Arizona & Illinois Name New Insurance Directors

Arizona Governor Hobbs has named career regulator Maria Ailor as Interim Director, filling that gap after the Senate rejected Barbara Richardson, the Governor’s nominee for Director. Richardson still has a role at the Department of Insurance and Financial Institutions.

The Illinois Senate confirmed Director Ann Gillespie shortly before the spring session adjourned.

  Staff Contact - Sean McKenna

NAIC Updates

On June 6, 2025, the Financial Condition (E) Committee exposed via email a memo regarding the proposed restructuring of the Valuation of Securities Task Force (VOSTF); comments are due July 21.

Intended to help achieve the objectives of the E Committee’s Investment Framework, the proposed reorganization would rename VOSTF as the Invested Assets Task Force and add three new working groups—the Investment Analysis Working Group, Securities Valuation Office (SVO) and Structured Securities Group (SSG) Working Group, and the Credit Rating Provider Working Group. Charges for each group are detailed in the memo, but key points include:

• The Invested Assets Task Force, to be led by commissioners, would (1) oversee the working groups; (2) provide a forum for education on investment products and their performance, as well as the financial risks for regulatory policy purposes and how regulators may address them; and (3) examine new/evolving investment products that may have characteristics that pose unique risks to insurers and the industry and coordinate with other groups if necessary to develop, implement, or advise on investment-related solvency policy changes or procedures within their analysis as well as the examination of insurers subject to such risks.
  
• The Investment Analysis Working Group is intended to be the primary group under which modernized investment services for the U.S. system are achieved. The group would consist of no more than 13 regulators, and meetings would primarily be held in regulator-only sessions (similar to the Financial Analysis Working Group, or FAWG). A key focus of this working group would be on new or evolving investment products or investment characteristics; the working group would provide recommendations on these issues to the task force (or other NAIC groups). It would also oversee a revised portfolio analysis product from NAIC staff and implementation of revised systems designed to improve the availability of various investment data points.
  
• The SVO and SSG Working Group would make recommendations to the task force regarding the scope of securities required to be filed with the SVO and the scope of securities required to be modeled and/or filed with the SSG; oversee private letter rating (PLR) submissions and review processes; and monitor the technology and resources available to implement current and future initiatives efficiently and effectively. The group would also be charged with identifying potential improvements to the credit filing and designation process.
  
• The Credit Rating Provider Working Group would implement the due diligence framework (once developed and approved) and the discretion policy adopted in 2024. The NAIC would bring on two new staffers with credit rating, analytical, or quantitative backgrounds, as needed, to implement and manage the Credit Rating Provider framework. The charges of this group could be adjusted following adoption of the due diligence framework but would initially have many of the preexisting VOSTF charges.

The memo acknowledges there may be a need to re-evaluate the charges and ownership over time and suggests that the Invested Assets Task Force solicit feedback after one year of implementation and provide any recommended changes to the E Committee.

Finally, Commissioner Houdek (WI – E Committee Chair) announced that the NAIC has engaged PWC to assist in developing the Due Diligence Framework and Bridgeway Analytics to assist in the work of the RBC Model Governance Task Force.

The Statutory Accounting Principles Working Group (SAPWG) exposed two items via email last week related to the treatment of reinsurance under A-791. The first (Item 2024-05) proposes removing a sentence from A-791 that some companies have used as a safe harbor to prove that yearly renewable term (YRT) rates are not excessive. The second (Item 2024-06) provides an updated risk transfer analysis framework for combo reinsurance arrangements with interdependent features.

The ACLI had been working with regulators to provide examples where a combo reinsurance arrangement does not result in a deprivation of surplus. The proposed revisions to SSAP 61R provide that for purposes of evaluating risk transfer, the YRT and coinsurance component of a combo reinsurance arrangement should be evaluated individually and together to satisfy risk transfer. When evaluated in its entirety, such contract(s) cannot (1) potentially deprive the ceding insurer of surplus at the reinsurer’s option or automatically upon the occurrence of some event; (2) potentially require payments to the reinsurer for amounts other than the income realized from the reinsured policies; or (3) contain any of the other conditions prohibited by Appendix A-791 related to risk transfer. Comments are due July 14.

The Valuation of Securities Task Force (VOSTF) exposed revised versions of two items related to private letter ratings (PLRs) last week.

• Timing to provide PLR rationale report: The proposal provides that an insurer must submit a PLR rationale report within 90 days of a new rating, an annual rating update, or rating change. The initial draft also would have required the submission of a rationale report within 90 days of a rating affirmation or confirmation, but the task force agreed to remove that requirement. If the rationale report is not submitted within the 90-day grace period, the security will be ineligible for a filing exemption.
  
• Requirement for rationale reports to possess analytical substance: This proposal clarifies that rationale reports must contain sufficient analytical content to enable an independent party to form a reasonable opinion of the basis for a rating agency’s assessment of investment risk. The proposal contains an anonymized example of a rationale report filing that does not meet this standard. The SVO will send an insurer an information request in the event the rationale report does not meet the minimum requirement. The SVO will reject the filing only if the information request is not fulfilled (e.g., is not responded to in a timely manner or fails to provide sufficient substantive information).

The task force also exposed technical amendments related to the caps on NAIC credit ratings provider (CRP) ratings. Last year, changes were made throughout the Policies & Procedures Manual to replace “credit quality” with “investment risk.” In one area of the manual, the change altered the intent of the language; this proposal is designed to simply reinstate the original intent of this provision.

After over a year of discussion, the Life Actuarial Task Force adopted an actuarial guideline (AG) requiring cash flow testing of certain reinsured business. Task Force members incorporated certain non-material changes to the AG and discussed how exemptions should be reported to other regulators. The AG now heads to the Life Insurance and Annuities (A) Committee, where a vote is expected sometime in July.

On June 2, the Long-Term Care Actuarial Working Group voted to recommend adoption of the “alternative proposal” for the cost-sharing formula used in the Multi-State Actuarial (MSA) Framework’s Single LTCI Multistate Rate Review Approach. After weighing the alternative proposal against the Missouri proposal, most working group members ultimately expressed a slight preference for the alternative proposal, leaning in favor of some amount of carrier cost-sharing for the first 100% of rate increases. The working group plans to recommend adoption of the alternative proposal to the Health Actuarial Task Force. At its next meeting, the working group also plans to discuss a proposal from Pennsylvania that would prevent MSA recommendations from exceeding a 100% rate increase for any given state.

  Staff Contact - Sean McKenna

International Developments

On June 2, 2025, life insurance industry representatives and regulators—including Ohio Director French, Chair of the NAIC Life Insurance and Annuities Committee—gathered in London for the InsuranceERM Global Life Reinsurance Conference. Here are key takeaways:

Macro Trends Driving Life Reinsurance Evolution

• Demographics & Demand: Aging populations globally are fueling a growing need for guaranteed retirement income. Traditional insurers are facing challenges managing long-duration liabilities.
  
• Asset Innovation: Asset-intensive reinsurance (AIR) and partnerships with asset managers are becoming central to aligning long-dated liabilities with real asset-backed, inflation-linked cash flows.
  
• Private Credit Growth: The convergence of public and private markets continues, with private assets playing a vital role in reinsurance transactions, though transparency and governance concerns persist.

Regulatory Evolution & Divergence

• The UK’s Prudential Regulation Authority (PRA) focused on AIR risks such as recapture, collateral enforceability, and counterparty concentration. Recent supervisory statements have emphasized robust internal assessments and liquidity stress testing.
  
• The Bermuda Monetary Authority (BMA) highlighted its regulatory agility and emphasis on innovation while strengthening oversight of affiliated assets and liquidity risks.
  
• The Dutch Central Bank (DNB) is cautious on AIR due to opacity and past enforcement challenges. New approval regimes for cross-border reinsurance deals are emerging.
  
• Director French noted that U.S. state regulators are emphasizing consumer protection and regulator education to keep pace with reinsurance innovation.
  
• Regulatory Arbitrage Concerns: Panelists and supervisors debated whether AIR in Bermuda and other jurisdictions reflects efficiency or arbitrage. Firms emphasized that capital follows regulatory quality and sophistication, not leniency.

AIR Momentum & Constraints

• UK: Continued innovation in AIR, particularly for bulk annuity portfolios. The PRA supports growth but stresses caution and supervisory preparedness.
  
• The DNB highlighted (1) limited uptake (regulatory conservatism, fragmented markets, and legacy guarantee structures have slowed AIR adoption); (2) structural and cultural barriers (varied legal systems, a lack of third-party administrator infrastructure, and operational complexity hinder scalability); and (3) an expected gradual cultural shift—a few successful transactions could spur greater acceptance.
  
• United States: AIR is more established, particularly for private equity–backed consolidators. Structures like modco and funds withheld are commonly used.

Investment Considerations

• Asset Sourcing & Constraints: Reinsurers and insurers face growing pressure to source suitable private assets that align with recapture and asset/liability management (ALM) requirements. Sourcing “best-in-class” assets is now a competitive differentiator. Firms must align investment guidelines early and consider cross-currency and rating limits.
  
• Private Assets Defined: Increasingly seen as assets lacking observable market prices—not necessarily illiquid. There is growing scrutiny around valuation and liquidity risks.

  Staff Contact - Sean McKenna

AI Activity

On June 2, 2025, the Colorado Division of Insurance held a virtual permanent rulemaking hearing to hear comments on its Draft Proposed Amended Regulation 10-1-1 Governance and Risk Management Framework Requirements for Life Insurers’, Private Passenger Automobile (PAA) Insurers’, and Health Benefit Plan Insurers’ Use of External Consumer Data and Information Sources, Algorithms, and Predictive Models.

• The American Property Casualty Insurance Association (APCIA) and National Association of Mutual Insurance Companies (NAMIC) advocated for testing of protected classes in Section 5 to be limited to race, as originally set forth in the life insurance regulation.
  
• APCIA raised concerns with the definition of “adverse decision,” which it believes is exceptionally broad and lacks a materiality threshold, and suggested some PPA companies will have difficulty complying with the regulation by the timeframes indicated in the draft.
  
• Birny Birnbaum (Center for Economic Justice) urged the division to reject the industry’s “efforts to limit and delay implementation of SB 169”; he also described the various ways that “narrative report” can be interpreted and asked for it to be replaced with clearer language.
  
• David Schraub (American Academy of Actuaries, but expressing his own views) suggested the division consider the work of the NAIC’s Innovation, Cybersecurity, and Technology (H) Committee when defining “third party.”

  Staff Contact - Sean McKenna

State Privacy Updates

The California Privacy Protection Agency has received pushback on its proposed privacy regulations regarding automated decision-making technology, risk assessments, and cybersecurity audits from the advertising industry. The industry claims the current proposed regulations “could have far-reaching unintended consequences” that could burden “businesses of all sizes that engage in benign marketing practices.”

The California Senate passed SB 690, which now moves to the California Assembly for consideration. If passed, the bill will revise the California Invasion of Privacy Act to clarify that it does not apply to website tracking, a practice in which insurance agencies commonly engage.

The Connecticut legislature passed SB 1295, amending the Connecticut Data Privacy Act. The amendments remove the general exemption for financial institutions and data subject to Title V of the Gramm-Leach-Bliley Act (GLBA) and replace it with (1) an exemption for data subject to Title V of the GLBA; and (2) a specific exemption covering insurers, health carriers, insurance agents, and insurance producers.

  Staff Contact - Sean McKenna