In our recent webinar, members of the Eversheds Sutherland Insurance Practice Group discussed noteworthy developments from the National Association of Insurance Commissioners (NAIC) Fall National Meeting that was held in Denver, Colorado November 16-19. The highlights include:
The International Relations (G) Committee heard an update on the IAIS report on whether the aggregation method (AM) for a group capital calculation for IAIGs results in comparable outcomes to the Insurance Capital Standard (ICS) developed by the IAIS. The November 14th report concludes that the AM provides comparable outcomes to ICS, but identifies areas where more could be done to ensure convergence of outcomes for US life IAIGs: changes in interest rates and triggers for supervisory intervention on group capital adequacy grounds.
The Financial Condition (E) Committee and its working groups and task forces continue their work to modernize the US regulatory framework for insurer investments, with a particular focus on risk-based capital treatment for asset backed securities and reliance on credit rating providers.
- Executive (EX) Committee and Plenary adopted amendments to the Purposes and Procedures Manual of the NAIC Investment Analysis Office authorizing the procedures for the NAIC’s discretion over NAIC designations assigned through the filing exempt process. The amendments go into effect January 1, 2026.
- The Valuation of Securities (E) Task Force received a report on SVO plans to begin deactivating private rating securities issued after January 1, 2022 that do not have a corresponding rating rationale report on file with SVO. Private rating securities that are renewed in December 2024 will be granted a 30-day grace period. Deactivation is expected to occur in March 2025 and is currently expected to impact approximately 1,700 securities.
- The Valuation of Securities (E) Task Force received an update on ongoing efforts to update the risk-based capital framework for asset backed securities. Various workings groups and task forces also progressed guidance and other technical proposals relating to financial statement reporting of collateralized loan obligations (CLO) and implementation of the new principles-based “bond” definition that will be effective January 1, 2025.
The Life Actuarial Task Force (LATF) heard an update on AG 53 (Asset Adequacy Testing of Life Insurer Reserves) and continued its discussion of Asset Adequacy Testing (AAT) for reinsurance ceded by life insurers. Having previously made progress on Section 2 of the Draft Guideline (Scope), LATF discussed and reached tentative agreements on Aggregation (generally allowed within a counterparty), and the Options for the Draft Guideline Content (focus on disclosure). LATF exposed a summary of the tentative agreements (Asset Adequacy Testing (AAT) for Reinsurance Actuarial Guideline (AG) Exposure Questions 111824) for a 58-day public comment period and requested comments by January 1, 2025 on the exposure questions and on the slides presented at the November 15, 2024 LATF meeting (AAT for Reinsurance AG Presentation LATF 111524).
The Statutory Accounting Principles (E) Working Group (SAPWG) heard an update on two reinsurance related issues involving Yearly Renewable Term (YRT)/Risk Transfer and Funds Withheld/ModCo reinsurance arrangements, both of which have been exposed for extended public comment periods ending December 9 and December 15, 2024, respectively.
The Annuity Suitability (A) Working Group discussed comments received by a joint trades group on a Chair Draft Safe Harbor Guidance Document related to the NAIC Suitability in Annuity Transactions Model Regulation (Model 275). The small group of regulators that developed the Draft Guidance document will reconvene to consider the comments that were received and revise the document for distribution and additional comment.
The Innovation, Cybersecurity, and Technology (H) Committee and its working groups and task forces continued to push forward a number of technology related initiatives, including on consumer privacy rights, use of Artificial Intelligence (AI), and data breach reporting.
- The Privacy Protections (H) Working Group continued its work to enhance consumer privacy protections and better align with modern privacy regimes through revisions to the NAIC Privacy of Consumer Financial and Health Information Model Regulation (Model 672). Under the new leadership of Director Beth Dwyer (RI), these efforts have picked up pace. Proposed revisions to Model 672 were previously exposed as part of a Chair’s Draft, and comments were due on the most substantive of those proposed revisions by November 25. Following further revisions based on comments received, the Working Group plans to expose the entire revised draft for comment. During the Fall National Meeting and through the H Committee, the working group extended its deadline for completing this work until the 2025 Fall National Meeting.
- The Cybersecurity (H) Working Group continued exploring establishing a centralized NAIC portal for licensees to submit regulatory data breach notifications as required under state adoptions of the NAIC Insurance Data Security Model Law (Model 668). At the Fall National Meeting, the Working Group adopted a motion authorizing the Working Group to work with NAIC staff to explore the feasibility of creating the portal, including addressing security concerns.
- The Big Data and Artificial Intelligence (H) Working Group heard updates on the various surveys it has conducted on current uses of AI and discussed its work plans going forward. The Working Group plans to focus next on AI system evaluation and identifying risks to consumers that could warrant development of AI specific regulations in the future.
- The Third-Party Data and Models (H) Task Force heard updates from states on how they currently approach third-party regulatory issues and challenges and discussed its work plan for 2025. Building on their exploratory work to date, the Task Force will now work to identify the greatest risks and concerns around the use of third-party data and models and develop a regulatory framework to address those risks.
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