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ASSAL Presentation. US Risk-Based Supervision Lou Felice Health and Solvency Policy Advisor NAIC. US Solvency Framework. Primary goal is to ensure financial health of insurers for purposes of protecting policyholders Work with companies to remedy areas of concern - PowerPoint PPT PresentationTRANSCRIPT
© 2012 The National Association of Insurance Commissioners
ASSAL Presentation
US Risk-Based Supervision
Lou Felice
Health and Solvency Policy Advisor
NAIC
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• Primary goal is to ensure financial health of insurers for purposes of protecting policyholders • Work with companies to remedy areas of concern• More severe interventions if company continues to
deteriorate e.g. regulators will run off or liquidate the insurer if necessary to ensure protection of existing policyholders
• A zero insolvencies goal would require a different system
• Additional goals include availability and affordability of insurance, stable and competitive markets
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework – Key Elements
• Pillar 1 – Comprehensive body of laws and regulations provide and define the framework boundaries
• Laws address all of the key elements of solvency regulation and provide conservatism, consistency, and regulatory authority for intervention
• Pillar 2 – Regulatory oversight provides an assessment within those boundaries
• Focus on a targeted quantitative and qualitative analysis.
• Financial analyses tools provide for risk focused surveillance and examination and identification of outliers
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework – Key Elements (cont.)
• Pillar 3 – Detailed financial reporting• Provides transparency
• Facilitates financial analyses at the both the entity level and across firms
• Provides basis for early warning and intervention
• Overarching Accreditation System
• Solvency Modernization Initiative
• Wrap-Up
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• Pillar 1– Laws and Regulations– Risk-Based Capital (RBC)
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Licensing
• Each state of operation requires compliance with its lawsand regulations (subject to NAIC accreditation requirements);not a passport system
• Domiciliary state, typically first state of licensure, is lead regulator• Adequate business plan required to apply
• Fixed minimum capital or simple capital calculation must be met, and subject to RBC once up and running
• Fit and proper management checked for licensure
• Criminal background check
• Proper experience, skills
• Guaranty fund participation• Unique State-based policyholder protection system
• Remaining insurers in the sector are assessed a portion of the shortage of policyholder liabilities less assets
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Notice of Material Transactions, including
intra-group transactions:• Acquisition/disposition of assets
• Revisions to reinsurance agreements
• Material guarantees/transactions
• Acquisition/change of control of insurer is approved or rejected by the insurance commissioner
• Investment limitations• Prudent person approach• Defined limits approach• Derivative use plan requirements• Asset adequacy tests and asset/liability matching requirements for
life products
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• RBC Overview• Developed in early 1990s; Finalized formulas:
• Life RBC 1993
• Property/Casualty RBC 1994
• Health RBC 1998
• Maintained and evaluated continuously with eye toward predominant risks for each industry segment
• The formula considers the entity’s size, structure and risk profile• Standardized approach, mainly factor based but with some
stochastic and full modeling (predominantly Life RBC) upgrades over the years
• Not all risks are accounted for – only material categories of risks • RBC formulas are uniform among the states• Largely tied to annual financial reporting for verifiability• Annual modifications occur, both maintenance and enhancements
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• Risk-Based Capital (RBC) Results
• RBC is a baseline tool for providing legal authority for specific regulator action
• Provides 4 action level triggers based on minimum regulatory capital levels - NOT a target capital level or intended as a financial strength indicator above the action levels
• RBC is supported by a number of Pillar II and Pillar III tools• Used in concert with other analysis and exam findings
• Augmented by robust annual and quarterly financial reporting and State authority for supplemental reporting or data submission
• Not totally accurate for all companies but reasonably accurate for most companies
• Found to be highly effective in HELPING to identify weakly capitalized insurers
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• Pillar 2– Regulatory Oversight, Assessment and
Monitoring
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Financial analyses (at least quarterly)
• Automated tools in addition to RBC use audited public data:• Ratios
• Scoring
• Benchmarking
• Used to prioritize insurers of concern as well as to compare insurers• Prioritization and analysis tools assess:
• Reserve adequacy
• Leverage
• Liquidity
• Surplus
• Asset quality
• Trends, etc.
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Overall Analysis of the Insurer and its Operations
Detail Analysis of Areas of Concern
Management Considerations
Statement of Actuarial Opinion
Management Discussion and Analysis
Holding Company Analysis
Audited Financial Report
Level 1
Level 2
Supplemental
US Solvency Framework - ANALYSIS
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Risk-focused, on-site examinations
• Full scope at least once every 3-5 years• Risk-focused:
• Interview senior management
• Identify key activities and inherent risks
• Assess/test controls
• Establish residual risks and plan exam
• Conduct exam
• Test and validate residual risks;
• Modify plan as needed based on findings
• Target exams as needed based upon concern with company/findings from oversight
• Some compliance testing for state laws
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework - EXAMS
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Phase 6
Understand the Company and Identify Key
Functional Activities to be Reviewed
Identify and Assess Inherent Risks in Activities
Identify and Evaluate Risk Mitigation
Strategies/Controls
Determine Residual Risk
Establish/Conduct Exam Procedures
Update Prioritization and Supervisory Plan
Draft Exam Report and Management Letter
Based on FindingsPhase 7
Planning
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Continuous monitoring/qualitative assessments using
regulator only data – assess:• Changes in business plan• Material transactions, including group transactions • Implications for reputation/contagion risks • Impacts of major economic and insurance events, and • Stress testing
• In depth assessments of (potentially) troubled insurers • More frequent/extensive:
• Insurer reporting
• Regulator analyses/exams
• Authorities for regulatory actions include• Conservation/rehabilitation/liquidation in the domiciliary state• Suspending or revoking license to write in the state 15
© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• Pillar 3– Public and Regulatory Reporting
Requirements for Insurers
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Transparency, uniformity and verification
• Detailed public disclosure (annual and quarterly)• Uniform reporting format
• Electronic data capture allows creation of prioritization/analytical tools and ad hoc queries, sensitivity analysis
• Conservative statutory accounting
• Uniform definitions
• Nonadmitted assets (not counted toward statutory capital/surplus)
• Annual independent CPA audit, public• Annual actuarial opinion, public• Annual detailed actuarial memorandum, regulator only• Annual risk-based capital (RBC) calculation, results only public
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
STATUTORY ACCOUNTING
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Statutory Accounting
• A separate codification of accounting requirements for US insurance regulatory purposes
• Based on US GAAP– Accept GAAP– Accept GAAP with modifications– Reject GAAP– Separate Statutory Accounting Guidance
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
GAAP and SAP Differences
GAAP• Designed to meet the
varying needs of different users
• Stresses measurement of profitability/income
• Emphasis on earnings
• Going concern concept
SAP• Designed to address
concerns of regulators
• Stresses ability to satisfy policyholder obligations
• Balance sheet emphasis
• Focuses on liquidity
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Foundation Concepts
GAAP• Relevance• Reliability• Neutrality• Comparability• Materiality
SAP
Additional Emphasis:
• Conservatism
• Consistency
• Recognition
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Nonadmitted Assets
• GAAP does not recognize the concept of “nonadmitted assets”.
• SAP does not allow certain assets to be “admitted” in the balance sheet.
• A nonadmitted asset is one which is accorded limited or no value in statutory reporting.
Assets Not Net AdmittedAssetsAdmitted Assets
Statutory Balance Sheet
$2,794,000 $ 260,000 $ 2,534,000
GAAP Balance Sheet
$3,111,000Total Assets
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Investments
GAAP
• Classifies investments as follows in FAS 115:
– Securities held to maturity are reported at amortized cost;
– Securities available for sale are reported at fair value;
– Trading securities are reported at fair value.
• GAAP does not recognize the concept of nonadmitted assets or investment limitations.
SAP• Bonds are reported at
amortized cost except those that are low quality – lower of amortized cost or market (SSAP No. 26).
• Common Stocks are generally reported at SVO fair value (SSAP No. 30).
• Nonadmitted assets due to state investment limitations
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Goodwill
• GAAP goodwill = purchase price less market value
• GAAP does not limit goodwill.
• SSAP No. 68 goodwill = purchase price less book value
• Goodwill in excess of 10% of adj. capital & surplus is nonadmitted.
Assets Not
Net Admitted
Assets Admitted AssetsInvestment in Firemen's Insurance CompanyGoodwill
50,000 33,000 17,00020,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Agents Balances
• GAAP requires receivables for premiums and agents’ balances to be reported net of a valuation allowance for doubtful accounts.
• Companies are simply required to nonadmit any premium receivable balances greater than 90 days past due. (Exception for government insured plans is within SSAP No. 84.)
• Uncollectible amounts are written off.
Assets Not Net AdmittedAssets Admitted Assets
Premiums receivable and Agents' balances and uncollected agents' balances 55,000 premium 55,000 5,000 50,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Reinsurance Recoverable
• GAAP requires all amounts due from reinsurers to be recorded as assets.
• SSAP No. 61 and SSAP No. 62 requires reinsurance recoverables on unpaid claims and IBNR to be recorded as a contra-liability and netted against gross losses and loss adjustment expenses or in cases where the right of offset exists, reinsurance payables.
Assets Not Net AdmittedAssets Admitted Assets
Reinsurance recoverables 50,000 Reinsurance recoverables 30,000 30,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Deferred Acquisition Costs
• DAC calculation includes:– Commissions;– State premium taxes;– Underwriting expenses; and– Issuance costs.
• DAC is usually the largest difference between GAAP and SAP
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
DAC
• FAS 60 allows acquisition costs and commissions to be capitalized and amortized to expense over the life of the policy.
• SSAP No. 71 requires acquisition costs and commissions to be expensed as incurred.
• Premiums are recognized as income on a pro rata basis.
Assets Not Net AdmittedAssets Admitted Assets
Deferred policy acquisition costs 170,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Furniture, Fixtures & Equip.
• FF&E is capitalized and depreciated over its useful life.
• FAS 13 requires reporting entities to classify leases as capital or operating leases.
• SSAP No. 19 nonadmits all such equipment.
• SSAP No. 22 requires all leases to be considered operating leases.
Assets Not Net AdmittedAssets Admitted Assets
Furniture, fixtures and equipment 15,000 Furniture, fixtues and equipment 10,000 10,000 -
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
P & C Reserves
• Management’s best estimate of the liability
• Generally allows discounting of this liability
• Requires recording of the minimum point in a range as its liability when all points are equally probable
• Management’s best estimate of the liability
• Generally does not allow discounting of this liability
• Requires recording of the mid-point in a range as its liability when all points are equally probable
Reserve for property-liability claims 800,000 $ Reserve for property-liability claims 900,000 $ 9
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
A & H Reserves
• Management’s best estimate of the liability
• Generally allows discounting of this liability
• Requires recording of the minimum point in a range as its liability when all points are equally probable
• Management’s best estimate of the liability
• Generally does not allow discounting of this liability
• Requires recording of the mid-point in a range as its liability when all points are equally probable
Reserve for A&H claims 900,000 Reserve for A&H claims 900,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Unearned Premiums
• FAS 60 only allows premiums to be recognized on a pro-rata basis (daily pro-rata or monthly pro-rata). This results in the recording of an unearned premium liability for the portion of premium received but not yet earned.
• SSAP No. 53 also only allows premiums to be recognized on a pro-rata basis (daily pro-rata or monthly pro-rata).
• SSAP No. 54 requires premiums to be recognized when due.
Unearned premiums 250,000 Unearned premiums 10,000 Advance premiums 240,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Debt
• GAAP requires L/T debt to be recorded as a separate liability on the balance sheet. GAAP generally does not allow debt to be used as an offset against the related asset acquired with the debt.
• SAP allows certain debt to be used as an offset to the related asset for which the debt was obtained.
• SAP No. 41 allows reporting entities to issue instruments with characteristics of both debt and equity, referred to as surplus notes. These are reported in surplus.
Long-term debt 100,000 Borrowed money 25,000
GAAP Balance Sheet Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Surplus
• GAAP recognizes stock-holders’ equity adjusted for net income within R/E.
• GAAP requires recognition of “Other Comprehensive Income” (OCI).
• GAAP requires surplus notes issued by the company (which is similar to debt) to be reported as long-term debt.
• Unassigned funds include the cumulative effect of net income, unrealized gains and losses, exchange rate fluctuations, nonadmitted assets, provision for reinsurance, asset valuation reserve, and changes in DTAs and DTLs.
• No OCI• SSAP No. 41 allows surplus
notes to be reflected in surplus.
Common stock 12,000Additional paid in capital 100,000Retained earnings 675,000Accumulated other comprehensive income 208,000
GAAP Balance SheetCommon stock 12,000Additional paid in capital 100,000Unassigned funds (surplus) 216,000Surplus notes 50,000
Statutory Balance Sheet
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
SAP - Final Thoughts
• GAAP and SAP have fundamentally different approaches.
• Although SAP reviews and uses some of the GAAP pronouncements, the objectives are different.
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
ACCREDITATION PROGRAM
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework
• Accreditation Programo Peer review making States accountable to each
other for solvency oversighto Formed in 1989o Voluntary program for state insurance
departments administered by the NAICo Focus on multi-state life/health and
property/casualty insurerso 50 states, District of Columbia and Puerto Rico
accredited
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
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Supervision and Administration of the Accreditation Program
• Financial Regulation Standards and Accreditation (F) Committeeo Chair: Eleanor Kitzman (TX)o Vice Chair: Tom Leonardi (CT)
• Open Session: o Discuss standards/guidelines
• Regulator-to-Regulator Session: o Discuss state-specific issues/reviews
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Mission Statement of the Accreditation Program
The objective of the accreditation program is:
• To provide a process whereby solvency regulation of multi-state insurance companies can be enhanced and adequately monitored with emphasis on the following:
o Adequate solvency laws and regulations to protect consumers and guarantee funds.
o Effective and efficient financial analysis and examination processes o Appropriate organizational and personnel practices
• To allow states to rely on the work performed by other states.
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Accreditation Standards
• Part A: Laws and Regulations
• Part B: Regulatory Practices and Procedures
• Part C: Organizational and Personnel Practices
• Part D: Organization, Licensing and Change of Control
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Part A: Laws and Regulations
• States must adopt certain laws and regulations for solvency
• 19 laws and regulations are currently required
• The state must have all the laws and regulations in effect to be accredited (i.e. pass or fail)
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Part B: Regulatory Practices & Procedures• Financial Analysis
o 8 standards
• Financial Examinations o 10 standards
• Information Sharing and Procedures for Troubled Companies o 2 standards
• Scored by the accreditation team members
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Part C: Organizational & Personnel Practices
• 3 Standardso Professional Development
o Minimum Educational and Experience Requirements
o Retention of Personnel
• Not scored by the accreditation team members
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Part D: Organization, Licensing & Change of Control
• 6 Standards
• New company applications
• Applications for mergers/acquisitions
• Not scored by the accreditation team members
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
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Types of Accreditation Reviews
• Pre-Accreditation Review
• Accreditation Review
• Sub-Part Re-Review
• Interim Annual Review
• Periodic Reporting
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
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Pre-Accreditation Review
• Performed one to two years prior to full review by NAIC Staff
• Duration is approximately 1.5 days• High level review of financial analysis and
financial examination functions to identify areas of improvement
• Voluntary but strongly recommended• Confidential pre-accreditation report issued to
the Commissioner• No Committee responsibility
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
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Accreditation Review• Once every 5 years subject to interim annual reviews
• Duration is approximately 1 week (5 business days)
• Review Team composition supervised by the NAIC Accreditation Program Manager
• Full review of Part B & C Standards by Review Team
• Full review of Part A Standards by NAIC Legal Division
• Reports distributed to the Financial Regulation Standards and Accreditation (F) Committee (FRSAC)
• FRSAC members vote
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
How has accreditation helped the regulatory process?• Information provided by companies was not
verifiedo Annual CPA audit and actuarial opinion required
• No mandatory requirement regarding frequency of examinationso Domestic companies must be examined no less
frequently than every five years
• Lack of interstate coordination and cooperationo Documented policy regarding such is required
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
Communication Tools
• NAIC Administrative Policies Manual of the Financial Regulation Standards and Accreditation Programo Published each year as of January 1st
o Hard copies of manual sent to state insurance departments
o Updates to manual included on the website
• Accreditation Websitehttp://www.naic.org/committees_f.htm
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
SOLVENCY MODERNIZATION INITIATIVE (SMI)
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
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• Solvency Modernization Initiative (SMI)o Group Solvency Lessons Learned
• Own Risk and Solvency Assessment (ORSA)
o A Review and Evaluation of RBC for Possible Enhancements
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• Lessons learned from financial crisis:
o Holding company enterprise risko Re-assessing Impact of Rating Agencies on solvency tools o “Windows and Walls”
• Responses to lessons learned:o Revisions to Holding Company Model Act and Regulation
• Enhance coordination with banking and other regulators as well as insurance regulators from non-US jurisdictions
o Adjustments to valuation / quality designations / RBC requirements for mortgage backed securities
o Own Risk and Solvency Assessment (ORSA)
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• US Own Risk & Solvency Assessment (ORSA)
o ORSA Manual developed with industry comments o Two primary goals:• Foster effective level of ERM, thru which each insurer identifies and quantifies
material and relevant risks using techniques appropriate to the nature, scale and complexity of the insurer’s risks, in a manner adequate to support risk and capital decisions
• Provide a group-level perspective on risk and capital as a supplement to the existing legal entity view
• ORSA Exemptiono Individual insurer’s annual direct written and unaffiliated assumed premium,
including international direct and assumed premium but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, is less than $500,000,000; and
o Insurance group’s (all insurance legal entities within the group) same annual premium is less than $1,000,000,000
o Insurer specific waiver granted by Commissioner based upon unique circumstances including, but not limited to, type and/or volume of business written
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• ORSA process is one element of insurer’s broader ERM
frameworko Links the insurer’s risk identification, measurement and prioritization
processes with capital management and strategic planningo Each insurer’s ORSA process will be unique, reflecting its business, strategy and
approach to ERM
• Regulators will use the ORSA Summary Report to gain a high-level understanding of the process
o Summary Report may be provided in any combination as long as all insurance legal entities within the group are represented
o Summary Report will be supplemented by the insurer’s internal risk management materials
o Summary Report, at a minimum, should discuss:• Section 1 – Description of Insurer’s Risk Management Framework• Section 2 – Insurer’s Assessment of Risk Exposure• Section 3 – Group Risk Capital and Prospective Solvency Assessment
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework• SMI review of RBC:
o Purpose of RBC in U.S. Regulatory Framework• US regulators’ response:
• Maintain RBC as one of many analytical tools, not a target capital level
• Rely upon RBC for explicit actions authorized by statute
o RBC Enhancements• Assess missing risks - considering a catastrophe component
for property/casualty RBC
o Partial Internal Models for RBC• Life RBC currently uses modeling for variable annuities with
certain guarantees and similar products• Considering expansion to other life products• Principle-Based Reserve project will increase RBC models
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
US Solvency Framework – Wrap UP
• Focus on a targeted, robust quantitative and qualitative analysis rather than establishing target capital levelso Consistent, comparative public data reviewed by 3rd parties (e.g. CPA)
o RBC – legal authority for regulatory intervention when minimum capital is breached, and used in concert with other analysis and exam findings
• Regulatory review/approval of significant transactions• Multiple eyes on same insurer/issue; coordinated reviewo Domiciliary state leads solvency oversight, but other licensed states also
perform analysis and can participate in exams; FAWG peer reviewo Accreditation Program establishes appropriate, common framework
• ORSA provides insurer’s own assessment of capital adequacy• Collaborative, group-wide stress testing
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© 2012 The National Association of Insurance Commissioners© 2012 The National Association of Insurance Commissioners
QUESTIONS?
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