Top stories • Insurers to disclose climate change behavior in 2010 • Regulators eye rating agencies, initiate one of their own • Capital and surplus relief proposal considered in pieces Also in this issue • In brief • IAIS Update • NAIC accounting update What’s next • May 18-19, 2009: NAIC International Insurance Forum, Washington, D.C. • June 13-16, 2009: NAIC Summer National Meeting, Minneapolis, MN • July 9-12, 2009: NCOIL Summer National Meeting, Philadelphia, PA SAN DIEGO, CA. Of all quarterly meetings of the National Association of Insurance Commissioners (NAIC), the spring gathering is considered by regular attendees to be the “slowest.” However, actions taken on the ground at this year's March meeting did not lack in controversy. Ripped right from the headlines of major newspapers, the topic of Washington’s consideration of a systemic risk regulator took center stage in the hallways as well as in the meeting rooms, where regulators and members of state legislative groups vowed to work together in framing the debate. On the federal front, too, there continues to be much action by regulators and executives of the NAIC relating to initiatives under consideration by the Obama administration and the U.S. Congress. Concurrent with the spring meeting, for example, Illinois Insurance Director Michael McRaith was down in Washington standing up for state regulation during a March 17 hearing of the U.S. Senate Committee on Banking, Housing and Urban Affairs to “examine perspectives on modernizing insurance regulation.” This follows testimony given by Wisconsin Insurance Commissioner Sean Dilweg during a March 12 climate change hearing before the U.S. Senate Committee on Commerce, Science and Transportation hearing on climate change, during which the commissioner outlined NAIC activities on this front. Consequently, at the San Diego meeting, the NAIC Executive Committee/Plenary adopted a climate change disclosure survey which will be mandatory for most insurers beginning this year. The behaviour of rating agencies has also moved to the forefront at the NAIC. At the spring meeting, the Rating Agency Working Group advanced plans to survey rating agencies on issues of concern shared by state regulators. The NAIC is also moving ahead with exploring the feasibility of creating its own rating agency to rate insurers’ investments. Looking forward, items to be considered at the summer meeting in June include capital and surplus relief, credit scoring, and changes to the NAIC’s catastrophe modeling handbook. Spring 2009 NAIC Update
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Top stories•Insurerstodiscloseclimatechangebehaviorin2010
SAN DIEGO, CA.OfallquarterlymeetingsoftheNationalAssociationofInsuranceCommissioners(NAIC),thespringgatheringisconsideredbyregularattendeestobethe“slowest.”However,actionstakenonthegroundatthisyear'sMarchmeetingdidnotlackincontroversy.
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Climate change will have a huge impact on the insurance industry and we need better information on how insurers are responding to the challenge. –PennsylvaniaInsuranceCommissionerJoelArio
Top stories
Insurers to disclose climate change behavior in 2010Beginningnextyear,theinsuranceindustrywillberequiredtoreporttostateregulatorscertainbusinesspracticesrelatingtoclimatechange.
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The NAIC continues its pursuit of expanding its New York-based Securities Valuations Office to include a public NRSRO that would rate investments by insurers.
Regulators scrutinize rating agencies, make plans to start one of their own
NAIC as NRSRO? Inrelatednews,theNAICcontinuesitspursuitofexpandingitsNewYork-basedSecuritiesValuationsOffice(SVO)toincludeapublicNRSROthatwouldrateinvestmentsbyinsurers.AttheNAICspringmeeting,thenewly-formedSVOInitiativesWorkingGroupdidnotmeet;ratheritforwardedareportofitslatestactivitiestotheNAICExecutiveCommittee.Theworkinggroupispeggingthecostofstart-upat$4millionforthefirsttwoyearsofoperation.
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Capital and surplus relief proposal considered in piecesWhenfirstunveiledpubliclyattheNAIC’swintermeetinginDecember,discussionofthemulti-pointproposaloftheAmericanCouncilofLifeInsurers(ACLI)drewastanding-roomonlycrowd.AtthespringNAICmeeting,thisonce“hottopic”washandledasamatterofcourse.
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In briefRegulators set to advance Model Audit Rule and Receivership revisions Sarbanes-Oxley-inspiredrevisionstotheNAICModelAuditRuleandanupdateoftheInsurerReceivershipModelAct(IRMA)bothsparkedspiriteddebatewhentheywerefirstproposedandfinallypassedin2006.Butasaone-yearcommentperiodforbothmeasurescomestoaclose,allappearsquietonthehomefront.
Reinsurance Regulatory Modernization Framework to advance in D.C.WiththeReinsuranceRegulatoryModernizationFrameworkadoptedatitswintermeeting,theNAICiswellonitswaytofillingintheblanksoftheframeworkbydraftingfederalenablinglegislationthatwouldallowforuniformityacrossstates,albeitusurpingexistingstatereinsurancelawsintheprocess.ThecommentperiodforthemeasureistobeabbreviatedinordertosubmittoCongressinthecurrentsession.Aninterimmeetingtoreceivecommentsisbeingslatedformid-April.
State groups join to provide “voice” on federal frontStateregulatorsandstatelawmakersdon’talwaysagreeonmattersrelatingtotheinsuranceindustry,butanewcoalitionmadeupofmembersofbothgroupsisforgingthewayincreatingaunifiedvoiceonmattersrelatingtothequestionoffederalregulation.
Regulators to scrutinize insurers’ use of credit scoring Thetopicofcredit-basedinsurancescoringpermeatedseveralsessionsoftheNAIC’sspringmeeting,withregulatorsformallyadoptingaproposaltocontinuetheirstudyoftheissueandannouncingapublichearingthatwillbesettoreceivetestimonyfrominterestedparties.
Three hearings in one monthAsinsuranceissuestakethenationalstage,theNAICanditsmembersarepilinguptheairlinepointsinfrequenttravelstoWashington,D.C.DuringthemonthofMarchalone,regulatorsandNAICexecutiveshaveappearedbeforeCongressthreetimestooffertestimonyfromtheperspectiveofstate-basedregulation.
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International update
Continuing its involvement in areas of insurance supervision beyond the United States, the NAIC is expected to move though 2009 with a full international agenda.
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Statutory Accounting Principle Working GroupCurrent Developments: TheSAPWGadoptedthefollowingamendmentsasfinal:
Reference Title Sector Amendments adopted as finalEffective
dateFS impact Disclosure
2008-13
2008-26
2008-27
SSAP No. 48Audit Report Requirements for non-subsidiary, controlled and affiliated (SCA) investments
FSP FAS 150-3 and FSP FAS 150-5Mandatorily Redeemable Financial Instruments, Freestanding Warrants, and Similar Instruments on Shares That are Redeemable
FSP SOP 90-7-1An Amendment of AICPA Statement of Position 90-7
Nonsubstantive Change – AdoptedasfinalrevisionstoIssuePaperNo.99– Nonapplicable GAAP Pronouncements (Issue Paper No. 99) rejectingFSPFAS150-3,Effective Date, Disclosure and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain mandatorily Redeemable Noncontrolling interests Under FASB Statement No. 150 andFSPFAS150-5, Issuer’s Accounting Under FASB Statement 150 for Freestanding Warrants and Other Similar Instruments on Shares That are Redeemable asnotapplicabletostatutoryaccounting.
Nonsubstantive Change – AdoptedasfinaltheexposedrevisionstoSSAPNo.72–Surplus and Quasi Reorganizationstoclarifythatputtablewarrantsandmandatorilyredeemablewarrantsarereflectedasliabilities.
Nonsubstantive Change – AdoptedasfinalrevisionstoIssuePaperNo.99rejectingFSPSOP90-7-1,An Amendment of AICPA Statement of Position 90-7asnotapplicabletostatutoryaccounting.
Y
Y
N
N
N
N
Immediate
Immediate
Immediate
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•FSPFAS117-1,Endowments of Not-For-Profit Organizations: Net Asset Classification of funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosure for All Endowment Funds
•StatementofPosition07-2,Attestation Engagement That Address Specified Compliance Control Objectives and Related Controls at Entities That Provide Services to investment Companies, Investment Advisors, or Other Service Providers
•StatementofPosition07-1,Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies and FASB Staff Position 07-1-1, Effective Date of AICPA Statement of Position 07-1
Nonsubstantive Change – ExposedchangestoSSAPNo.91R,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,adoptingFSPFAS140-3.
Exposed proposed SSAP No. 92 and SSAP No. 100–TheproposedSSAPsadoptwithmodificationFASBNo.158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132 (R)(FAS158).DifferencesfromFAS158includethefollowing:
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TheSAPWGtookthefollowingotheractions:
Reference Title Sector Amendments adopted as finalEffective
dateFS impact Disclosure
2002-27
2003-12
2008-20
2009-03
2008-29
2008-15
2008-28
Accounting for Index Based Insurance Linked Securities
IP No. 135FASB Interpretation 45: Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Others, and Interpretation of FASB Statements No. 5, 57, and 107 and Recession of FASB Interpretation No. 34 (FIN 45)
FAS 163Accounting for Financial Guarantee Contracts
FSP EITF 99-20-1Amendments to the Impairment Guidance of EITF Issue No. 99-20-1
Increase the DTA Admission Limitations
Deferred Premium Asset and the Unearned Premium Reserve
Transfer of P&C Run Off Portfolios
P&CLifeHealth
P&CLifeHealth
P&CLifeHealth
P&CLife
P&CLifeHealth
P&CLifeHealth
LifeHealth
P&C
Withdrawn – The Working Group noted there was a lack of activity related to these derivatives.
TheWorkingGroupmovedthisitemtotheNonsubstantiveActiveListingandrequestedtheEmergingAccountingIssuesWorkingGroupconsiderrevisingINT06-07,Definition of Phrase “Other Than Temporary”toincludeguidanceinparagraphs9and10ofFSPEITF99-20-1.TheWorkingGroupalsoreferredthisitemtotheFairValueSubgrouptoconsidertheimpacttoimpairmentassessmentsfromtheadoptionofFAS157,Fair Value Measurements.
Other SAPWG Matters:• TheFairValueSubgroupheldaneducationalsessiononMarch17,2009.• DuringaMarch5,2009conferencecall,theSeparateAccountSubgrouprequestedcommentsbyApril5,2008ontheproposedrevisionstoSSAP
• INT08-08T: Balance Sheet Presentation of Funding Agreements issued to a Federal Home Loan Bank (FHLB).TheWorkingGroupadoptedtheconsensusindicatingthatfundingagreementsissuedtoanFHLBshallbeevaluatedonanindividualbasis,andshallbeaccountedforaccordingtothesubstanceoftheindividualagreement.
•EITF 07-4: Application of the Two-Class Method under FAS 128 to Master Limited Partnerships (EITF 07-4). TheWorkingGroupexposedatentativeconsensusrejectingEITF07-4asnotapplicabletostatutoryaccounting.
•EITF 07-5: Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock (EITF 07-5).TheWorkingGroupexposedatentativeconsensusrejectingEITF07-5asnotapplicabletostatutoryaccounting.
•EITF 08-7: Accounting for Defensive Intangible Assets (EITF 08-7).TheWorkingGroupexposedatentativeconsensusindicatingthatdefensiveintangibleassetsarecapturedwiththeSSAPNo.20,NonadmittedAssetsdefinitionofintangibleassets,andarenonadmittedforstatutoryaccounting.
TheEAIWGreferredthefollowingissue:
•Clarification of SSAP No. 85 for Case and Disease Management Program Expenses.TheWorkingGroupreferredthisissuetotheAccidentandHealthWorkingGroup.
This summary was prepared by Matt Wangard and Carolyn Estrada. For your comments and suggestions please contact the authors – [email protected] or [email protected].
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