NAIC To Hold June Hearing on Proposed Changes to Financial Accreditation Standards

The NAIC’s Financial Regulation Standards and Accreditation Committee (FRSAC) has scheduled a hearing in conjunction with the NAIC’s Summer National Meeting to consider four proposed changes to the state accreditation requirements.

Among the changes being considered is a proposal to incorporate the NAIC’s Insurer Receivership Model Act (IRMA) into the state accreditation standards. NOLHGA has submitted written comments to FRSAC urging against incorporation of IRMA, or any specific statutory requirements based on post-solvency receivership laws which do not directly relate to solvency surveillance, the stated goal of the financial accreditation program. NOLHGA also raised concerns about the incorporation of any new and untested model law into the accreditation requirements, particularly one as controversial as IRMA. Similar concerns have been raised in comments submitted by the American Council of Life Insurers; the National Conference of Insurance Guaranty Funds; the Property Casualty Insurers Association of America; and the National Conference of Insurance Legislators. Comment letters have not yet been posted to the NAIC website. However, a copy of NOLHGA’s comment letter is available to members in the “Publications” section of the NOLHGA website, and may also be obtained by submitting a request to [email protected].

FRSAC will also be considering changes to the accreditation standards relating to the NAIC Model Audit Rule, and the NAIC Risk-Based Capital for Insurer’s Model Act, as well as proposed changes to Review Team Guidelines to address revisions to the Financial Examiner’s Handbook. Hearing on all of these matters has been scheduled for Saturday, June 2.

NAIC Adopts New Process for Model Law Development

Last week, the NAIC announced adoption of a new process for developing NAIC Model Laws. This new process, referred to by the NAIC as the new Model Law Development Framework, is designed to refocus the development of model laws onto issues that the NAIC believes to require uniform national standards, and to increase the rate by which NAIC models are adopted in the states by requiring, as a condition to authorizing work on a proposed model or model amendment, a commitment from NAIC members to support enactment of the model in state legislatures. The Framework outlines detailed procedures for approval and development of model laws.

Phase one of the process requires majority approval by the Parent Committee and by the NAIC’s Executive Committee before NAIC resources can be employed for development of a model or model amendments. Approval requires a showing that the proposed model addresses an issue for which a uniform national standard is needed, and that NAIC members are committed to devoting significant regulator and association resources to support the model in the states. If approval is denied, the matter can be addressed through development of Guidelines reflecting recommended best practices. If the denial relates to a proposed amendment to an existing model, the Executive Committee may reclassify the entire model as a Guideline unless that model meets the referenced criteria.

If the Executive Committee approves a request for development of a model, the responsible working group will have one year to complete work on the model, subject to extension for “good cause.” Adoption of the model by the NAIC requires a two-thirds majority vote by the parent committee, followed by a two-thirds majority vote by the Executive/Plenary Committee. A vote in favor of adoption is deemed to be a commitment on the part of that member to support and assist in the adoption of that model in his or her state legislature. Following adoption of a model, it will be a priority of the NAIC to achieve uniform adoption in a majority of the states within three years. The Framework also contemplates review of existing models that have been adopted in less than a majority of states to determine whether they meet the new Model Laws criteria. If so, resources will be focused on pursuit of uniform adoption in the remaining states. Otherwise, the model would be reclassified as a guideline.

Implementation of this new Framework is expected to begin in advance of the NAIC’s June meeting. It is not clear at this point how this new process will affect pending model law initiatives, such as the ongoing efforts of the Model Act Revisions Working Group (MARG) to update the Life and Health Insurance Guaranty Association Model Act and the proposed amendments to the Property and Casualty Insurance Guaranty Association Model Act, which had been scheduled for a June vote by the Receivership and Insolvency Task Force (RITF). Conference calls have been scheduled for working groups, task forces and their parent committee’s throughout the balance of this month to consider the impact of the new Framework on pending model law projects, and to discuss application of the newly defined criteria to those efforts.