NAIC Updates

On May 22, 2025, the International Insurance Relations (G) Committee approved its comments on the International Association of Insurance Supervisors (IAIS) draft Issues Paper on structural shifts in the life insurance sector (due to the IAIS by June 2). The NAIC makes clear in its comments that the potential Insurance Core Principle (ICP) enhancements identified by the IAIS are “unrealistic and disproportionate” and suggests that many enhancements would be better suited for content in IAIS supporting material (further Issues Papers or Application Papers). While the NAIC didn’t receive any written comments on its proposed comments, interested parties provided feedback during the call to address their concerns with the Issues Paper, which were largely centered around how it defines and characterizes alternative assets. Overall, interested parties supported the NAIC’s comments but encouraged the NAIC to assert ongoing U.S. efforts and leadership in addressing the supervisory concerns in the Issues Paper.

The Privacy Protections Working Group (PPWG) is continuing to advance various sections of the Model #672 Chair’s Draft. Article V of the Chair’s Draft revises Sections 18–20 and includes three new sections:

• Section 21 – Limits on Disclosure of Nonpublic Personal Information in Targeted Marketing
  
• Section 22 – Limits on Sale of Nonpublic Personal Information
  
• Section 23 – Limits on Disclosure of Sensitive Personal Information

Comments are due June 18.

The working group also published revisions to Article IV (informed by written feedback as well as the February 28 public and April 23 regulator-only call discussions), but comments are not requested at this time. Article IV revisions will be subject to additional comments during the full exposure of the Chair Draft.

The Third-Party Data and Models Working Group recently held its first call of the year and discussed its 2025 work plan, results from a regulator-only survey, and how to define “third party.” Highlights include:

• 2025 Work Plan: Jason Lapham (Chair-CO) confirmed that the goal of the working group is still to “develop and propose an optimal regulatory framework for the regulatory oversight of third-party data and predictive models.” He clarified the intent is to adapt existing frameworks rather than build new ones, and the working group will coordinate with other groups on similar work (such as the Big Data and AI Working Group). This year, the working group will pick up where it left off in 2024 regarding the evaluation of existing frameworks and goals for a third-party regulatory framework.
  
• Regulator Survey Results: The working group issued a survey to members to learn more about how states view and regulate third parties and any related regulatory concerns. Regulators identified three issues they want the framework to address: (1) inability to assess the fairness of insurers’ use of data, potential unfair discrimination, and validation of model outputs; (2) governance, internal risk management, and controls used to address third-party data and models; and (3) inability to assess whether rates are excessive, inadequate, or unfairly discriminatory when third-party data or models are used in rate-making practices. Lapham said the working group would consider making the survey results public in response to stakeholder requests; at the very least, his report on the results will be reflected in the meeting minutes.
  
• Third-Party Definitions: The working group is seeking feedback on proposed definitions of “third-party data vendor” and “third-party model vendor” for use in a regulatory framework. Comments are requested by June 20. These definitions will inform future working group decisions.

  Staff Contact - Sean McKenna

International Developments

As reported previously, on April 29 the European Insurance and Occupational Pensions Authority (EIOPA) launched six consultations related to the implementation of the European Union’s Insurance Recovery and Resolution Directive (IRRD). The consultations propose draft guidelines and technical standards covering key aspects such as preemptive recovery plans, resolution plans, and resolvability of insurance undertakings and groups. Below are key takeaways from the consultations related to preemptive recovery planning:

Consultation Paper on Regulatory Technical Standards (RTSs) for Preemptive Recovery Plans: The RTSs are part of the EU’s broader framework aimed at enhancing crisis management and ensuring financial stability. This paper specifies the minimum content required for preemptive recovery plans and group preemptive recovery plans, including:

• Content Requirements: Plans must include a summary, description of the group, framework of indicators, preparation and update processes, remedial actions, communication strategy, and any past breaches of the solvency capital requirement (SCR).
  
• No Public Financial Support: Plans must assume no extraordinary public financial support.
  
• Governance & Decision-Making: Plans should be integrated into the group’s governance framework, outlining roles, responsibilities, and decision-making processes for remedial actions.
  
• Business Interconnectedness: Plans must detail the group’s legal and financial structures, intra-group financial exposures, and operational interconnectedness.
  
• Indicators & Triggers: Quantitative and qualitative indicators should be consistent with the group’s risk management framework, providing timely triggers for remedial actions.
  
• Remedial Actions: Plans should outline feasible actions to restore financial stability without relying on public support.
  
• Communication Strategy: A tailored strategy is required for both internal and external stakeholders, considering jurisdictional nuances and stress scenarios.

Consultation Paper on Regulatory Technical Standards (RTSs) on Criteria for Preemptive Recovery Planning & Methods for Determining Market Share: This paper sets forth the criteria for determining which insurers and reinsurers should be required to submit preemptive recovery plans and how market share is calculated for purposes of complying with minimum market share requirements. Methods for determining market share and criteria for preemptive recovery planning apply to both solo undertakings and groups. Key takeaways include:

Criteria for Preemptive Recovery Planning Requirements

• Size: Assessed using gross technical provisions (i.e., reserves) for life insurance and gross written premiums for non-life insurance. Total assets may supplement this assessment.
  
• Business Model: Evaluated on profitability, lines of business, product types, investment strategy, distribution model, and overall stability.
  
• Risk Profile: Based on the Solvency Capital Requirement (SCR), quality of own funds, risk exposures, risk appetite, and liquidity risk.
  
• Interconnectedness: Considers intra-group transactions, financial market exposures, and operational services’ relevance within the group.
  
• Substitutability: Degree to which policyholders can replace insurance products within a reasonable timeframe and cost.
  
• Importance for the Economy: Impact on non-financial sectors, role as institutional investor, employment, and contribution to GDP.
  
• Cross-Border Activities: Share of gross written premiums from cross-border activities and the number of countries involved.

Market Share Calculation

• At least 60% of life and non-life markets in each Member State must be covered by preemptive recovery planning.
  
• Market share is determined by aggregating gross technical provisions for life insurance and gross written premiums for non-life insurance.
  
• Supervisory authorities must verify compliance with the 60% market coverage level regularly and after significant changes in the undertaking.

Group-Level Recovery Plans

• When a subsidiary is part of a group for which the ultimate parent is maintaining a group preemptive recovery plan, the subsidiary’s market share can be included in the calculation toward the 60% market coverage requirement.
  
• If the supervisory authority determines that a subsidiary should be subject to an individual preemptive recovery plan based on risk criteria, they must verify that the group recovery plan sufficiently considers the subsidiary. If not, an individual plan may be requested.

Exemptions for Small & Non-Complex Undertakings: These entities are generally exempt from preemptive recovery planning unless deemed a particular risk. They are included in market coverage assessments if required to submit a recovery plan.

Operational Considerations: Supervisory authorities will use data from supervisory reporting and other relevant information to assess criteria.

  Staff Contact - Sean McKenna

AI Activity

The NAIC’s Big Data and AI Working Group extended the comment period on the AI Model Law RFI until June 30, 2025.

On May 21, the House Committee on Energy and Commerce’s Subcommittee on Commerce, Manufacturing, and Trade held a hearing titled “AI Regulation and the Future of US Leadership.” The hearing featured witnesses from the U.S. Chamber of Commerce, the AI Now Institute, the R Street Institute, and General Catalyst. While the subcommittee expressed mixed feelings surrounding the potential 10-year moratorium on the enforcement of state-based AI regulations, the witnesses generally supported the moratorium, stating that the state-based approach is creating a patchwork of burdensome requirements that hamper innovation and will impact U.S. companies’ ability to keep up with developments in AI.

Amba Kak (AI Now Institute) expressed the minority view of the witnesses and opposed the proposed moratorium, discussing the potential risks that the lack of regulation would pose for consumers. The subcommittee and witnesses also expressed concerns regarding the EU AI Act’s extraterritorial impact, steep fines, and potential unfair targeting of U.S. companies. Overall, the subcommittee and witnesses seemed to favor federal regulation of AI if it strikes the proper balance between regulating potential risk and fostering innovation.

  Staff Contact - Sean McKenna