The National Association of Insurance Commissioners (“NAIC”) held its 2010 Summer National Meeting from 11 August until 17 August 2010. Among the many matters considered at the meeting were the NAIC’s solvency modernization initiative, the use of retained assets accounts for death benefit payments, principle-based reserving and capital standards as well as risk based capital for life insurance companies, and credit for reinsurance.
With respect to solvency modernization, the NAIC’s Solvency Modernization Initiative Task Force (“SMITF”) adopted the “Solvency Modernization Initiative Roadmap”, which sets forth the areas of focus and priorities of SMITF for the next two and a half years. SMITF is part of the NAIC’s critical self-examination to identify any necessary updates to the US insurance solvency regulation framework. Various groups within the NAIC are working on different aspects of this initiative, such as group solvency issues and potential changes to the model holding company laws and regulations. The roadmap addresses the key areas of the SMI initiative: capital requirements, governance and risk management, group supervision, statutory accounting and financial reporting, and reinsurance.
Separately, the NAIC has created the Retained Asset Account Working Group to review the use of retained asset accounts by life insurance companies and to consider potential recommendations, including appropriate consumer disclosures. The proceeds of life insurance policies are typically held in retained asset accounts following the death of an insured. Retained asset accounts typically pay interest and are guaranteed by the state life and health guarantee associations. The assets in such accounts are part of the general account of the insurance company, which benefits from any excess investment returns but faces the risk of any losses. However, the retained asset accounts have raised concerns as to whether consumers are receiving adequate disclosures about the accounts, and particularly about the beneficiary’s right to receive the proceeds in a lump sum. Such accounts are also the subject of ongoing investigations by the New York State Attorney General and other agencies.
The NAIC’s developments with respect to credit for reinsurance issues are discussed in greater detail below.