Regulatory Update: NAIC Summer 2020 National Meeting
1. Annuity Suitability Working Group Drafting FAQ Document to Facilitate Uniformity in State Adoption of Revised Suitability in Annuity Transactions Model Regulation
The Annuity Suitability Working Group (ASWG) led the NAIC’s multiyear efforts to develop revisions to the Suitability in Annuity Transactions Model Regulation (SAT) to incorporate a requirement for producers to act in the “best interest” of a retail customer when making a recommendation of an annuity. The NAIC adopted the revised SAT in February 2020, and since that time several states, including Idaho, Iowa, Kentucky, Ohio, and Rhode Island, have begun efforts to adopt the revisions.
However, the work of the ASWG is not complete; now it is turning its attention to developing a frequently asked questions (FAQ) document to facilitate uniformity in state adoption and implementation of the revisions to the SAT. The current draft of the FAQ document addresses topics such as general background, the intersection of state insurance regulation and federal securities law regulation, how to satisfy the best-interest standard of conduct, and insurer supervision and training requirements. A draft of the FAQ document was exposed for a 30-day comment period to seek feedback regarding whether additional topics should be included in the document. Once the topics are developed further, the ASWG plans to expose another draft of the FAQ document for public comment.
2. NAIC Considers Comments to the Group Capital Calculation Template and Instructions and Related Revisions to the Insurance Holding Company Act
During the Summer Meeting, the Group Capital Calculation (E) Working Group (GCC Working Group) continued its work in developing the Group Capital Calculation (GCC) template and instructions. The GCC Working Group is also working on proposed revisions to the Insurance Holding Company System Regulatory Act (Model 440), which will require that the GCC be filed on an annual basis with an insurance group’s lead state.
3. Group Solvency Issues (E) Working Group Discusses Results of “Gap Analysis” Related to Implementation of ComFrame and Evaluates Impact of XXX/AXXX Reserves on Group Capital Positions
Following the adoption of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) in November 2019, the Group Solvency Issues (E) Working Group (GSI Working Group) performed a gap assessment to identify areas where existing state insurance solvency regulations do not meet the minimum standards under ConFrame. Also, in response to a referral from the GCC Working Group, the GSI Working Group is evaluating the impact of XXX/AXXX reserves on group capital positions.
4. NAIC Considers Revisions to Statements of Statutory Accounting Principles
The Statutory Accounting Principles (E) Working Group (SAP Working Group) continued its ongoing work related to the following Statements of Statutory Accounting Principles (SSAPs) and related interpretations: SSAP No. 25 — Affiliates and Other Related Parties; SSAP No. 71 — Policy Acquisition Costs and Commissions; SSAP No. 43R — Loan-Backed and Structured Securities; INT 20-08 — COVID-19 Premium Refunds, Limited-Time Exception, Rate Reductions, and Policyholder Dividends.
5. NAIC Continues Efforts to Address Innovation and Technology in the Insurance Sector
Several NAIC task forces and working groups are evaluating the intersection of technology and insurance, including in the areas of artificial intelligence, the impact of the use of big data on minorities, privacy protections, and the use of predictive modeling in rate filings by property and casualty insurers.
6. NAIC Continues Work on State Implementation of the Revised Credit for Reinsurance Model Law and Regulation in Connection With the Covered Agreements Ahead of Upcoming Deadlines
At the Joint Meeting of the Executive (EX) Committee and Plenary, the NAIC adopted as an addition to the accreditation standards (effective September 1, 2022) the 2019 revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation (together, the Revised CFR Model Laws), which incorporate reinsurance collateral reduction reforms in accordance with the bilateral agreements between the United States and the European Union (EU) and the United States and the United Kingdom (together, the Covered Agreements).
7. Long-Term Care Insurance (EX) Task Force Reorganizes Work Streams Relevant to its Charges
The Long-Term Care Insurance (EX) Task Force (LTCTF) has consolidated the six work streams originally organized to address long-term care insurance (LTCI) issues into the following three subgroups: (a) the LTCI Multistate Rate Review (EX) Subgroup, chaired by Colorado; (b) the LTCI Reduced Benefit Options (EX) Subgroup, chaired by Pennsylvania; and (c) the LTCI Financial Solvency (EX) Subgroup, co-chaired by Texas and Minnesota. The LTCI Multistate Rate Review (EX) Subgroup is conducting a pilot project to perform multistate rate reviews. This Subgroup expects to finalize its work product related to the pilot project by year’s end. The LTCI Reduced Benefit Options (EX) Subgroup has prepared a draft principles document outlining the states’ practices in reviewing and approving reduced benefit options and also plans to develop related principles for consumer notices. In connection with the LTCTF’s efforts to evaluate cross-state rate subsidization of LTCI policies, in July 2020, the NAIC also solicited proposals from law firms to research and report on existing state laws and regulations that could support a new regulatory framework authorizing insurers to separate policies from insurers’ general accounts.
8. NAIC Continues Development of the Pharmacy Benefit Manager Licensure and Regulation Model Act
The Pharmacy Benefit Manager Regulatory Issues (B) Subgroup (the Subgroup) is continuing its work on the Pharmacy Benefit Manager Licensure and Regulation Model Act (the PBM Model). A draft of the PBM Model was exposed for public comment, and the Subgroup plans to meet in September 2020 to discuss any comments. The scope of the PBM Model likely will be affected by a pending U.S. Supreme Court case, Rutledge v. Pharmaceutical Care Management Association, regarding whether the Employee Retirement Income Security Act of 1974, as amended, preempts an Arkansas state law that regulates the rates at which pharmacy benefit managers reimburse pharmacies. Oral argument in that case is set for October 6, 2020.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.