NAIC 2018 Summer Meeting
In the words of famous Bostonian Benjamin Franklin, “Never confuse motion with action.” There was no confusion at the NAIC Summer National Meeting in Boston where regulators and interested parties were consistently in action to keep pace with the changing times and regulations. A summary of the NAIC Summer Meeting highlights follow.
Statutory Accounting Changes
The Statutory Accounting Principles (E) Working Group (SAPWG) adopted various updates to statutory accounting guidance.
The following FASB ASU’s were rejected by the SAPWG during 2018’s Summer meeting:
- ASU 2017-15, Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995
- ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
US-EU Covered Agreement
To say the Reinsurance (E) Task Force has been busy since the Spring National Meeting would be an understatement. The Task Force exposed proposed revisions to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) to conform to the Bilateral Agreement between the United States of America and the European Union (EU) on Prudential Measures Regarding Insurance and Reinsurance (Covered Agreement). The revisions also provides reinsurers in other NAIC-qualified jurisdictions with similar reinsurance collateral requirements to EU reinsurers and with similar provisions regarding group supervision, group capital, information sharing and enforcement.
The Task Force received 18 comment letters on the revisions and 14 interested parties were given two minutes each to comment during the Summer National Meeting. The interested parties support the Task Force’s approach and primarily commented on areas where the revisions differ from the Covered Agreement. Common themes include:
- Improving consistency between the Covered Agreement and Model Law.
- Requests to “put the whole kit and caboodle” in the Model Law (#785), not the Model Regulation (#786).
- Concerns regarding proposed language allowing for commissioner discretion, which could result in one state causing issues with mutual recognition.
- Elimination of disparate treatment between EU and qualified jurisdictions.
The Reinsurance Task Force will consider the comments and work with NAIC staff to incorporate necessary and appropriate revisions to drafts of Model #785 and Model #786. The Models will be re-exposed in the fall for another comment period, with the goal to complete revisions by the Fall National Meeting.
The Covered Agreement was also a hot topic in the Capital Adequacy (E) Task Force meeting as regulators discussed whether changes to the capital framework are necessary to compensate for the lack of collateral. Recent changes to the property/casualty RBC on reinsurance collateral made the charges more risk-focused based on credit ratings, which is how Model Law (#785) is structured. The Task Force requested the reinsurance credit risk be added to the Life Risk-Based Capital (E) Working Group and the Health Risk-Based Capital (E) Working Group working agendas.
Innovation, Technology and Cybersecurity
The Innovation and Technology (EX) Task Force heard a report from Director Raymond G. Farmer (SC) on cybersecurity initiatives, including enactment of the Insurance Data Security Model Law #668 in South Carolina. Director Farmer reminded the Task Force that the Model applies to all licensees, including insurers, insurance agents and other licensed by the state insurance department. South Carolina was the first to adopt the legislation, which goes into effect January 1, 2019, and is now in the implementation phase.
The Task Force also heard presentations from:
- NAIC staff on the Cybersecurity and Identity Theft Insurance Coverage Supplement data analysis.
- The United Kingdom’s Financial Conduct Authority (FCA) regarding its regulatory sandbox and experiences working with innovators.
- Benekiva on solutions for outdated processes, legacy systems, unclaimed property and escheatment, and changing laws impacting the life insurance industry.
- The Institutes on its RiskBlock Alliance
Finally, the Task Force approved a plan to move forward on several projects, including:
- Confirming and publishing a list of state insurance departments’ innovation contacts by 09.03.18
- Recruiting a team of volunteers to develop a plan to gather and share information on what state insurance departments, the federal government and non-U.S. jurisdictions are doing in the innovation space.