Legal Seminar Hotel Reservation Deadline Approaching
The Boston Marriott Copley Place, the host hotel for NOLHGA’s 2024 Legal Seminar and July MPC meeting, has notified us that there are only a few rooms still available at the special NOLHGA rate of $289/night plus tax. Once the NOLHGA room block is full, we cannot guarantee that rate for our attendees. If you have not booked your rooms (or registered) for the Legal Seminar, we encourage you to do so as soon as possible.
Attendees can visit the Legal Seminar website to register for in-person or virtual attendance at the Seminar (July 25 and 26) and MPC meeting (July 24) and to make hotel reservations. The website also features speaker bios and a Seminar agenda. The agenda for the July MPC meeting should be posted next week, but we expect the meeting to run all day on July 24.
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 McKennaFACI Update
The Federal Advisory Committee on Insurance (FACI) met virtually on June 4, 2024, to discuss topics such as insurance capital standard (ICS) implementation and aggregation method (AM) comparability, the FIO/NAIC homeowners data call, property and reinsurance markets, a new National Science Foundation partnership, and financial inclusion. Highlights from the meeting include:
ICS Development & AM Comparability: Both the ICS and AM data collection packages were released on April 26 with a submission deadline of July 31. This year, there are six U.S. participants in the ICS data collection and 13 U.S. participants in the AM data collection. The ICS is still on track for adoption in December 2024, with planned implementation as a prescribed capital requirement (PCR) on January 1, 2025.
The AM Comparability Assessment is ongoing. While several jurisdictions are participating in the AM data collection, the United States is the only jurisdiction in scope for the AM Comparability Assessment. The Comparability Assessment Team is performing further analysis with additional data gathered from certain companies, due mid-June, which will be discussed at the next ICS Task Force meeting.
In the second quarter of 2024, the International Association of Insurance Supervisors (IAIS) will perform an analysis of 2024 ICS and AM results and evaluate the need for further modifications. The AM Comparability Assessment Team will provide an update on advancing comparability during the June committee meetings in Basel, and a public stakeholder event on the ICS will be held on June 27. In the third quarter, the IAIS will determine the ICS structure as a PCR, determine the final AM design, and evaluate potential implications for comparability. A comparability recommendation is expected in September. In the fourth quarter, the ICS Task Force will consider adopting the ICS as a PCR and decide on AM comparability at the Annual Conference in South Africa.
Financial Inclusion: George Nichols (American College of Financial Services) gave a presentation on financial inclusion from the life insurance perspective. He described several key components to achieving financial inclusion—expanding accessibility, improving affordability, offering financial education, understanding customer nuances, navigating the challenges of current trends, and uplifting the profession and benefiting society. Birny Birnbaum (Center for Economic Justice) noted a reduction in life insurance policy purchases and asked if it resulted from a lack of financial literacy and whether the life insurance industry is responsible. Nichols said the change in distribution models has had a large impact, resulting in a significant reduction in the number of mutual insurance companies and fewer people selling insurance.
NSF/IUCRC on Terrorism & Catastrophic Cyber Modeling: FIO has partnered with the National Science Foundation (NSF) and the private sector to launch the Industry–University Cooperative Research Center (IUCRC) for Terrorism and Catastrophic Cyber Modeling and Underwriting. The project will “stimulate research and develop solutions to provide insurers, government, and other stakeholders with additional data and improved modeling and underwriting tools, methodologies, and practices for insuring terrorism and catastrophic cyber risks.” The Dear Colleague Letter explains the project and requests submissions for preliminary research proposals, which are due in September.
The next FACI meeting is scheduled for September 26.
Staff Contact - Sean McKennaAI Activity
On June 6, the Treasury Department published a request for information on the Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector. The department is interested in receiving information related to three areas: (1) how AI is used in the provision of products and services, risk management, capital markets, internal operations, customer service, regulatory compliance, and marketing; (2) how financial institutions are exploring benefits and managing risks; and (3) recommendations on how to advance responsible innovation and competition in the sector regarding the use of AI. While insurance companies are included in the definition of “financial institutions,” Question 14 includes three insurance-specific questions:
- As states adopt the NAIC’s Model Bulletin on the Use of Artificial Intelligence Systems by Insurers and other states develop their own regulations or guidance, what changes have insurers implemented and what changes might they implement to comply or be consistent with these laws and regulatory guidance?
- How do insurers using AI make certain that their underwriting, rating, and pricing practices and outcomes are consistent with applicable laws addressing unfair discrimination?
- How are insurers currently covering AI-related risks in existing policies? Are the coverage, rates, or availability of insurance for financial institutions changing due to AI risks? Are insurers excluding AI-related risks or adjusting policy wording for AI risks?
In other news, the Financial Stability Oversight Council (FSOC) held its 2024 Conference on Artificial Intelligence & Financial Stability with the Brookings Institution on June 6 and 7. In addition to discussing the Treasury Department’s request for information (discussed above), Secretary Yellen announced that FIO will convene a roundtable to discuss the benefits and challenges associated with the use of AI by insurers, best practices, and potential consumer protections to prevent discrimination. Secretary Yellen noted that the “tremendous opportunities and significant risks” from the use of AI by the financial sector have moved the issue toward the top of the Treasury and FSOC agendas.
The Treasury Department will continue to monitor the impact of AI on financial stability, facilitate the exchange of information, promote dialogue among regulators, and provide supervisory capacity to understand risks. Secretary Yellen also identified scenario analysis as a tool that could help regulators and firms identify future vulnerabilities to enhance resilience, especially given the rapidly evolving AI landscape.
Commissioner Scott White (VA) provided the keynote at the conference, highlighting the NAIC’s Model AI Bulletin, and noted that Virginia expects to adopt the bulletin—the department is in the final stages of review. He added that once the bulletin is adopted, staff will be trained how to ask appropriate questions during market conduct and financial exams to assess a company’s AI risk.
Staff Contact - Sean McKennaNAIC Updates
The NAIC’s Accelerated Underwriting Working Group scheduled a call for June 13 at 3:00 p.m. Eastern Time to discuss the revised Regulatory Guidance document, as well as the referral to the Market Conduct Examination Guidelines Working Group regarding revisions to the Market Regulation Handbook. The documents are expected to be exposed during the meeting.
On June 7, the Valuation of Securities Task Force (VOSTF) posted materials for its June 18 call. The materials contained revised versions of the NAIC Designation definition proposal (Attachment F) and the SVO challenge framework (Attachment G). The revised definition of NAIC Designation would broaden the lens of NAIC Designations from credit risk to “investment risk” and would remove the application of Subscript S for other non-payment risks. The following excerpts are included in the updated proposal:
- “NAIC Designations represent opinions of gradations of the likelihood of an insurer’s timely receipt of an investment’s full principal and expected interest.”
- “NAIC Designations should consider if risks, such as tail-risk, are inconsistent with, or duplicative of, risks already captured and defined in the risk-based capital factors, as applicable.”
Report on Bermuda Insurance Market Released
The Bermuda International Long Term Insurers and Reinsurers (BILTIR) recently released a report, Building for the Long Term: Examining the History, Future, and Importance of Bermuda’s Long Term Insurance Market. The report hits on a few key themes about the Bermuda regime: the strength and stability of the regulatory framework, EU Solvency 2 equivalence and NAIC Reciprocal and Qualified Jurisdiction status, and the benefits of its economic balance sheet approach—in short, addressing the myth of Bermuda as a “financial haven.”
The paper also remarks on the strength of BILTIR members’ asset quality and safety; policyholder protection; claims-paying ability; and commitment to environmental, social, and governance (ESG) efforts. The benefits and regulatory oversight of private equity firms’ investment in the Bermuda market are also discussed.
Staff Contact - Sean McKenna