The National Association of Insurance Commissioners (NAIC) met in Philadelphia, Pennsylvania for the 2017 Summer National Meeting from August 5-9. Commissioners, staff and interested parties alike converged in Philadelphia hoping for a busy and productive meeting ahead of what is expected to be a sparsely attended Fall National Meeting in Honolulu, Hawaii. The National Meetings were again dominated by themes of technological and operational change, with many meetings focused on keeping up with the rapid evolution occurring across the industry.
The following are some highlights from the Summer National Meeting. We do not cover every meeting in this report; rather, we comment on select noteworthy developments and matters of interest to our clients.
A. NAIC Continues Focus on Innovation and Technology
1. Insurance Data Security Model Law
2. Regulating Big Data
B. Update on FSOC and Systemic Risk
C. International Issues
1. International Reinsurance
2. Group Capital Calculation
3. Other International Regulatory Issues
D. Issues of Particular Interest to Life Insurers
1. Life Insurance and Annuities (A) Committee
2. State Implementation of PBR
3. XXX/AXXX Model Regulation
4. Long Term Care Insurance
E. Issues of Particular Interest to Property and Casualty Insurers
1. National Flood Insurance Program Updates
2. NAIC Drafting Travel Insurance Model Act
3. 2017 TRIA Data Call Underway
F. Briefly Noted
1. NAIC Updates to State Accreditation Standards
2. Considering Eliminating Pet Insurance as a Limited Line
3. Statutory Accounting Updates
4. RBC Bond Formula Changes
5. New Lender-Placed Real Property Insurance Model Act
6. Auto Insurance Data Call Approved
7. Form F Update
A. NAIC Continues Focus on Innovation and Technology
1. Insurance Data Security Model Law
In a flurry of approvals, the NAIC took substantial steps toward finalizing its proposed Insurance Data Security Model Law during the 2017 NAIC Summer National Meeting in Philadelphia. Both the Cybersecurity (EX) Working Group and the Innovation and Technology (EX) Task Force adopted the revised sixth version of the Model Law. Only Arkansas, New Mexico and Utah voted against adoption of the Model Law at the Working Group level. The Model Law next goes to the Executive (EX) Committee, and then to the Plenary for final adoption. The exact timing for these last approvals is uncertain. For more information regarding the Model Law, see our Legal Alert: NAIC Takes Major Step Toward Final Approval of Insurance Data Security Model Law.
2. Regulating Big Data
The Big Data (EX) Working Group discussed a number of ongoing initiatives and proposals related to the use of big data by insurers and insurance regulators. Both Working Group members and interested parties offered an active commentary throughout the discussion, showing that regulators, industry and consumer advocates continue to focus on big data issues as this area develops rapidly.
The Working Group’s first charge for 2017 is to review existing regulatory frameworks used to oversee insurers’ use of consumer and non-insurance data. NAIC staff provided an update on progress on this initiative, noting that the staff has begun to pull together overviews of existing relevant frameworks, with an initial focus on personal lines property and casualty insurance. To date, NAIC staff has identified model laws and state laws addressing rate setting, limitations on permissible rating factors, unfair trade practices and claims settlement restrictions. The staff is continuing its research, next focusing on the regulation of data vendors and brokers. The end goal of the research is to develop a report that has a description of how data is being used by insurers and how those uses intersect with existing regulatory tools. Multiple members of the Working Group urged staff to ensure that all types of data used by insurers are discussed as part of the research, including credit score data and non-credit consumer data. The staff noted that they are looking at all types of data being used by insurers, but that the review is not currently being conducted as a 50-state survey, although they may discuss conducting such a survey in the future. Birny Birnbaum, from the Center for Economic Justice, suggested that as part of its research, the Working Group should include a list of the challenges presented by big data and an assessment of whether existing regulatory tools are sufficient to address those challenges.
The Working Group also received an update from NAIC staff on their ongoing assessment of required data and tools for regulators to monitor the marketplace and evaluate market practices that use big data. Staff presented an initial, high-level list of the types of data currently available to regulators, including data sourced from financial reporting, market regulation reporting and auto insurance availability and affordability data reporting, among others. Members discussed potential other data sources that could be added, seeking mainly to set the stage for future conversations among the Working Group members. Commissioner Mike Kreidler (Washington) noted that most regulators do not currently have the expertise in-house that would be needed to review and use the data sources identified by the Working Group, and that it would be a challenge to obtain that expertise. The Chair of the Working Group, Commissioner Laura Robison (Oregon) noted that technology development and resource sharing among states could assist with that challenge.
The Working Group also discussed an initial draft of a proposal for sharing resources among states through the NAIC for the review of complex rating models for auto and homeowners insurance that rely on the use of big data. The proposed structure was previously exposed for public comment, and the NAIC reports that they received a range of comments expressing concerns. At the outset of the discussion and in response to those comments, Commissioner Robison emphasized that the goal of the project was for states to share resources to help with speed-to-market in the review of complex models, while maintaining individual state authority. To date, interested parties have raised concerns regarding the delegation of authority to NAIC staff, the protection of insurers’ confidential data and trade secrets, qualifications of the individuals reviewing the models, response deadlines included in the proposal and a perceived lack of due process and transparency. Commissioner Robison also noted that the proposal is meant as a starting point, and urged commenters to propose solutions that address their concerns, stating that there will be additional opportunities to comment on the proposed structure as it progresses. As next steps on this project, the Working Group will develop a revised proposal for discussion based on the comments received, and will submit the proposal for review by NAIC legal to ensure it falls within the bounds of the NAIC’s authority.
B. Update on FSOC and Systemic Risk
The Financial Stability (EX) Task Force Chair, Director Peter Hartt (New Jersey), gave an update on the US Financial Stability Oversight Council (FSOC), where Director Hartt is the state insurance commissioner representative. Director Hartt noted that he continues to provide FSOC with insights into the state regulatory system and voice ongoing concerns with the process for the designation of non-bank systemically important financial institutions (SIFIs) and with the SIFI designations made to date. Director Hartt also discussed the April 21, 2017 memorandum issued by President Trump directing Treasury to evaluate FSOC’s processes for designating SIFIs, including whether such processes are consistent with the seven Core Principles laid out in President Trump’s February 3, 2017 executive order, and to provide a report by October of this year.
The Task Force also discussed a proposed framework for the NAIC’s Macro-Prudential Initiative, which involves analyzing how the insurance sector is impacted by, reacts to, and contributes to financial, economic and other common risk exposures. This framework is related to the Task Force’s new charge, adopted at the Spring 2017 National Meeting, to “analyze existing post-financial crisis regulatory reforms for their application in identifying macro-prudential trends, including identifying possible areas of improvement or gaps, and propose to the Financial Condition (E) Committee or other relevant Committee enhancements and/or additions to further improve the ability of state insurance regulators and industry to address macro-prudential impacts. . . .” The framework highlights four areas of focus for potential enhancements: (i) liquidity, (ii) recovery and resolution, (iii) capital stress testing and (iv) exposure concentrations. While representatives from some of the largest US insurance groups voiced their support of the framework, a representative of the National Association of Mutual Insurance Companies (NAMIC) voiced concerns about potential new reporting requirements arising from the initiative.
The Task Force additionally appointed a new Liquidity Assessment (EX) Subgroup, which is charged to (i) “review existing public and regulator only data related to liquidity risk, identify any gaps based upon regulatory needs, and propose the universe of companies to which any recommendations may apply”, and (ii) “construct a liquidity stress testing framework proposal for consideration by the Financial Condition (E) Committee, including the proposed universe of companies to which the framework will apply, (e.g. large life insurers).”
C. International Issues
1. International Reinsurance
The Reinsurance (E) Task Force met at a National Meeting for the first time under the leadership of Superintendent Maria T. Vullo (New York). The Task Force received a status report on the proposed covered agreement between the United States and the European Union. (For the latest on the covered agreement, its timetable for implementation and the road ahead, see our Legal Alert: US-EU Covered Agreement: An Overview.
Superintendent Vullo noted that there is a great deal of work for the NAIC to do with respect to the implementation of the covered agreement, and that it will be an open and transparent process. However, the Task Force declined to provide specifics regarding how the NAIC would handle implementation, noting that the NAIC will not engage in formal discussions until after the covered agreement has been signed and Treasury and the US Trade Representative have released their anticipated policy statement on implementation. It was noted that most people believe that the covered agreement would necessitate conforming revisions to the NAIC Credit for Reinsurance Model Law and Model Regulation, and that achieving a consensus on revisions could be time-consuming.
In light of the impending execution of the covered agreement, the Task Force directed the Qualified Jurisdiction (E) Working Group to cease work on its report on EU member state implementation of Solvency II and the potential impact on their applicable qualified jurisdiction status until further notice. Under the NAIC Credit for Reinsurance Model Law and Regulation, an unauthorized reinsurer may be certified to provide credit for reinsurance with reduced collateral if it is domiciled and licensed in a “qualified jurisdiction.” In determining whether the domiciliary jurisdiction is a qualified jurisdiction, the commissioner must consider, among other things, whether there is reciprocal recognition of US reinsurers. However, in response to reports that some EU jurisdictions were imposing requirements for US reinsurers seeking to do business in those jurisdictions as part of their implementation of Solvency II, in December 2016, the Working Group initiated steps to reevaluate those EU jurisdictions that were already qualified. If executed, the covered agreement would appear to make these issues moot.
The Qualified Jurisdiction (E) Working Group also reported that it received a request to evaluate a new EU jurisdiction as a qualified jurisdiction (the identity of the jurisdiction was withheld as confidential), and the Task Force directed the Working Group to proceed with its evaluation notwithstanding the impending execution of the covered agreement.
Other NAIC initiatives also were put on hold pending implementation of the covered agreement. The Financial Regulation Standards and Accreditation (F) Committee deferred consideration of the adoption as accreditation standards of the Corporate Governance Annual Disclosure Model Act and Model Regulation and the 2014 Revisions to the Insurance Holding Company System Regulatory Act. The Committee determined that deferral was prudent to avoid adopting standards that might require revisions based on the implementation of the covered agreement and related guidance expected to be issued by Treasury. The Committee will take the issue up again at the Fall National Meeting and decide whether to further defer adoption.
2. Group Capital Calculation
International Capital Standards. Commissioner Katherine Wade (Connecticut), Chair of the International Insurance Relations (G) Committee, gave an update on the work of the International Association of Insurance Supervisors (IAIS) on the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), including the Insurance Capital Standard (ICS). She reported that the IAIS recently approved ICS Version 1.0 for extended field testing.
Separately, at the Comframe Development and Analysis (G) Working Group, Peter Windsor (IAIS Secretariat) also gave an update on ComFrame and ICS. Peter emphasized that the ICS is part of ComFrame, which is a complete supervisory framework for Internationally Active Insurance Groups (IAIGs). He explained that there is a need for balance between quantitative and qualitative requirements in ComFrame. Peter also highlighted some of the issues the IAIS will be addressing as it starts discussions in September of ICS version 2.0, which will include valuation, capital resources and capital requirements. ICS 2.0 is due in late 2019.
NAIC Capital Standards. Commissioner David Altmaier (Florida), Chair of the Group Capital Calculation (E) Working Group, asked Julie Garber (NAIC staff) to provide an overview of her July 19, memorandum on the treatment of captives in the group capital calculation. Ms. Garber explained that, as a result of comments, four scenarios had been identified: (1) captives not in a traditional US holding company; (2) pure captives; (3) captives that do not assume XXX/AXXX business; and (4) captives that assume XXX/AXXX business. The first three were relatively non-controversial and the Working Group tentatively agreed to the proposed approaches for each. The fourth generated the most comments and, as a result, four decision points related to asset and liability valuation were developed from the comment letters. The Working Group exposed the memo for a 30-day public comment period and requested feedback on the different decisions that need to be made with respect to the treatment of captives that assume XXX/AXXX business in the group capital calculation.
Chairman Altmaier stated that the consensus is that scalars should be developed for use with non-US insurers but how they should be developed hasn’t been determined. Here, scalars are multipliers used in capital calculations to calibrate capital requirements for non-US insurers based on their home jurisdictions. Feedback about which jurisdictions the Working Group should start with was solicited. The ACLI and NAMIC provided a list of jurisdictions and the source of data that was used to create the scalar for each. The Chair asked NAIC staff to begin calculating scalars for those jurisdictions based on the pure relative ratio approach (proposed by Transamerica) and the excess relative ratio approach (proposed by the NAIC). NAIC staff will now begin field testing the two capital calculation approaches as applied to the identified test jurisdictions using the identified data sources.
Lou Felice (NAIC staff) provided an update on the Baseline Exercise, which started earlier this year with nine volunteer companies working with their lead state regulators, the purpose of which is to collect data to help inform the decisions of the Working Group. The exercise seeks to identify all entities within volunteer insurance groups and treat them as stand-alone entities for capital purposes. The capital treatment assigned to each entity is based on the applicable RBC treatment for the entity, unless otherwise agreed by the Working Group. Mr. Felice said the next step is a call later this month with the lead state regulators and volunteer groups to discuss observations from the impact analysis that compared the baseline RBC treatment with other approaches. That information will be brought back to the Working Group. Chairman Altmaier noted that the Baseline Exercise is not a replacement for field testing, and that once a group capital calculation is developed, he plans to formally field test it.
3. Other International Regulatory Issues
During the International Insurance Relations (G) Committee, Commissioner Katherine Wade (Connecticut) noted that revised Insurance Core Principles (ICPs) and ComFrame material has been released this year. She noted that the NAIC will continue to advocate for the US Solvency system. The NAIC is circulating a draft comment letter on ICPs currently out for consultation. It is due to the IAIS by August 29.
Commissioner Wade also spoke about the G-SII assessment exercise, saying that in September the IAIS will make a recommendation to the Financial Stability Board (FSB) for publication of the G-SII list in November. She also reported that 16 states are IAIS Multilateral Memorandum of Understanding signatories and that the NAIC had signed its 17th Memorandum of Understanding on regulatory cooperation with Argentina. Commissioner Wade stated that the NAIC remains committed to the EU-US Dialogue (with issues such as cybersecurity and consumer protection on the agenda) and ongoing cooperation with and involvement in other international policy organization, including the OECD, the Asia-Pacific International Forum, and EIOPA.
D. Issues of Particular Interest to Life Insurers
1. Life Insurance and Annuities (A) Committee
The Life Insurance and Annuities (A) Committee discussed key NAIC initiatives, including annuity disclosure, annuity suitability, life illustration issues and unclaimed life insurance benefits. The Committee heard the following reports from its Working Groups and Task Forces addressing these topics:
Annuity Disclosure. The Committee will begin work on a request referred by the Annuity Disclosure (A) Working Group to revise Section 6 (Standards for Illustrations) of the Annuity Disclosure Model Regulation (#245) to address issues identified by the Working Group related to innovations of annuity products that are not addressed, or addressed inadequately, in the current standards. This request was approved by the NAIC Executive and Plenary Committee on August 9.
Annuity Suitability. The Committee heard an update from the Chair of the Annuity Suitability (A) Working Group, Director Dean Cameron (Idaho), on the group’s activities, with a focus work related to the Department of Labor Fiduciary Rule.
At the Working Group meeting, Director Cameron (Idaho) discussed the Fiduciary Rule in more detail, including taking comments from interested parties. He noted that the NAIC had submitted comments to the Department of Labor (DOL) in response to their request for information regarding the Fiduciary Rule and Prohibited Transaction Exemptions. In addition to responding to specific questions relating to regulatory authority over life and annuity products, the letter encouraged close coordination with the NAIC to ensure consumers are protected and to achieve regulatory consistency to “reduce burdens on industry as they seek to comply with our respective regulatory frameworks.” The NAIC is also considering whether to submit comments to the SEC.
Director Cameron invited discussion regarding potential revisions to the Suitability in Annuity Transactions Model Regulation (#275) to incorporate a “best interest” standard. Speaking on behalf of multiple consumer groups, Birny Birnbaum (Center for Economic Justice) explained the key principles offered in a July 31, written submission to the Working Group. He said that a best interest standard must be measurably higher than the existing suitability standard, emphasize conflicts of interest, apply to all investment types, acknowledge the incentives in compensation arrangements that reward producers for selling the product as opposed to maintaining the product, and produce good consumer outcomes. Mr. Birnbaum was unequivocal in stating that the ACLI’s proposal fails to meet any of these key principles. The goal of the ACLI’s “Uniform Standard of Care” proposal is uniform definitions, common disclosure requirements and common guiding elements among the states, SEC, FINRA and DOL as they develop new standards of care or revise existing standards of care. In this regard, Bruce Ferguson (ACLI) expressed support for revisions to the Annuity Suitability Model and continuing discussions among state and federal regulators. James Reglabuto, Deputy Superintendent for Life Insurance (New York), stated that New York has been a strong proponent of including life products in the suitability model and suggested that the NAIC survey how life insurance products are marketed and sold.
Life Insurance Illustration Issues. Commissioner Ted Nichol (Wisconsin), Chair of the Life Insurance Illustrations (A) Working Group, reported that the group is discussing draft revisions to the Life Insurance Illustrations Model Regulation (#582) and the Life Insurance Disclosure Model Regulation (#580) to include a requirement for a policy overview document, as well as a draft policy overview template, that will serve as an example of a policy overview document that meets the requirements of the model.
Unclaimed Life Insurance Benefits. Commissioner Doug Ommen (Iowa), Chairman of the Unclaimed Life Insurance Benefits (A) Working Group, reported that the Working Group identified the top three issues about which it cannot reach consensus: (1) definition of death master file match; (2) applicability (retroactive or prospective); and (3) insurer conduct (i.e., responsibility to look at all in-force policies and those that have lapsed within 18 months prior to the effective date). Based on the number of states that have already taken action on the issue and the lack of consensus necessary to adopt the model, Commissioner David Jones (California) made a motion to disband the Working Group. The motion carried and the Working Group was disbanded.
2. State Implementation of PBR
Mike Boerner, Actuarial Director, Texas Department of Insurance, and Chair of the PBR Review (EX) Working Group, reported on the status of the Task Force’s PBR-related work. Some key actions included:
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adoption of the proposal for the VM-22 Maximum Valuation Interest Rates for Income Annuities, to make the valuation interest rate for income annuities more responsive to the economic environment;
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adoption of a revision to the Valuation Manual to point to VM-22 for the maximum requirements for fixed annuity contract valuation interest rates;
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adoption of revisions to VM-31, PBR Actuarial Report Requirements for Business Subject to a PBR Valuation; and
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exposed the Joint Academy/Society of Actuaries recommendation for accelerated underwriting data elements for expanding VM-51, Experience Reporting Formats and 2017 Guaranteed Issue Mortality Tables Report.
3. XXX/AXXX Model Regulation
The Reinsurance (E) Task Force adopted the Term and Universal Life Insurance Reserve Financing Model Regulation (commonly referred to as the XXX/AXXX Credit for Reinsurance Model Regulation) as a state accreditation standard for referral to the Financial Regulation Standards and Accreditation (F) Committee. After discussion of industry comments received on proposed adoption of the accreditation standard, the Task Force approved the inclusion in the accreditation standard of Section 9 of the XXX/AXXX Model Regulation, which prohibits transactions designed to circumvent the regulation’s purpose and intent, and recommended that the accreditation standard become effective January 1, 2020.
As previously reported, the XXX/AXXX Model Regulation is intended to establish uniform national standards governing reserve financing arrangements pertaining to XXX and AXXX policies. Subject to certain exemptions, the Model Regulation and Actuarial Guideline XLVIII (AG 48) prescribe a required actuarial analysis on each non-exempt reinsurance agreement to determine whether: (1) funds consisting of “Primary Security” are held by or on behalf of the ceding insurer as security under the reinsurance contract in an amount at least equal to the “Required Level of Primary Security;” and (2) funds consisting of “Other Security” are held by or on behalf of the ceding insurer in an amount at least equal to the portion of the statutory reserves in excess of the Required Level of Primary Security. The XXX/AXXX Model Regulation, together with the 2016 revisions to the Credit for Reinsurance Model Law, would replace AG 48.
The Task Force additionally exposed for comment a memorandum from the Reinsurance Investment Security (E) Subgroup that evaluates new investment products to determine if the products qualify for use either as a “Primary Security” or as reinsurance collateral. Comments are due by September 5, 2017.
4. Long Term Care Insurance
The Receivership Model Law (E) Working Group and Executive Committee approved a request that a drafting group propose revisions to the Life and Health Insurance Guaranty Association Model Act (#520), including to address long-term care (LTC) insurance insolvencies. Eight states and 17 companies and trade associations had previously volunteered to take part in the drafting group. The majority of the Working Group’s discussion at the meeting related to the proposed inclusion of HMOs in the Model Act to broaden the health account assessment base (HMOs are currently neither covered nor assessed under the Model Act). This proposal arose from negotiations between the life industry and the major medical writers, in the wake of the Penn Treaty insolvency, after major medical writers in Colorado pushed to “realign” the way in which assessments are made for LTC so that the burden would be shifted from health carriers to life and annuity writers. Ultimately, the life and health carriers agreed to a 50/50 split, with the inclusion of HMOs. This puts them in opposition to the HMO community, some of which suggested that this proposed change is just a cash grab that will add millions of dollars of premium to HMO members. Some Working Group members took issue with this view, noting that HMOs are starting to look more like major medical writers and consequently should be treated the same.
Prior to the Summer Meeting during a July 19, conference call, the Long-Term Care Insurance (B/E) Task Force heard a presentation from industry representatives regarding a potential long-term care run-off facility. The presentation described the potential benefits of a run-off facility, how transfer mechanisms have been used previously, and proposed how a run-off facility for long-term care might function. While Commissioner Mike Kreidler (Washington), Vice Chair of the Task Force, stated that the approach to a run-off facility should be considered for incorporation into the Task Force’s ongoing work, the issue was not discussed further during the Summer National Meeting.
E. Issues of Particular Interest to Property and Casualty Insurers
1. National Flood Insurance Program Updates
During the Surplus Lines (C) Task Force meeting, NAIC staff gave a status update on the Flood Insurance Market Parity and Modernization Act (H.R. 1422/S. 563). Staff indicated that the bill: 1) clarifies the authority of state insurance regulators to regulate private flood insurance; 2) provides a clear definition of private flood; and 3) includes provisions ensuring that private flood insurance meets the continuous coverage requirement so policyholders have a choice to return to the NFIP without penalty, including not losing any subsidy they previously had with the NFIP.
The NAIC strongly supports the bill, as detailed in a July 17, 2017, letter to the Chairman of the Senate Banking Committee and the Chairman of the House Financial Services Committee (FSC). The NAIC is urging its inclusion in the National Flood Insurance Program (NFIP) reauthorization legislation. While the overwhelming majority of flood insurance is written by the NFIP, state insurance regulators support facilitating increased private sector involvement in the sale of flood insurance as a complement to the NFIP, which is set to expire on September 30, 2017. The House FSC unanimously approved the Flood Insurance Market Parity and Modernization Act in June and it is expected to be included in their five-year NFIP reauthorization legislative package. Senate Banking Committee Chairman Crapo and Ranking Member Brown introduced a six-year NFIP reauthorization (S.1571), which does not include the Flood Insurance Market Parity and Modernization Act, sponsored by Senators Heller and Tester. The NAIC supports the Heller/Tester effort to add the private flood bill to the NFIP reauthorization bill and will advocate for it when it is considered by the Senate Banking Committee.
2. NAIC Drafting Travel Insurance Model Act
The Travel Insurance (C) Working Group began a section-by-section review of a draft Travel Insurance Model Act. The goal of the Model Act is to clarify the rules applicable to travel insurance. The first draft used the Travel Insurance Model Act developed by the National Conference of Insurance Legislators (NCOIL) as a starting point, which will be modified based on comments received by the Working Group as it progresses through the section-by-section review.
Prior to the meeting, comments on the original NCOIL Model Act were requested by the Working Group during a July 27, 2017, conference call. Several industry trade groups and consumer groups, including the United States Travel Insurance Association (UStiA), the American Insurance Association (AIA), the Tourism & Travel Industry Consumer Coalition (TTICC), and the Center for Economic Justice, submitted comments on the draft Model Act and are actively participating in the section-by-section review.
The Working Group discussed general comments they had received so far regarding the Model Act, including comments regarding bundling and disclosures, and began working through the “Scope and Purpose” and “Definitions” sections of the draft. Many commenters expressed concerns with the “Market Competitiveness” section of the NCOIL Model Act, which the Working Group noted had been struck from the NAIC’s current draft in light of comments received. The Working Group will be scheduling a series of calls in the upcoming months to produce a revised draft.
3. 2017 TRIA Data Call Underway
The Terrorism Insurance Implementation (C) Working Group received an update on federal and state activities related to terrorism insurance, including the Federal Insurance Office’s (FIO) 2017 data call that is underway. NAIC staff noted that the NAIC is engaging with FIO on the data collection and on reviewing the data received.
Section 111 of the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) (which reauthorized the Terrorism Risk Insurance Act (TRIA) through 2020) requires the US Treasury Department to collect data and provide an annual report to Congress on the state of the terrorism insurance market and the effectiveness of the TRIA Program. The FIO previously issued a voluntary TRIA data call in 2016. In December 2016, the FIO released a TRIA data call for 2017 (reflecting calendar-year 2016 data) that is mandatory for all insurers participating in the TRIA Program. The 2017 TRIA data call requires insurers to provide information on one of four templates, based on the nature and size of the insurer’s operations. Participating insurers were required to report certain data elements by May 15, 2017, and the balance of any remaining information must be provided no later than October 1, 2017. Additional information regarding FIO’s 2017 TRIA data call is available on Treasury’s Data Collection Portal.
Separately, state insurance departments issued their own 2017 terrorism insurance market data call in July, with insurer responses due by September 30, 2017. Workers’ compensation data was previously collected, so the current data call covers only insurers writing other lines of commercial insurance. At the Working Group meeting, an industry representative voiced the concern that there is a lack of transparency with respect to the use of the data, and that companies would like to be informed of the conclusions drawn from the data. Several industry representatives also noted how burdensome it is for insurers to have to complete separate federal and state terrorism risk data calls each year, and indicated that they have had discussions with the FIO in which the FIO has indicated a new willingness to coordinate with states on this issue. NAIC representatives responded by noting that they have also been encouraged in their discussions with the FIO, and that the ultimate goal is to have a single data call, with the FIO relying on market data compiled by the states to satisfy its requirements under TRIPRA.
F. Briefly Noted
1. NAIC Updates to State Accreditation Standards
The Joint Executive (EX) Committee and Plenary adopted the 2009 revisions to the Standard Valuation Law (#820), which authorized principles based reserving for life, accident and health insurance, as an accreditation standard effective January 1, 2020. The Financial Regulation Standards and Accreditation (F) Committee adopted the 2014 revisions to the Annual Financial Reporting Model Regulation (#205), which include requirements related to an internal audit function, as an accreditation standard to be effective January 1, 2020.
2. Considering Eliminating Pet Insurance as a Limited Line
The Producer Licensing (D) Task Force considered a recommendation to eliminate pet insurance as a limited line of insurance under the NAIC’s Uniform Licensing Standards. Industry comments on the issue at the Task Force meeting were divided. Some industry representatives argued against adoption of the recommendation to eliminate pet insurance as a limited line, noting that pet insurance is a specialty product that is not necessarily more complex than other limited lines. Another industry representative argued in favor of adopting the recommendation, noting that pet insurance has a wide variety of offerings and is similar in complexity to health insurance, and therefore should not be treated as a limited line. The Task Force noted that it would take industry comments under advisement, and set a deadline of September 5, 2017, for additional comments in order to make a decision on this issue.
3. Statutory Accounting Updates
The Statutory Accounting Principles (E) Working Group exposed a number of substantive and non-substantive revisions to existing Statutory Accounting Principles. Included in this batch of exposures were substantive revisions to SSAP No. 41-R – Surplus Notes, which detail specific accounting guidance for certain transactions to reflect the principle that the net balance of a surplus note issued at a discount or zero coupon should never be greater than the amount of cash and liquid admitted assets received. The revisions also incorporate disclosures to capture discount or zero coupon surplus note information as part of financial statements.
The Working Group also exposed revisions to the accounting statements for reinsurance accounting in the Accounting Practices & Procedures Manual. The revisions stem from concerns brought to the Working Group’s attention that certain health reinsurance contracts were termed quota share treaties but had features that limited the reinsurer’s risk, that some reinsurance contracts reported as meeting risk transfer contracts under SAP did not meet the risk transfer requirements under GAAP, and that contracts that meet risk transfer requirements for SAP were taking a larger reinsurance accounting benefit than appropriate because of risk limiting features in the contracts. The exposed revisions affect SSAP 61R – Life and Health Reinsurance, SSAP 62R- Property and Casualty Reinsurance and Appendix A-791- Life and Health Reinsurance Agreements. The changes are categorized by the Working Group as non-substantive on the basis that they only clarify existing guidance. Their particular focus is clarifying the distinction between proportional and non-proportional life and health reinsurance contracts, and for reinsurance of any kind of business, only the actual ceded risk may qualify for a reinsurance accounting credit.
Comments on all items exposed at the Summer Meeting are due by September 22, 2017.
4. RBC Bond Formula Changes
During the meeting of the Investment Risk-Based Capital (E) Working Group, Chairman Kevin Fry (IL) stated that the Working Group has agreed that the granularity in the bond structure for life, P/C and health RBC formulas should be increased from six categories to 20. The Working Group has been reviewing the treatment of bonds in all RBC formulas for the past two years. It began the project by focusing on bond formulas for life insurance, and expanded the analysis to look at property and casualty and health insurance formulas in September 2016. The Working Group is now seeking approvals to move forward with increasing the number of categories, while continuing to assess the development of associated factors.
5. New Lender-Placed Real Property Insurance Model Act
The Executive (EX) Committee adopted a request from the Property and Casualty Insurance (C) Committee to begin developing a new Model Act addressing lender-placed real property insurance. The request comes out of work by the Creditor-Placed Insurance Model Act Review (C) Working Group. The Working Group reviewed information from a 2012 public hearing on lender-placed insurance to determine whether changes were needed to the Creditor-Placed Insurance Model Act (#375), but determined that the existing Model Act was unsuitable since it focused on auto loans whereas lender-placed insurance issues were focused on mortgage loans.
6. Auto Insurance Data Call Approved
The Property and Casualty Insurance (C) Committee and Market Regulation and Consumer Affairs (D) Committee both considered a request from the Auto Insurance (C/D) Working Group to approve a data call. The data call would collect data from existing sources for conducting market assessments of the private passenger automobile insurance industry, including possible analyses of affordability and availability issues. At both Committee meetings, Birny Birnbaum (Center for Economic Justice) urged the Committees to reject the data call in favor of crafting a more comprehensive data call that would allow for a more detailed analysis, while deriding the proposed data call as being designed to support industry positions. In each case, the Committees responded that the data call constituted an important first step for a Working Group that has struggled to progress with its charges. The proposed data call was approved by both Committees.
7. Form F Update
The Group Solvency Issues (E) Working Group did not meet at the Summer Meeting. The Working Group is continuing to conduct research and assess potential revisions to the Enterprise Risk Report (Form F) through an internal drafting group. The Working Group anticipates scheduling a call for September or October to receive an update on their progress.
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