The upcoming meeting of state regulators under their umbrella association, the National Association of Insurance Commissioners, will be working on some major policy issues and initiatives while in New Orleans, as several life insurance matters come to a head later this week. It's a sea of agenda items and committee subgroups within committees, and joint meetings of the groups, subgroups, and their meetings, like Russian nesting dolls. You can jump in, or review for key items of interest. Don't be afraid to add more to this roster – these are some that are obvious, but these don't include any closed meetings or unanticipated events, as in the regulator only meeting in November where an NAIC, agent-supported medical loss ratio (MLR) Resolution was first proffered to the group and met with a hostile reception from some.
Here are some major items for NAIC consideration at the many meetings in the Big Easy:
1) International financial regulatory oversight and relations. The specter of AIG's collapse and the reforms of Dodd-Frank make the solvency oversight discussions of ComFrame –the International Association of Insurance Supervisors "Common Framework for the Supervision of Internationally Active Insurance Groups) and the NAIC's own homegrown ORSA [Own Risk and Solvency Assessment] major items on the agenda. Look for the development of the ORSA Guidance Manual into a proposed model law and concerns from industry with respect to the legal framework for the ORSA, confidentiality of proprietary information protection concerns and how an ORSA requirement might be incorporated into the US framework.
2) FIO. The burgeoning relationship or partnership among members of the NAIC, and the NAIC itself with the Federal Insurance Office (FIO) in Washington, which also goes to forming the NAIC's own identity and role. The FIO report due to Congress, initially anticipated in late January, likely won't be out this week, when the NAIC kicks off its meeting. Regulators still may be playing a guessing game as to what it contains, and if it will make any recommendations to Congress on standardization. Look for updates in the International Insurance Relations Committee and the NAIC/Consumer Liaison Committee meetings Saturday. "It is critical for the FIO to actively engage at the (IAIS), especially on key issues like IAIS financial stability systemic risk deliberations (G-SIFI talks) and efforts to enhance insurance group supervision (e.g. ComFrame). To that end, we would encourage U.S. state regulators and the NAIC to support the need for the FIO to be granted a seat on the IAIS Executive Committee," Prudential wrote to the FIO in December.
Just last week, FIO Director Michael McRaith attended the IAIS summit in Basel, Switzerland. Just today, Rep. Ed Royce, R-Calif. sent a letter to the NAIC leadership about its struggle to define its status and role: "NAIC's about-face on its self-proclaimed status in a period of just ten days last summer may best illustrate what appears to be an untenable position. On July 28, 2011 before the House Financial Services Committee, NAIC president, Susan Voss, stated that the NAIC was not part of "some kind of … national regulatory system"[4] in response to a question regarding its perceived status as a regulatory body lacking traditional accountability. Yet, on August 7, 2011, in what appears to be an effort to demonstrate its relevance in the Dodd-Frank/FIO world, the NAIC claimed it was integral to helping "form the national system of state-based insurance regulation in the U.S"[5] in an attempt to sell the importance of its pronouncement regarding the financial system. These positions seem, at the least, inconsistent. Given the impending FIO report to Congress on the state of the U.S. regulatory system, understanding precisely what the NAIC is and how it is governed—and reconciling the NAIC's own inherently inconsistent statements about itself—is timely and relevant." Royce stated in the Feb. 28 letter.
3) Market Conduct. There will be a big push from the leadership on market conduct exams, specifically Coordinating Examinations among states, and improving uniformity, transparency, and managing the cost/length of exams, perhaps through a central repository. This is part of an ongoing effort, and has been discussed between ANIC leaders and FIO, and is something the NAIC is looking to perhaps create a central database on. Again, confidentiality and information-sharing will focus the concerns of industry, especially as FIO emerges as another body interested in insurance market conduct information. See: http://www.lifehealthpro.com/2011/12/20/naic-pursues-comprehensive-market-conduct-assessme
4) Principles-Based Reserving. You don't have to be an actuary to love PBR, the multi-yeared effort from the actuaries on up to fundamentally reform the existing formulaic or "rules-based" system for calculating reserves and replace it with a modern, principle-based approach is expected to be on track for a full manual report for the model law passage. Regulators are hoping to have enough (42) state legislatures pass the new PBR so that it can become the defacto model by 2015.
5) AG 38. Need we say more? As an adjunct to PBR, Actuarial Guideline 38 and its application to in-force and prospective business surrounding secondary guarantees in term life and universal life has a largely agreed-upon framework (the Kitzman Framework} but it is replete with many unanswered questions on its details, from actuarial methodology to in-force business that may increase reserves retroactively, with the accompany tax issues, even as prospective business may get the highly-favored PBR treatment. At the meeting The A (Life/Annuity) and E (Financial Condition) Committees will consider the approach developed by Joint A and E Working group on A.G. 38. Industry supports the Joint Working Group's proposal to bifurcate the resolution into two distinct pieces; one for policies in force, and another for new business issued after some certain date. Latest news: Alaska Insurance Director Linda Hall, who had been opposed to the framework and treatment of in force business under her state's standard valuation law, and who suggested a narrow approach, is resigning this spring.
6) Contingent Deferred Annuities. The A Committee also will consider a report from the Contingent Deferred Annuities Subgroup. The report concludes that contingent deferred annuities can be called annuities that can only be sold by life insurers, but its chair has also mentioned possibly reviewing all annuities with market-tied guarantees popular for the past decade or so. The report recommends that a new working group be formed to review current annuity regulations to ensure solvency and consumer protection appropriately apply to CDAs. One area of concern to life insurers relates to the report's language regarding all annuities with a guaranteed lifetime withdrawal benefit – or GLWB', the rider that allows minimum withdrawals from the invested amount without having to annuitize the investment. Life insurers say GLWBs have been examined and analyzed by regulators and current annuity regulations adequately and appropriately apply to these products.
