and questions for consideration, including, among others:

• whether the scope of the Proposed Guideline should be narrow (including only treaties of a certain size and impact) or broad and then establish objective and subjective criteria for cash-flow testing (CFT), less rigorous analysis, or being exempted from analysis within the body
• whether at least one-time CFT should automatically apply for certain cases or where CFT should not be required for large, impactful treaties if certain safeguards are in place
• whether it is important to analyze risks associated with actual assets supporting reserves if the insurance company is not reliant on aggressive asset returns to support reserves
• whether the AAT requirements should apply to reinsurance treaties established prior to a certain date (in particular, at or prior to January 1, 2020, or 2021)

The Proposed Guideline assumes an effective date of December 31, 2025. Discussion on the Proposed Guideline will take place at LATF’s upcoming meetings scheduled on September 26, 2024 (regarding the scope of the Proposed Guideline), October 10, 2024 (regarding the aggregation provisions of the Proposed Guideline), and October 11, 2024 (regarding the remainder of the Proposed Guideline).

The development of the P&P Manual amendment began at the NAIC’s Spring 2023 National Meeting, when the VOS Task Force initially exposed a proposed amendment to the P&P Manual that would remove a new category of investment, defined as “Structured Equity and Funds,” from the FE process, based on a review by the NAIC Securities Valuation Office (SVO) of private letter rating rationale reports. As part of that review, the VOS Task Force noted that when the SVO finds a significant potential issue with a credit rating for an investment, the SVO should bring that issue to the VOS Task Force, along with a proposed solution, which may include a change to the resulting NAIC designation.

In response to industry comments to that exposure, the VOS Task Force directed NAIC staff to draft a proposed process. The proposed amendment outlining this process was initially exposed in May 2023. Since that time, the proposed amendment has undergone various exposures and has been updated to incorporate comments received from VOS Task Force members and interested parties.

As adopted by the VOS Task Force, the P&P Manual amendment sets forth the following process for review of a particular security:

• Request for Information and Review. The IAO will identify for the SVO credit committee (Credit Committee) any security identified by either a state insurance regulator or IAO staff as having an NAIC designation that is not a reasonable assessment of investment risk of the security for regulatory purposes. If the Credit Committee believes the NAIC designation is not a reasonable assessment of investment risk, an information request will be initiated, and the security will be put under review.

  Insurance companies that hold the applicable security will be notified through an information request and identification in NAIC systems. Insurers may provide additional information such as their internal analysis, presentations from the issuer, and meetings with the issuer’s management team. Upon receipt of the information requested in the information request, the IAO will perform a full analysis.

• Determination of the Materiality Threshold. Once the IAO has completed its analysis, the Credit Committee will determine its opinion of the NAIC designation and whether the NAIC designation assigned during the FE process is materially different from its own assessment, which will mean that the CRP rating for the security is determined to be three or more notches different than the IAO’s assessment (e.g., NAIC Designation Category 1.G versus 2.C).
• VOS Task Force Involvement. The Credit Committee will communicate with a subgroup of the VOS Task Force to determine whether there is a “recurring analytical pattern or concern” to determine if an issue paper, referral, or other amendment to the P&P Manual or other action is needed. The VOS Task Force chair may review this process to ensure it remains effective and recommend revisions to any components.
• CRP Involvement. The insurer may invite other parties authorized to discuss the security to present their analytical basis to a joint meeting of the VOS Task Force subgroup and the Credit Committee. During discussions, Carrie Mears (IA), chair of the VOS Task Force, noted that insurers may invite the CRP or other external parties to participate in the process; however, the amendment does not require that any notification be given to the CRP that issued the applicable rating or provide a process for direct participation by such CRP.
• Assignment of NAIC Designation. If the VOS Task Force subgroup disagrees with the Credit Committee as to whether the difference in the rating and the IAO’s analysis meets the materiality threshold described above, the security will remain eligible for FE and no further action will be taken. If, however, the VOS Task Force agrees that the rating does meet such materiality threshold, the IAO will be authorized to remove the credit rating so that it cannot be used in the FE process. If another eligible rating that has not been removed remains, the security may continue through the FE process using that rating. Otherwise, the Credit Committee’s NAIC designation will be applied.

• Reinstatement. An insurer may request that the IAO reevaluate a credit rating that was removed for possible reinstatement in a subsequent filing year following an appeals process as set forth in the P&P Manual.
• Reporting. The IAO will prepare a summary of credit ratings that have been removed each calendar year and will publish an anonymized summary of each unique situation, which will be made available on a website accessible to insurers.

The effective date of the P&P Manual amendment is January 1, 2026; however, this date may be amended if additional time is needed to implement the applicable technological enhancements for the process as set forth above.

The revised Investment Framework and Work Plan were exposed for a comment period ending on October 14, 2024.

Included as one of the seven action items in the Work Plan is the development of a RFP for the NAIC to hire an independent consultant to develop detailed quantitative and qualitative standards for CRPs to address the objectives to (a) reduce the NAIC’s “blind reliance” on CRP ratings (but retain use of CRP ratings with the implementation of the due diligence framework), (b) develop a quantitative and qualitative due diligence framework design and implementation plan that will set out parameters for CRPs to provide ratings for use in NAIC designations and (c) retain the ability within the SVO to perform individualized credit assessments and use regulator discretion when needed. At the NAIC’s Spring 2024 National Meeting, the Executive (EX) Committee approved the E Committee’s engagement in the process to develop the RFP. The E Committee, with the assistance of state insurance regulators from the VOS Task Force, and its Investment Framework Drafting Group, both chaired by Carrie Mears (IA), have developed a first draft of the RFP to initially facilitate discussion. The draft RFP requests that respondents prepare detailed narrative on how to approach the project along with the methodology, data, and resources that will be used as well as project plans. The draft RFP was exposed for interested party comment through October 14, 2024.

a. SAP Working Group Prepares Industry for Implementation of Bond Project

At the Summer Meeting, the SAP Working Group adopted an Issue Paper for the Bond Project. The Issue Paper documents the discussions and decisions within the Bond Project and has been updated to reflect the final actions taken in connection with the adoption of the Statements of Statutory Accounting Principles (SSAPs) in connection with the Bond Project. The Issue Paper was exposed at an interim meeting of the SAP Working Group on May 15, 2024. Revisions were made to incorporate interested party comments, which were generally editorial in nature.

In addition, the SAP Working Group exposed revisions to both SSAP No. 26R — Bonds   and the Issue Paper for the principles-based bond project to clarify the guidance for debt securities issued by funds. The proposed revisions provide that debt securities issued by funds representing operating entities qualify as an issuer credit obligation under the bond definition, which would allow for consistent treatment of similar funds regardless of Securities and Exchange Commission registration status. The revisions also include guidance to assist with distinguishing whether a fund represents an operating entity or a securitization vehicle. The revisions to SSAP No. 26 were exposed for a shortened comment period until September 6, 2024, to allow for adoption by the SAP Working Group prior to the January 1, 2025, implementation date for the Bond Project revisions.

The NAIC has exposed a question and answer implementation guide for the Bond Project (accessible here) and is also offering a training course (accessible here) on the Bond Project, which will be made available to industry participants free of charge through the end of 2024.

b. SAP Working Group Exposes Memorandum on Repurchase Agreements

The SAP Working Group exposed a memorandum that sets forth the accounting and reporting for securities lending and repurchase agreements. The agenda item was initially exposed for comment on March 16, 2024, and was developed in response to a referral received from the Life Risk-Based Capital (E) Working Group requesting assistance to address a request from the American Council of Life Insurers (ACLI) to modify the treatment of repurchase agreements in the life RBC formula to converge with treatment for securities lending programs. The request from the ACLI proposed incorporation of a concept for “conforming programs” for repurchase agreements with the collateral attributed to these programs assigned a 0.2% factor instead of a 1.26% factor. 

The SAP Working Group requested to defer consideration of the proposal until the SAP Working Group had time to assess the differences and consider converging revisions (if deemed appropriate) before modifying the RBC formula. The memorandum identifies initial statutory differences between securities lending and repurchase agreements as well as other items that should be reviewed for potential clarification on the “conforming agreement” securities lending concept currently captured in the general interrogatories. The memorandum was exposed until September 27, 2024.

c. SAP Working Group Exposes Updates Regarding Combination Reinsurance Contracts

The SAP Working Group reexposed revisions to SSAP No. 61R — Life, Deposit-Type, and Accident and Health Reinsurance to incorporate guidance noting that interdependent contract features such as a shared experience refund must be analyzed in the aggregate when determining risk transfer.

The revisions were initially exposed at the NAIC’s Spring 2024 National Meeting in response to a referral from the Valuation Analysis (E) Working Group (VAWG). VAWG had identified that issues were arising when evaluating reinsurance for risk transfer in accordance with SSAP No. 61R when treaties involve more than one type of reinsurance and where there is interdependence of the types of reinsurance, including a refund based on aggregate experience. VAWG regulators observed that some insurers are reporting an overstated reserve credit due to a bifurcated risk transfer analysis where the insurers reported a proportional reserve credit for a coinsurance component, despite in aggregate the reinsurer’s being exposed to loss only in tail scenarios. Thus, the ceding company would take a proportional reserve credit that reflects the transfer of all actuarial risks, when not all actuarial risks were transferred. To address these concerns, VAWG made a recommendation to the SAP Working Group to consider clarifications to risk transfer requirements.

The proposed revisions to SSAP No. 61R clarify that for purposes of evaluating whether a contract with a reinsurer transfers risk, what constitutes a contract is essentially a question of substance. For instance, the profit-sharing provisions of one contract may refer to experience on other contracts and, therefore raise the question of whether, in substance, one contract rather than several contracts exists. Therefore, if agreements with a reinsurer do not, in the aggregate, transfer risk, the individual component contracts that make up those agreements also would not be considered to transfer risk, regardless of how they are structured.

In connection with the reexposure, the SAP Working Group has requested additional information on the impact of the proposed revisions, including (a) more detail on the extent existing contracts would be affected and (b) specific language regarding the concept that interdependent contract features should be analyzed in aggregate. Discussion on this topic will resume at the NAIC’s Fall 2024 National Meeting.

d. SAP Working Group Exposes Updates Regarding Funds Withheld and ModCo Insurance Asset Reporting

The SAP Working Group exposed draft reporting schedules to add a new part to the reinsurance schedules (Schedule S of the Life/Fraternal and Health annual statement blanks and Schedule F of the Property/Casualty and Title annual statement blanks) to add reporting on FWH and ModCo assets.

This issue was raised to the attention of the SAP Working Group from the IMR Ad Hoc Group, which was formed to develop a long-term solution for the treatment of negative interest maintenance reserve for statutory accounting. During the IMR Ad Hoc Group’s discussions, it was noted that there were issues in identifying assets that are subject to FWH and ModCo arrangements within the financial statements and reporting schedules. The initial recommendation is to add a new part to the reinsurance schedules to include all assets held under a FWH arrangement and include a separate signifier for ModCo assets. The exposure also requests that NAIC staff work with interested parties in developing the proposed reporting schedules.
 

In addition, the exposure also requests comments from interested parties regarding the ability to provide asset-by-asset identification as the life RBC formula includes a reduction in RBC charges for FWH and ModCo assets by asset type and often by asset designation. The exposure requests that if assets cannot be identified, interested parties’ comments explain how insurers are applying the life RBC reductions.

Comments on the exposure are due on September 27, 2024.

e. SAP Working Group Considers Guidance on Asset and Liability Management Derivatives

The SAP Working Group exposed key concepts for feedback relating to consideration of new statutory accounting guidance for interest-rate hedging derivatives that do not qualify as effective hedges under SSAP No. 86 — Derivatives   but that are used for asset and liability management (ALM).

This agenda item originated from discussions at the IMR Ad Hoc Subgroup in connection with its review of derivatives. Specifically, the IMR Ad Hoc Subgroup has been reviewing the treatment of derivatives that are not accounting effective under SSAP No. 86 for which the fair value fluctuations are being reported as unrealized gains and losses during the time the derivative is open but are being allocated to interest maintenance reserve (IMR) upon derivative termination.

The NAIC is requesting comments from SAP Working Group members, interested regulators, and interested parties on the potential to develop statutory guidance for macro-derivative programs that hedge interest rate risk for ALM purposes. The exposure requests specific feedback on the following key concepts:

• whether SAP Working Group members support the development of statutory accounting guidance that would defer derivative gains/losses for structures that hedge interest-rate risk with amortization over time into income
• if further development/consideration of guidance is supported, discussion on various questions relating to such development, including
  • qualifications for the derivative program to qualify for the special accounting treatment
  • whether net deferred losses (reported as assets) would be admissible and any limitations on such admittance
  • macro limits on admittable net deferred losses (reported as assets) and other “soft” assets
  • timeframes over which deferred items are amortized into income 
  • the extent of application across the industry

The SAP Working Group voted to expose the agenda item until November 8, 2024, to allow for additional time for review. It is expected that discussions on this agenda item will occur at an interim meeting of the SAP Working Group or at the NAIC’s Spring 2025 National Meeting.

f. SAP Working Group Exposes Revisions to Reporting of Collateral Loan Reporting

The SAP Working Group exposed additional revisions to Schedule BA of the annual statement blanks that would provide more granular reporting lines for collateral loans on Schedule BA.

This agenda item was drafted in response to comments that the current reporting detail on Schedule BA does not provide sufficient clarity on the type of collateral used in support of admittance of collateral loans. At its February 20, 2024, meeting, the SAP Working Group adopted revisions to SSAP No. 21R to incorporate a collateral loan disclosure for year-end 2024 to detail admitted and nonadmitted collateral loans in accordance with the underlying collateral supporting the loan. During that same meeting, the SAP Working Group exposed additional revisions to SSAP No. 21R that would expand reporting for collateral loans on Schedule BA to enable regulators to quickly identify the type of collateral in support of admittance of collateral loans in scope of SSAP No. 21R. 

Under the proposed revisions to Schedule BA, collateral loans will be separated by the type of collateral that secures the loan. Additionally, a new aggregated data-captured note is proposed to identify the admitted and nonadmitted collateral loans by the type of collateral that secures the loan. 

Relatedly, in June 2024, the NAIC's Life Risk-Based Capital (E) Working Group adopted interim changes that provide for look-through treatment for collateral loans secured by mortgage loans to be treated as Schedule BA mortgages, beginning year-end 2024. The NAIC has stated that in 2025 it will continue to consider the extent to which look-through treatment should apply for RBC purposes to collateral loans secured by other types of underlying collateral.

At the Summer Meeting, NAIC staff proposed limited reporting lines on Schedule BA focusing on categories for which look-through to underlying collateral for asset valuation reserve (AVR) and RBC purposes is warranted. Following receipt of data from the 2024 year-end reporting period, an assessment will be made to determine whether additional Schedule BA reporting lines should be considered based on the extent certain types of investments are backed by collateral loans.

The exposure also includes a blanks proposal to begin detailing the revisions to Schedule BA and AVR that would occur with these changes. An effective date of January 1, 2026, is contemplated; however, revisions will need to be adopted by August 2025 to allow the revisions to take effect for the 2026 statutory filing year.

Under the disclosure, insurers will have multiple options for calculating their potential exposure to hurricane and wildfire perils in light of recent trends and future projected effects. Specifically, insurers may (a) develop the estimate by using existing catastrophe models, (b) use their own internal models, or (c) develop estimates with the assistance of a reinsurance broker. Regardless of the option used, insurers will be required to adjust the frequency of future catastrophe events based on current and expected future trends. Each of these approaches is intended to reduce the time and cost of compliance with the new disclosure.

The new disclosure grew out of a fall 2023 referral from the Solvency Workstream of the Climate and Resiliency (EX) Task Force to the Catastrophe Risk (E) Subgroup.

a. NAIC Adopts Accelerated Underwriting Regulatory Guidance

At the Summer Meeting, the Life Insurance and Annuities (A) Committee adopted the Accelerated Underwriting in Life Insurance Regulatory Guidance and Considerations. The regulatory guidance is designed to provide a framework for state regulators to reference when reviewing a life insurer’s use of accelerated underwriting programs (i.e., the use of AI and/or machine learning to analyze applicant data in connection with the underwriting of life insurance and annuities) and covers regulatory considerations, strategies for review, and requests for information. The regulatory guidance is intended to aid regulators in ensuring that accelerated underwriting programs are fair, transparent, safe, secure, and in compliance with existing law.

The regulatory guidance was previously adopted by the Accelerated Underwriting (A) Working Group on August 6, 2024, and has been in development since the release of that working group’s Accelerated Underwriting in Life Insurance Educational Report in 2022. Work on the regulatory guidance was on hold for much of 2023 as the NAIC shifted its focus to the Model Bulletin on the Use of AI Systems by Insurers (AI Model Bulletin), which was adopted by the NAIC in December 2023. As adopted, the regulatory guidance takes into account the guidance offered in the AI Model Bulletin, as well as the work of the Big Data and Artificial Intelligence (H) Working Group’s survey on the use of AI in the life insurance industry.

b. NAIC Exposes Draft Amendments to Privacy Protections Regulatory Framework

On August 20, 2024, the Privacy Protections (H) Working Group exposed draft amendments to the Privacy of Consumer Financial and Health Information Regulation (#672) (Privacy Model Regulation) for a 30-day public comment period ending September 18, 2024. Earlier this summer, the working group solicited written comments from interested parties as to whether the working group should continue drafting the Insurance Consumer Privacy Protections Model Law (#674) (New Privacy Model Law), on which work had been paused since the NAIC’s Spring 2024 National Meeting, or revise an existing model. At its interim meeting on June 12, 2024, the working group heard oral comments from many regulators and interested parties who had provided written comments and ultimately voted to proceed with amending the Privacy of Consumer Financial and Health Information Regulation (#672).

At its June 12 meeting, the working group emphasized that many regulators felt that the New Privacy Model Law would not be easily adopted in their states. With the proposed amendments to the Privacy Model Regulation, the working group hopes to offer a regulatory framework that can be implemented in a consistent manner in all states and that can provide essential protections for consumers.

As a next step, the working group is seeking volunteers for a drafting group, which will include industry and consumer representatives, in addition to regulators, to continue work on the proposed amendments to the Privacy Model Regulation.