During its last quarterly meeting, the National Association of Insurance Commissioners (NAIC) clarified its recommended market regulation practices, with an eye toward refining the analysis for determining what level of examination is appropriate for an insurer. The NAIC's two volume NAIC Market Regulation Handbook 2007 (last updated 4/08) (MRH), already contained a list of questions, called Level 1 Analysis Questions, for regulators to consider when the initial analysis of a company revealed a high prioritization score or other risk factors. The Sonnenschein Guide to Insurance Market Regulation (3/08) (Guide) cited the MRH as a source, and Appendix A of the Guide provided the MRH's original list of Level 1 Analysis Questions. This notice is designed to bring the Guide up to date with the most recent developments in this area. The changes discussed herein will be incorporated in the revised MRH, currently scheduled for release in May 2009.

The changes to the automated Market Analysis Review System (MARS) Level 1 Analysis Questions were previously approved by the NAIC, but not implemented into the MARS automated system until Dec. 12, 2008. If state DOIs are using MARS, they will be using these more detailed questions. MARS is designed to document that a review was performed on select insurance companies, as well as to document a DOI market analyst's input, conclusions and recommended next steps. The analysis should be completed using information currently available to a state DOI without contacting a company. The changes focus on eliciting greater detail in the responses to the questions (e.g., by asking companies to break out the information in their answers by line of business) and expanding the period of time covered by the questions. Below are highlights of the changes:

  • States will now consider changes in the company's officers, directors or trustees as reported in the company's last three years of Financial Annual Statements, rather than just the previous year's Financial Annual Statement.
  • States will not only consider whether there have been more than three examinations of the company commenced in the last twelve months, but will also analyze the company's patterns of exam triggers, exam types, areas of examination and status of exam for all exams during the last five years.
  • Questions relating to the review of a company's direct written premium have been refined in several aspects: (1) questions have been broken down according to the type of annual statement blank filed by the company (e.g., P&C Statement Blank; Life, Accident & Health Blank; and Health Blank); (2) questions have been refined to require states to review premium information in all jurisdictions as well as in the state under review; and (3) states are now directed to specifically review a company's premium information for a longer period of time--five years, instead of two or three years.
  • Questions relating to review of a company's loss information have been similarly refined in several respects: (1) questions have been broken down according to the type of annual statement blank filed by the company (e.g., P&C Statement Blank; Life, Accident & Health Blank; and Health Blank); (2) questions have been refined to require states to look at loss information both on a national basis as well as a state under review basis; and (3) states are now directed to specifically look at a company's loss information over a five-year period.

The Guide also cited the MRH as a source regarding the tolerance level in sampling. The NAIC 2009 MRH will now suggest, for uniformity in the application of these laws, states that have the general business practice standard are strongly encouraged to utilize the 7 percent and 10 percent standards both as tolerance levels for statistical sampling purposes and as benchmarks for evaluating when violations of the state's unfair claim and trade practices acts have occurred.