The National Association of Insurance Commissioners (“NAIC”) held its 2010 Fall National Meeting from 16 October until 21 October 2010. Among the many matters considered at the meeting were the NAIC’s solvency modernization initiative (“SMI”), reinsurance regulation reform, capital adequacy of insurance holding company systems, and revisions to the model Insurance Holding Company Act.
The NAIC’s Solvency Modernization Initiative Task Force (“SMITF”) adopted the “Solvency Modernization Initiative Roadmap” at its Summer National Meeting held in August. The “roadmap” continues to evolve over time based on the revisions of the NAIC. Various working groups within the NAIC are working on different aspects of this initiative. The “roadmap” addresses the key areas of SMI: capital requirements, governance and risk management, group supervision, statutory accounting and financial reporting, and reinsurance. At the Fall National Meeting, the status of SMI was discussed, updates from various working groups were received, and revisions to the roadmap were considered.
The NAIC has worked for years to modernize the U.S. reinsurance regulatory system. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), enacted in July 2010, addresses the reinsurance regulatory system, including the recognition of credit for reinsurance in any state if the ceding insurer’s domiciliary state is accredited by the NAIC, or has solvency requirements substantially similar to the NAIC’s accreditation requirements. In response to the Dodd-Frank Act, (i) the NAIC has adopted a set of recommendations outlining key elements of its reinsurance regulatory modernization framework that should be considered by the NAIC’s Financial Regulations and Accreditation (F) Committee when determining whether any state credit for reinsurance reform meets NAIC accreditation standards, and (ii) the NAIC Reinsurance Task Force has stated that it will consider amendments to the NAIC’s Credit for Reinsurance Model Law and Credit for Reinsurance Model Regulation to achieve consistency with the reinsurance modernization framework.
The NAIC’s Group Solvency Issues Working Group (“GSI Working Group”) continued to address the possible methods of monitoring the capital adequacy of all of the entities within an insurance holding company system by state regulators. Prior to the 2010 Fall National Meeting, the GSI Working Group had requested comments on certain alternatives for accomplishing this monitoring. One such alternative was the requirement that insurance holding company systems conduct an “Own Risk Solvency Assessment” (“ORSA”) and file such assessment with state insurance regulators. An ORSA would consist of internal testing to assess the adequacy of capital levels for the group. This concept is drawn from the Solvency II proposal currently being considered in Europe. During the 2010 Fall National Meeting, the GSI Working Group took steps to move forward with the development of regulatory requirements for an ORSA. The potential implementation of a group ORSA would represent a noteworthy adoption of one of the core aspects of Solvency II by the NAIC.
The GSI Working Group is also requesting comments on an exposure draft of the Holding Company and Supervisory College Best Practices. The purpose of this document is to provide guidance and best practices for use by state insurance regulators in their regulatory oversight of insurance companies within insurance holding company systems. The best practices handbook includes subjects such as facilitating communication and coordination between regulators, uniform practices for mergers and acquisitions of control (including coordination of Form A reviews), standards of management of an insurer within a holding company system (including Form A exemptions and corporate governance policies), affiliated management and service agreements, and best practices for participating in international supervisory colleges. Comments are due by December 2, 2010.