NAIC Updates

During its May 2, 2024, call, the Valuation of Securities Task Force adopted two changes and exposed five items for comment. The most material exposed change would update the effective date for collateralized loan obligation (CLO) modeling to year-end 2025 (from year-end 2024), which the task force has already agreed to in concept. The task force adopted P&P Manual changes that (1) update references to U.S. government agency and other U.S. government obligation abbreviations and (2) update SSAP references related to Subsidiary, Controlled and Affiliated and Related Party Bond or Preferred Stock Investments in light of the changes to the bond definition. The task force did not receive comments on either item.

In addition to the change to the CLO modeling effective date, the task force exposed the following proposed P&P Manual changes:

• Changes to permit NAIC Designations for short-term asset-backed securities (ABS) in light of changes to SSAP 2R – Cash, Cash Equivalents, Drafts and Short Term Investments and the revised bond definition
  
• Adding Spain to the list of jurisdictions eligible for counterparty exposure netting
  
• Clarification language related to when insurers can self-assign an NAIC 6* Designation
  
• Updates to the lists of Securities Valuation Office (SVO) processes to remove dated references and add items not reflected in the existing language

The task force also heard a brief update on the ad hoc group’s efforts to develop the CLO modeling methodology. NAIC staff has reviewed scenarios and interested-party feedback and continues to work with the American Academy of Actuaries on its work with the RBC Investment Risk and Evaluation Working Group. The ad hoc group will post initial probabilities on the CLO Modeling webpage, but those will be subject to change after receiving interested-party feedback. The next ad hoc group meeting will likely be in June.

In other news, during its April 30, 2024, call, the Capital Adequacy Task Force:

• Exposed a revised RBC preamble for a 30-day comment period ending May 30 (see Attachment H in the task force’s agenda). The revisions are designed to clarify and emphasize the purpose and intent of RBC. In initial discussions at the ad hoc group, industry voiced concerns that the new language may prevent companies from sharing RBC information with certain parties (namely rating agencies and reinsurance counterparties). While the task force previously assured interested parties that was not the intent, the preamble does not contain anything documenting this position.
  
• Sent referrals regarding asset concentration (RBC Investment Risk and Evaluation Working Group) and geographic concentration (Catastrophe Risk Subgroup). This work was previously being handled by the now-disbanded ad hoc group. Both referrals recommend that the respective groups further investigate the issue and provide updates on their efforts to the task force at each national meeting.
  
• Raised the possibility of establishing a new subgroup to evaluate non-investment risk issues. Among other things, this group would look at potentially removing total adjusted capital (TAC) and authorized control level (ACL) amounts from the annual statement, re-evaluate any “missing risks” from the RBC calculation to determine if their inclusion is appropriate (or whether such risks are appropriately being addressed through other regulatory methods), and review any factors that have not been reviewed since the development of RBC to determine if changes are necessary. No regulators or interested parties provided any feedback on the new subgroup on the call.
  
• Adopted the climate scenario analysis into the P&C RBC formula. The change requires insurers to disclose the impact of climate-related risks on the modeled losses for hurricane and wildfire perils. The impact can be modeled using either (1) a Climate Conditioned Catalog developed by a commercial CAT model vendor; or (2) an equivalent view of climate risk internally developed by the insurer, or one that is the result of adjustments made by the insurer to vendor-provided catalogs to represent the company’s view of climate risk. Seven states abstained from the vote, arguing that more time should have been given to assess the proposal. Industry continued to question whether the new disclosures would provide any meaningful information to regulators.
  
• Adopted a structural change to the P&C and Health formulas for residuals. The task force agreed to make a structural change with no risk charge while it waits for the RBC Investment Risk and Evaluation Working Group to complete its work on the life formula. Once that decision is made, the task force will reassess how to handle the issue for the other two formulas.

The task force also adopted the following items:

• Item 2024-04-L, which adds a line to Total Adjusted Capital (TAC) to address non-admitted insurance affiliates—this item had previously been adopted but was left out of the life formula
  
• Item 2024-05-L, which adds a line to the Equity Component of AVR for “Residential – All Other” but does not include a factor
  
• Item 2024-08-CA, which removes references to H0 and R0, as those references are misleading
  
• 2024-10-P, which eliminates double-counting of stop-loss premium in the P&C RBC formula
  
• 2024-11-P, which updates the underwriting risk factors for premiums and reserves in the P&C RBC formula in light of work from the American Academy of Actuaries

The group also exposed 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
  
• A referral from the Statutory Accounting Principles Working Group (SAPWG) related to recent statutory accounting changes for tax credit investment structures—such changes may result in a need to update RBC factors and reporting lines for new tax credit programs

  Staff Contact - Sean McKenna

Texas GA Seeks New General Counsel

The Texas Life & Health Insurance Guaranty Association (TLHIGA) is accepting applications for outside general counsel. Its current general counsel, Jacqueline Rixen, will be retiring later this year after 30 years of service to the TLHIGA. Interested parties should contact Bart Boles, TLHIGA Executive Director, at [email protected] for additional information or download the TLHIGA 2024 General Counsel Solicitation Package from the Important Notices section on the homepage of the TLHIGA website.

  Staff Contact - Sean McKenna