November 8, 2024

International Updates

On October 30, 2024, the International Association of Insurance Supervisors (IAIS) published an updated register of internationally active insurance groups (IAIGs). Two IAIGs from Bermuda—Arch Capital Group Ltd. and Resolution Life Group Holdings Ltd.—were added to the list, and Finland’s Sampo Group was removed (the first removal from the IAIG register), bringing the total number of reported IAIGs to 59.

In other IAIS news:

• The Resolution Working Group made additional amendments to the draft ICPs 12 (Exit from the Market and Resolution) and 16.15 (Recovery Planning) during its meeting on October 9. These amendments were further discussed by the Policy Development Committee on October 16.
  
• The draft Application Paper on the supervision of Artificial Intelligence is expected to be out for consultation in a few weeks. In anticipation of its release, the IAIS has scheduled a public background session on December 13 to discuss the draft. Registration is available here.
  
• The Capital, Solvency and Field Testing Working Group finalized the results of the 2024 ICS and AM data analysis, resolution of comments on the ICS 2023 public consultation, and ICS Level 1 and Level 2 texts for adoption at the Annual Meeting next month.

  Staff Contact - Sean McKenna

NAIC Updates

The drafting group of the Privacy Protections Working Group (PPWG) met on October 31, 2024, under the new leadership of Director Beth Dwyer (RI). The drafting group heard additional comments from its members, which primarily centered on (1) whether the opening language in Section 5A (“consistent with the size and complexity of the third-party…”) is appropriate or whether there should be minimum standard contract language regardless of size and complexity; (2) the insurer burden associated with Section 5A(4) that would require the third-party to provide copies of its subcontractor agreements to the licensee (this was noted as the biggest concern among ACLI members); and (3) the wording and intent of Section 5B, which makes the licensee “solely responsible for the administration of its data integrity and compliance with this Act and the handling of nonpersonal public information.”

No decisions or revisions were made during the call; however, an updated version will be released at the Fall National Meeting. Director Dwyer also announced that Article III, which includes Sections 6 (Access, Correction, and Deletion of Nonpublic Personal Information), 7 (Sale of Nonpublic Personal Information), and 8 (Use and Disclosure of Sensitive Personal Information), will be exposed for comment soon.

The Financial Examiners Handbook Technical Group (FEHTG) adopted guidance on the following topics:

• Run-Off Companies: This guidance previously went through the notice-and-comment period at the Risk-Focused Surveillance Working Group, and therefore this item was adopted without an exposure from the FEHTG.
  
• Executive Compensation: The changes create a new section of the risk-testing template in the event an examiner finds that a company’s executive compensation plans include “incentives based on financial metrics that may encourage riskier decision-making.” The changes outline potential mitigation strategies, including (1) Board review and approval of executive compensation plans; (2) incentive compensation based on achievement of performance goals; and (3) maintenance of a claw-back policy that allows the company to recover incentive compensation in the event that financial statements must be restated.
  
• Manual RBC Adjustments: The changes also direct examiners to review manual adjustments to RBC charges (which can be made for items such as modco reinsurance or separate accounts) to ensure the adjustments are not resulting in inaccurate RBC calculations.

The Information Technology Examination Working Group adopted changes to Exhibit C, Part 2 of the Information Technology portion of the Financial Condition Examiners Handbook. The changes add cybersecurity elements to an examiner’s review of an insurer’s IT controls. A new section was added to address examiner findings that an insurer does not effectively manage its data across the data life-cycle (see APO 14). Additionally, a test procedure was added that would direct an examiner to determine “whether threats and vulnerabilities identified through information sharing forums are incorporated into the [company’s] risk profile.”

Regulators were adamant that the new guidance is necessary at this time, despite related work at other NAIC groups (Privacy Protections Working Group, Big Data and Artificial Intelligence Working Group, etc.). A survey sent to states earlier this year revealed significant differences in cybersecurity knowledge across departments, and this guidance is designed to bridge that gap.

  Staff Contact - Sean McKenna

AI Activity

On October 30, 2024, the White House celebrated the one-year anniversary of the AI Executive Order. The celebration included a fact sheet touting a long list of AI-related milestones.

  Staff Contact - Sean McKenna

Privacy Updates

The California Privacy Protection Agency and the FCC have signed a memorandum of understanding aimed at making it easier to share information, resources, and expertise between the agencies and to “coordinate efforts in conducting investigations to protect consumers.” The FCC has similar agreements with Connecticut, Illinois, New York, Oregon, Pennsylvania, the District of Columbia, Massachusetts, Maine, Vermont, Delaware, and Indiana. The agency also announced that it (1) is cracking down on data brokers’ compliance with the registration requirements of California’s Delete Act, which requires all data brokers to register with the state; and (2) will issue fines to entities that do not comply.

  Staff Contact - Sean McKenna

Several Insurance Commissioners Elected

All three incumbent Insurance Commissioners running for third terms—Delaware’s Trinidad Navarro (D), North Dakota’s Jon Godfread (R), and North Carolina’s Mike Causey (R)— were reelected. Open seat races followed their states’ voting patterns, with Washington’s Patty Kuderer (D) and Montana’s James Brown (R) elected for their first terms.

  Staff Contact - Sean McKenna