October might be a month of seasonal festivities, but it was also a month of preparation for the NAIC’s Fall National Meeting in November. Several groups met to prepare for the National Meeting or held meetings this month instead of gathering at the National Meeting. Below is an overview of the activity from these happenings.
Valuation of Securities Task Force (VOSTF) – October 1, 2024
The Task Force exposed two different documents for comment with the intent of finalizing these amendments to the Purpose and Procedures Manual of the NAIC’s Investment Analysis Office (P&P Manual) at the Fall National Meeting.
| Subject | Disposition |
|---|---|
| Removes references to subscript S and updates references to investment risk. | Exposed through November 1, 2024. |
At the NAIC Summer National Meeting, the Task Force adopted an updated definition of an NAIC Designation. That update resulted in removing the concept of other non-payment risk and replacing the term “credit risk” with “investment risk.” Consequently, further revisions are needed to amend related items in the P&P Manual.
| Subject | Disposition |
|---|---|
| Updates the list of NAIC credit rating providers (CRP) and the NAIC use of CRP credit ratings. | Exposed through October 16, 2024. |
The above amendment has a shorter exposure period than usual, as it was previously exposed for comment.
Restructuring Mechanisms Working Group – October 3, 2024
Previously, the Working Group exposed for comment two documents:
- Best Practices Procedures for IBT/Corporate Divisions
The paper addresses insurance business transfer (IBT) and corporate division transactions. IBT transactions transfer existing insurance obligations of one insurer (transferring insurer) to a second insurer (assuming insurer) without policyholder consent, subject to regulatory and court approval. A corporate division transaction divides one insurer into two or more insurers, with the dividing insurer’s assets and liabilities allocated among the resulting insurers. This is also done without policyholder consent.
- Restructuring Mechanisms White Paper
During this meeting, the Working Group reviewed the received comments, providing time for additional comments. The group will now review and discuss the comments, determine if revisions are needed, and edit the papers accordingly. Both documents are available on the Working Group’s webpage but remember that both will most likely be revised.
Statutory Accounting Principles Working Group (SAPWG) – October 4, 2024, via email
Utilizing an email vote, the Working Group exposed additional revisions to the Bond Definition Q&A for comment through October 28, 2024. The additional items added to the Q&A cover commercial mortgage-backed securities interest only strips, commercial mortgage loan single asset single borrower investments, and hybrids. The original Q&A was previously exposed with a September 27, 2024 comment deadline. The revised Q&A can be found on the Working Group’s webpage.
Property and Casualty Risk-Based Capital (RBC) Working Group
Catastrophe Risk Subgroup – October 9, 2024, via email
Jointly, the two groups released the listing of severe convective storm events to be used when reporting the storms within the 2024 Property/Casualty RBC formula for a 30-day comment period. The comment period ended November 6, 2024.
RBC Investment Risk and Evaluation Working Group – October 22, 2024
The meeting began with activity updates from the VOSTF and the SAPWG. It moved on to an update from the American Academy of Actuaries (Academy) covering the structured securities RBC project. The Academy now has the data it has been waiting on regarding collateralized loan obligations and is trying to identify risk characteristics that are included in the data and determine attributes to be used for its work.
The Working Group then adopted its working agenda for the upcoming year. The chair provided a brief update on the fund review project. The goal of this project is to look at types of assets that are similar in risk but have different accounting and RBC treatments. In particular, the project will look at bond exchange traded funds, bond mutual funds, and private bond funds. There was a brief discussion on hurdles to overcome to move forward with the project. The Working Group will not be meeting at the upcoming NAIC Fall National Meeting.
Life RBC Working Group – October 23, 2024
The Working Group received updates on the activity of its current subgroups. The Generator of Economic Scenarios Subgroup summarized its activities and stated it is still targeting January 1, 2026 for implementation. The Variable Annuities Capital and Reserve Subgroup announced it hopes to have a new exposure for discussion completed by the end of the week. It also indicated that a new/revised supplement to the annual statement is likely. The Longevity Risk Subgroup also provided an update.
The Working Group took the following action on new proposals.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-21-L | Updates Life RBC instructions and blanks for new 2025 statement and accounting treatment under revised SSAP No. 93 – Investments in Tax Credit Structures (SSAP No. 93) and SSAP No. 94 – State and Federal Tax Credits(SSAP No. 94). | Exposed for a 75-day comment period ending January 6, 2025. |
Not only is there new accounting treatment under SSAP Nos. 93 and 94, but new annual statement reporting within Schedule BA will also be in place. Accordingly, the Life RBC instructions and the Life RBC format need updating for 2025. This proposal, however, does not revise any of the current RBC factors being applied
| 2024-24-L | Revisions to the 2025 Life RBC instructions and format resulting from newly adopted 2025 statutory statement reporting required by the completion of NAIC’s Bond Project. | Exposed for a 75-day comment period ending January 6, 2025. |
Like proposal 2024-21-L, this proposal updates references to the annual statement pulls into the Life RBC formula but does not change any of the current factors. Also of note, this proposal only applies to the Life RBC formula. Similar changes will be needed for the Property RBC and Health RBC formulas. They will be discussed by the Capital Adequacy Task Force, possibly during the upcoming NAIC Fall National Meeting. The Academy provided updates on its review of how correlation is handled in the Life RBC formula and the possibility of converting the C-3 section of the formula to principles-based. This working group will not be meeting at the National Meeting.
Financial Condition Committee – October 24, 2024
After adopting its charges for 2025, which were previously exposed for comment, the discussion turned to a draft request for proposal (RFP) regarding credit rating provider (CRP) due diligence. This concept of CRP due diligence is a direct result of the Committee’s paper, Framework for Regulation of Insurer Investments – A Holistic Review, which expresses the desire for less reliance on CRPs by the insurance industry. The Committee feels the RFP is necessary because the Securities Valuation Office (SVO) currently lacks the tools to provide due diligence and assessment of the use and effectiveness of CRPs or to conduct enterprise or industry-wide risk analytics. The Committee is prioritizing developing a “robust and effective” governance structure, which could include investment in risk analytic tools for use by the SVO. Once the RFP is finalized and released, the NAIC will solicit proposals from qualified third-party firms to develop this due diligence framework. No timeline for the project has been determined. The RFP will next be presented to the Executive Committee for approval.
Reinsurance Task Force – October 24, 2024
The Task Force adopted the report of the Reinsurance Financial Analysis Working Group, which included information on the number of insurers applying to be certified reinsurers, how many of those applications were approved, and the number of states and territories that have now been accepted as reciprocal jurisdictions. The Mutual Recognition of Jurisdictions Working Group reported on the number of existing jurisdictions approved to maintain that status. The Life Actuarial Task Force (LATF) provided an update on its reinsurance asset adequacy testing project. When completed, this project would require cash flow testing for reinsurance of certain life products. This requirement would have to be adopted as an actuarial guideline to become effective and most likely would add additional reporting in Schedule S of the annual statement. LATF hopes to accomplish that by mid-2025, with implementation at year-end 2025. The meeting ended with a brief discussion of projects by other NAIC groups that might affect reinsurance.
Mutual Recognition of Jurisdictions Working Group – October 24, 2024
The Working Group has released for comment a recommendation to approve the Canada Office of the Superintendent of Financial Institutions as a jurisdiction that recognizes and accepts the U.S. Group Capital Calculation. The corresponding Summary of Findings and Determination exposure period will end on Monday, November 25, 2024.
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