NAIC Report: 2014 Spring National Meeting

The National Association of Insurance Commissioners (NAIC) met for its Spring National Meeting in Orlando, Florida from March 29 through April 1. Typical for the first national meeting of the year, much activity was focused on clarifying the agenda for the year, particularly for those working groups meeting for the first time. One notable new initiative was the Governance Review (EX) Task Force, which arose out of an unusual display of disunity among insurance commissioners on internal NAIC governance at the end of last year. International standards and the use of captive insurance vehicles for life reserve financing (an issue closely related to principles-based reserving (PBR) implementation) continued to gain top billing.

The following are notable highlights of the meeting.

A.       Issues of General Interest

  1. NAIC Governance
  2. Federal Insurance Office Recommendations
  3. C-DAWG: A New Working Group Focused on International Issues
  4. Corporate Governance
  5. Reinsurance
  6. Accreditation Committee “Reinsurer” Proposal
  7. Cyber Liability Risk
  8. Holding Company Act Amendments

B.       Issues of Particular Interest to Life Insurers

  1. PBR Implementation Task Force/Captive and SPV Issues
  2. Contingent Deferred Annuities
  3. Unclaimed Insurance Benefits
  4. Index-Linked Variable Annuities

C.       Issues of Particular Interest to Property and Casualty Insurers

  1. TRIA Reauthorization
  2. Mortgage Insurance Modifications to Model Act

D.        Briefly Noted

A.    Issues of General Interest

1.      NAIC Governance

The first public meeting of the Governance Review (EX) Task Force was held on March 31, led by Director John Huff (Missouri). The Task Force’s charges include a review of the NAIC governing documents and consideration of a recommendation regarding whether to engage an outside consultant to assist with the review. This recommendation was initially proposed last year by Commissioner Thomas Leonardi (Connecticut) in a letter to the NAIC leadership that became public after debate was closed on a similar motion in Executive Committee. Director Huff indicated that there is no specific timeline for completion of the Task Force’s charges, although he noted that they are a priority which will assist the NAIC to respond to certain federal and international critiques of the state-based system of regulation.

The Task Force also reviewed the NAIC’s new open meetings policy, which was approved unanimously by the full NAIC membership on April 1, 2014. The new open meetings policy requires the NAIC to begin issuing public notices of all meetings, including regulator-only sessions, and specifies when committees, subgroups and task forces are to hold regulator-only sessions, such as during market conduct examinations, discussion of internal or administrative issues, receipt of NAIC staff technical advice or consideration of confidential matters.

2.      Federal Insurance Office Recommendations

The 2013 Fall National Meeting began just 48 hours after the release of the Federal Insurance Office’s long-awaited report on how to modernize and improve the system of insurance regulation in the United States (FIO Report). At the Spring National Meeting, the materials for both the Property and Casualty Insurance (C) Committee and the Financial Condition (E) Committee included a letter from the NAIC officers to NAIC committee chairs and vice-chairs concerning consideration of the FIO Report’s recommendations. The letters noted that “[a]lthough FIO cannot impose or otherwise implement these recommendations without state action, any credible recommendation on how to improve our system deserves thoughtful consideration.”

While stating that the request “is in no way an endorsement of any of the recommendations or agreement on a particular course of action,” the NAIC officers asked the NAIC committee leadership for their assistance in discussing and considering the recommendations relevant to each committee and determining whether any additional action by the NAIC or the states is warranted. They then gave a description of particular FIO recommendations and the committee within the NAIC that seems best equipped to initially consider the recommendation. At the meetings of the Property and Casualty Insurance (C) Committee and the Financial Condition (E) Committee, the NAIC officers’ letter was summarized, and the committee chairs asked the members to begin considering what task forces and working groups should be tasked with review of particular recommendations.

3.      C-DAWG: A New Working Group Focused on International Issues

International issues continue to be a focal point on the NAIC agenda. Orlando marked the inaugural meeting of the NAIC’s ComFrame Development and Analysis (G) Working Group (C-DAWG). The Working Group is a technical working group tasked with reviewing and providing input on the International Association of Insurance Supervisors (IAIS) Common Framework (ComFrame) for the Supervision of Internationally Active Insurance Groups (IAIGs) and international group capital requirements, as well as communicating ComFrame and related issues with other parties (including the Federal Reserve and the U.S. Treasury Department). ComFrame is a set of international supervisory requirements focusing on the effective group-wide supervision of IAIGs. ComFrame is built and expands upon the high-level requirements and guidance currently set forth in the IAIS Insurance Core Principles (ICPs), which generally apply on both a legal entity and a group-wide level.

C-DAWG’s inaugural meeting provided updates on the activities of the IAIS Field Testing Task Force (FTTF) and IAIS’s timeline for adopting group capital requirements. FTTF is tasked with (i) performing impact studies to test whether ComFrame promotes effective group-wide supervision of IAIGs and whether the elements lead to practical benefits without undue burden, and (ii) assessing the results of such field testing to determine any changes that are necessary to the draft ComFrame. Field testing will include three modules: identification of IAIGs, scope of supervision and identification of group-wide supervisors (Module 1), qualitative and quantitative requirements for IAIGs (Module 2), and requirements for supervisors and the use of supervisory colleges (Module 3). It was reported that FTTF began qualitative and quantitative field testing in March 2014, with 30 IAIGs agreeing to participate in the first round of testing. Qualitative field testing will focus on governance and enterprise risk issues, and quantitative testing will focus on capital and solvency requirements.

ComFrame’s group capital requirements are expected to include a basic capital requirement (BCR), higher loss absorbency (HLA), and a risk-based group-wide global insurance capital standard (ICS). Development of BCR is scheduled to be completed by August 2014, with a second consultation paper expected in July. HLA and ICS, in turn, are scheduled to be completed by 2015 and 2016, respectively, with consultation papers on both targeted by the end of 2014. Some interested parties have expressed concern about whether this aggressive timeline (particularly with respect to BCR) is feasible and will provide sufficient time for public comment.

4.      Corporate Governance

The Corporate Governance (E) Working Group has been working to develop a model law that will require licensed insurers to file an annual report describing their corporate governance practices, with a final version expected to be adopted at the 2013 Summer National Meeting. A draft Corporate Governance Annual Filing Model Act and draft Corporate Governance Annual Filing Guidance Manual were exposed for public comment on December 18, 2013. Those drafts were developed by NAIC legal staff with assistance from several member states utilizing an initial draft submitted by interested parties with a number of differences, most notably the inclusion of the Guidance Manual to house the detailed annual filing instructions. Industry representatives were consistently opposed to the use of a guidance manual, and the Working Group ultimately recast the Guidance Manual as a draft Corporate Governance Annual Filing Model Regulation. In Orlando, the comment periods for both the draft Model Act and the draft Model Regulation were synchronized to continue through April 21, 2014.

Under the proposed drafts, each insurer, or the insurance group of which the insurer is a member, would be required to submit an annual filing that contains: (1) a description of the insurer’s corporate governance framework; (2) a description of the insurer’s board of directors and committee policies and practices; (3) a description of management policies and practices; and (4) a description of management and oversight of critical risk areas. The insurer is specifically permitted to provide information regarding corporate governance at the ultimate controlling parent level, an intermediate holding company level or the individual legal entity level, depending upon how the insurer or insurance group has structured its system of corporate governance. Finally, the draft regulation states that in recognition of the fact that an insurer’s corporate governance framework and practices may not vary significantly from year to year, and to facilitate regulatory review of the annual filings, insurers are encouraged to file a redline version of the filing each year to track those items that have changed from the previous year.

An industry mark-up of the draft Model Act received during the comment period attempted to carve out smaller companies from the filing requirement and to address perceived redundancies with financial examination requests and annual and quarterly statutory statement filings. At the Spring National Meeting, Commissioner Susan Donegan (Vermont), Chair of the Working Group, stated that the regulators felt that all companies, and in some cases particularly smaller companies, would benefit from the corporate governance filing requirement. Commissioner Donegan also noted that while the initial draft had neglected to specifically include fraternal benefit societies (which are generally exempt from the provisions of state insurance codes unless otherwise specified), the intent was to capture all insurance carriers and that the draft Model Act would be reviewed to ensure that it captures fraternal benefit societies, health maintenance organizations, risk retention groups and other entities that may fall outside the ambit of general state insurance laws. With regard to redundancies, Commissioner Donegan indicated that she understood the industry’s concern and that she would be following up with other committees and NAIC leadership to evaluate how to best address redundant filing requirements.

The Working Group also adopted final revisions to the Annual Financial Reporting Model Regulation (known as the “model audit rule”) requiring larger insurers to have an internal audit function, which revisions were also adopted by the Financial Condition (E) Committee. The revisions will become effective upon adoption by the NAIC Executive/Plenary.

5.      Reinsurance

Director Huff opened the meeting of the Reinsurance (E) Task Force with a discussion of the group’s priorities for 2014, which include state implementation of the revised Credit for Reinsurance Model Law and Regulation (Reinsurance Models) that allow highly rated non-U.S. reinsurers from qualified jurisdictions to reinsure U.S. domestic cedents with reduced collateral requirements, re-examination of the reduced collateral amounts, development of Part B accreditation standards regarding the states’ certification of reinsurers and determination of qualified jurisdictions and insurers’ use of captive affiliates and special purpose vehicles. According to Director Huff’s report to the Task Force, 19 states representing more than 50% of direct insurance premiums in all lines of business have adopted the revised Reinsurance Models,1 and nine additional states are expected to adopt the models in 2014 and 2015, bringing the total direct insurance premiums of adopting states to more than 80% of the U.S. total. Currently, the Qualified Jurisdiction (E) Working Group has conditionally approved Bermuda, Germany, Switzerland and the United Kingdom as qualified jurisdictions, and the states of California, Connecticut, Florida, Missouri, New Hampshire, New Jersey and New York have certified reinsurers for reduced collateral.

The Task Force also received a report of the Reinsurance Financial Analysis Working Group (R-FAWG), which meets in closed, regulator-only sessions due to the company-specific nature of its work. Specifically, R-FAWG is tasked with providing advisory support and assistance to states in their review of reinsurance collateral reduction applications, determinations of “qualified jurisdiction” and “certified reinsurer” status, and coordinating multistate recognition of “certified reinsurers.” Deputy Commissioner Steve Johnson (Pennsylvania), Chair of R-FAWG, reported that R-FAWG has completed its peer review of reinsurers that had been designated as “certified reinsurers” by states, including all reinsurers certified by Florida and New York, to determine whether the Working Group agrees with the states’ determinations. R-FAWG has completed its peer review and cleared 24 of these reinsurers for “passporting” in the various states based on their “certified reinsurer” designations in the respective lead states. The applications of two reinsurers are still pending with issues for follow-up, and passport status was not recommended on seven applications.

Deputy Commissioner Johnson also introduced the Uniform Application Checklist for Certified Reinsurers, which R-FAWG proposes be used in all initial applications for certified reinsurer status in order to facilitate the review of the initial state’s determination by R-FAWG for passport status. The Uniform Application was exposed by the Task Force for a public comment period ending May 2, 2014. Deputy Commissioner Johnson also spent some time discussing a requirement for certified reinsurer status that some industry participants, including regulators, may have failed to fully appreciate in the discussion of passport status, specifically that a state have in place a memorandum of understanding with a reinsurer’s jurisdiction of domicile prior to certifying the reinsurer for reduced collateral. Deputy Commissioner Johnson voiced his hope that the processes for various states entering into memoranda of understanding with qualified jurisdictions (whether on a one-off basis or through the IAIS Multilateral Memorandum of Understanding) would be but a momentary “hiccup.”

6.      Accreditation Committee “Reinsurer” Proposal

Superintendent Joseph Torti’s (Rhode Island) proposal to include “multistate reinsurers,” including captive reinsurers, special purpose vehicles and other entities, in the definition of a “multi-state insurer” in the Part A and Part B standards for state accreditation continued to be a hot-button issue for the Financial Regulation Standards and Accreditation (F) Committee. Currently, multistate reinsurers, including captive reinsurers, are excluded from the definition of a multistate insurer in the Part A and Part B Preambles. The (F) Committee is now considering amendments to the Part A and Part B Preambles to remove the exclusion for reinsurers that are licensed in a single state, but assume business written outside of that state, and include “multistate reinsurers” in the definition of a multi-state insurer. The proposed amendments do not extend to traditional captives owned by non-insurers and would only apply to multistate reinsurance transactions closed on or after July 1, 2014, and to reinsurance agreements entered into before July 1, 2014, on business written on or after January 1, 2015. Finally, the proposed amendments recognized that the NAIC is currently considering financial solvency mechanisms for life reserves in other forums, and it may be necessary to revisit this issue in the future.

Subjecting captive transactions to the NAIC accreditation standards would impose uniform rules on all captive transactions. Some industry participants have cautioned that captive transactions may move to offshore jurisdictions if the NAIC subjects captive reinsurers to its accreditation standards. Proponents of captive reinsurance transactions emphasize that such transactions allow insurers to free-up excess reserves and are a source of low-cost financing for insurers, while critics have suggested that captive reinsurance transactions allow insurers to shift risky liabilities off their balance sheets.        

The proposed amendments triggered a vigorous debate at the (F) Committee meeting. Director Huff, Chair of the (F) Committee, said that there was a “great deal of consensus” among (F) Committee members to bring uniformity and transparency to captive reinsurance transactions and that he was committed to moving forward on the issue. Superintendent Torti and Superintendent Benjamin Lawsky (New York) offered remarks supporting the proposed amendments, while regulators from Connecticut, Delaware, North Carolina, Texas, Utah and Vermont, in contrast, highlighted a variety of concerns with the proposed amendments. After considering these remarks, the (F) Committee voted to expose the proposed amendments for a 45-day public comment period ending May 19, 2014. It is expected that this sharply divisive issue could have far-reaching implications, particularly in light of the ongoing work of the Captive and Special Purpose Vehicle Use (E) Subgroup and of the NAIC generally in developing PBR standards (see Section B.1 below).

7.      Cyber Liability Risk

The NAIC’s Center for Insurance Policy and Research (CIPR) held an informational event in Orlando on insuring cyber liability risk. The event provided an update on the evolving cyber liability landscape, including current cyber risk trends, regulatory initiatives related to cyber risks, the benefits of cyber liability policies, and the barriers insurers face in offering cyber liability products.

Kenn Kern, Deputy Chief of Cyber Crime at the New York District Attorney’s Office, discussed the current trends in cybercrime. Mr. Kern reported that the top four cyber threats today are (i) denial of service attacks (designed to make a machine or network resource unavailable to its intended users), (ii) hacking, (iii) theft of personal identifying information, and (iv) intellectual property theft. The increased severity and frequency of these threats is prompting many insureds to reevaluate whether their current insurance programs provide sufficient protection. Many insurers are also struggling to update their product offerings in light of the evolving legal framework (there is often uncertainty about liability following a cyber event) and the lack of relevant actuarial data (which makes it difficult to set accurate premium levels).

Adam Sedgewick, Senior Information Technology Policy Advisor at the National Institute of Standards and Technology (NIST), and Tom Finan, Senior Cybersecurity Strategist and Counsel at the Department of Homeland Security (DHS) National Protection and Programs Directorate, provided an overview of the Cybersecurity Framework that was issued by the White House in February 2014. The Framework, which is the result of a year-long initiative led by NIST in coordination with DHS, provides guidance to companies on how to manage the growing cybersecurity threat. Though the adoption of the Framework is voluntary, it may give rise to a new standard of care for corporate management. DHS has established the Critical Infrastructure Cyber Community (C3) Voluntary Program as a public-private partnership to increase awareness and use of the Framework.

8.      Holding Company Act Amendments

At its March 30, 2014, meeting, the Executive (EX) Committee adopted a model law amendment request submitted by Superintendent Torti to amend the Insurance Holding Company System Regulatory Model Act and Model Regulation (Holding Company Act and Regulation) to provide states with more explicit group-wide supervisory authority. The NAIC recently adopted amendments to the Holding Company Act and Regulation in 2010 to address certain weaknesses in the regulation of insurance holding company systems (particularly with respect to enterprise risk) that were highlighted during the 2008 economic crisis. These 2010 amendments were adopted as a state accreditation standard effective January 1, 2016. Many anticipate that the revisions will include a provision similar to that enacted in Pennsylvania’s version of the 2010 amendments defining “group-wide supervisor,” although statements by Superintendent Torti to the effect that the changes may include granting group-wide supervisors direct regulatory power over holding companies indicate that the amendments may be even farther-reaching than the Pennsylvania paradigm. The model law amendment request does, however, acknowledge that final proposed amendments are not likely to be drafted in under a year as “the specific changes that may or may not be necessary to address the areas of interest will require considerable discussion and may be highly debated.”

B.    Issues of Particular Interest to Life Insurers

1.     PBR Implementation Task Force/Captive and SPV Issues

As expected, the much anticipated discussion of a report commissioned by the Principles Based Reserving Implementation (EX) Task Force involving the use of captive affiliates by life insurance companies attracted a standing-room only crowd. Commissioner Julie Mix McPeak (Tennessee), Co-Chair of the Task Force, moved quickly through the first agenda items, including a report on current state adoption of PBR. As background, in 2009, the NAIC adopted a revised Model Standard Valuation Law, which authorizes PBR and a Valuation Manual that sets forth the minimum reserve and related requirements for certain products under PBR. In 2012, the NAIC adopted the Valuation Manual, despite strong opposition from several key states (including New York and California). PBR will not be implemented until the amended Standard Valuation Law is adopted by 42 states and state adoption reflects 75% of total life insurance premium written in the United States. More recently, the NAIC has been considering whether states have the resources necessary to implement PBR. As reported at the Task Force meeting, nine states—accounting for 9.2% of total life insurance premium written in the United States—have adopted the amended Standard Valuation Law. Legislation adopting the amended Standard Valuation Law has passed in an additional four states and is awaiting execution by the states’ governors, legislation is pending in an additional nine states, and seven states are expected to propose legislation in 2015, bringing the total to 30 states representing 60.3% of total life premiums.

The remainder of the meeting was devoted to receiving comments on the Report of Rector & Associates, Inc. (Rector Report) assessing the solvency implications of life insurer-owned captive insurers and alternative mechanisms. Superintendent Torti identified four key recommendations relating to reserve financing transactions identified by the Rector Report, including (1) a requirement for the ceding insurer to hold hard assets equal to what the statutory reserve would be under PBR, (2) approval of the quality of the remaining assets used to support the credit for reinsurance, (3) public disclosure of key information about the use of financing transactions and assets supporting such transactions, and (4) performance of full risk-based capital calculations by at least one party to the financing transaction. The proposed timetable includes a July 1, 2014, effective date for newly created financing structures, a December 31, 2014, effective date for the new disclosure requirements, full implementation to existing financing structures by January 1, 2015, and the new RBC rules to become effective by December 31, 2015.

Regulator comment on the Rector Report was divided among regulators such as California and New York that would prefer a complete moratorium on reserve financing transactions, in California’s case at least until implementation of PBR is settled, and regulators such as Rhode Island and Texas that would move forward with the recommendations immediately in order to achieve some level of uniformity. Iowa and others questioned the presumption of financially hazardous condition for insurers not meeting the requirements, and Vermont and others noted the aggressive nature of the proposed timeline. Mark Birdsall, Chief Actuary for the Kansas Department of Insurance, opined that reliance on VM-20 as a basis for calculating PBR reserves was misplaced at this time and proposed a two-stage approach to first implement the transparency requirements pending review of the actuarial method for calculating reserves until there have been adequate revisions to VM-20.

As interested party comments ran out the clock on the Task Force meeting, the American Council of Life Insurers (ACLI) proposed an interim meeting prior to the 2014 Summer National Meeting in order to fully address all regulatory and interested party concerns on the Rector Report and to develop a proposal that could be considered for adoption in Louisville, Kentucky. Superintendent Torti indicated that there will be a conference call on April 14, 2014, to continue to receive comments from interested parties.

In what many saw as an effort to undercut industry arguments for the continued use of reserve financing transactions, the New York Department of Financial Services (DFS) issued a letter to state insurance commissioners on March 27, 2014, indicating that it has worked to develop a revised formula for level term products and intends to issue a regulation that will update the reserving formulas for term life insurance policies for new business written after January 1, 2015. The DFS estimates that the changes will result in a 30%-35% reduction in reserves for level term life products, and it is expected that similar changes will be made to universal life products with secondary guarantees.

2.      Contingent Deferred Annuities

The Contingent Deferred Annuity (A) Working Group (CDA WG) voted to expose proposals to amend four model regulations (Annuity Disclosure, Suitability in Annuity Transactions, Advertisements of Life Insurance and Annuities, and Life Insurance and Annuities Replacement) for a three-week comment period. The CDA WG proposals would amend these four regulations to explicitly reference CDAs.

Remarks from CDA WG members at the meeting make clear that addressing CDAs in an NAIC Bulletin remains an alternative to the model regulation amendments. The CDA WG again considered whether to study the merits of imposing a minimum nonforfeiture benefit requirement on CDAs, but ultimately deferred the issue. When the issue was raised by consumer advocates at the (A) Committee, the issue was also deferred. The CDA WG expects to present its recommendations on how to adapt existing NAIC standards to accommodate CDAs to the (A) Committee at the Fall 2014 NAIC meeting.

The Life Actuarial (A) Task Force (LATF) also considered CDA issues. LATF received a report from the LATF CDA (A) Subgroup regarding its activities and a proposal from ACLI to amend Actuarial Guideline 43 to provide guidance on how to treat contracts for which the insurer does not own the investments that form the basis for the guarantee. After considering the LATF CDA (A) Subgroup’s report and the ACLI proposal, LATF instructed the LATF CDA (A) Subgroup to expose the ACLI proposal for 45 days and to meet during that time.

3.      Unclaimed Insurance Benefits

The 13-member Unclaimed Life Insurance Benefits (A) Working Group (ULIB WG), chaired by (A) Committee Chair, Commissioner McPeak, met for the first time and considered its charge from the (A) Committee to “undertake a study to determine if recommendations should be made to address unclaimed death benefits.”

Members of the ULIB WG noted that 60% of the industry has settled market conduct exams that had investigated the asymmetrical use of the Social Security Administration Death Master File (SSDMF). According to these regulators, settlements have resulted in the return of more than $1.0 billion to beneficiaries and $1.3 billion in unclaimed death benefits escheated to the states participating in the exams.

The ULIB WG did not take any definitive steps toward developing a recommendation at the open meeting. In developing its recommendation to the (A) Committee, the debate at the meeting indicated that ULIB WG will likely grapple with two key issues: (i) whether companies that have not historically used the SSDMF asymmetrically should be subject to future requirements to use the SSDMF to identify unclaimed life insurance death benefits; and (ii) whether the National Conference of Insurance Legislators Model Unclaimed Life Insurance Benefits Act (NCOIL Model), which has been adopted in some form by nine states and is pending is several others, adequately addresses the unclaimed insurance benefits issue.

Several ULIB WG members indicated support for recommendations that would distinguish between companies that have used the SSDMF asymmetrically and those that have not. In particular, several ULIB WG members indicated that the cost of compliance with the SSDMF guidance would be overly burdensome for small and mid-size insurance companies.

The ULIB WG’s view on whether the NAIC should develop a regulatory standard and, if so, what that standard should be, was less clear. One proposal was to recommend rules-based standards similar to those in the Regulatory Settlement Agreements that the states have entered into with some life insurers. A competing proposal recommends principles-based standards similar to those in the NCOIL Model.

After discussion, Commissioner McPeak indicated that the ULIB WG would continue to review its charge and that it would be important to act before the NAIC’s next meeting in August 2014. The ULIB WG moved into a regulator-to-regulator closed session immediately after the open meeting adjourned.

4.      Index-Linked Variable Annuities

Blaine Shepherd (Minnesota), Chair of the Index-Linked Variable Annuities (A) Subgroup (ILVA Subgroup) of LATF, reported to LATF on the ILVA Subgroup’s work. Mr. Shepherd summarized the proceedings of a January 10, 2014, regulator-only conference call, during which the ILVA Subgroup amended and finalized an ILVA “Discussion Points” document on the regulation of ILVAs, as well as the proceedings of the February 6, 2014, February 26, 2014, and March 17, 2014, open conference calls in which the Subgroup considered the “Discussion Points” document. Mr. Shepherd reported that the discussions focused on whether to recommend modifications to the Variable Annuity Model Regulation (Model 250) or the Modified Guaranteed Annuity Model Regulation (Model 255) to accommodate ILVAs, or whether to recommend development of a new, ILVA-specific regulation. Both the Committee of Annuity Insurers and the ACLI submitted comments and made presentations to the ILVA Subgroup on these issues. Mr. Shepherd noted that the ILVA Subgroup would schedule additional open calls upon receipt of additional comments by interested parties on the January 15 “Discussion Points” document.

C.    Issues of Particular Interest to Property and Casualty Insurers

1.     TRIA Reauthorization

The Terrorism Risk Insurance Act (TRIA), which was last reauthorized in 2007, remains set to expire on December 31, 2014, unless extended by Congress. The industry has been eagerly awaiting federal legislation reauthorizing TRIA. With Congress recently completing its work on flood insurance reform, significant developments on this issue are expected over the next few months.

On April 10, just before legislators left the capitol for Easter break, the Senate introduced legislation (S 2244) that would reauthorize TRIA through 2021 and make the following notable changes to the program:

  • Increase the insurer co-share (currently 15%) to 20% (with 1% increases per year over the next five years; and

  • Increase the mandatory federal recoupment amount (currently $27.5 billion) to $37.5 billion (with $2 billion increases per year over the next five years).

A separate TRIA authorization bill is also expected from the House, which may include more significant changes to the program.

During the Terrorism Risk Insurance Implementation (C) Working Group meeting, Tom Glassic and Bob Woody of the Property Casualty Insurers Association of America (PCI) gave a presentation from the industry’s perspective on potential changes to TRIA if it is reauthorized. Messrs. Glassic and Woody reported that, if reauthorized, TRIA will likely be changed in ways that increase private participation in the terrorism coverage marketplace. PCI reported that the industry is generally on board with a straight reauthorization of TRIA without any changes. PCI noted, however, that there will likely be some technical changes to the program and encouraged state regulators to begin considering how any technical changes would specifically impact insurers in their state. It was noted that even an incremental increase in program triggers could limit the number of insurers that can participate in the program. .

The Reinsurance Association of America (RAA) also gave a presentation on a new software tool they have developed that analyzes the impact of potential changes to TRIA on the insurance industry. The tool provides state and company level detail of the impact of adjusting various TRIA triggers (e.g., the federal backstop trigger, the insurer deductible) based on another 9/11 type event. RAA reported that the Government Accountability Office is using the program as it considers potential changes to TRIA.

2.     Mortgage Insurance Modifications to Model Act

In 2013, the NAIC’s Mortgage Guaranty Insurance (E) Working Group began working on amendments to the Mortgage Guaranty Insurance Model Act to address regulator concerns regarding the regulation of private mortgage insurers and issues facing the private mortgage guaranty insurance market. The Working Group proposed a “conceptual draft” of amendments to the Mortgage Guaranty Insurance Model Act, which contained extensive expansions to the geographic concentration, investment limitations, reinsurance, underwriting standards, capital standards and reserves sections; introduced new sections relating to quality assurance and rescission; and proposed the development and adoption of a Mortgage Guaranty Insurance Standards Manual by the NAIC. The conceptual draft was exposed for public comment until February 15, 2014. Interested parties have been actively following and participating in the activities of the Working Group, including providing comprehensive comments and presentations and submitting an alternative draft Model Act.

At the Spring National Meeting, Commissioner Ted Nickel (Wisconsin), Chair of the Working Group, opened consideration of the interested party draft by noting that rather than working off of the conceptual draft, the interested party draft appeared to merely update and expand upon the existing model while neglecting to incorporate much of the expanded and new sections of the conceptual draft. Deputy Commissioner Johnson and Matti Peltonen (New York) were especially concerned with what they characterized as inadequate contingency reserve requirements in the interested party proposal. Deputy Commissioner Johnson challenged the interested parties to show how the private mortgage guaranty industry would have been more capitalized in 2006 under their proposal than what occurred leading up to the mortgage crisis. Commissioner Nickel indicated that staff would proceed with revisions to the conceptual draft in light of some of the comments received.

D.    Briefly Noted

  • Private Equity – In 2013, the NAIC formed the Private Equity Issues (E) Working Group (the Private Equity Working Group) to develop procedures to mitigate or monitor risks associated with private equity/hedge fund ownership. After first receiving public comments, the Working Group is now proceeding to conduct its own analysis of private equity/hedge fund ownership in order to begin drafting such procedures and developing regulatory best practices.
  • Flood Insurance – Multiple NAIC groups heard updates regarding recent federal legislation forestalling major rate increases resulting from the 2012 Biggert-Waters Act.
  • Lender-Placed Insurance Study – The Property & Casualty Insurance (C) Committee adopted a data call regarding lender-placed residential property insurance and agreed that Mississippi would issue the data call on behalf of all states and the District of Columbia, and use Mississippi confidentiality laws.
  • Disaster Savings Accounts Act – An update was given on H.R. 3989 that would amend the Internal Revenue Code to allow individuals a deduction for amounts contributed to disaster savings accounts to help defray the cost of preparing their homes to withstand a disaster and to repair or replace property damaged or destroyed in a disaster.

1 The states are Alabama, California, Connecticut, Delaware, Florida, Georgia, Indiana, Iowa, Louisiana, Maine, Maryland, Missouri, New Hampshire, New Mexico, New Jersey, New York, Pennsylvania, Rhode Island, and Virginia.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

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This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.