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IN THIS EDITION:

• NAIC Summer National Meeting Review

NAIC Summer National Meeting Review

The NAIC held its Summer National Meeting on August 12–15, 2024. Below is a summary of the guaranty association–related activity at the meeting:

Receivership and Insolvency (E) Task Force (RITF)
RLWG Update: Laura Slaymaker (PA) updated the task force on the Receivership Law Working Group’s July 24 call, which featured updates on Federal Home Loan Banks (FHLBs) legislation and issues arising from the Penn Treaty insolvency. The working group received an overview and background on state adoption of legislation providing the FHLBs exemptions on stays and injunctions in receivership. To date, 29 states have adopted this legislation and legislation is pending in two states. Details of current statutes are included on StateNet (a regulator-only resource). The working group also discussed issues raised in Penn Treaty and how those issues could be addressed by state adoption of certain provisions of IRMA (namely Sections 501B, 502B and D, and 801). The issues addressed relate to the fixing of rights and liabilities at the time of liquidation, termination of coverage, and the creation of subclasses and splitting of benefits within a policy.

International Activities: Bob Wake (ME) updated the task force on the IAIS’s proposed revisions to ICPs 12 and 16, related to recovery and resolution planning. Wake sits on the Resolution Working Group (ReWG), which is currently reviewing comments received on the proposed changes. ReWG will meet in Basel on September 11–12 to discuss the changes.

Upcoming IAIR Events: Jan Moenck (RRC) previewed upcoming IAIR events, including a session on Ethics and AI on September 11 led by Bill Goddard of the University of Connecticut and a session on Interpreting Financial Statements for Early Detection of Financial and Other Issues on October 16 led by Joe Holloway.

Privacy Item: Ashley Rosenberger (NCIGF) raised the issue of whether the draft American Privacy Rights Act applies to NCIGF, GSI (NCIGF’s subsidiary), the P&C guaranty funds, or receivers. She mentioned that federal legislation is generally meant to scope in entities that gather and monetize data, but that NCIGF, GSI, and state funds (which do not monetize or have authority to aggregate or sell data) may be scoped in under the existing language. NCIGF is discussing the topic with congressional representatives. Kevin Baldwin (IL) suggested that the Receivership Law Working Group consider addressing this issue on a future call.

Recent Litigation: Mark Bennett from Cantilo & Bennett provided his perspective on the recent Richardson v. U.S. Federal Circuit decision and its implications for treatment of federal claims and obtaining federal waivers.

Life Actuarial (A) Task Force (LATF)
Exposed Actuarial Guideline on AAT for Reinsured Business: LATF exposed a draft actuarial guideline (AG) on asset adequacy testing (AAT) for reinsured business (see Attachments 10 and 11 of the Meeting Materials, beginning on page 143) for 60 days. Fred Andersen (MN) walked through the eight major considerations associated with this project and how he proposes to address each issue.

The AG continues to take a tiered approach in which insurers would be required to perform cash-flow testing only on the most material reinsurance transactions and no additional analysis on others (likely with some additional analysis for those agreements in the middle). While Andersen suggested that regulators currently are leaning toward disallowing the aggregation of analysis across counterparties, regulators and industry agree that much more analysis needs to be done on this issue. Similarly, stakeholders and regulators disagreed about the value of attribution analysis, which would provide a narrative description of why reserves declined as a result of a particular transaction.

To ensure progress is made during the 60-day comment period, LATF set two interim deadlines on specific topics included in the draft AG:

• Comments on the issue of Scope (Section 2) are due September 19, with discussion anticipated on a LATF call around September 26.
  
• Comments on Aggregation (Sections 5.C and 7) are due October 3, with discussion anticipated on a LATF call around October 10.

At the conclusion of the meeting, Brian Bayerle (ACLI) raised concerns that the AG may conflict with the Covered Agreements and existing Reciprocal Jurisdiction framework to the extent that it treats non-U.S. reinsurers differently than U.S. insurers. Dan Schelp (NAIC Legal) suggested that the current proposal would treat U.S. and non-U.S. reinsurers equally and therefore there are no concerns regarding preemption at this time. He also noted that the Federal Insurance Office (FIO) is following this issue.

Other Action Items

• Exposed Amendment Proposal Form (APF) 2024-12 (Collection of Group Annuity Data): These changes to VM-50 and VM-51 would establish a Statistical Plan for group annuity mortality and designate the NAIC as the Experience Reporting Agent. The current draft proposes a January 1, 2026, effective date for the collection of group annuity mortality experience data. The proposal contains 47 data elements. NAIC staff recognized that companies may not have all the requested data elements, so certain data elements may be left blank or approximated. The APF was exposed for 75 days.
  
• Exposed APF 2024-11 Life PBR Exemption for 21 Days.
  
• Exposed Life Knowledge Statement for Life Appointed Actuaries for 30 Days: This statement is part of the American Academy of Actuaries’s (the Academy) broader effort to draft knowledge statements for all life actuaries—statements for qualified and illustration actuaries will follow.
  
• Exposed Generally Recognized Expense Tables (GRETs) for 21 days.
  
• Will Expose VM-20, Requirements for Principle-Based Reserves for Life Products, Historical Mortality Improvement (HMI) and Future Mortality Improvement (FMI) Factors Via Chair Exposure

Heard an Update on AG 53 Reviews: Andersen reported on reviews of year-end 2023 AG 53 (AAT) submissions. Identifying companies using high net yield assumptions continues to be a priority for regulators. Because the Guidance Document for 2023 reporting required companies to submit additional information (e.g., tranche data, reinsurance collectability, etc.), regulators have expanded their analysis to new issues, including:

• Regulators have identified inconsistencies between companies’ projected allocation exhibit and the asset summary exhibit and may require additional explanation for such inconsistencies for future years.
  
• Andersen noted the value of additional information regarding tranche allocation and exposure to assets with a Payment in Kind (PIK) feature (see Attachment Nine of the Meeting Materials beginning on page 126 for an aggregate analysis of this information).
  
• With respect to reinsurance collectability, regulators targeted 21 companies for additional analysis, with one-third providing what was considered “acceptable” responses. Andersen identified the following as best practices: 1) having a specific method for tracking counterparty risk; 2) providing sufficient details about how to evaluate counterparty risk; and 3) developing a methodology to establish a margin for the identified risk. Andersen encouraged companies to increase the level of detail provided in future AG 53 submissions on reinsurance collectability, suggesting that companies should ensure they are in compliance with Actuarial Standard of Practice (ASOP) 11.

Received Update on AG 49-A: Rachel Hemphill (Chair-TX) explained that AG 49-A seems to be working well. That said, some companies’ illustrations are showing hypothetical returns that are higher than actual returns; regulators will be following up with these companies on how they are meeting the requirements of AG 49-A.

Received Update on 2024 Life Mortality Experience Data Collection: This year’s data collection will be covering both the 2022 and 2023 observation years. The due date for data submissions is September 30, 2024, and final (corrected) company data submissions are due February 28, 2025. New pre- and post-submission checklists were created for this year’s submissions.

Received Report from VM-22 Subgroup: There was no new information in this report—the VM-22 Standard Projection Amount (SPA) changes and Dynamic Lapse Formula comparison are out for comment until September 30—which coincides with the end of the VM-22 field test. The methodology for mortality reinsurance will be revisited after the field test. The field test will provide insight into how the PBR calculation will compare to the existing commissioners’ annuity reserve valuation method (CARVM) reserves.

Received Update on the Generator of Economic Scenarios (GOES) Field Test: Regulators are getting important insight from individual meetings with GOES field test participants and will summarize the key takeaways after all meetings are complete. Mike Yanacheak (IA) walked attendees through the remaining steps for implementation of the GOES changes, which will not occur any sooner than 2026. Yanacheak noted a desire for regulators to push for 2026 adoption, with a potential for early adoption (depending on when the next steps are completed).

Heard a Presentation on GOES Model Office Testing: For VM-20, the GOES scenarios are producing results that are largely consistent with the Academy’s Interest Rate Generator (AIRG) at the CTE70 level; the deep tail scenarios are significantly more severe under GOES. For VM-21, GOES scenarios are producing larger adjusted scenario reserves than AIRG for tail scenarios. The field test is showing increased volatility to equity returns and Treasury rates under GOES. The GOES Subgroup will hold calls after the National Meeting to sketch out a timeline for next steps.

Heard Presentation on the Reflection of Negative IMR in PBR and AAT: The Texas Department of Insurance (TDI) has identified certain issues with admitted negative IMR and how it is used for cash flow testing and PBR. Hemphill suggested that regulators request a reconciliation of reported admitted negative IMR to the reported IMR reflected in PBR and cash flow testing (an IMR template is available for this purpose). She also recommended that companies proactively perform this reconciliation using the same template. The task force will consider how to document these recommendations in the future.

Heard Updates from the Academy:

• Academy’s Life Practice Council: The Council is updating several practice notes, including illustrations, credit for life reinsurance, and asset adequacy analysis. The Council is also developing a practice note on VM-22.
  
• Academy’s Council on Professionalism and Education: The Council is looking to better incorporate FAQs into U.S. Qualification Standards—noting that actuaries often fail to read the FAQs, which contain valuable information. They have exposed a new ASOP on reinsurance pricing (applicable to assuming companies) through November 1, and ASOPs 7 (cash flow risk), 12 (risk classification), and 41 (actuarial communications) are all being revised.

NAIC/Consumer Liaison Committee
The committee heard a variety of presentations from several consumer representatives across life, health, and property and casualty issues:

• Misuse of Indexed Life and Annuity Policy Illustrations: Dick Weber (LICAC) presented on what he views as problematic life insurance and annuity illustrations, asserting that many projections are misleading to consumers. In particular, he noted that consumers will only focus on the most favorable illustrated outcome as a projection of future values and encouraged regulators to review life insurance policy demonstrations.
  
• Impact of Enhanced Premium Tax Credits on Uninsurance, Premiums, and State Innovation: Claire Heyison (CBPP) and Laura Colber (GFHF) reported on the potential impact to consumers if Congress fails to extend premium tax credits (PTCs), which expire at the end of next year. Impacts could include: 1) a large increase in uninsured individuals; 2) marketplace enrollees paying more for coverage; and 3) states potentially scaling back premium and cost-sharing assistance programs. The presenters asked regulators to urge their respective congressional delegations to extend the enhanced PTCs.
  
• Changes to EHBs in the 2025 NBPP: Wayne Turner (NHLP) and Adam Fox (CCPI) walked through the changes to essential health benefits (EHBs) in the CY 2025 Notice of Benefit and Payment Parameters (NBPP), highlighting that routine adult dental care can now be added as an EHB through the benchmarking process. Presenters encouraged regulators to consider adding adult dental care, emphasizing the importance of timing since the deadline for benchmark updates for the 2027 plan year is May 7, 2025.
  
• Whether Plaintiff’s Attorneys are the Cause of Rising Premiums: Kenneth Klein (California Western School of Law) presented on his research related to insurer claims that the cost of litigation is leading to a rise in insurance premiums. In his research, Klein explored federal lawsuit data, since state data is not easily accessible. His findings indicate that there is no evidence that the frequency of litigation or the amount of loss-adjustment expenses (LAE) correlates to the affordability of insurance. Where Klein saw a slight rise in litigation, there was no evidence that it led to increased premiums, and where there was a decrease in litigation, he observed no reduction in insurance premiums.
  
• Insurance Obstacles to Mental Health and Substance Use Disorder Care: Joe Feldman (Individual Consumer Advocate), Jennifer Snow (NAMI), and Deb Steinberg (LAC) offered insight on the accessibility of mental health (MH) and substance use disorder (SUD) treatments, highlighting the long wait time for admission, distant locations, and high costs. Strategies outlined for state regulators to use included: 1) proactive enforcement of the Mental Health Parity and Addiction Equity Act (MHPAEA); 2) quantitative network adequacy standards with strong consumer protections to measure accessibility (i.e., geographic time and distance standards, appointment wait time, and reimbursement for considerable travel for treatments); 3) standardize and eliminate unnecessary utilization management tools, including enforcing standards for MH and SUD treatment if states are using the nationally recognized standards for medical care; and 4) supporting community-based consumer assistance programs, as those organizations have earned the trust of the public.
  
• Readability Standards in State Insurance Laws: Brenda Cude (University of Georgia) gave a presentation on readability standards based on research by Blasie (2022). Cude has given this presentation at previous NAIC meetings and reiterated that insurance should be aiming for a 60–70% readability score. She recommended that 1) readability standards be analyzed when NAIC model laws are re-opened; and 2) the committee inquire with each state on their plain language laws and enforcement procedures so that states can share best practices.

Long-Term Care Actuarial (B) Working Group
Exposed Revisions to the “Minnesota Approach”: The working group exposed proposed revisions to the “Minnesota Approach” for its use as a single LTCI Multistate Rate Review Approach for a 45-day comment period. The changes would amend the cost-sharing formula in the Minnesota Approach to address long-duration, older-age policyholders who have experienced cumulative rate increases greater than 400% (commonly referred to as the 85/25/400 issue). For details regarding the specifics of the proposed changes, see Slide 8 of Attachment C of the meeting materials.

There was no consensus among regulators regarding the proposed approach, but there was general agreement that something must be done to reduce the impact on these policyholders. William Leung (MO) will be sharing additional amendments with the working group, including 1) no single rate increase greater than 100% and 2) a cumulative rate cap of 600%. It is unclear whether the proposal ultimately will be amended to include them.

Health Actuarial (B) Task Force (HATF)
Academy Presentation on Drivers of 2025 ACA Health Insurance Premium Changes: The task force heard a presentation from the American Academy of Actuaries on “Drivers of 2025 Federal Affordable Care Act (ACA) Health Insurance Premium Changes,” namely: 1) medical trends through inflation and prescription drug spending (e.g., GLP-1s) and forecasting potential increased trends from adult dental EHB updates depending on a state’s action; 2) risk pools through the Medicaid unwinding; and 3) state or local factors.

Academy Draft Knowledge Statements: The task force agreed to meet before the Fall National Meeting to discuss any steps it will take to formally consider draft knowledge statements by the Academy of Actuaries (which was originally tasked by LATF to draft knowledge statements and has proactively identified statements that are relevant for health). Sent via a letter to Chair Kevin Dyke (MI) and Co-Chair Ryan Jubber (UT) on August 1, the statements are intended to reflect a “baseline level of knowledge that the actuary should have” when performing certain tasks and issuing opinions in connection with health-related filings.

Update on SOA Activities: Achilles Natsis from the Society of Actuaries briefed the task force on two new research reports addressing provider consolidation and shortages and “reimaging” pharmacy financing, which followed a workshop of the same topic held in March 2023.

CCIIO Update: Beth Karpiak from the CMS’s Center for Consumer Information and Insurance Oversight (CCIIO) updated the task force on the latest ACA risk adjustment program developments, including the recently released benefit year 2023 report:

• Karpiak noted the federal government has filed proof of claims in Friday Health Plan’s liquidation proceedings in several states while it continues to collect 2022 risk adjustment payments from Bright Health pursuant to a repayment agreement executed in the fall of 2023. Regarding the former, CMS has assumed that no payments will be received for purposes of actuarial/MLR guidance to issuers in states affected by the liquidation.
  
• Regarding the forthcoming 2026 proposed Notice of Benefit and Payment Parameters (NBPP) rule currently at OMB, Karpiak stated the rule would be similar in size and scope to last year’s 2025 NBPP and is expected to be published “later this year” (following past practice).
  
• CCIIO’s Brent Plemons then noted the preliminary rates for 2025 for individual and small group markets reflect an average increase of 6.6% and 9.2%, respectively, cautioning that these figures could change when rates are finalized.

Academy Health Practice Council Update: Matthew Williams of the American Academy of Actuaries provided updates from the Academy’s Health Practice Council, including an upcoming webinar on August 28 addressing the Medicaid unwinding. Williams also noted the Council is working on a general “state of long-term care” issue brief with a separate issue brief specifically describing how COVID-19 changed LTC from an actuary’s perspective.

Academy Professionalism Update: Kevin Dyke (Chair-MI) listed several ASOPs that have been finalized or are being developed by the Actuarial Standards Board (ASB), including ASOP 28 (re: assets and liabilities); ASOP 49 (re: managed care capitation for Medicaid, which will go before ASB in March 2025); ASOP 45 (re: health status and risk adjustment methodologies); ASOP 12 (re: risk classification); ASOP 7 (re: cash flow testing); and ASOP 41 (re: communications).

Dyke noted that Nebraska will present its risk adjustment approach to HATF at a future meeting.

Technology, Innovation, and InsurTech (H) Working Group
Presentation on InsurTech Trends: The working group heard a presentation from Jason Ralph (McKinsey & Company) on InsurTech trends and developments. Ralph noted sales and distribution, pricing and underwriting, claims and operations, customer servicing, and IT as potential areas for InsurTechs to provide value. As far as new and emerging markets where InsurTechs could begin to engage, he mentioned:

• Health: given the aging population, increased morbidity, and higher health care expenses, InsurTechs should think about how to help address long-term care needs, reduce the costs in the system to meet those needs, and help consumers pay for them.
  
• Climate: InsurTechs should think about how to address the challenges around fundamental insurability of natural catastrophe events.
  
• Cyber risk: InsurTechs could help address managing, mitigating, and transferring risks.

Long-Term Care Insurance (B) Task Force
Industry Trends Update: Fred Andersen (Vice-Chair–MN) gave an update on long-term care insurance industry trends, including:

• Cost of care inflation, especially the impact on inflation-protected products, which continues to erode the generosity of benefits, especially home health cost growth.
  
• Morbidity, for which data is still hampered because of the effects of the COVID-19 pandemic.
  
• Future rate increase approvals, which are coupled with future year rate modeling that regulators would like to understand better to determine their accuracy.
  
• Asset performance, which calls for coordination between ASOP 51 and 53 guidelines.
  
• Wellness initiatives and their impact, which Andersen says is a positive development, but it remains to be seen whether these initiatives will result in net losses or gains for the companies.

LTC Actuarial WG Update: Paul Lombardo (Chair–CT) briefed the task force on the activity of the Long-Term Care Actuarial (B) Working Group (see the “Long-Term Care Actuarial (B) Working Group” section above). Lombardo again reiterated that a draft single methodology for a multi-state approach to tackling continued rate increases for older blocks of business is exposed for 45 days; the working group will have a call immediately after comments are in, with multiple discussions between now and the Fall National Meeting.

RBO and Consumer Notices Research Update: The NAIC’s Center for Insurance Policy and Research (CIPR) shared results of its consumer testing of reduced benefit options (RBOs) and consumer notices. The multi-variate analysis revealed several findings regarding the conditions under which consumers tend to accept rate increases to maintain benefits. CIPR will continue its analyses on these topics.

Financial Stability (E) Task Force
Bob Kasinow (NY) provided an update on the Macroprudential Working Group’s (MWG) efforts:

• List of 13 Regulatory Considerations: The working group continues to maintain a tracking document outlining activity related to the Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers. A revised version of the tracking document is included in the meeting materials and highlights recent activity on the considerations, including activity related to issues of control, investment management agreements between affiliates, surplus notes, capital maintenance agreements, and reliance on rating agencies. The NAIC’s Capital Markets Bureau has added information related to private-equity ownership of insurers to StateNet (a regulator-only resource).
  
• Cross-Border Reinsurance Efforts: The MWG met on July 8 in regulator-only session to discuss reinsurance trends in the life and annuity market, particularly related to cross-border reinsurance. Regulators requested that the NAIC staff prepare an analysis of the current market to show a breakdown of the types of products being reinsured and the jurisdictions involved. It was noted that a limited number of reinsurers and jurisdictions account for a large percentage of these transactions. A follow-up call (presumably regulator-only) will be scheduled soon.
  
• Liquidity Stress Test (LST): Regulators continue to review this year’s LST submissions, and summarized results will be provided to regulators in September. The study group charged with analyzing separate account issues has concluded that no additional reporting will be required for future LSTs. The LST instructions may be updated to include language reflecting this decision.
  
• Counterparty Exposure: In light of last year’s bank failures, NAIC staff has added a tool to StateNet related to counterparty exposure. Staff continues to refine the tool and are looking at adding information related to credit risk exposure.

AG 53 Reviews: Fred Andersen provided an update on regulators’ review of AG 53 submissions (Asset Adequacy Analysis) similar to the one he gave to LATF (see above), highlighting what regulators have learned as a result of the expanded Guidance Document for year-end 2023 filings. Regulators continue to focus most of their attention on identifying companies with outlier Net Yield Assumptions and Reinsurance Collectability issues. Andersen provided data regarding companies’ equity and equity-like investment exposure, noting concerning data points related to certain companies’ projections of allocation to equities (as a percentage of their overall portfolio) over time. He also highlighted companies’ CLO tranche allocation, noting that 85% of CLO investments are in investment-grade tranches.

Regulators are learning more about insurers’ exposure to investments with payment-in-kind features; Andersen noted that regulators will continue to work with companies to better understand any potential risks and how they are analyzed. Finally, Andersen noted that this exercise has resulted in greater coordination between actuaries and investment professionals, both with industry and amongst regulators.

Financial Stability Oversight Council Developments: While limited in what she can say regarding FSOC activities, Director Dwyer (RI, NAIC’s FSOC Representative) noted the NAIC’s committee involvement within FSOC and highlighted the revised non-bank designation guidance and analytic framework for financial stability risks, both of which were adopted last year.

International Macroprudential Activity: Tim Nauheimer (NAIC) outlined recent International Association of Insurance Supervisors (IAIS) macroprudential activity, including the mid-year GIMAR, which reflected a stable solvency position for industry and focused on interest rate risk, credit risk, structural shifts in life insurance, cross-border reinsurance, cybersecurity risks, and climate risks. The full-year GIMAR will be published in December and will include a deep dive on each of these topics. The IAIS continues to develop an issue paper on structural shifts in the life insurance sector. Finally, Nauheimer highlighted the release of the IAIS’ fourth public consultation on climate risk supervisory guidance.

Third-Party Data and Models (H) Task Force
The task force heard brief presentations on how regulators 1) conduct financial and market exams; 2) evaluate catastrophe risk through catastrophe models; and 3) rely on actuaries when looking at company reserve adequacy. Acknowledging that the task force has focused so far only on regulator presentations, Commissioner Conway (Chair – CO) emphasized that the task force would like to hear next from industry and consumer advocates. Anyone interested in presenting to the task force should reach out to Conway.

The task force still appears to be moving toward model regulation development in 2025.

Financial Regulation Standards and Accreditation (F) Committee
The committee:

• Adopted the recommendation from RITF to make the 2023 amendments to the P&C Guaranty Association Model Act (#540) be considered acceptable but not required to satisfy the Part A Accreditation Standard #14 – Guaranty Funds.
  
• Adopted a clarification to the holding company accreditation standard, noting that Risk Retention Groups (RRGs) are subject to GCC, but not the Liquidity Stress Test.
  
• Exposed the Accreditation Program Manual for 30 days, with comments due September 13.
  
• Sent a referral to the Risk-Focused Surveillance Working Group regarding the use of independent contractors for analysis and examination, suggesting an update to the Financial Analysis Handbook to provide adequate guidance for the use of contractors in conducting analysis.
  
Announced continued accreditation to Florida, Georgia, Montana, Pennsylvania, and Utah.

Valuation of Securities (E) Task Force
The task force adopted the follow items:

• SVO Challenge Framework: This framework gives the NAIC’s Securities Valuation Office (SVO) the ability to challenge rating agency ratings on insurer investments (the “Challenge Framework”). Following the initial exposure, the Challenge Framework has incorporated several interested party revisions, which will create greater transparency and due process. As noted in a June memo, it could take one to two years to operationalize the framework. Carrie Mears (IA) emphasized that regulators retain all oversight over treatment of investments. Interested parties discussed whether rating agencies should be notified that one of their ratings is under review under the Challenge Framework.
  
• Change to the NAIC Designation Definition: Expands the definition of NAIC Designation beyond credit risk and incorporates the concept of tail risk. This change removes the “Subscript S” concept from the P&P Manual.

The task force exposed the following items until September 13:

• Proposed P&P Manual amendment to require annual reviews of Regulatory Transactions (a security or other instrument in a transaction submitted to one or more state insurance departments for review and approval under the regulatory framework of the state or states).
  
• Proposed P&P Manual amendment to update the list of NAIC Credit Rating Providers.

The task force received the following updates:

• Non-Bond Debt Securities Moving to Schedule BA: Charles Therriault provided an update on investments that will move to Schedule BA as a result of the change to the bond definition. He recognized that companies may desire to get an SVO designation for some of these investments. Companies are encouraged to reach out to the SVO’s general inquiry email address ([email protected]) if they want an SVO rating on a security moving to Schedule BA.
  
• CLO Modeling Update: The NAIC’s Structured Securities Group (SSG) has completed running the 10 scenarios for each of the eligible CLOs, but an administrative issue is preventing the SSG from posting the results. SSG staff has also completed its analysis of a scenario adjustment received from one interested party earlier this year and plans to present those findings later this year, likely in September.

Special (EX) Committee on Race and Insurance
Workstream Updates

• The Health Insurance Workstream is restarting its discussion on demographic data collection and efforts to promote health equity; the workstream has scheduled calls to discuss the issues on September 9 and October 10.
  
• The Life Insurance Workstream will meet at the end of September to discuss feedback received on its draft Life Insurer Survey on Use of Criminal History (comments due September 5).
  
• The P&C Workstream met at the National Meeting to discuss definitions of discrimination in the insurance industry and will schedule future meetings to discuss the District of Columbia’s initiative to evaluate unintentional bias in auto insurance, California’s low-cost auto program, and observations from the PCMI data call once the analysis is complete.

Presentation on Health Equity: The committee heard a presentation from the American Academy of Actuaries on health equity. The presentation addressed takeaways from last year’s health equity workshop series and subsequent symposium. Regulatory issues that were found to hinder progress on health equity include: 1) laws are not often designed with an equity lens; 2) state and federal limitations on the collection and use of data; and 3) state and federal laws may limit the ability to enhance benefits—for example, limitations on essential health benefits may hinder the implementation of equity-enhancing benefits. In 2024, the Academy intends to shift its focus to behavioral health.

International Insurance Relations (G) Committee (followed by IAIS Secretariat Q&A Session with Interested Parties)
Discussion on Recovery and Resolution Activities: The committee received remarks from NOLHGA President Katie Wade on the U.S. guaranty system’s perspectives on resolution and policyholder protection schemes (PPSs). Wade emphasized the importance of coordination and cooperation between supervisors and PPSs, characterizing it as a critical part of policyholder protection. She also emphasized that the U.S. guaranty system has not taken a position on whether recovery and resolution plans should be required. That said, she noted that jurisdictional differences should be recognized by international policymakers.

Bob Wake (ME) reminded the committee that he and Bill Arfanis (CT) represent the NAIC on the IAIS Resolution Working Group, and that most of the issues discussed at the meeting are within that group’s purview. He also noted the RITF’s work on updated guidance to clarify the U.S. approach to recovery and resolution planning.

Dwyer Remarks on ICS/AM Comparability: Superintendent Dwyer (RI – IAIS ICS Task Force Member) provided an update on the development of the ICS and AM comparability efforts, both in their final stages. Notably, she stated “we believe based on the analysis that the IAIS will be able to determine that the criteria for comparability assessment have been satisfied, and that the AM provides comparable outcomes to the ICS.”

ICP 16 Peer Review: Susan Berry (IL) provided an update on the IAIS peer review process on ICP 16 (Enterprise Risk Management for Solvency Purposes). Berry is participating on a team with seven other jurisdictions on the peer review. The aggregate report detailing the results has been drafted and is awaiting approval by IAIS committees. The report will be available publicly in the fourth quarter of this year.

Highlights from IAIS Secretariat Q&A: Here are some key takeaways the IAIS Q&A session between interested parties, Jonathan Dixon (IAIS Secretary General), and Romain Paserot (IAIS Deputy Secretary General):

• Dixon provided clarification regarding the ICS/AM comparability analysis and assessment. The IAIS Secretariat is currently conducting a robust technical analysis of data received from U.S. groups based on the agreed-upon high-level principles and comparability criteria to determine whether the criteria have been met, and to what degree. The ICS Task Force then will take the analysis and give consideration to what that means in terms of an assessment on comparable outcomes. It has been made clear by the IAIS that there is a recognition that the ICS and AM frameworks are different, and that the outcomes do not need to be identical. Instead, this process looks at the extent of the differences and whether that might lead to different outcomes in terms of supervisory action triggers. The IAIS remains on track to communicate a final comparability decision in December along with an assessment report.
  
• The fourth climate consultation package comment deadline has been extended to October 28 at the request of stakeholders and interested parties.
  
• The 2025–2029 Strategic Plan has been approved by the Executive Committee and will be considered by the general membership next month; there have not been material changes since it was shared with stakeholders mid-year.

Risk-Based Capital Investment Risk and Evaluation (E) Working Group
Academy Update: The working group heard an update from the Academy on its efforts to identify “comparable attributes” to be used to assess CLO risk. Steve Smith (the Academy) reported that delays in getting access to relevant data likely will push the timeline back to early 2025 (the Academy had previously targeted the Fall National Meeting). The Academy plans to provide an interim update at the Fall National Meeting.

Discussion of Referrals Related to Funds: The working group has received several referrals from other groups over the last six years related to the RBC treatment of various funds. NAIC staff have prepared a memo aggregating these prior referrals and shared it with the working group (note that it is not yet publicly available). Phillip Barlow (Chair – DC) emphasized the goal of taking a holistic approach to the treatment of various fund types and called upon interested parties to provide a comprehensive list of different fund types, including a description of similarities and differences in the underlying operations of the funds and the current RBC treatment. The ACLI volunteered (at Barlow’s request) to work with the working group on the development of this list.

Adopted Working Agenda: A new item was added to the working agenda to develop a structure and factors proposal to reflect the split of Schedule D, Part 1 into two schedules (reflecting the revised bond definition).

Life Risk-Based Capital (E) Working Group
Adopted Its 2024 Life RBC Newsletter, 2023 Life RBC Statistics, and Working Agenda

• Discussion of the RBC Statistics: Vincent Tsang (IL) questioned whether the working group was focusing too much on C-0 and C-1 risk (asset risks) and not enough on C-2 (insurance risk) and C-3 (interest rate and market risk). Tsang initially suggested the creation of an ad hoc group to study this issue, but it was decided that regulators will continue to discuss in regulator-only sessions and at future working group meetings.
  
• New Working Agenda Items: The working agenda includes new items related to Negative IMR, Non-Bond Debt Securities (those moving to Schedule BA as a result of the new bond definition), investments in Tax Credit Structures, and possible structural changes to account for reporting changes for collateral loans.

Referral from SAPWG: The working group received a referral from the Statutory Accounting Working Group on investments in tax credit structures. NAIC staff are working on a proposal to respond to the referral, and discussion is anticipated at or before the Fall National Meeting.

Discussion on Schedule BA Changes for Non-Bond Debt Securities: A new RBC proposal is expected in the fall that would update the RBC instructions in light of the changes to Schedule BA resulting from the new bond definition.

Capital Adequacy (E) Task Force
Discussed Creation of New Working Group & Exposed Related Memo: The task force discussed the possible creation of a new working group to review non-investment related factors that affect the RBC formula. If established, this group would review the possibility of removing total adjusted capital (TAC) and authorized control level (ACL) amounts from the annual statement, review non-investment factors and instructions that have not been reviewed since RBC’s inception in the 1990s, and re-evaluate some of the “missing” non-investment risks to determine whether they should be included in the RBC calculation (or addressed elsewhere).

A memo to the Financial Condition Committee requesting the establishment of this working group was exposed for comment for 30 days ending September 13. During the discussion, Vincent Tsang (IL) reiterated his suggestion from the Life RBC Working Group meeting (see above) that regulators are focusing too much on C-0 and C-1 risks and not enough on C-2 or C-3 risks. He suggested that most of the recent company failures are due to inaccurate pricing of risks and were not attributable to asset risk.

Exposed a Revised Procedures Document: The document would push back the deadlines for RBC changes to be proposed and adopted by the Capital Adequacy Task Force, allowing for more time in the year for proposing and adopting RBC changes.

Privacy Protections (H) Working Group (PPWG)
Exposure of Chair’s Draft: The working group exposed a Chair’s Draft of Revisions to Model #672 on August 20 until September 18, which was previewed by Commissioner Beard (Chair – IN) during the National Meeting. While the draft updates Model #672, it also includes information and principles taken from Model #670, the Model #672 industry draft, and comprehensive state privacy laws. Comments are requested specifically on the third-party arrangements section of the model; the working group intends to expose and work on the draft in sections. Along with the exposure, PPWG sent an email requesting volunteers to participate on a drafting group (regulators and interested parties) along with accompanying guidelines to set expectations for volunteers and promote productive conversations.

Federal Privacy Update: The working group heard an update from NAIC staff on the provisions within the American Privacy Rights Act (APRA). APRA is still pending legislation in the House—its June markup was abruptly canceled and has yet to be rescheduled.

Consumers’ Checkbook Presentation on Legacy Systems: Eric Ellsworth (NAIC Consumer Representative, Consumers’ Checkbook) presented on the risks posed by insurers’ use of legacy systems. Ellsworth provided a basic overview of the systems and noted that their presence greatly increases insurers’ risk of data breaches. He offered several recommendations to the working group on what he believes should be included in a privacy model, specifically related to organizational controls, third-party service providers, and timelines for deletions and modifications.

Life Insurance and Annuities (A) Committee
Adopts AUWG Guidance Document: The committee adopted the Accelerated Underwriting Working Group’s (AUWG) Regulatory Guidance and Considerations Document along with a referral to the Market Conduct Examination Guidelines Working Group to consider updating the Market Regulation Handbook to address accelerated underwriting in life insurance. Commissioner Ommen (Co-Vice Chair – IA) said the guidance document is likely to serve as a starting point for the work of the Collaboration Forum that explores tools used by regulators to evaluate AI systems.

Presentation on Illustrations: The committee heard a panel presentation on the current state of illustrations with representatives from 1) Securian Financial, who provided an overview of life illustrations, including on Model #582 and AG49-A provisions; and 2) Athene, who provided an overview on annuity illustrations, primarily focused on Model #245 and their own company practices. Commissioner Humphreys (PA) expressed concerns regarding what he views as a “significant difference” between what is heard from consumer advocates and industry on this topic and questioned what could be done to bridge the gap. Director French (Chair – OH) noted that the committee intends to conduct additional work related to illustrations but did not provide any specifics.

DOL Update: NAIC staff provided an update on the DOL Fiduciary Rule, noting that the NAIC submitted a comment letter expressing disappointment in the process. Two Texas courts stayed the effective date—both rulings made clear that the new rule contains several of the same defects as the Obama-era rule.

Cybersecurity (H) Working Group
The working group hosted a panel discussion on the current state of and developments in the cyber insurance market. Panelists included Shawn Ram (Coalition Insurance Company), Brent Rieth (Aon), and Jamie Schibuk (Arch Insurance), with Commissioner Jon Godfread (North Dakota) as moderator. The main points from the panel include:

• Dramatic shift over the past 10 years from mid/long tail risks (e.g., litigation risks, data breaches) to short tail risks such as ransomware attacks
  
• Strengthened underwriting protocols influenced by developments in technology and the hiring of cybersecurity experts for underwriting teams
  
• Many cyber insurers are taking deeper looks at the insured’s cybersecurity policies and programs as part of the underwriting process
  
• Expected increase in market penetration over the next 5–10 years that will likely require the involvement of reinsurers and third-party capital to keep up with demand
  
• Risk that companies, while obtaining cyber insurance coverage, are focused on the minimum requirements needed for other obligations rather than what is actually required to protect the company in the event of a cyber incident
  
• The need for additional education with the industry and regulators to continue developing cyber insurance products and regulations

Financial Condition (E) Committee
FIO Meeting: Commissioner Houdek (Chair – WI) reported that the Life Insurance and Annuities Committee and E Committee met in a closed-door meeting with the Federal Insurance Office (FIO) pursuant to the NAIC’s Open Meetings Policy to discuss strategic planning related to federal or international matters.

SVO Challenge Framework: In adopting its working group and task force reports pursuant to the technical change process, the committee pulled the SVO Challenge Framework for discussion on a future call. All other technical, non-controversial items are placed on the technical change list, sent to NAIC membership within a week of the National Meeting, and become effective 10 days after delivery of the list unless a member objects to a specific item. Because the SVO Challenge Framework is not included on the technical change list, it will be discussed as a separate item on a future E Committee call scheduled for August 29.

Revised Investment Framework/Workplan Exposed: The committee has reviewed interested party comments on the Framework for Regulation of Insurer Investments – A Holistic Review (the “Framework”) and related workplan, incorporating minimal changes to previous drafts. The revisions add principles and reference that the work plan will continue to review the appropriate incorporation of RBC changes to the final Framework. The revised Framework and workplan have been exposed for a 60-day comment period ending on October 14. The committee is also maintaining a table reflecting the workstreams associated with the Framework (see the final page of the Meeting Materials). Both Houdek and Carrie Mears (IA) stressed the importance of a transparent and inclusive process.

RFP to Develop Due Diligence Framework Over Rating Agencies Exposed: The NAIC has exposed an RFP to engage a consultant to design and help implement a due diligence framework over the use of credit rating providers (CRPs) in regulatory processes (see Attachment 12 of the Meeting Materials). Houdek emphasized that this is not the release of the RFP itself but is an exposure to receive interested party feedback on the RFP. The RFP was exposed for a 60-day comment period ending on October 14.

Basel III Update: NAIC staff provided an overview of the Basel III Endgame proposal and how it could affect insurers (e.g., banks being required to hold more capital for bank-owned life insurance products, increased capital tied up in derivatives/hedging instruments, and less-innovative products).

CMBS Update: Blackrock representatives provided an update on the current state of the commercial mortgage-backed securities (CMBS) market. The main message was that Blackrock projects losses in CMBS market to be much more in line with 2004 and 2005 losses than 2006 or 2007 losses, provided current economic conditions remain relatively stable. Presenters cited, among other things, conservative underwriting and default rates lower than seen during the global financial crisis as reasons for loss projections not being as bad as some might think.

Innovation, Cybersecurity, and Technology (H) Committee
Update on Federal Regulatory Actions Related to the Use of AI: The presenter suggested that state insurance regulators are utilizing most of the available AI regulatory concepts—there is a great deal of overlap between the tools state insurance regulators and the federal government are using, but federal developments should be continuously monitored. The presenter said that the issue of testing is raising a lot of questions among industry, and the conversation becomes easier when insurers engage data scientists to better understand the requirements, provide necessary education, and increase technical expertise.

SOA Presentation on NIST’s AI Safety Institute Consortium: Dale Hall (SOA) presented on efforts by NIST’s AI Safety Institute Consortium (AISIC) to develop a framework for governing AI. Hall said the SOA is focusing much of its involvement on insurance and financial services. Relevant initiatives of the AISIC include risk management for generative AI, capability evaluation of safe AI testing and auditing, and model safety and security.

Presentation on Global AI Governance Frameworks: Dorothy Andrews (NAIC) discussed her participation in the governance workstream of the AI-related work at the International Actuarial Association. In the workstream’s evaluation of global AI governance frameworks, the United States fared well compared to other countries. The most comprehensive framework is in the EU with the passage of the EU AI Act. Andrews also noted that the NAIC has submitted a response to Treasury’s RFI on Uses, Opportunities, and Risks of AI in the Financial Sector, and referenced the work of the NAIC’s Big Data and AI Working Group in the letter.