May 9, 2025

MPC Meets in Edina

The Members’ Participation Council (MPC) held a meeting on April 30–May 1, 2025, in Edina, Minnesota, and online. The MPC General Session featured:

• Comments from NOLHGA Chair Joy Higa, who praised the educational sessions held the previous day (see below), highlighted the technology presentations and AssessConnect demo sessions held throughout the meeting, and thanked MPC Chair Barbera for her efforts to solicit feedback from the members and share that feedback at MPC Executive Committee meetings.
  
• The MPC Chair Report, during which MPC Chair Amanda Barbera (Indiana) reviewed the committee’s 2025 objectives—including a review of the GA Best Practices document and a continuing focus on educational opportunities—and provided a preview of the International Association of Insurance Receivers (IAIR) Technical Development Series session that will take place in October before the NOLHGA Annual Meeting.
  
• The NOLHGA Management Report, in which NOLHGA President Katie Wade updated attendees on progress made in the three workstreams featured in NOLHGA’s strategic plan: (1) technology, systems, and documentation; (2) human capital; and (3) assessment services (the AssessConnect system for the member guaranty associations). Members can access the Management Report presentation in the members-only section of the NOLHGA website in the Strategy Update section on the homepage.
  
• An update on the work of the Assessment Data Survey Task Force by Chair Candie Kinch (Idaho, Oregon, and Wyoming).
  
• An update on the work of the MPC Rules and Procedures Drafting Group by Chair Tom Sullivan (Iowa) and NOLHGA staff members Bill O’Sullivan and Michael McDonald.
  
• A presentation on the new Technology & Cybersecurity Committee (TCC) by Chair Jessia Walker (Connecticut). The TCC is charged with assisting the guaranty system in staying abreast of developments and emerging issues in new technology and cybersecurity, and the committee plans to conduct a survey of member guaranty associations to collect information on technology and cybersecurity awareness and concerns to best target resources and priorities for 2025 and beyond.
  
• An update on the work of the Security Advisory Committee (SAC) by Co-Chair Nancy Margolis (Pennsylvania), which addressed how the SAC and TCC will coordinate their efforts to capitalize on the expertise in both committees.
  
• An update on the financial status of LTC Re (the captive insurer formed to administer policies from Penn Treaty/ANIC) by Chief Financial Officer Brenda Cushing.

The MPC meeting also featured:

• A closed-session presentation by the Global Bankers Insurance Group (North Carolina) Task Force.
  
• A closed-session meeting of the Senior Health Insurance Company of Pennsylvania (SHIP) Task Force.
  
• A closed-session GABC Members Meeting.
  
• An update on the AssessConnect system for member guaranty associations by NOLHGA Chief of Staff Jenn Webb. The meeting also featured one-on-one demo sessions on AssessConnect conducted by Alexis Comrack (Comrack Consulting) and Adam Solove (Solove Consulting), two consultants working on the AssessConnect project.
  
• A meeting of the MPC Executive Committee.
  
• Strengthening Your Relationship with Your DOI, an educational session conducted by Pamela Olsen (Minnesota, Nebraska, and New Mexico) and NOLHGA Assistant Vice President, Insolvency Management Lindsay Crawford.
  
• Who Does What at NOLHGA?, an educational session conducted by NOLHGA President Katie Wade and several members of the NOLHGA staff, who explained their responsibilities and the responsibilities of other staff members in their departments.

  Staff Contact - Sean McKenna

Federal Reserve Issues Financial Stability Report

On May 2, 2025, the Federal Reserve Board issued its annual Financial Stability Report, which outlines the Fed’s current assessment of the stability of the U.S. financial system. Insurers (mainly life) are mentioned throughout the paper in connection with identified vulnerabilities related to leverage in the financial sector (Part 3) and funding risks (Part 4). Asset valuation issues (Part 1) are also identified as having the potential to negatively impact insurers’ balance sheets. Noteworthy passages on insurance-related issues include:

• Discussion of life insurer leverage (p. 32): The report notes that life insurers continue to take additional credit and liquidity risk by allocating a growing share of their portfolios to riskier and less liquid assets, such as leveraged loans, collateralized loan obligations (CLOs), high-yield corporate bonds, privately placed corporate bonds, and alternative investments. Additionally, the report suggests that as major holders of commercial mortgage-backed securities, life insurers could face valuation pressures if commercial property values experience a significant decline.
  
• Discussion of life insurers’ reliance on nontraditional liabilities (p. 45): “Life insurers continue to increase their reliance on nontraditional liabilities for funding, including funding-agreement-backed securities, Federal Home Loan Bank advances, and cash received through repos and securities lending transactions. These liabilities can create liquidity risk through the inability to roll over funding if the proceeds from such funding are not invested in assets with similar maturity profiles. The combination of a growing reliance on nontraditional liabilities and a steady decline in the liquidity of life insurers’ assets could make it challenging for life insurers to meet a sudden rise in withdrawals or other claims.”

The report concludes by identifying the following near-term risks to the financial system: (1) a U.S. slowdown, particularly if accompanied by higher interest rates, could pose risks for the wider economy as well as financial institutions; (2) a marked slowdown in global economic growth could expose existing financial vulnerabilities; and (3) cyberattacks and other cyber events could disrupt market functioning and the provision of financial services.

  Staff Contact - Sean McKenna

NAIC Updates

The Life Risk-Based Capital (Life RBC) Working Groupmet on May 1, 2025. The working group received a referral from the Statutory Accounting Principles Working Group (SAPWG) regarding modified coinsurance (modco) and funds withheld (FWH) arrangements and exposed related Proposal 2025-10-L (RBC Asset Credit MODCO/FWH). The referral notifies the working group of recent SAPWG changes (Ref #2024-20) related to the reporting of modco/FWH assets as restricted and revised disclosures on whether the modco/FWH assets have been pledged for another purpose specific to the ceding company (e.g., if the ceding company has also used those assets as collateral in a securities lending agreement, repo transactions, pledged to the FHLB, etc.). The revisions adopted by SAPWG include a direction to the Life RBC Working Group to amend the Life/Fraternal RBC Forecasting Instructions to clarify that if an asset has been used concurrently as a pledged asset and a modco/FWH asset at any time during the year, the RBC for the ceding company shall not be reduced. Proposal 2025-10-L implements this change. Comments are due May 31.

Note that a corresponding Blanks proposal was exposed until April 29, with an anticipated vote on May 29. The development of these items stemmed from inconsistencies in (1) cedants reporting of modco/FWH assets as restricted and (2) the specific restricted asset category where the modco/FWH asset is being reported. Companies also are taking different interpretations of the RBC formula instructions that preclude RBC credit for modco/FWH assets when the entire asset credit risk or variability in statement value risk is not transferred to the assuming company for the entire duration of the reinsurance treaty. It was noted that companies may be pledging modco/FWH assets for other purposes specific to their operations while still taking asset credit for the modco/FWH asset in the RBC formula.

The working group also took the following actions:

• Adopted Proposal 2024-21-L MOD (Tax Credit Investments), which updates the RBC instructions and blanks to incorporate changes adopted by SAPWG related to tax credits. The proposal addresses structural and instructional changes and does not propose a potential factor change.
  
• Adopted Proposal 2024-24-L MOD (Principles-Based Bond Project), which incorporates changes to the RBC instructions resulting from the principles-based bond project.
  
• Adopted Proposal 2025-01-L C-2 (Mortality Risk), which updates RBC instructions and blanks to allow for direct pulls of information between the annual statement and the new general interrogatory related to mortality risk.
  
• Adopted Proposal 2025-05-L (Asset Concentration L010), which allows Securities Valuation Office (SVO)-designated non-bond debt securities to obtain an asset concentration factor treatment akin to bonds in LR002. (Note that SAPWG responded to a referral from Life RBC in support of this proposal.)
  
• Adopted modified Proposal 2025-04-L (Other Long-Term Assets), which reorganizes the LR008 page (Other Long-Term Assets) to ensure BA assets with the same risk components are grouped. This will help facilitate proper modco/FWH adjustments within LR008. Changes to the proposal were made in response to the ACLI’s comment letter. Additional editorial changes to the asset valuation reserve (AVR) instructions may be required. A referral will be made to the Blanks Working Group (and SAPWG, if necessary).

The working group heard a presentation from the American Academy of Actuaries on C-3 Alignment:

• The working group and the Academy shifted the previously reported timeline. The parties agreed to move the field test to 2026, with a target effective date of year-end 2027 and a three-year phase-in period (all current products subject to C-3 Phase 1 and C-3 Phase 2 will move to this new methodology, and fixed-indexed annuities will be included in the scope of C-3 Phase 1).
  
• The Academy presented on various elements of the methodology, including default costs, stochastic equity risk, metrics, scalars, working reserves, and time horizons.
  
• The Academy recommended that an evaluation of the consistency of C-1 methodology between principle-based reserving and capital be performed (and will adjust recommendations as necessary).

The working group also heard a presentation from the Academy on Covariance:

• The Academy on Covariance noted that the goal of its work is to develop a correlation approach that achieves a Company Action Level RBC that maintains the statistical safety level to which the individual risk factors within RBC are calibrated over a multiyear horizon—recognizing that correlations may not be linear across all outcomes.
  
• Suggested four material recommendations: (1) credit risk: 25% Correlation between C-1o (C-1 Other) and C-3b (health credit risk); (2) equity risk: 100% Correlation between C-1cs and C-3c (both capture market risk of equity assets); (3) insurance risk: no change to existing -25% Correlation between C-2a (mortality) and C-2b (longevity); and (4) business risk: 0% Correlation between C-4a (premium and liability component) and C-4b (health administrative expense).
  
• The recommendations would increase the effective required capital after Covariance for equity and credit risk and decrease the effective required capital for insurance, interest rate, and business risks. The presentation included a summary of the impact of Covariance, showing that the net impact to a hypothetical company with a risk distribution equal to the 2023 aggregate industry mix would be an RBC increase of 1.6%. Companies with higher equity exposure likely will be more heavily impacted by the changes.
  
• The Academy on Covariance will work with NAIC staff to expose these proposed changes.

Philip Barlow (DC) reminded the working group that there is a trend test proposal at the Capital Adequacy Task Force that may ultimately come back to the working group.

The Life Actuarial Task Force continues to forge ahead with the draft actuarial guideline (AG) on the asset adequacy testing of reinsured business. Fred Andersen (MN) walked the task force through changes made to the latest AG draft:

• Clarification regarding aggregation—new language was added to Section 8 to distinguish between aggregation of analysis/presentation of results and aggregation of deficient/sufficient blocks.
  
• New language in Section 6.B(ii) clarifying that the basis for the Starting Asset Amount (i.e., book value vs. market value) should be consistent with the basis used by the reinsurer.
  
• Clarifying language in Section 7 suggesting that attribution analysis is preferred, but not required, on business subject to cash-flow testing.
  
• A request for additional information regarding the definition of Primary Security (concerns were raised that the definition did not include Schedule BA assets).
  
• Expansion of the AG scope to transactions entered into from January 1, 2016, to December 31, 2019. The revised language provides exemptions for these transactions.

The task force is meeting with companies regarding various Similar Memoranda, which can be submitted as an alternative to cash-flow testing. Additional guidance may come out of those meetings. A revised draft will be exposed, with comments due May 22. The task force will hold a call on May 29 and anticipates a 5-day fatal flaw exposure and final vote on June 5.

The Life Insurance and Annuities (A) Committee met on April 30 to consider whether to resume any work of the Special Committee on Race and Insurance (SCORI) Life Workstream following SCORI’s disbandment. The committee decided not to move forward with the workstream’s draft survey on life insurers’ use of criminal history data in underwriting (which was put on hold in anticipation of the SCORI transition). The Society of Actuaries and the Center for Insurance Policy and Research (CIPR) are partnering on a study to examine the criminal history data used in life insurance underwriting, which will include outreach; surveys; and interviews of data providers, reinsurers, and insurers. The organizations have reviewed the workstream’s draft survey and intend to incorporate components of it into this work but emphasized that not all questions will be addressed; it is unclear at this time how much overlap is expected. The committee will determine whether any additional work is needed once the study is complete.

  Staff Contact - Sean McKenna

International Developments

The European Insurance and Occupational Pensions Authority (EIOPA) recently published the following consultations on “Batch 1” instruments related to the practical implementation of the EU’s Insurance Recovery and Resolution Directive (IRRD): content of pre-emptive recovery plans; pre-emptive recovery plan criteria and methods to determine market shares; content of resolution plans; identification of critical functions; assessment of resolvability; and addressing impediments to resolvability. Comments are due on July 31.

Recent activity by the International Association of Insurance Supervisors (IAIS) included:

• The Resolution Working Group (ReWG) is working on draft revisions to the recovery and resolution application papers. ReWG also received updates at its last meeting on the Targeted Jurisdictional Assessment (TJA), Global Monitoring Exercise (GME), and the activities of the Financial Stability Board’s Cross-border Crisis Management Working Group for Insurers (CBCM).
  
• The Macroprudential Supervision Working Group’s Cross-Border Reinsurance Workstream is working on next steps for the quantification exercise related to the asset-intensive reinsurance section of the draft Issues Paper on Structural Shifts in the Life Insurance Sector.
  
• Insurance Capital Standard (ICS) implementation work is underway at the Capital and Solvency Working Group, which has been discussing development of the high-level principles for the implementation assessment methodology and standards for supervisory reporting and public disclosure.
  
• The IAIS virtual Global Seminar (July 8–10) will feature an Executive Committee dialogue, panels on global insurance sector risks and natural catastrophe protection gaps, and separate engagement sessions with three committee chairs. The full agenda will be published closer to the event.

  Staff Contact - Sean McKenna

California Privacy Updates

Ahead of its May 1, 2025, meeting, the California Privacy Protection Agency (CPPA) issued a revised rulemaking package on automated decisionmaking technology (ADMT), risk assessments, and cybersecurity audits. The main revisions include:

• Removal of opt-out rights with respect to behavioral advertising based on first-party data, workplace and educational profiling, profiling through observation in public places, and training ADMT.
  
• Shift to focusing on the use of ADMT for “significant decisions.”
  
• Narrowing in-scope ADMT systems from the use of ADMT to “substantially facilitate” human decisions to its use to “substantially replace” human decisions.
  
• Streamlining risk assessment and cybersecurity audit requirements, including removing the requirements to have risk assessments be affirmatively submitted to the CPPA and allowing audit certifications to be signed by a business executive.

The CPPA is proposing a 15-day public comment period on the revised rulemaking. Prior to the revised rulemaking, Governor Newsom opposed the proposed ADMT regulations, warning the CPPA Board that “enacting these regulations could create significant unintended consequences and impose substantial costs that threaten California’s enduring dominance in technological innovation.”

The CPPA has also opened the formal public comment period for its proposed Delete Request and Opt-out Platform (DROP) regulations. Interested parties may submit comments through June 10. The comment period will conclude with a hybrid public hearing on the proposed regulation on June 10.

  Staff Contact - Sean McKenna