Regulatory Update: National Association of Insurance Commissioners Spring 2025 National Meeting

During previous discussions, LATF agreed to focus the application of the AAT Guideline on only transactions meeting certain size or risk thresholds. The AAT Guideline relies on relevant aspects of existing reporting, including filings required by Valuation Manual 30 (Actuarial Opinion and Memorandum Requirements) (VM-30) memoranda and Actuarial Guideline 53 in setting forth the required documentation and analysis for the reporting required. Specifically, the AAT Guideline will apply to all life insurers with (i) asset-intensive reinsurance transactions ceded to an assuming reinsurer that is not required to submit a VM-30 memorandum to U.S. state regulators in transactions established on or after January 1, 2016 (or January 1, 2020, for certain nonaffiliated transactions), that meet certain size thresholds set forth in the AAT Guideline or (ii) asset-intensive reinsurance transactions that are not required to submit a VM-30 memorandum to U.S. state regulators, regardless of transaction establishment date, where, in the judgment of the ceding company’s Appointed Actuary, there is significant reinsurance collectability risk. The draft AAT Guideline currently notes that cash flow testing for post-reinsurance reserves is most appropriate when there is higher risk, and “less rigorous analysis” may be appropriate if there is lower risk.

During the Spring Meeting, LATF discussed the applicability of the AAT Guideline for nonaffiliated reinsurance transactions. The most recent exposure of the AAT Guideline removes references to the “Associated Party” terminology used in a previous draft. However, the most recent exposure still provides that an exemption to the AAT will not be permitted if (i) the assuming reinsurer is an affiliate of the ceding company (as defined under the Model Holding Company Act), (ii) greater than 25% of the assuming reinsurer’s reserves have been assumed from the ceding company, or (iii) the ceding company or entities in the ceding company’s group own more than 1% of the assuming reinsurer.

During the Spring Meeting, LATF also discussed the inclusion of what are commonly referred to as the “New York 7” scenarios, which are seven interest rate sensitivity scenarios, first specified in New York Regulation 126. As currently drafted, providing the present value of ending surplus for each of the New York 7 scenarios is expected to be either encouraged or required.

Additional topics to be finalized in the AAT Guideline include (i) clarifying references to the application of a “less rigorous analysis,” (ii) whether to allow aggregation at the counterparty level across lines of business, and (iii) the basis for determining the starting asset amount.

LATF intends to complete the AAT Guideline by June 2025 to provide time for the NAIC to adopt the AAT Guideline at the Summer 2025 National Meeting. The AAT Guideline is expected to be effective for reserves reported in 2025 annual statements and for asset adequacy analysis of the reserves reported in all subsequent annual statements, with reports to be due on April 1 of each year (beginning April 1, 2026). At the NAIC Fall 2024 National Meeting, LATF agreed that at least for the first year of implementation, the AAT Guideline will require disclosure only of the AAT results and does not include prescriptive guidance as to whether additional reserves should be held. However, the company’s appointed actuary and domestic regulator will continue to have the authority to require additional reserves as deemed necessary.

The NAIC adopted the MSA Framework in April 2022 in an effort to provide a consistent national approach for reviewing current LTCI rates intended to result in actuarially appropriate increases being granted by the states in a timely manner and to eliminate cross-state rate subsidization. Insurers voluntarily submit filings to the multistate actuarial (MSA) team, but the decisions made by the MSA team are not binding on individual state insurance departments. The proposed amendments to the MSA Framework respond to requests to develop a single methodology that is more explainable and understandable for commissioners, regulators, and consumers as to how the MSA team’s recommendations are determined and address specific public policy challenges, particularly around large increases for older-age policyholders with longer durations (known as the 85/25/400 policyholder issue).

To address these public policy challenges, the working group has considered multiple proposals in its quest to develop consensus around cost-sharing factors. The working group has exposed for comment until May 12, 2025, three cost-sharing proposals (the Missouri Proposal, the “Alternative” Proposal, and the proposal previously provided by the Pennsylvania Insurance Department). The working group expects to have an interim call in mid to late May to discuss comments on the proposals and choose among the proposals.

The Prescription Drug Coverage (B) Working Group is expected to do the following in 2025 pursuant to its current charges:

• serve as a forum to educate state insurance regulators on issues related to prescription drug coverage regulation and stakeholders in the prescription drug ecosystem
• gather and share information, best practices, experience, and data to inform and support dialogue and information-sharing among state insurance regulators on issues related to prescription drug coverage regulation, such as pharmaceutical drug pricing and transparency, formularies, pharmacy payments, pharmacy benefit managers (PBMs), and coverage options
• maintain a current listing of all prescription drug coverage laws and regulations and case law as fall under the purview of state-based insurance
• disseminate materials and reports via the NAIC to the states and the U.S. territories wishing to use the information gathered by the working group
• monitor, facilitate, and coordinate with the states and federal agencies to ensure compliance and enforcement efforts regarding prescription drug coverage and PBMs
• provide assistance and input to the Market Regulation and Consumer Affairs (D) Committee and/or any of its groups, as necessary, on matters related to PBM enforcement

The new Pharmacy Benefit Management (D) Working Group, to which the Prescription Drug Coverage (B) Working Group will provide assistance as mentioned above, is expected to focus on the following charges in 2025:

• develop examination standards for PBMs and related regulated entities for inclusion in the NAIC Market Regulation Handbook, which will provide consistent guidance and assure more predictable and fair market regulation
• develop licensing and registration standards for PBMs in alignment with state and federal requirements, providing states with criteria to support uniformity in the licensure process
• establish protocols for the collection and analysis of data related to PBM examinations and market practices

a. VOS Task Force Considers P&P Manual Updates Regarding Private Letter Rating Rationale Reports

The VOS Task Force exposed amendments to the P&P Manual to require that (i) private rating letter rationale reports be filed within 90 days of an affirmation, update, or change and (ii) private rating letter rationale reports possess analytical substance. Since January 1, 2024, private letter rated (PLR) securities have generally required a corresponding private rating letter rationale report to be eligible for an NAIC Designation to be assigned through the filing exemption (FE) process. The proposed amendments were exposed for a 30-day public comment period ending April 25, 2025.

The first of the proposed amendments is intended to clarify when a private rating letter rationale report needs to be filed with the NAIC Securities Valuation Office (SVO) to prevent a security from becoming ineligible for the FE process and the related FE-derived NAIC Designation from being deactivated. The SVO recommended that the VOS Task Force allow a grace period of 90 days from the date of any rating action for a new or updated private rating letter rationale report to be filed with the SVO. If the private rating letter rationale report is not filed during that time, the PLR security would become ineligible for the FE process until such time as the SVO receives the private rating letter rationale report related to such rating action.

The second of the proposed amendments is intended to clarify what is expected for a private rating letter rationale report filed with the SVO. The SVO noted that it has received private rating letter rationale reports that do not appropriately explain the “analysis of the credit, legal and operational risks and mitigants supporting the assigned” rating, as required by the P&P Manual. As a result, the SVO recommended that the VOS Task Force require insurers to file a full private rating letter rationale report that contains sufficient analytical substance to enable an independent party to form an opinion as to the investment risk for any rating action, even if the policies of the credit rating provider (CRP) do not require a full analysis.

Interested parties provided oral comments noting that the requirement to provide updated rationale reports on an annual basis imposes an unnecessary burden on insurers and that, instead, CRPs could transmit the private rating letter rationale report directly to the SVO on a “machine to machine” basis, with insurers becoming involved only in the event that an exception occurs. The VOS Task Force invited all interested parties to provide written comments during the public comment period.

The SVO also provided an update on the removal from the FE process of PLR securities without a required private rating letter rationale report, noting that on March 3, 2025 (following a three-month deferral period from year-end 2024), the NAIC removed 346 PLR securities. This number reflects a significant increase in compliance with the requirements; as recently as November 11, 2024, the SVO had identified 1,636 PLR securities missing the required rationale report.

b. VOS Task Force Discusses Updates on CLO Modeling Project

The VOS Task Force heard an update on the status of the CLO modeling project. The VOS Task Force previously adopted an amendment to the P&P Manual, which became effective January 1, 2025, to add reporting instructions for the financial modeling of CLOs. Specifically, the P&P Manual amendment makes CLOs ineligible to use CRP ratings to determine an NAIC Designation if the NAIC Structured Securities Group can model the security. The P&P Manual amendment was introduced after the NAIC Investment Analysis Office identified that NAIC Designations assigned to CLOs were inconsistent when relying on CRP ratings and recommended this change to ensure reporting equivalency for NAIC regulatory purposes. 

The ad hoc group leading this effort is seeking industry feedback on the algorithm and methodology and held an open meeting on April 2, 2025. The ad hoc group also maintains a webpage on which it posts materials related to the development of its methodology, analytics, and supplemental information.

c. NAIC Receives an Update on RBC Principles for Bond Funds

During the Spring Meeting, the RBCIRE Working Group received an update on the progress of updating the RBC treatment for certain bond funds. The RBCIRE Working Group heard comments on the American Council of Life Insurers (ACLI) RBC Principles for Bond Funds Presentation and the NAIC Memorandum of Bond Funds Reported in 2023 Annual Statement Filings. The exposure focuses on the RBC treatment among three types of funds when they predominantly invest in bonds and receive SVO assigned designations: (i) exchange-traded funds, (ii) U.S. Securities and Exchange Commission–registered mutual funds, and (iii) private funds. The ACLI agreed with the RBCIRE Working Group to begin looking at these three types of bond funds to determine whether the risk profiles warrant similar or different RBC treatment. The ACLI exposed draft RBC principles for these bond funds in a presentation in December 2024.

The NAIC and industry representatives were in agreement on the principles proposed by the ACLI, and the RBCIRE Working Group directed NAIC staff to begin drafting a proposal focused on updating the Life RBC formula. While discussions to date have been focused on the application of these RBC principles to life companies only, interested parties also raised whether application for non-life insurers should be considered, particularly in light of the new RBC Governance Task Force desire for consistency across RBC formulas (see item 6(c), below). It is not expected that this proposal will be a top priority for the RBCIRE Working Group, so work will likely extend beyond 2025.

a. SAP Working Group Adopts Collateral Loan Reporting Revisions

At the Spring Meeting, the SAP Working Group adopted revisions to expand the collateral loan reporting lines for Schedule BA and asset valuation reserve (AVR) instructions to enable regulators to quickly identify the type of collateral supporting the collateral loan in order to identify whether the collateral loan may be admitted in scope of SSAP No. 21 — Other Admitted Assets. The NAIC previously adopted revisions to SSAP No. 21 to clarify that for a collateral loan to be admitted, the underlying collateral must also be a qualifying investment (meaning the collateral would be an admitted asset if held directly by the company). As such, these revisions require disclosure as to whether the collateral loan should be admitted or nonadmitted based on the nature of the underlying collateral. The revisions are effective January 1, 2026, but remain subject to a related Blanks (E) Working Group proposal to Schedule BA and AVR that is pending adoption.

Under the revisions to Schedule BA, collateral loans will be separated by the type of collateral that secures the loan. The updates add the following reporting lines: (i) collateral loans backed by mortgage loans, (ii) collateral loans backed by joint ventures, partnerships, or limited liability companies, (iii) collateral loans backed by residual interests, (iv) collateral loans backed by debt securities, (v) collateral loans backed by real estate, and (vi) all others not otherwise captured in (i) – (v) above. The Blanks (E) Working Group revisions also include two electronic-only columns to report the fair value of the collateral backing the collateral loan and the percentage of collateral to the amount of the loan.

Relatedly, in June 2024, the NAIC 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. These reporting lines are focused on categories for which look-through to underlying collateral for AVR and risk-based capital purposes is warranted.

b. SAP Working Group Updates Regarding Funds Withheld and Modco Insurance Asset Reporting

The SAP Working Group adopted revisions to SSAP No. 1 — Accounting Policies, Risks & Uncertainties, and Other Disclosures to clarify how assets held under Modco or FWH agreements are reflected within the restricted asset disclosure. The SAP Working Group also exposed for a public comment period ending May 2, 2025, (i) revisions to SSAP No. 1 to expand the restricted asset reporting to capture information on Modco and FWH assets related to the reinsurer and to require the disclosure in all quarterly and annual financial statements and (ii) previously exposed draft reporting schedules to add a new part to the reinsurance schedules (Schedule S of the Life/Fraternal annual statement blank) to add reporting on FWH and Modco assets.

The revisions to SSAP No. 1 adopted at the Spring Meeting were exposed at the NAIC Fall 2024 National Meeting. Interested parties recommended minor modifications to the revisions to clarify that the book-adjusted carrying value (rather than collateral amount or fair value) of the Modco and FWH assets should be reflected in the restricted assets disclosure. These recommendations were accepted by the working group. It is anticipated that corresponding financial statement blanks updates will be adopted on May 29, 2025, to allow for year-end 2025 data-capturing.

The additional revisions to SSAP No. 1 exposed at the Spring Meeting were prepared in response to a referral from the Financial Analysis (E) Working Group, which noted that FWH and Modco reinsurance arrangements often involve the transfer of investment advisory responsibilities to the reinsurer or its affiliate and may include a subsequent reallocation of a signification portion of the assets into securities that are affiliated with or related to the investment adviser or reinsurer. The revisions are intended to require insurers to clearly identify whether such investments are related to or affiliated with the reinsurer, as such relationship information may not otherwise be readily apparent to regulators. Although the restricted asset disclosure is currently updated on an annual basis, the SAP Working Group has proposed requiring this reporting in all quarterly financial statements as well.

The SAP Working Group has proposed a year-end 2025 effective date for the proposed revisions to SSAP No. 1, such that updated restricted asset reporting would be required for year-end 2025 statutory financial statements. To the extent the changes are not adopted before the end of May 2025, disclosure could still be required for year-end 2025, although such disclosure would be narrative only until year-end 2026.

The draft reporting schedules adding reporting on FWH and Modco assets were initially exposed at the NAIC Summer 2024 National Meeting and re-exposed at the NAIC Fall 2024 National Meeting. In response to comments from interested parties, the SAP Working Group has removed the Health and Property/Casualty and Title annual statement blanks from the proposal due to the limited applicability of Modco and FWH transactions to nonlife business.

Relatedly, at the Spring Meeting, the Life Risk-Based Capital (E) Working Group proposed changes to reorganize the LR008 – Other Long-Term Assets statutory financial statement page to ensure that Schedule BA assets of the same risk components (C-1o vs. C1-cs) are grouped to facilitate proper Modco/FWH adjustments within LR008. Should the proposed changes for LR008 be adopted, there will be corresponding changes to the following statutory financial statement pages: (i) LR030 – Calculation of Tax Effect for Life and Fraternal Risk-Based Capital and (ii) LR031 – Calculation of Authorized Control Level Risk-Based Capital. The proposal was subject to a 30-day public comment period ending April 23, 2025.

c. SAP Working Group Resumes Work on Proposal to Clarify Guidance on Deferral of Gains and Losses for Derivative Transactions

At the Spring Meeting, the SAP Working Group directed NAIC staff to begin researching and developing possible guidance to clarify disposal and reacquisition reporting requirements on the investment acquisition and disposal schedules when a debt security is sold and then reacquired from a special purpose vehicle with added derivative wrappers or components. As a result, NAIC staff will be soliciting information as to whether new statutory accounting guidance should be established that would allow the deferral of gains and losses for derivative transactions that do not qualify as accounting-effective hedges under SSAP No. 86 — Derivatives.

The proposal had been deferred at the NAIC Fall 2024 National Meeting. That version included a proposal for the bifurcation of debt securities with derivative wrappers or components if the item does not reflect a structured note, but interested parties did not support the change and argued that insurers who own these types of instruments should evaluate the debt investment in its entirety to determine if the principles-based bond definition has been met. After considering the comments from interested parties, the SAP Working Group agreed that these debt securities should be subject to the bond definition without derivative bifurcation (such that, if they do not qualify as bonds, they will be reported as nonbond debt securities).

NAIC staff anticipates that the guidance may be complex but will work to present updates and drafts to the SAP Working Group for consideration if so directed. It is anticipated that to the extent feasible, NAIC staff may leverage guidance and the approach in SSAP No. 108 — Derivatives Hedging Variable Annuity Guarantees. It is anticipated that final guidance will require sufficient guardrails on the types of hedging strategies, proving effectiveness, and mechanisms for the regulators, all which will be components of the discussion in accounting guidance development if directed by the SAP Working Group.

 

 

 

d. SAP Working Group Defers Further Work on Concept Agenda Item on Accounting and Reporting of Investment Subsidiaries

The SAP Working Group deferred further action on its concept agenda item regarding the accounting and reporting of investment subsidiaries to allow for further consideration of Delaware statutory trusts (DSTs) holding residential mortgage loans and whether specific accounting parameters and guidance should be established.

This agenda item was initially exposed at the NAIC Fall 2024 National Meeting, in response to concerns with the reporting of “investment subsidiaries” in Schedule D-6-1: Valuation of Shares of Subsidiary, Controlled, or Affiliated Companies and in the life RBC formula, particularly with regard to the potential RBC benefit that can occur without transparency to regulators on the assets within an “investment subsidiary.”

Following the NAIC Fall 2024 National Meeting, interested parties indicated that the key industry focus is on developing accounting and reporting guidance for DST structures holding residential mortgage loans. As a result, the SAP Working Group has directed NAIC staff to assess DST structures holding residential mortgage loans and the potential establishment of specific accounting and reporting guidance. In the meantime, the SAP Working Group invited interested parties to alert NAIC staff to any other specific structures captured as “investment subsidiaries” on Schedule D-6-1 that warrant separate review.

Once the SAP Working Group reaches a decision for residential mortgage loans held in DSTs (potentially with new SAP guidance addressing structure requirements, accounting, and reporting), it is expected that the concept of a generic “investment subsidiary” would be removed from Schedule D-6-1 and related RBC formulas. Going forward, if there are structures for which look-through RBC is desired, NAIC staff recommends that interested parties bring those structures to the attention of the SAP Working Group for assessment.

e. SAP Working Group Proceeds With Revisions on Securities Lending, Repurchase, and Reverse Repurchase Arrangements

The SAP Working Group will proceed with developing revisions to clarify guidance for securities lending, repurchase, and reverse repurchase agreements set forth in SSAP No. 103 — Transfers and Servicing of Financial Assets and Extinguishments of Liabilities to clarify RBC guidance for securities lending, repurchase, and reverse repurchase agreements.

This agenda item was initially exposed in August 2024, requesting feedback from regulators and interested parties on the documented processes and noting questions related to existing RBC guidance for securities lending, repurchase, and reverse repurchase agreements as it was noted that certain aspects of the existing guidance may not have been relevant and/or consistently applied.

 

 

 

 

In particular, the structure of SSAP No. 103 was noted as not being easy to follow as the guidance for “secured borrowing” under generally accepted accounting principles, which were adopted in SSAP No. 103, is different from the statutory accounting method for securities lending and repurchase secured borrowing transactions when the secured party has the ability to sell or repledge collateral. The guidance will focus on, among other topics, (i) existing guidance restrictions (e.g., limiting admittance to short-term repurchase arrangements), (ii) the application of the “conforming” securities lending concept for reduced RBC, and (iii) the use of the detailed repurchase disclosures.

f. SAP Working Group Discusses Interest Maintenance Reserve Matters

During the Spring Meeting, the SAP Working Group heard an update on the work of the IMR Ad Hoc Subgroup charged with developing long-term interest maintenance reserve (IMR) guidance.

At the NAIC Summer 2023 National Meeting, the SAP Working Group adopted INT 23-01T – Net Negative (Disallowed) Interest Maintenance Reserve, an interpretation of statutory accounting principles that provides optional, limited-term guidance for the admittance of net negative (disallowed) IMR under SSAP No. 7 for up to 10% of adjusted general account capital and surplus. INT 23-01T is effective through December 31, 2025, but may be nullified earlier or extended based on actions by the SAP Working Group to establish specific accounting guidance on net negative (disallowed) IMR to serve as a long-term solution. The SAP Working Group will be reviewing this timeline and assessing this interpretation.

The IMR Ad Hoc Subgroup has been meeting regularly since October 2023. Since the NAIC Fall 2024 National Meeting, the discussions have focused on (i) IMR from reinsurance transactions, (ii) reinvestment for sold fixed-income instruments where a realized gain/loss is taken to IMR, and (iii) guidance for excess withdrawals. Future consideration is expected on yield assessments, supporting an improvement to asset yield when reinvestment occurs. Although the IMR Ad Hoc Subgroup has informally concluded its discussions on hypothetical IMR, further discussion on other reinsurance aspects is expected to continue.

a. NAIC to Hire Consultant to Develop Due Diligence Framework for CRPs

In accordance with the Investment Framework, in 2024 the E Committee adopted a request for proposal for the NAIC to hire a consultant to assist with developing a due diligence framework for oversight of ratings provided by CRPs. At the Spring Meeting, the E Committee announced its intention to “soon announce” the hiring of the consultant and for the work to begin on developing a CRP due diligence framework under the direction of the VOS Task Force.

 

The E Committee’s goal in hiring the consultant is to reduce or eliminate the SVO’s “blind” reliance on CRPs. The due diligence framework to be developed would enable SVO to focus primarily on holistic due diligence around CRP usage and will include, among other things, clear quantitative and qualitative parameters for CRPs used to provide ratings for use as NAIC designations.

b. NAIC to Appoint Investment-Focused Working Group

Also at the Spring Meeting, the E Committee discussed its intention to announce changes to certain aspects of its subcommittee structure as well as changes in the role of certain NAIC staff in assisting regulators. In accordance with the Investment Framework, these changes are expected to include the establishment of a broad investment working group under the E Committee that can act in an advisory capacity to support the Financial Analysis (E) Working Group and the Valuation Analysis (E) Working Group, among other NAIC task forces and working groups.

Although the E Committee does not expect to provide additional updates on the proposed changes until the NAIC 2025 Summer National Meeting, the Investment Framework suggests that investment processes on which the new working group may advise include (i) review of bond reporting analysis under the principles-based bond definition, (ii) challenges to individual designations provided by CRPs, and (iii) review of work provided by external consultants for investment-related projects for broad impacts to the Investment Framework.

c. NAIC Establishes New RBC Governance Task Force

In February 2025, the NAIC established a new Risk-Based Capital Model Governance (EX) Task Force (RBC Governance Task Force). The stated goal of the RBC Governance Task Force is to modernize and strengthen the RBC framework, with the goal to develop guiding principles for future RBC adjustments, conduct a comprehensive gap analysis to identify areas for improvement, and design a communication campaign highlighting the RBC formulas’ strengths in the U.S. state-based system of financial regulation and solvency oversight. The RBC Governance Task Force is also tasked with evaluating when to integrate new risks into the RBC formulas, the data needed for setting associated factors, and approaches for addressing emerging risks when a framework did not previously exist. Additionally, it will review established guidelines for recalibrating RBC formulas to ensure the formulas remain effective.

The task force was formed as part of the broader NAIC 2025 strategic roadmap and the RBC components of the Investment Framework. On February 9, 2025, the RBC Governance Task Force exposed a memorandum detailing the task force’s initial directives and key responsibilities and proposed 2025 charges. At the Spring Meeting, the RBC Governance Task Force heard comments to the memorandum from interested parties on the direction of the task force’s work.

The co-chairs of the RBC Governance Task Force noted that the NAIC will be hiring a consultant to assist with the task force’s work and provide analysis and objective expertise, help perform the gap analysis, and develop guiding principles. The co-chairs of the RBC Governance Task Force encouraged interested parties to send feedback and specific responses to the questions in the February 9 memorandum to provide a useful starting point for the consultant to begin their work. The task force intends to provide regular updates and expose relevant documents as its work progresses.

The RBC Preamble already contains language restricting the public use of RBC, stating that “the making, publishing, disseminating, circulation or placing before the public, or causing, directly or indirectly to be made, published, disseminated, circulated or place before the public, in a newspaper, magazine or other publication, or in a form of a notice, or in any other way, an advertisement, announcement or statement.” However, it has been the practice of many companies to publish RBC information in certain public disclosure documents, particularly given the public availability of this information in the insurer’s annual statutory financial statements filed with state insurance regulators, and other parties have since come to use such information. As such, one of the questions included in the draft exposure is whether changes should be made to the RBC disclosures included in the five-year Historical Data page in Annual Statement Blanks. The exposure also includes a request for examples of ways that RBC ratios are used other than the intended purposes of identifying potentially weakly capitalized companies. Comments on the exposure are due by May 9, 2025.

According to NAIC data, as of March 3, 2025, 23 jurisdictions had adopted a version of the NAIC Model Bulletin on the Use of Artificial Intelligence Systems by Insurers (AI Model Bulletin). Following up on these adoptions, in 2024 the working group began discussions to explore how states are assessing market and financial risk associated with an insurance company’s use of AI, including compliance with the AI Model Bulletin. In 2025, the working group expects to (i) develop a standardized data collection tool to use in investigations or examinations to help regulators identify and assess financial and market risk associated with AI use, (ii) coordinate the development of review and enforcement tools, resources, guidelines, and training for regulators, and (iii) create a self-audit questionnaire for insurers that aligns with regulator expectations on AI use under the AI Model Bulletin.

 

 

The working group also discussed some of the general concepts it expects to address through the development of further guidance:

• AI Governance (best practices, guidance, and templates; AI testing; model training; drift detection; identifying adverse consumer outcomes; risk classification)
• AI Transparency (AI use disclosure; data use disclosure; degree of “human in the loop” disclosure; basis, source of data, reason for decision; providing recourse to appeal or
• fix inaccurate data; AI complaint tracking)
• Adverse Outcomes Accountability (clarify accountability when using third-party data/models; adverse consumer outcome reporting to consumers and regulators)
• Prohibited Practices (identify AI use cases that require “human in the loop”)

The working group expects to take a holistic approach to refining AI expectations in these areas, and to address these concepts in coordination with other NAIC committees and working groups. At this time, the working group has not yet determined the form that further guidance will take (model bulletin, model law, or otherwise).