United States: US NAIC Fall 2014 National Meeting

The US National Association of Insurance Commissioners (NAIC) held its Fall 2014 National Meeting in Washington, DC on November 16-19, 2014. Set forth below are some highlights from the meeting:


The NAIC's Reinsurance Task Force (RTF) and other NAIC groups continued their work on implementing and further developing the regulatory framework for highly rated non-US reinsurers to provide reinsurance to US ceding companies without having to post 100% collateral. Under the 2011 revisions to the NAIC Credit for Reinsurance Model Law and Regulation, non-US reinsurers from "qualified jurisdictions" can apply to become certified. A "certified reinsurer" can be eligible to post less than 100% collateral for reinsurance assumed from US ceding companies (75%, 50%, 20%, 10% or 0% collateral) depending on the reinsurer's financial strength ratings from recognized agencies and satisfaction of other criteria.

The NAIC model laws and regulations do not apply in a state unless adopted by the state. The revised Credit for Reinsurance Model Law and Regulation have already been adopted by 23 states (representing more than 60% of US direct insurance premiums), and 5 more states are expected to adopt them in 2015 (such that more than 80% of the total direct insurance premiums in US states will be from states that will have adopted the revised models).

In December, the NAIC gave final approval for Bermuda, France, Germany, Ireland, Japan, Switzerland and United Kingdom to be designated as qualified jurisdictions as of January 1, 2015, so that reinsurers from those jurisdictions are eligible to apply to become certified. Separately, the NAIC, including its Reinsurance Financial Analysis (E) Working Group, is continuing to work on issues regarding passporting of certified reinsurers. Passporting would allow a non-US reinsurer that becomes certified in one US state to obtain certification from other states under a faster and less complex process than seeking full certification in each additional state.

Group Supervision

At the Fall 2014 National Meeting, the NAIC, in particular its Group Solvency Issues (E) Working Group (GSIWG), continued consideration of changes to the NAIC's Model Insurance Holding Company System Regulatory Act that would allow designation of a US state insurance commissioner to be a group-wide supervisor of internationally active insurance groups (IAIGs). The NAIC's work in this area follows upon and is a response to group supervision concepts being considered by the International Association of Insurance Supervisors (IAIS) in connection with the development by the IAIS of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame).

Since the National Meeting, the full NAIC adopted the revised Model Insurance Holding Company System Regulatory Act in December. The revised model act gives US state commissioners certain powers to supervise and take various actions with respect to IAIGs within their jurisdiction. It sets forth criteria for determining the group-wide supervisor, such as the place of domicile of the insurer that holds the largest share of the insurance group's premiums, assets or liabilities. As with all NAIC model laws, the revised model act will not apply in a state unless adopted and implemented by the state.

US Responses to Development of International Capital Standards

US insurance regulators and industry have been watching warily the developments at the IAIS with respect to international insurance capital standards. The process undertaken by the IAIS has been criticized in the US for lack of transparency and lack of opportunities for interested parties to participate. More fundamentally, the US has questioned the need for and potential costs and other concerns with respect to such international standards for the US insurance industry.

At the Fall 2014 National Meeting, the NAIC's ComFrame Development and Analysis (G) Working Group ("C-DAWG") received reports on the IAIS ComFrame field testing process and development of international insurance capital standards. Related to those developments, C-DAWG is considering a draft concepts paper titled "US Group Capital Methodology Concepts Discussion Paper" as part of C-DAWG's work in exploring group capital concepts that would be appropriate for US-based IAIGs.

Principle-Based Reserving, XXX and AXXX Reserves and Captives Issues

At the Fall 2014 National Meeting, the NAIC and its various groups continued to consider issues regarding principle-based reserving (PBR) and XXX and AXXX reserve transactions of life insurance companies as well as the use of captive reinsurers for such transactions. The Principle-Based Reserving Implementation (EX) Task Force received an update on the implementation of principle-based reserving for life insurers. At the meeting, the task force also adopted "Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (Model 830)" (AG 48). The NAIC Executive Committee adopted AG48 in December, and it will be effective January 1, 2015. AG 48 lays out standards for an insurer ceding XXX and AXXX risks to certain types of reinsurers (particularly captive reinsurers).

Separately, the Regulation Standards and Accreditation (F) Committee continued to consider potential changes to NAIC accreditation standards (which essentially requires each state to adopt the requirements included in the standards) that would cause most captive reinsurers to be treated as "multi-line reinsurers" and become subject to the regulatory requirements that otherwise apply to reinsurers but do not apply to captives. These changes are opposed by the most of the insurance industry and many US insurance regulators.

Other Selected Highlights

  • The NAIC's Mortgage Guaranty Insurance (E) Working Group continued its work on potential amendments to the Mortgage Guaranty Insurance Model Act.
  • The NAIC has created a cybersecurity task force to coordinate insurance issues related to cybersecurity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Vikram Sidhu
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