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January 12, 2022

NAIC 2021 Highlights – Year in Review

Johnson Lambert LLP is dedicated to keeping you informed of changes adopted by the NAIC within the Statutory Accounting Principles (E) Working Group that will impact your 2021 statutory basis financial statements and other significant NAIC activities related to technology and artificial intelligence, reinsurance and climate change.

Rejected GAAP ASUs

The following FASB ASUs were rejected by the SAPWG during 2021:

  • ASU 2009-17, Consolidation (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
  • ASU 2010-02, Consolidation (Topic 810) – Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification
  • ASU 2010-10, Consolidation (Topic 810) – Amendments for Certain Investment Funds
  • ASU 2014-07, Consolidation (Topic 810) – Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements
  • ASU 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis
  • ASU 2016-17, Consolidation (Topic 810) – Interests Held through Related Parties that are under Common Control
  • ASU 2018-17, Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable Interest Entities
  • ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
  • ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation of Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
  • ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs
  • ASU 2020-11, Financial Services – Insurance (Topic 944): Effective Date and Early Application
  • ASU 2021-02, Franchisors – Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient

Executive and Plenary Committee

The Executive and Plenary Committee approved the formation of the Innovation, Cybersecurity and Technology (H) Committee. The Innovation and Technology Task Force drafted proposed charges for the Committee. The formation of this new “Letter” committee on a permanent basis reflects the NAIC’s commitment to monitoring regulatory aspects and embracing technological innovation in the insurance space. The new Committee is intended to be a forum to focus on cybersecurity, innovation, data security and privacy protections and emerging technology issues. Also charged with monitoring developments in these areas that affect the state insurance regulatory framework, maintaining an understanding of evolving practices and use of innovation technologies by insurers and producers, coordinating NAIC efforts related to innovation, cybersecurity and privacy and technology across other Committees and making recommendations and developing regulatory, statutory or guidance updates. The prior Innovation and Technology (EX) Task Force will be disbanded and moved to the H Committee. The following Working Groups will be under the H Committee umbrella beginning in 2022: Big Data and Artificial Intelligence, Speed to Market, E-commerce and Cybersecurity.

Big Data and Artificial Intelligence (EX) Working Group

The Big Data and Artificial Intelligence Working Group reported on the preliminary results from the Private Passenger Auto Artificial Intelligence (AI) and Machine Learning (ML) Survey conducted in nine states with more than 190 companies participating in the survey. The survey included questions regarding the use of AI and ML in the operational areas of claims, fraud detection, marketing, rating, underwriting and loss prevention. The Working Group plans to continue to analyze survey responses and leverage insights to inform future regulatory recommendations. Looking ahead, the Working Group will perform its next survey over the use of AI and ML in the homeowners and/or life lines of business. 

Financial Condition (E) Committee

The Financial Condition Committee adopted the Reinsurance Financial Analysis Working Group (ReFAWG) Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers. The report was created to aid insurers in implementation of the 2019 Credit for Reinsurance Model Law and Regulation and assist states in their review of reinsurers who meet the standards.

The Committee also adopted the Mutual Recognition of Jurisdictions (E) Working Group’s, Process for Evaluating Jurisdictions that Recognize and Accept the Group Capital Calculation (GCC).

Reinsurance (E) Task Force

As of December 9, 2021, 46 U.S. jurisdictions have adopted the 2019 revisions to the Credit for Reinsurance Model Law (#785) and 4 jurisdictions have actions under consideration. Twenty-five U.S. jurisdictions have adopted the 2019 revisions to the Credit for Reinsurance Model Regulation (#786) and 11 have actions under consideration. The revised Model Law and Regulation reduce collateral requirements for certain reinsurers in reciprocal jurisdictions and are necessary to implement the collateral and other provisions of the International Covered Agreements. These models are scheduled to become accreditation standards this year on September 1, 2022, and nationwide adoption is crucial to the United States’ participation in the International Covered Agreements. The Model Law and Regulation are prospective in nature, meaning they may only be used to reduce collateral after a reporting entity’s state of domicile adopts them. Additionally, reinsurance agreements must be new, amended, or renewed on or after the domiciliary state of the ceding company adopts the Model Law and Regulation.

Climate and Resiliency (EX) Task Force

The Climate and Resiliency Task Force heard a recommendation from its Technology Workstream for the NAIC’s Center for Insurance Policy and Research to create a Catastrophe Model Center of Excellence that will allow state regulators access to shared catastrophe modeling resources. The Task Force also proposed revisions to the NAIC Climate Risk Disclosure Survey to better align with the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD). The survey focuses on areas of governance, strategy, risk management and metrics and targets of climate related financial risk. The proposed revisions were open for an exposure period until January 10, 2022 and are expected to be adopted at the 2022 Spring National Meeting. The survey applies to any insurer writing more than $100 million in direct premium with business in one of the 15 participating states.

If you have any questions about this annual update, you can contact us here.

Lauren Darr

Lauren Darr

Partner

Rick Nelson

Rick Nelson

Principal

Scott Haynes

Scott Haynes

Senior Manager

Joanne Smith

Joanne Smith

Senior Manager

NAIC 2021 Highlights – Year in Review

Johnson Lambert LLP is dedicated to keeping you informed of changes adopted by the NAIC within the Statutory Accounting Principles (E) Working Group that will impact your 2021 statutory basis financial statements and other significant NAIC activities related to technology and artificial intelligence, reinsurance and climate change.

Rejected GAAP ASUs

The following FASB ASUs were rejected by the SAPWG during 2021:

  • ASU 2009-17, Consolidation (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
  • ASU 2010-02, Consolidation (Topic 810) – Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope Clarification
  • ASU 2010-10, Consolidation (Topic 810) – Amendments for Certain Investment Funds
  • ASU 2014-07, Consolidation (Topic 810) – Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements
  • ASU 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis
  • ASU 2016-17, Consolidation (Topic 810) – Interests Held through Related Parties that are under Common Control
  • ASU 2018-17, Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable Interest Entities
  • ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
  • ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation of Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets
  • ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs
  • ASU 2020-11, Financial Services – Insurance (Topic 944): Effective Date and Early Application
  • ASU 2021-02, Franchisors – Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient

Executive and Plenary Committee

The Executive and Plenary Committee approved the formation of the Innovation, Cybersecurity and Technology (H) Committee. The Innovation and Technology Task Force drafted proposed charges for the Committee. The formation of this new “Letter” committee on a permanent basis reflects the NAIC’s commitment to monitoring regulatory aspects and embracing technological innovation in the insurance space. The new Committee is intended to be a forum to focus on cybersecurity, innovation, data security and privacy protections and emerging technology issues. Also charged with monitoring developments in these areas that affect the state insurance regulatory framework, maintaining an understanding of evolving practices and use of innovation technologies by insurers and producers, coordinating NAIC efforts related to innovation, cybersecurity and privacy and technology across other Committees and making recommendations and developing regulatory, statutory or guidance updates. The prior Innovation and Technology (EX) Task Force will be disbanded and moved to the H Committee. The following Working Groups will be under the H Committee umbrella beginning in 2022: Big Data and Artificial Intelligence, Speed to Market, E-commerce and Cybersecurity.

Big Data and Artificial Intelligence (EX) Working Group

The Big Data and Artificial Intelligence Working Group reported on the preliminary results from the Private Passenger Auto Artificial Intelligence (AI) and Machine Learning (ML) Survey conducted in nine states with more than 190 companies participating in the survey. The survey included questions regarding the use of AI and ML in the operational areas of claims, fraud detection, marketing, rating, underwriting and loss prevention. The Working Group plans to continue to analyze survey responses and leverage insights to inform future regulatory recommendations. Looking ahead, the Working Group will perform its next survey over the use of AI and ML in the homeowners and/or life lines of business. 

Financial Condition (E) Committee

The Financial Condition Committee adopted the Reinsurance Financial Analysis Working Group (ReFAWG) Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers. The report was created to aid insurers in implementation of the 2019 Credit for Reinsurance Model Law and Regulation and assist states in their review of reinsurers who meet the standards.

The Committee also adopted the Mutual Recognition of Jurisdictions (E) Working Group’s, Process for Evaluating Jurisdictions that Recognize and Accept the Group Capital Calculation (GCC).

Reinsurance (E) Task Force

As of December 9, 2021, 46 U.S. jurisdictions have adopted the 2019 revisions to the Credit for Reinsurance Model Law (#785) and 4 jurisdictions have actions under consideration. Twenty-five U.S. jurisdictions have adopted the 2019 revisions to the Credit for Reinsurance Model Regulation (#786) and 11 have actions under consideration. The revised Model Law and Regulation reduce collateral requirements for certain reinsurers in reciprocal jurisdictions and are necessary to implement the collateral and other provisions of the International Covered Agreements. These models are scheduled to become accreditation standards this year on September 1, 2022, and nationwide adoption is crucial to the United States’ participation in the International Covered Agreements. The Model Law and Regulation are prospective in nature, meaning they may only be used to reduce collateral after a reporting entity’s state of domicile adopts them. Additionally, reinsurance agreements must be new, amended, or renewed on or after the domiciliary state of the ceding company adopts the Model Law and Regulation.

Climate and Resiliency (EX) Task Force

The Climate and Resiliency Task Force heard a recommendation from its Technology Workstream for the NAIC’s Center for Insurance Policy and Research to create a Catastrophe Model Center of Excellence that will allow state regulators access to shared catastrophe modeling resources. The Task Force also proposed revisions to the NAIC Climate Risk Disclosure Survey to better align with the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD). The survey focuses on areas of governance, strategy, risk management and metrics and targets of climate related financial risk. The proposed revisions were open for an exposure period until January 10, 2022 and are expected to be adopted at the 2022 Spring National Meeting. The survey applies to any insurer writing more than $100 million in direct premium with business in one of the 15 participating states.

If you have any questions about this annual update, you can contact us here.

Lauren Darr

Lauren Darr

Partner

Rick Nelson

Rick Nelson

Principal

Scott Haynes

Scott Haynes

Senior Manager

Joanne Smith

Joanne Smith

Senior Manager