In a conference call with interested parties on March 17, 2014, a working group of the National Association of Insurance Commissioners (“NAIC”) announced that it expects to consider additional changes to the NAIC’s Insurance Holding Company System Regulatory Act (the “Model Act”), the model statute governing insurance company relationships with affiliates. The nature of the changes to be considered “remains to be seen,” but the NAIC may “adjust” the Model Act to reflect developments in national and international insurance supervision since the landmark 2010 amendments to the Model Act. The conference call also covered recent initiatives on supervisory colleges (which are, generally, teams of regulators across multiple jurisdictions sharing authority over a single group of affiliated companies). The call represents the latest step in the NAIC’s ongoing refinement of “group supervision” standards and practices (i.e., state insurance regulatory oversight of groups rather than individual entities, facilitated in part by the 2010 Model Act amendments).
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The stated purpose of the conference call of the NAIC’s Group Solvency Issues Working Group (the “GSIWG”) was to discuss the GSIWG’s upcoming “workstreams” in light of the 2014 charges imposed on it by its parent body (the NAIC Financial Condition (E) Committee (“E Committee”)). Under these charges, the GSIWG is generally responsible for, among other things, “developing potential enhancements to the current regulatory solvency system as it relates to group-solvency-related issues,” in other words, group supervision.
During the call, GSIWG Chair Danny Saenz (Texas Deputy Commissioner of Insurance) articulated the NAIC’s position that state insurance regulators do not exercise “direct” jurisdiction over holding companies but rather “indirect” oversight pursuant to Model Act authority. By the same token, state insurance commissioners have indicated to the NAIC that “substantive changes” should be considered to improve the quality of regulation of insurance holding companies. It is expected that E Committee will formally task the GSIWG at this spring’s NAIC National Meeting with considering Model Act revisions. The issues to be explored by the GSIWG, the Chair announced on the call, will be the “same” as those that informed the 2010 Model Act amendments. Those amendments, generally, were enacted in order to
- empower state regulators to oversee “enterprise risks” of insurance groups (not merely insurers themselves),
- toughen reporting requirements concerning affiliate transactions,
- authorize supervisory colleges, in which regulators in multiple jurisdictions having supervisory authority over companies within a single affiliated group would convene as a formal body and coordinate certain regulatory tasks with respect to that group, and
- enhance regulators’ authority to obtain information regarding insurance company affiliates.
There was no discussion on the call of specific areas of the Model Act where further amendments might be appropriate.
In response to a question from the floor, the Chair indicated that consideration of additional revisions could commence “quickly,” possibly with a view toward formulating specific textual changes by the end of 2014. Director John M. Huff of the Missouri Department of Insurance, Financial Institutions and Professional Registration interjected that the 2010 Model Act amendments are included in current NAIC accreditation standards and that, therefore, states in the process of considering those amendments to their holding company acts should not delay such efforts in reliance on possible future changes. A number of states, including key insurance jurisdictions New York, Connecticut, Texas and California, have already adopted the principal aspects of the 2010 amendments.
It was also announced on the call that the GSIWG expects to further refine the supervisory college regime introduced by those amendments. Noting that supervisory colleges are “critical” to group supervision, the Chair indicated that he has recommended to E Committee a more formal process to monitor the performance and activities of such colleges, including the improved tracking of statistics and other information. Such a process would allow the NAIC to better coordinate these colleges. The Chair acknowledged that much of this work of tracking supervisory college information would not be subject to public disclosure because of the confidential nature of insurance company information involved in these efforts. The Chair added that the NAIC’s efforts on supervisory colleges are expected to take into account the emerging international regulatory standards known as “ComFrame,” the Common Framework for insurance supervision being developed by the International Association of Insurance Supervisors.