NAIC report – 2021 Fall National Meeting

The National Association of Insurance Commissioners (NAIC) held its 2021 Fall National Meeting from December 11 to 16 in San Diego, California. The meeting was held in a hybrid in-person and remote format due to the ongoing COVID-19 pandemic, with many regulators and most industry representatives attending remotely.

The agenda for this National Meeting was again limited, with a number of NAIC committees, working groups and task forces meeting in the weeks prior to the Fall National Meeting. Consequently, we offer highlights from both the Fall National Meeting and other meetings that took place recently. Notable developments include the following:

• The Executive (EX) and Plenary unanimously voted to form a new “letter” committee, the Innovation, Cybersecurity and Technology (H) Committee, that will be tasked with monitoring and coordinating regulatory responses to issues related to cybersecurity, innovation, data security, privacy protections and emerging technology.
• The Macroprudential (E) Working Group exposed a draft list of Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers to serve as a starting point for insurance regulators on PE-related issues.
• The Valuation of Securities (E) Task Force received a memo from the NAIC Securities Valuation Office raising concerns with the NAIC’s reliance on rating agency ratings to assess investments for regulatory purposes and recommending a number of alternatives for the NAIC to consider in 2022.
• The NAIC elected the following NAIC Executive Officers for 2022:
  • President: Idaho Insurance Director Dean Cameron
  • President-Elect: Missouri Insurance Director Chlora Lindley-Myers
  • Vice President: Connecticut Insurance Commissioner Andrew Mais
  • Secretary/Treasurer: North Dakota Commissioner Jon Godfread

We do not cover every meeting in this report; rather, we comment on select noteworthy developments and matters of interest to our clients

A. Technology and Privacy

1. NAIC Approves New “Letter” Committee for Innovation and Cybersecurity
2. Privacy Protections Working Group Publishes Final Draft Privacy Policy Report 
3. Big Data and Artificial Intelligence (EX) Working Group Provides High-Level Overview of Auto AI/ML Study
4. Additional Developments Related to Technology and Privacy

• Colorado Enacts Law Requiring Insurers to Stress Test Big Data Systems
• Accelerated Underwriting (A) Working Group Nears Completion of White Paper

B. Environmental, Social, and Corporate Governance (ESG)

1. Special (EX) Committee on Race and Insurance Receives Subcommittee Updates
2. Redesigned NAIC Climate Risk Disclosure Survey Aligns with Financial Stability Board’s TCFD
3. Climate Risk and Resiliency (EX) Task Force Contemplates Climate Stress Test

C. Financial Issues of Particular Interest

1. State and Federal Policymakers Take Renewed Interest in Private Equity Investments
2. SVO Expresses Concern with Extensive Reliance on Credit Ratings
3. Executive (EX) and Plenary Exposes GCC-Related Model Holding Company Act Amendments
4. Financial Condition (E) Committee Considers Updates to RBC Charges 
5. Life Actuarial (A) Task Force Assesses Long-Term Impact of Low-Interest Rate Environment
6. Valuation of Securities (E) Task Force Adopts P&P Manual Amendments
7. Statutory Accounting Principles (E) Working Group Exposes Multiple Items

D. Other Items of Particular Interest

1. Cannabis Insurance (C) Working Group Proceeds with Appendix to Cannabis White Paper
2. Life Insurance and Annuities (A) Committee Adopts Life Insurance Illustrations (A) Working Group “Chair Report” Recommending That the Working Group Be Disbanded
3. Reinsurance

• Executive (EX) and Plenary Adopts Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers for use by the Reinsurance Financial Analysis (E) Working Group
• Reinsurance (E) Task Force Encourages States to Adopt Credit for Reinsurance Models by July 1, 2022
• Mutual Recognition of Jurisdictions (E) Working Group Reapproves Certified and Reciprocal Jurisdictions

4. Restructuring Mechanisms (E) Working Group Receives Comments on Restructuring Mechanisms White Paper
5. IAIS Outlines 2022 Priorities
6. NAIC Elects 2022 Officers

A. Technology and Privacy

1. NAIC Approves New “Letter” Committee for Innovation and Cybersecurity

The Executive (EX) and Plenary unanimously voted in favor of a new “letter” committee, called the Innovation, Cybersecurity and Technology (H) Committee. The H Committee’s 2022 charges provide that the Committee’s mission is to:

1. Provide a forum for state insurance regulators to learn and have discussions regarding: cybersecurity, innovation, data security and privacy protections and emerging technology issues; 
2. Monitor developments in these areas that affect the state insurance regulatory framework; 
3. Maintain an understanding of evolving practices and use of innovation technologies by insurers and producers in respective lines of business;
4. Coordinate NAIC efforts regarding innovation, cybersecurity and privacy and technology across other committees; and 
5. Make recommendations and develop regulatory, statutory or guidance updates, as appropriate.

The H Committee will now serve as the committee of jurisdiction for the following Working Groups:

• Big Data and Artificial Intelligence (H) Working Group; 
• Speed to Market (H) Working Group;
• E-Commerce (H) Working Group; and 
• Cybersecurity (H) Working Group

The new H Committee marks the first time the NAIC has added a “letter” committee since 2004.

2. Privacy Protections Working Group Publishes Final Draft Privacy Policy Report

The Executive (EX) and Plenary received (but did not adopt) a Final Draft Privacy Protections (D) Working Group Report on Consumer Data Privacy Protections (formerly titled a Privacy Policy Statement) from the Privacy Protections (D) Working Group that reports on the Working Group’s work to date, which has included review and analysis of existing NAIC models to identify existing consumer privacy protections, as well as review of other leading privacy regimes in the US and in Europe to identify key issues and trends in consumer privacy. The Report ultimately recommends that the NAIC Insurance Information and Privacy Protection Model Act (Model #670) and NAIC Privacy of Consumer Financial and Health Information Regulation (Model #672) be revised to modernize their privacy protections and keep pace with the current technology-based insurance market, with Model #672 being the focus. Notably, the report highlights nine issues (or consumer rights) that the Working Group plans to focus on as it begins working on updating Model #672 in 2022:

1. Right to opt-out of data sharing;
2. Right to limit data sharing unless the consumer opts in;
3. Right to correct information;
4. Right to delete information;
5. Right to data portability;
6. Right to restrict the use of data;
7. Consumer right to ownership of data;
8. Right to notice of privacy practices; and
9. Right to non-discrimination/non-retaliation for exercising privacy rights.

The nature and scope of these rights and how they will be incorporated into an updated Model #672 will be the focus of Working Group discussion in 2022, and is likely to garner significant attention from both industry and consumer advocates. What is clear is that the Working Group believes that NAIC models addressing consumer privacy should be significantly updated to be more consistent with emerging trends in consumer privacy legislation embodied by the European General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). While comprehensive consumer privacy laws like the CCPA have been adopted in a number of US states and are under consideration in many more, insurers have largely been able to rely on exemptions for GLBA regulated entities and data to avoid these new stringent privacy regimes. If the NAIC adopts the general approach to consumer privacy taken under the GDPR and the CCPA, it would represent a significant shift in US privacy regulation and could result in foundational changes to how insurers address consumer privacy at both administrative and operational levels. 

3. Big Data and Artificial Intelligence (EX) Working Group Provides High-Level Overview of Auto AI/ML Study

The Big Data and Artificial Intelligence (EX) Working Group received a high-level overview of results of the private passenger auto insurer artificial intelligence (AI) and machine learning (ML) Big Data Survey. The Big Data Auto Survey was sent to nearly 200 auto insurers with national premiums greater than $75 million. 192 insurers responded. As a preliminary matter, the Big Data Auto Survey asked whether auto insurers intend to use AI/ML and, if so, asked insurers to respond to a number of questions based on business function such as rating, underwriting, claims, fraud detection, etc. Although Superintendent Dwyer (RI) and Commissioner Mark Afable (WI) noted that comprehensive (aggregated) data will take some time to compile, initial analysis indicates that (i) 168 of the 192 companies use, plan to use, or are in the process of exploring the use of AI/ML, (ii) respondents who use AI/ML are more likely to incorporate it into their claims function than any other function (followed by fraud detection, marketing, rating, underwriting and loss prevention, respectively), and (iii) insurers are more likely to develop AI/ML technology internally than to use third-party technology (except for AI/ML technology employed for marketing).

The Working Group now intends to conduct similar, concurrent surveys regarding the use of AI and ML for homeowners and life insurance.

The Working Group also heard a presentation from Jillian Froment (former Director of the Ohio Department of Insurance) arguing that the NAIC’s work on cybersecurity, and particularly its development of the NAIC Insurance Data Security Model Law (Model #668), offers an appropriate and relatable regulatory framework that could be applied to regulating AI. Such an approach would include a focus on governance, annual certification of compliance, accountability, responsibility for third-parties and confidentiality protections for businesses. Commissioner Doug Ommen (IA), Chair of the Working Group, expressed support for the views expressed by Ms. Froment.

4. Additional Developments Related to Technology and Privacy

• Colorado Enacts Law Requiring Insurers to Stress Test Big Data Systems

The Innovation and Technology (EX) Task Force and the Special Committee (EX) on Race and Insurance both received reports from Commissioner Michael Conway (CO) on Colorado’s recent adoption of SB-21-169, Concerning Protecting Consumers from Unfair Discrimination in Insurance Practices. The new law is intended to ensure that Colorado insurers use external data sources in a responsible manner and protect consumers from unfair discrimination. Among other things, SB-21-169 requires insurers to stress test “big data” systems and take corrective action to address consumer harms. The Colorado law applies to personal and certain commercial policies with annual premiums of less than $10,000 and applies to a number of insurer business functions, including marketing, underwriting, pricing, utilization management, premium reimbursement and claims management. The law also requires the Colorado Division of Insurance to issue regulations on how insurers will be required to demonstrate compliance with the new law, which may not go into effect prior to January 1, 2023.

Commissioner Conway noted that his office will begin holding stakeholder listening sessions in January, with an initial focus on life insurance business. 

• Accelerated Underwriting (A) Working Group Nears Completion of White Paper

The Accelerated Underwriting (A) Working Group received a report from White Paper Subgroup Commissioner Grace Arnold (MN) regarding the latest iteration of the Accelerated Underwriting White Paper. Commissioner Arnold noted that at least one additional draft will be exposed for public comment prior to the NAIC Spring National Meeting, at which point she hopes the White Paper will be submitted to the Life Insurance and Annuities (A) Committee for approval.

B. Environmental, Social, and Corporate Governance (ESG)

1. Special (EX) Committee on Race and Insurance Receives Workstream Reports

The Special (EX) Committee on Race and Insurance met during the Fall National Meeting to receive updates from each of its five Workstreams.

• Workstream One (regarding industry diversity and inclusion) received reports on industry Diversity, Equity and Inclusion (DEI) efforts from the California Department of Insurance, New York State Department of Financial Services and a number of industry stakeholders.
• Workstream Two (regarding DEI within state insurance departments and the NAIC) reported on state insurance department responses to a recent survey assessing department best practices and DEI initiatives. The Workstream will meet at a later date to consider sharing the survey results. It is unclear whether the results will be made available to the public. 
• Workstream Three (regarding access to insurance in the property and casualty insurance market) reported on the development of analytical and regulatory tools to assist state regulators with defining and identifying unfair discrimination. Commissioner Vicki Schmidt (KS) reported that the Workstream intends to consider whether to draft a white paper to define certain terms like proxy discrimination, disparate impact and disparate treatment. 
• Workstream Four (regarding access to insurance in the life insurance market) will hold an open meeting in January to discuss a work plan. It was not a point of focus during the Fall National Meeting. 
• Workstream Five (regarding access to insurance in the health insurance market) reported on health insurance efforts around data collection and briefly highlighted challenges to collecting sociodemographic data. Commissioner Jessica Altman (PA) reported that the Workstream would hold another meeting to finalize the data collection document. The Workstream also indicated that it plans to finalize a Draft Principles for Data Collection Document that provides high-level principles for the collection and treatment of race and ethnicity data. The Workstream intends to expose a final document in early 2022.

2. Redesigned NAIC Climate Risk Disclosure Survey Aligns with Financial Stability Board’s TCFD

The Climate and Resiliency (EX) Task Force met on December 14 and received reports from each of its working groups, with a particular focus on the financial risks of climate change. The Climate Risk Disclosure Workstream, led by Oregon Insurance Commissioner Andrew Stolfi, updated the Task Force on the proposed redesign of the NAIC Climate Risk Disclosure Survey (NAIC Survey). The NAIC Survey, created in 2010, was initially designed to be an annual, publicly available insurer reporting mechanism to provide state insurance regulators a window into how insurers across all lines of insurance assess and manage climate related risks. More recently, in 2017, the Financial Stability Board’s Task Force on Climate Related Financial Disclosures developed the TCFD Survey, a similar annual questionnaire that provides a framework for public companies and other organizations to disclose climate-related risks and opportunities. Since its introduction, the TCFD Survey has become a global standard, with both international supervisors and domestic regulators moving toward TCFD reporting. For additional information regarding the TCFD and climate-related reporting, see our Legal Alert.

Recognizing the trend in favor of the TCFD Survey, the Workstream decided to update the NAIC Survey to align with the TCFD Survey with additional, insurance-specific content, incorporated into the questions. The basic framework of the Proposed Redesign is a series of closed-ended and narrative questions organized around the TCFD’s four topics: Governance, Strategy, Risk Management and Metrics and Targets.

The Workstream’s decision to align the NAIC Survey with the TCFD Survey comes after the NAIC Center for Insurance Policy and Research (CIPR) released an analysis of the NAIC Survey based on a review of data from more than 1,000 companies that participated in the NAIC Survey in 2018. Among other things, the CIPR analysis found that:

• While few insurers report altering their investment strategy in response to considerations of the impact of climate change on their investment portfolio, more than half of all companies report at least some engagement in enterprise-wide climate risk management.
• A majority of insurers across every line of business reported similar levels of engagement with internal greenhouse gas management.
• Opportunity exists to bring the NAIC Survey into alignment with the TCFD Survey to increase the NAIC Survey’s usefulness.

Insurers choosing to submit the TCFD Survey will not be required to answer the narrative questions in the NAIC Survey. The proposed NAIC Survey redesign is open for public comment through January 10, 2022. As of December 2021, 15 states (which, according to Commissioner Stolfi, account for 80% of premiums collected) require insurers to submit either the TCFD or the NAIC Survey.

3. Climate Risk and Resiliency (EX) Task Force Contemplates Climate Stress Test

During its December 14 meeting, the Climate Risk and Resiliency (EX) Task Force received a status update from the Solvency Workstream led by Commissioner Kathleen Birrane (MD). The Solvency Workstream reported that it exposed for public comment a series of questions regarding the best way to enhance climate risk financial surveillance to prevent climate-related insolvencies, including whether the NAIC should develop an asset and underwriting stress test for use by regulators or whether the NAIC should incorporate public disclosure into Annual Statements. Responses to the exposed questions are currently being analyzed by the Workstream, which expects to publish its recommendations in the first quarter of 2022.

The Task Force also received a recommendation from its Technology Workstream to establish a catastrophe modeling “Center of Excellence” (COE) within CIPR. As proposed, the COE would facilitate state insurance department access to commercial catastrophe modeling data and provide technical training to regulators on how to use the data. The COE would not have any regulatory authority but instead would provide fact-based information to regulators and vendors.

C. Financial Issues of Particular Interest

1. State and Federal Policymakers Take Renewed Interest in Private Equity Investments

The Financial Stability (E) Task Force (FSTF) met in lieu of the Fall National Meeting on December 7, 2021. During the meeting, Superintendent Eric Cioppa (ME) noted that a number of state and federal policymakers, including FIO, have taken a renewed interest in certain transactions between private equity (PE) firms and insurers in which PE firms have a controlling interest. To that end, the FSTF received a report from Macroprudential (E) Working Group Chair Justin Schrader (NE) regarding the Working Group’s recent efforts to develop a strategic risk assessment tool and coordinate the NAIC’s activities concerning PE firms’ interest in insurers. In particular, Mr. Schrader noted that the Working Group has developed a draft list of Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers (Draft PE Considerations List). The Draft PE Considerations List includes the following observations:

• Regulators may not be obtaining a clear picture of risk due to holding companies structuring contractual agreements in a manner to avoid regulatory disclosure requirements and that affiliated party agreements impacting an insurer’s risk may be structured to avoid disclosure;
• Control may exist with less than 10% ownership, e.g., a party may exercise a controlling influence over an insurer through board management representation or contractual arrangement, including non-customary minority shareholder rights or covenants, investment managements agreement (IMA) provisions such as onerous or costly IMA termination provisions, or excessive control or discretion given over the investment strategy and its implementation;
• The material terms of the IMA and whether they are arm’s length transactions (including the amount and types of investment management fees paid by the insurer, the termination provisions, and the degree of discretion or control of the investment manager over investment guidelines, allocations and decisions);
• Owners may be focused on short-term results that may not be in alignment with the long-term nature of liabilities in life products. For example, excessive investment management fees paid to an affiliate may effectively act as a form of unauthorized dividend in addition to reducing the insurer’s overall investment returns or owners may not be willing to transfer capital to a troubled insurer;
• The trend of life insurers in pension risk transfer (PRT) business and supporting such business with certain of the more complex investments;
• Insurers’ use of offshore reinsurers (including captives) and complex affiliated sidecar vehicles to maximize capital efficiency introduces complexities into the insurance group structure.

The FSTF unanimously voted to expose the Draft PE Considerations List for 30 days, ending January 18, 2022.

2. SVO Expresses Concern with NAIC’s Extensive Reliance on Credit Ratings

The Valuation of Securities (E) Task Force, co-chaired by Kevin Fry (IL) and Carrie Mears (IA) met on December 12, 2021. The agenda item that generated the most interest was with respect to a November 29, 2021 Memo to the Task Force titled “Rating Issues and Proposed Changes to the Filing Exemption Process” from NAIC Securities Valuation Office (SVO) staff, which raised concerns with “the NAIC’s extensive reliance on rating agency ratings to assess investments for regulatory purposes” and recommended a number of alternatives that the NAIC should consider in 2022 to begin the process of actively managing and overseeing its use of credit rating provider (CRP) ratings. The Memo noted that, through the filing exempt process, the NAIC relies upon CRP ratings for the vast majority of insurer investments with no oversight as to the analytical basis for those ratings, the applicability or strength of the methodology or the consistency of the resulting risk assessment across CRPs.

The primary focus of the SVO staff’s concern is that CRP ratings are a critical input to core NAIC regulatory functions like statutory accounting, risk-based capital (RBC) and financial exams and if they do not reflect a reasonable assessment of a security’s risk, which the SVO’s review indicated some do not, then the validity of the resulting RBC ratio may be significantly compromised, and such understatement of risk may lead to unexpected and severe capital stress on insurers during a period of economic turmoil. At the conclusion of the SVO presentation of their report, Chairman Fry said that the Task Force has seen securities that raise questions in their minds and that the SVO memo is a great starting point for further discussion in 2022. Fry suggested, and co-chair Carrie Mears agreed that a careful, collaborative approach be taken, and that interested parties be included in the discussion through the creation of a small regulator/stakeholder working group.

Justin Schrader (NE), Chair of the Macroprudential (E) Working Group, which is developing a strategic risk assessment tool and coordinating NAIC activities related to private equity ownership of insurers (discussed in Section C.1., above), agreed to the concept of looking at these issues. He noted that there are a number of asset classes that are rated and that, consequently, the NAIC needs to look holistically at different rating agency methodologies for the different asset classes. Schrader said that he believes consistency is important in order to ensure that the entire industry is held to the same standard and to ensure that insurers know the potential effect of investing in particular assets.

3. Executive (EX) and Plenary Exposes GCC-Related Model Holding Company Act Amendments

The Executive (EX) and Plenary voted to expose for a one-year comment period beginning January 1, 2022, “compromise” amendments to the Insurance Holding Company System Regulatory Act (#440) and Insurance Holding Company System Model Regulation (#450) that would allow states to exempt certain qualifying groups from the Group Capital Calculation filing requirements without having to make an initial filing. The compromise amendments serve to appease a number of states that were previously opposed to requiring certain insurers to make initial filings in order to be exempt from the requirement on a going-forward basis. Only Texas opposed the proposed amendments, as revised. If ultimately approved, the amendments would become effective on January 1, 2026.

The Executive (EX) and Plenary also voted to adopt the Process for Evaluating Jurisdictions that Recognize and Accept the Group Capital Calculation for use by the Mutual Recognition of Jurisdictions (E) Working Group.

4. Financial Condition (E) Committee Considers Updates to RBC Charges

The Financial Condition (E) Committee, chaired by Virginia Commissioner Scott White, met on December 13, 2021 during the Fall National Meeting. Commissioner White reminded the Committee about the adoption of changes to the life RBC bond factors in 2020, based on an analysis by Moody’s of the same. At the time, Moody’s work on the bond factors was characterized as Phase I in what was envisioned as being a two-part project. If adopted by the Committee, Phase II would address the need to differentiate capital charges for asset classes, including structured securities and other asset-backed securities. Among other things, Commissioner White noted that the NAIC’s current RBC framework appears to encourage insurers to invest structured securities such as collateralized loan obligations (CLOs) that have the same RBC charge as other, less risky, investments (e.g., corporate bonds) and generally provide a higher return. Commissioner White noted that such a structure creates incentives for insurers to invest in higher-yielding and riskier assets such as certain structured credit instruments where risk is inconsistent with capital charges. To that end, the Committee directed the newly-created RBC Investment Risk and Evaluation (E) Working Group to consider whether to hire a consultant to analyze the issues and inform the Committee’s next steps.

5. Life Actuarial (A) Task Force Assesses Long-Term Impact of Low Interest Rate Environment

Chair of the Life Actuarial (A) Task Force, Mike Boerner (TX), reported on the Valuation Analysis (E) Working Group’s (VAWG) review of the American Academy of Actuaries’ Economic Scenario Generator (Generator) and the concern from some regulators that the Generator does not adequately consider the current low interest rate environment that could prove particularly challenging for insurers with a significant variable annuity business. To assess the issue, VAWG carried out a survey requesting that companies perform two stress tests for year-end 2020 where the stress test results for both reserves and risk-based capital (RBC) would be compared to the companies reported year-end 2020 reserves and RBC. The survey also asked companies what, if anything, they intend to do if interest rates remained low for the next 15-20 years. Mr. Boerner summarized the survey results by stating that most companies have taken action or are planning to take future actions to address the interest rate risk, which provides a level of assurance that companies are addressing the impact of persistently low interest rates. Many of the respondents discussed repricing, redesigning or discontinuing certain products. Companies also suggested that they would consider adopting new hedging or other investment strategies, or that they would adopt a more conservative proprietary Generator to calculate variable annuity reserves and RBC if the current low interest rate continues into the future.

6. Valuation of Securities (E) Task Force Adopts P&P Manual Amendments

The Valuation of Securities (E) Task Force adopted an amendment to the Purposes and Procedures Manual (P&P Manual) to provide updates to SSAP No. 43R—Loan-Backed and Structured Securities to clarify that securitization residual tranches shall be reported on Schedule BA: Other Long-Term Invested Assets, and valued at the lower of cost or fair value. Residual tranches are permitted to remain on Schedule D-1 for year-end 2021, but are required to be reported with an NAIC 6 designation. The amendment is effective as of December 31, 2022. 

The Task Force also adopted a non-substantive technical correction amendment to the P&P Manual clarifying 5GI Mapping to a designation category in the recently amended private rating section. The Task Force also exposed, for a 60-day comment period, four amendments to the P&P Manual and heard a report on the use of NAIC designations, which are meant to be used solely by US state insurance regulators, being used by regulators outside the United States (e.g., Bermuda).

7. Statutory Accounting Principles (E) Working Group Exposes Multiple Items

The Statutory Accounting Principles (E) Working Group, chaired by Dale Bruggeman (OH), met on December 11. Among other things, the Working Group:

• Adopted an agenda item indicating support for enhanced reporting of Federal Home Loan Bank (FHLB) borrowing when structured as deposit type contracts.
• Exposed  revisions to SSAP 25 and SSAP 43R to improve the reporting of related party investments by clarifying the definition of an “affiliate” such that it is consistent with the definition used in the Insurance Holding Company System Regulatory Act (Model #440), SSAP No. 25—Affiliates and Other Related Parties and SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities. The goal is to identify the involvement of related parties with regard to investments held. A key element has to do with whether the related party is an originator or a sponsor of an investment but may not reflect an investment in the related party. The revisions were exposed for 60 days, ending February 18, 2022.
• Exposed revisions to two items related to the SSAP 43R Bond Proposal Project. The first revision is a reporting option discussion draft that presents different options for changes on Schedule D1, the goal of which is to have improved granularity and transparency on the investments that are being reported. The second revision includes edits to the principle concept for a credit enhancement which is a required component for classifying an investment as an asset-backed security (originally, the terminology was for a “sufficient” credit enhancement which was revised to a “substantive” credit enhancement to better reflect the principle intent of that guidance). The revisions were exposed for 60 days, ending February 18, 2022.
• Exposed additions to Schedule D – Part 6 – Section 1 to supplement the identification of subsidiary, controlled or affiliated entity (SCA) investments in Schedule D – Part 6 – Section 1: Valuation of Shares of Subsidiary, Controlled or Affiliated Entities. The supplemental data to be captured is consistent with current requirements in SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities, however this improved reporting granularity will significantly assist regulators to ensure that filings are being submitted by reporting entities and to identify situations where the NAIC approved value varies significantly from the value reported on Schedule D-6-1. The revisions were exposed for 60 days, ending February 18, 2022.

D. Other Items of Particular Interest

1. Cannabis Insurance (C) Working Group Proceeds with Appendix to Cannabis White Paper

The Cannabis (C) Insurance Working Group met on November 10, 2021, and noted that it is currently drafting an Appendix to the Understanding the Market for Cannabis Insurance White Paper that was published in 2019. Among other items, the Appendix will likely include an update on regulatory issues related to insurance in the cannabis industry that have occurred since the White Paper was adopted and additional discussion regarding insurance product availability (including the availability of admitted and non-admitted products), actual and perceived risks, policy forms and coverage. Current members of the drafting group include California, Colorado, Oregon and Washington. The Working Group expects to complete a final draft in January 2022 and adopt the Appendix at the 2022 Spring National Meeting.

2. Life Insurance and Annuities (A) Committee Adopts Life Insurance Illustrations (A) Working Group “Chair Report” Recommending That the Working Group Be Disbanded

The Life Insurance and Annuities (A) Committee met on December 15, 2021, during the Fall National Meeting. The Committee adopted a so-called Chair Report from the Chair of the Life Insurance Illustration Issues (A) Working Group, Richard Wicka (WI), which recommended, among other things, that the Committee adopt the Report as the final report of the Working Group and that the Working Group be disbanded. In adopting the Chair Report, the revisions the Working Group developed will be available for individual states to consider when exploring the possibility of enacting a life insurance summary disclosure requirement.

Over the course of the Working Group’s long history, stakeholders coalesced around the idea of a short, consumer friendly policy overview that summarizes the policy’s key features, but the same group of stakeholders could not reach consensus on the form of the Policy Overview Summary or when it would be presented to consumers. Consequently, NAIC consumer representatives and the New York State Department of Financial Services opposed the adoption of the report noting that the recommendation to disband the Working Group is not a good outcome for consumers.

3. Reinsurance

• Executive (EX) and Plenary Adopts Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers

On December 16, the Executive (EX) and Plenary adopted the Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers for use by the Reinsurance Financial Analysis (E) Working Group. During the 2021 Summer National Meeting, the Reinsurance (E) Task Force discussed comments received on a draft Review Process, including the potential of harmonizing the Certified Reinsurer and Reciprocal Jurisdiction Reinsurer application procedures to mitigate overlap between the two processes for certain reinsurers.

• Reinsurance (E) Task Force Encourages States to Adopt Credit for Reinsurance Models by July 1, 2022

On December 13, 2021, the Reinsurance (E) Task Force received reports from the Reinsurance Financial Analysis (E) Working Group (ReFAWG) and NAIC Staff noting that, as of the date of the Task Force meeting, 46 states have adopted the 2019 amendments to the NAIC Credit for Reinsurance Model Law (#785) and 25 states have adopted the 2019 amendments to the Credit for Reinsurance Model Regulation (#786). The Task Force strongly encouraged states to adopt the amendments by July 1, 2022, in order to give FIO ample time to complete its preemption analysis prior to the September 2022 deadline prescribed by the Covered Agreements.

In addition, ReFAWG reported that it has approved four Reciprocal Jurisdiction Reinsurer Applications for passporting. 

• Mutual Recognition of Jurisdictions (E) Working Group Reapproves Certified and Reciprocal Jurisdictions 

The Mutual Recognition of Jurisdictions (E) Working Group met on November 18, 2021, in regulator only session to reapprove the following jurisdictions as Certified and/or Reciprocal Jurisdictions as outlined in the NAIC Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786): Bermuda (Certified and Reciprocal Jurisdiction), France (Certified Jurisdiction), Germany (Certified Jurisdiction), Japan (Certified and Reciprocal Jurisdiction), Switzerland (Certified and Reciprocal Jurisdiction) and the United Kingdom (Certified Jurisdiction). Note that France, Germany and the United Kingdom are subject to Covered Agreements and need not obtain NAIC approval in order for reinsurers domiciled in those jurisdictions to be considered Reciprocal Jurisdiction Reinsurers under the Model Law and Model Regulation. During the 2021 Summer National Meeting, the Executive (EX) Committee and Plenary voted to adopt revisions to the Process for Evaluating Qualified and Reciprocal Jurisdictions.

4. Restructuring Mechanisms (E) Working Group Receives Comments on Restructuring Mechanisms White Paper

On December 6, 2021, the Restructuring Mechanisms (E) Working Group discussed comments to the draft White Paper on Restructuring Mechanisms that were received from numerous regulators and industry stakeholders, including Virginia Commissioner Scott White, Bob Wake (ME), the National Organization of Life and Health Insurance Guaranty Associations, the National Workers Compensation Reinsurance Association and the American Council of Life Insurers. The purpose of the White Paper is to discuss and explore insurance business transfer (IBT) and corporate division (CD) laws within the US and identify the various regulatory and legal issues involving IBT and CD legislation. The White Paper is not intended to establish an official position by the NAIC regarding IBTs or CDs. The White Paper is structured around the existing good practices reflected in the NAIC’s 1997 Liability‐Based Restructuring White Paper and other best practices presented to the Working Group.

5. IAIS Outlines 2022 Priorities

International Insurance Relations (G) Committee Chair Commissioner Gary Anderson (MA) noted that the International Association of Insurance Supervisors (IAIS) published the final version of its Issues Paper on Insurer Culture on November 11, 2021. The Issues Paper is designed to complement existing IAIS standards. Julien Reid of the Quebec Financial Authority, who led the Issues Paper workstream, noted that insurer conduct and culture are identified in the IAIS strategic plan as a key trend to monitor, and that the IAIS will utilize the Issues Paper to develop supervisory guidance regarding culture.

In addition to insurer culture, the IAIS reported to the Committee that it intends to prioritize a number of issues in 2022, including:

• Climate risk: The IAIS recently established a Climate Risk Steering Group, which will undertake an analysis of current IAIS Insurance Core Principles (ICP) to determine whether each ICP is appropriately drafted to take climate risk into account. The Steering Group will also assess how best to integrate climate-related issues into the IAIS Global Monitoring Exercise (GME) and its Global Insurance Market Report (GIMAR).
• Digital Transformation: The IAIS will conduct three learning exercises in 2022 concerning Artificial Intelligence and Machine Learning, Distributed Ledger Technology (Blockchain), and Application Programming Interface (API) and Open Data. The IAIS expects to issue a report on these issues in 2022.

6. NAIC Elects 2022 Executive Officers

The NAIC elected the following NAIC Executive Officers for 2022, who assumed their roles on January 1, 2022:

• President: Idaho Insurance Director Dean Cameron
• President-Elect: Missouri Insurance Director Chlora Lindley-Myers
• Vice President: Connecticut Insurance Commissioner Andrew Mais
• Secretary/Treasurer: North Dakota Commissioner Jon Godfread

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