July 3, 2024

2024 Legal Seminar Final Agenda Posted

The final agenda for the 2024 Legal Seminar in Boston this month has been posted on the Legal Seminar/MPC meeting website in the Meeting Materials section. The website also includes in-person or virtual registration for the Seminar (July 25 and 26) and MPC meeting (July 24) as well as online hotel reservations, the MPC meeting schedule, and speaker bios.

Registration for the Legal Seminar is $975; there is a guest fee of $125 for all group events. There is no cost to attend the July MPC meeting, but some presentations will be restricted to guaranty association representatives only.

If you have any trouble accessing the Seminar website, please contact Dan Hicks. If you have any questions about the Legal Seminar or MPC meeting, contact Sean McKenna.

  Staff Contact - Sean McKenna

NAIC Updates

On June 28, 2024, the Capital Adequacy Task Force held a call covering a wide range of items. During the call, the task force:

Deferred action on proposed changes to the RBC preamble: Stakeholders raised concerns about both the removal of total adjusted capital and Authorized Control Level capital from annual statements and the changes that appear to prohibit the use of RBC for all purposes other than identifying potentially weakly capitalized companies. The task force will pick up this topic at a future meeting.

Adopted the RBC Investment Risk Evaluation Working Group meeting summary: This summary includes the decision to increase the base factor for all residuals to 45% in the life RBC formula. Director French (OH) expressed disappointment in the process, noting the lack of data-driven analysis. The American Academy of Actuaries provided an update on its work to identify comparable attributes to segregate collateralized loan obligations (CLOs) into risk categories; the goal is to have a proposal for regulators to review by the Fall National Meeting.

Briefly discussed the potential establishment of a subgroup to look at non-investment risk issues: Task Force Chair Tom Botsko (OH) suggested that, if established, this group likely would focus on factors in the RBC formula that have not been analyzed since RBC’s inception 30 years ago. The task force will continue discussion of this topic at the Summer National Meeting.

Received an update on collateral loans issues: Dale Bruggeman (OH) provided an update on the Statutory Accounting Principles Working Group’s (SAPWG) efforts related to collateral loans and how they map to RBC. Given the recent statutory accounting changes to collateral loans, additional reporting changes are expected. Bruggeman expects to have a SAPWG exposure on this at the Summer National Meeting.

The task force also adopted the following items:

• 2024-09-CA, which would update the underwriting factors for Comprehensive Medical, Medicare Supplement, and Dental & Vision for investment income adjustment (an annual adjustment)
  
• 2024-13-CA, which updates the RBC factors for receivables for securities
  
• 2014-15-L, which updates the life RBC formula to ensure that BA mortgages continue to receive their historical RBC treatment, despite a statutory accounting change that will result in these investments being reported as collateral loans
  
• 2024-17-L, which cleans up the mapping of affiliated mortgages in the life RBC formula
  
• 2023-14-P, which contains routine updates of the Underwriting Risk Line 1 Factors in the P&C RBC formula
  
• 2024-12-H, which creates a tiered factor for Health Care Receivables (HCRs) in the health RBC formula
  
• 2024-18-CA, which keeps the current 20% base factor for residuals in the P&C and Health formulas

The Innovation, Cybersecurity and Technology (H) Committee also met on June 28. Here are the highlights:

New H Committee Leadership: The committee named a new Chair in preparation for Commissioner Birrane’s last day on June 30. Commissioner Gaffney (VT), who previously served as one of the committee’s Co-Vice Chairs, became the new H Committee Chair effective July 2. Commissioner Conway (CO) will return to committee leadership as the new Co-Vice Chair, alongside Director Lindley-Myers.

With Gaffney moving up in the committee ranks, he will no longer chair the Big Data and Artificial Intelligence Working Group. He and Commissioner Humphreys (PA) will switch roles, with Humphreys now leading the working group and Gaffney serving as Vice Chair.

The committee also received updates on several projects:

• The H Committee leadership is working with Commissioner Ommen (IA) to develop charges for the AI Systems Evaluations & Training Collaboration Forum. This will involve looking at how regulators update market conduct processes for AI systems. It’s expected that some of this work will be done under a working group.
  
• The Big Data and AI Working Group is monitoring and supporting the adoption of the Model AI Bulletin and will be discussing regulatory experiences in adopting and implementing the bulletin. The working group also intends to coordinate with the Third-Party Models and Data Task Force and the AI Systems Collaboration Forum to discuss next steps for post-Bulletin adoption. It is unclear what exactly that will entail, but staff noted this will be substantive.
  
• The Health Insurance AI/ML Survey is under development at the Big Data and AI Working Group. NAIC staff hinted that a late July meeting is likely to be scheduled to discuss the survey in more detail. Gaffney noted that Humphrey’s transition to Chair of the working group is timely given his (and his staff’s) health insurance expertise.
  
• Staff also noted the upcoming discussions of the Privacy Protections Working Group, which will focus on model drafting direction but with a “long term eye toward shifting the discussion to talk about principles.”

Several consumer representatives presented to the committee on considerations for moving forward on several topics, including unfair discrimination, privacy protections, and AI in health insurance. Among other things, presenters encouraged regulators to (1) develop a robust testing program to evaluate outcomes for unfair discrimination; (2) craft privacy regulation that emphasizes data minimization, includes an opt-in approach, and incorporates clear data collection/sharing policies; and (3) consider recent federal protections and the uniqueness of health insurance when creating the health insurance AI/ML survey.   Staff Contact - Sean McKenna

International Developments

On June 27, the International Association of Insurance Supervisors (IAIS) published the 2024 data collection packages for the Insurance Capital Standard (ICS) and the Aggregation Method (AM). Data, which is due from volunteer groups by the end of July, will inform the final version of the ICS.

In a stakeholder call the same day, the IAIS provided an overview of key changes to the ICS and announced its plans for ICS implementation, in the event it is adopted in December. The stakeholder session was primarily focused on the ICS; more detail regarding the AM, including the comparability assessment, is expected during the IAIS Global Seminar next month.

Changes to the ICS: Adjustments to the 2024 ICS technical specifications were informed by the 2023 data collection, as well as by feedback received during the 2023 consultation on the ICS as a prescribed capital requirement (PCR) and the Economic Impact Assessment. Changes relate to market-adjusted valuation (MAV), capital resources, non-life risk, interest rate risk, currency risk, non-default spread risk, credit risk, and non-insurance. Additional details on the key changes are available here.

• Timeline: The ICS is expected to be adopted at the Annual Meeting in Cape Town, South Africa, in December. Following adoption, the IAIS will release (1) the ICS in the form of the Level 1 and Level 2 documents, (2) the resolution of comments from the 2023 public consultation, and (3) the report on the Economic Impact Assessment.

ICS Calibration Document: The IAIS will prepare a calibration document for the ICS risk charges ahead of its implementation. It will (1) explain how the different risk factors for the calculation and aggregation of the risk charges were determined; (2) exclude non-insurance risk charges and treatment of tax; and (3) be factual but not include any confidential information.

• Timeline: The calibration document will be released following adoption of the ICS and publication of the final ICS documents.

ICS Implementation: The IAIS Executive Committee approved a timeline for ICS implementation during its last meeting that recognizes the time needed for jurisdictions to adequately prepare. The implementation assessment will follow the same two-step approach as the Holistic Framework, consisting of baseline self-assessments followed by targeted jurisdictional assessments.

• Implementation Assessment Methodology: Later this year, the IAIS will evaluate the need for and scope of any future ICS data collection efforts that may be necessary to facilitate implementation of the ICS. It is expected that any further data collection will be more targeted than those conducted during the monitoring period. The IAIS will begin development of the actual assessment methodology in 2025 and does not plan to publish a consultation on the methodology.
  
• Baseline Self-Assessments: In 2026, IAIS members will complete a baseline self-assessment that details their jurisdiction’s progress on ICS implementation.
  
• Targeted Jurisdictional Assessments: In 2027, the IAIS will begin in-depth targeted jurisdictional assessments, prioritizing those jurisdictions that have indicated the most progress in their baseline assessments.

Aggregation Method (AM) Implementation: The IAIS will not begin considering the AM implementation assessment until there is greater clarity on the AM comparability assessment outcome and overall ICS implementation.

Updates to ICPs 14 and 17: The IAIS also consulted on changes to ICPs 14 (Valuation) and 17 (Capital Adequacy) last year and shared an analysis of the feedback received. Generally, commenters support the proposed changes to the ICPs, but they made several editorial suggestions to improve consistency/readability. Commenters also suggested further clarifications to the margin over current estimate (MOCE) in ICP 14 and references to climate and cyber risk in ICP 17.

• Timeline: Changes to the ICPs will be adopted at the Annual Meeting in Cape Town in December.

  Staff Contact - Sean McKenna