NAIC Updates

On April 10, 2025, the Life Actuarial Task Force and Statutory Accounting Principles Working Group held a joint call to discuss two proposals regarding risk transfer concerns associated with reinsurance arrangements containing both a coinsurance and yearly renewable term (YRT) component. Ref #2024-05 proposes removing a sentence from A-791 that some companies have used as a safe harbor to prove that YRT rates are not excessive; Ref #2024-06 provides an updated risk transfer analysis framework for these transactions.

The ACLI presented on the issues, including an example where a combo reinsurance arrangement does not result in a deprivation of surplus. Industry and regulators seem to agree that for the purposes of risk transfer analysis, (1) the coinsurance and YRT elements should be analyzed individually; (2) the arrangement should also be analyzed in the aggregate; and (3) the ceding company must demonstrate that there is no deprivation of surplus. Rachel Hemphill (TX) walked through two regulatory concerns with these arrangements, namely that: (1) certain terms could limit or diminish the transfer of risk in violation of SSAP 61R, Paragraph 17; and (2) terms could result in temporary surplus relief. Dale Bruggeman (OH) encouraged industry to propose clarifying language on Ref #2024-06; there seems to be a consensus in favor of Ref #2024-05. Bruggeman is also preparing language to address the regulator perspective on these arrangements.

As previewed at the Spring National Meeting, the Life Actuarial Task Force and Life RBC Working Group received an update on the Generator of Economic Scenarios (GOES) on a joint call last week. The update included:

• Exposure of APF 2025-04, which implements GOES into the Valuation Manual and makes related changes around the exclusion test, governance, and capital metrics.
  
• Discussion of a revised Deterministic Reserve (DR) Scenario Methodology. The ACLI walked the task force through its analysis of GOES DR scenarios (including the impact of its proposed alternative approach), followed by Conning’s discussion on the same topic. Rachel Hemphill (Chair - TX) recognized that DR methodology was a topic of concern among stakeholders, and the task force was comfortable moving forward with ACLI’s DR methodology.
  
• Discussion of Model Governance Framework topics, including a fallback plan if something unexpected occurs, periodic updates, and scenario reviews. The task force directed NAIC staff to draft proposed changes to the governance framework in light of these discussion topics. Hemphill encouraged task force members to share their perspectives with NAIC staff in the meantime.

In other news, the VM-22 Subgroup focused its April 9 call on previously discussed items that were flagged by interested parties to revisit before the framework is re-exposed at the end of the month. The subgroup made the following decisions:

• Aggregation of Reserving Categories: The ACLI asked the subgroup to revisit the aggregation of reserves, recommending that the subgroup permit the aggregation of only the payout annuity and accumulation reserving categories under certain criteria, with accompanying disclosure requirements in VM-31 (the longevity reinsurance reserving category would not be subject to aggregation). The subgroup agreed to allow the payout and accumulation aggregation but did not necessarily agree with the ACLI’s language on the additional criteria or disclosures. Regulators ultimately voted to include the ACLI’s proposed language with the understanding that it will serve as a placeholder for the subgroup to revisit. The subgroup also voted to include the American Academy of Actuaries' revised Section 3.F.4, which would permit the aggregation of model segments within reserving categories, consistent with VM-20.
  
• SPA Policyholder Behavior Assumptions: The subgroup voted to include proposed revisions to the standard projection amount (SPA) policyholder behavior assumptions, which incorporate the Academy’s language suggestions and draft guidance note.

On April 16, the subgroup discussed the last of the remaining items: reserve category for deferred annuities with guaranteed lifetime benefits and depleted fund value, payout annuity threshold for automatic exclusion, and deterministic certification option. The revised VM-22 framework draft will be exposed on either the April 23 or April 30 call.   Staff Contact - Sean McKenna

International Developments

On April 10, 2025, the Bermuda Monetary Authority (BMA) exposed a stakeholder letter and a draft Guidance Note related to recovery planning requirements for Bermuda Commercial Insurers. Notably, the BMA will require a formal Recovery Plan from insurers that are deemed to be of economic importance or systemically significant or whose failure could pose a threat to the financial stability of Bermuda. In assessing that standard, the BMA will, among other things, take into consideration the class of registration, size or market share, external and internal interconnectedness, complexity, business model, risk profile, substitutability, and cross-border activities of the insurer.

Specifically, the BMA will use the following criteria as a guide for determining which insurers will be required to have a Recovery Plan in place (subject to appropriate proportionality and risk analysis):

• Whether the insurer carries on domestic business
  
• Whether the insurer has three-year rolling average total assets of at least $10 billion
  
• Whether the insurer has three-year rolling average total gross written premiums of at least $5 billion
  
• Whether the insurer is subject to enhanced supervisory monitoring by the BMA or any relevant supervisory authority
  
• Whether the BMA is the group-wide supervisor of the insurance group

Insurers within this scope will receive formal communication on the requirement to prepare a Recovery Plan. At several points throughout the Guidance Note, the BMA emphasizes that recovery planning is more than a compliance exercise and should be incorporated into a company’s enterprise risk management framework. The Guidance Note lays out in detail the minimum contents and structure of a Recovery Plan. The BMA expects that a company’s Board will be responsible for the final approval of the Recovery Plan. Comments on the proposals in the Guidance Note are due by July 7.

In other international news, the International Association of Insurance Supervisors (IAIS) extended the consultation period for its draft Issues Paper on Structural Shifts in the Life Insurance Sector by two weeks. Comments are now due June 2.

The Financial Stability Board’s (FSB) Nomination Committee agreed to appoint Andrew Bailey (Governor of the Bank of England) as the next FSB Chair. The FSB still needs to formally approve the appointment during its next in-person meeting in June. Bailey would begin his three-year term as Chair on July 1, 2025.

  Staff Contact - Sean McKenna

AI Activity

On April 8, 2025, the European Insurance and Occupational Pensions Authority (EIOPA) held a public hearing to discuss its Opinion on Artificial Intelligence Governance and Risk Management, currently out for consultation through May 12. EIOPA clarified during the hearing that the purpose of the Opinion is to provide guidance on the use of AI systems in insurance that are not prohibited practices or considered high-risk under the EU AI Act. The presentation covered expectations relating to fairness and ethics; data governance; documentation and recordkeeping; transparency and explainability; human oversight; and accuracy, robustness, and cybersecurity.

  Staff Contact - Sean McKenna

Privacy Updates

Several industry groups, including the Center for Democracy & Technology and the U.S. Chamber of Commerce, have released comments they submitted in response to the House Committee on Energy and Commerce’s comprehensive data privacy working group’s request for input. The comments so far have shown differing views on the preemptive effect of the proposed federal privacy laws, with some advocating for full preemption and others highlighting the continued role of state privacy laws. The comments also focus on enforcement and whether consumers should have a private right of action.

The California Privacy Protection Agency Board met on April 4, 2025, to discuss proposed changes to draft regulations on risk assessments, cybersecurity audits, and automated decision-making technology (ADMT) access and opt-out rights. The Board opted for an alternative definition of ADMT focusing on the use of technology that replaces or substantially replaces human decision making and more closely aligns with Colorado law and the EU’s General Data Protection Regulation (GDPR).

  Staff Contact - Sean McKenna