NAIC 2011 2011 NAIC Proposed Budget NAIC Proposed Budget Fall National Meeting October 2010
NAIC
20112011NAIC Proposed
BudgetNAIC Proposed
Budget
Fall National MeetingOctober 2010
T
able of
Contents
PROPOSED 2011 NAIC BUDGET
TABLE OF CONTENTS Executive Summary ....................................................................................................1 Appendix A...........................................................................................................9
Revenue and Expense Summaries ............................................................................19
Detail Revenues ........................................................................................................25
Detail Expenses.........................................................................................................65
Business and Fiscal Impact Statement Summary ...................................................115
Fiscal Impact 1 — Records Management Project ............................................117
Fiscal Impact 2 — Application Development and Testing Environments Expansion ..................................................................................123
Fiscal Impact 3 — SBS Maintenance and Staffing Strategy ............................129 Fiscal Impact 4 — SBS Growth Strategy .........................................................139
Fiscal Impact 5 — SERFF Premium Rate Review Data Collection and Reporting Enhancements..........................................................149
Fiscal Impact 6 — NAIC Staffing: Messaging Administrator .........................155
Fiscal Impact 7 — Impact Study of VM-20 Principal-Based Approach to Valuation......................................................................................161
Fiscal Impact 8 — SBS Consumer Assistance Data Collection and Reporting Enhancements ...........................................................................169
Structured Securities Project...................................................................................175
Unrestricted Net Assets .........................................................................................187
2011 Program Budget .............................................................................................189 2009 Annual Report................................................................................................199
Executive
Summ
ary
© 2010 National Association of Insurance Commissioners
2011 Proposed Budget Executive Summary
The National Association of Insurance Commissioners (NAIC) is a voluntary, membership-based organization of the chief insurance regulatory officials of the 50 states, the District of Columbia, and the five U.S. territories. The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members to:
• Protect the public interest; • Promote competitive markets; • Facilitate the fair and equitable treatment of insurance consumers; • Promote the reliability, solvency and financial solidity of insurance entities; and • Support and improve state regulation of insurance.
The NAIC provides a forum for state insurance regulators to work together to protect insurance consumers and supervise the financial solvency and market conduct of entities engaged in the business of insurance. It serves members through facilitating committee-driven model laws and regulations, reporting standards and the development of regulatory policy, regulatory analysis of emerging issues and coordinated regulatory responses in countless areas of insurance regulation. The annual budget of the NAIC reflects the wide-range of valuable services and benefits the NAIC provides to its members and the insurance industry. The NAIC offers its members programs, publications, electronic systems and data, and many services to assist them in achieving their fundamental insurance regulatory goals in a responsive, efficient and cost-effective manner. It provides tremendous value to the states by alleviating the significant investment and ongoing costs for each state insurance department to create the regulatory tools and resources and technical infrastructure available through the NAIC. These regulatory tools create efficiencies and significant cost savings to insurance regulators, and most of them would be cost-prohibitive for the states to duplicate on their own. Without membership in the NAIC, the amount of state funding required in order to provide or access the similar type of services and data the NAIC provides — often at no extra charge — would far exceed what a state pays in member dues to the NAIC. Representing less than .005% of the more than $1.5 trillion in 2009 industry premium, the NAIC’s 2011 budget is miniscule in relation to its value to the insurance industry. NAIC products and services create efficiencies and significant cost-savings for insurers through automation, standardization and streamlining of many regulatory processes through web-based systems to transmit data and regulatory transactions between insurers, consumers and state insurance regulators. Further, NAIC services to state insurance regulators and the regulated industry have grown significantly over the past decade, to include the following 2009 results:
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© 2010 National Association of Insurance Commissioners
• Consumer Awareness • Insure U for Consumers • Insure U for Small Business • 208 million Consumer Alert impressions • 164,000 visits to Consumer Information Source website • 340,000 visits to Insure U website • 16 Consumer Funded Representatives • 731 million Media Impressions (TV, Radio, PSAs, Consumer Alerts) • Public Information Officer’s Forum
• Information Resources • 5.5 million visits to the naic.org website • 5.2 million visits to NAIC’s regulator-only I-SITE website • 400 million data elements in the NAIC’s Financial Data Repository (FDR) • 158 NAIC publications and data products • 87 financial and market regulator-only databases and applications • 87 online or classroom NAIC education courses • NAIC committee proceedings back to 1871
• Streamlined Processes • Model laws, best practices, guidelines and handbooks to facilitate coordination and
uniformity in state-based regulation • 527,139 filings through the System for Electronic Rate & Form Filing (SERFF) • 4.3 million producer licensing records in State Producer Licensing Database • 6,796 online fraud referrals to state regulators • 347 Uniform Certificate of Authority Applications transmitted to state regulators • 20 jurisdictions licensed to use State Based Systems (SBS) • 3,038 state tax premium filings through OPTins • 4,800 individual annual financial statement filings to FDR • Market conduct annual statement filing process enhancements • Implementation of Interstate Insurance Product Regulation Commission (IIPRC) with 36
states • Faster regulatory review and approval processes through NAIC systems • Quarterly Listing of Foreign Insurers • Securities ratings, Automated Valuation Services (AVS) and capital markets analysis • Structured securities modeling and valuation
• Service Provider • Financial Regulation Standards and Accreditation Program • 51 Full and Interim Accreditation Reviews • Quarterly Listing of Foreign Insurers • Securities ratings, Automated Valuation Services (AVS) and capital markets analysis • Structured securities modeling and valuation • Professional Designation Program • Federal legislative/regulatory coordination and policy development • International technical assistance • Daily insurance news services • 51 online multistate exams hosted • 115,889 regulator and non-regulator calls/e-mails handled by the NAIC’s Help Desk
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© 2010 National Association of Insurance Commissioners
The Budget Process Each year, a zero-based budget proposal is developed by each individual NAIC department, ultimately consolidating into ten NAIC Divisions. During this time, each department projects its current year results and begins to build its proposal for the coming year, focusing carefully on variances between the current year budget, current year projected results and anticipated needs for the coming year. This process includes a strategic management review and evaluation of all ongoing and evolving projects, products, programs, services, charges and technology initiatives in relation to the strategic priorities identified by the membership and tied to the NAIC’s mission. The NAIC’s senior management team reviews each budget in detail with the respective Division Director to make adjustments according to the strategic and financial needs of the Association.
Following an extensive development and internal review process, the proposed budget is presented in detail to the NAIC Officers, and subsequently the Executive (EX) Committee and Internal Administration (EX1) Subcommittee for consideration. The proposed budget is presented to the full NAIC membership at its Fall National Meeting and released for public review and comment. A public hearing is held in November to receive public comments before final consideration and adoption by the NAIC Executive Committee and Plenary. 2009 Recap As published throughout the NAIC’s 2009 projections and 2010 budget, and consistent with many businesses in the recent economy, the NAIC experienced budget challenges in 2009, primarily resulting from shortfalls in certain revenues. As concerns with the 2009 projections were identified in May 2009, NAIC management worked to identify potential areas for enhancing revenues and reducing costs. Working with the Internal Administration (EX1) Subcommittee, NAIC management implemented proactive measures to address projected revenue shortfalls and implement certain cost reductions in order to generate an estimated $2.0 million reduction in net spending from July to December 2009, while minimizing the impact to NAIC services to members. Key cost reductions implemented by staff in 2009 included (1) a systematic, priority-based review of hiring to fill vacant NAIC staff positions and (2) a freeze on NAIC salary increases effective July 1, 2009 through June 30, 2010. As a result of these measures, the NAIC performed within $284,336 of the 2009 budget, and within $13,349 (.02%) of the projections published in mid-2009. 2010 Projections Based on actual results through June 30, 2010, excluding the structured securities project and 2010 fiscal impact proposals, projections indicate a net operating margin of $1.2 million (1.66%), compared to a budgeted net operating margin of $899,645 in 2010. When including investment income, the NAIC projects a total net revenue margin of $2.4 million, driven primarily by positive investment performance through June 30, 2010, and excluding any potential decline in investment returns from July to December 2010. When including the structured securities project and fiscal impact proposals, the projections indicate a net operating margin of $858,058. Additional details of 2010 projected variances are included throughout the detailed footnotes of this budget proposal. 2011 Proposed Budget The reviews of 2010 projections and 2011 budget proposals continue to be focused on expense management, but also includes important investments in the NAIC membership and continued enhancements in the NAIC’s toolkit, which are outlined in the Business and Fiscal Impact Statements described below. It also includes continued travel subsidies to support each Commissioner’s involvement in NAIC national meetings, grant funds of $13,000 per state in 2011 (consistent with 2010), and additional grant funds to be awarded to state regulators upon application and demonstration of need
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© 2010 National Association of Insurance Commissioners
for travel dollars to participate in NAIC national meetings and/or education and training programs. It also includes $3,000 per state for members to host state legislators at the NAIC 2011 Summer National Meeting. In summary, the 2011 budget includes $2,908,877 in funding for the following membership initiatives:
• Commissioner Domestic Travel ($225,000) • Commissioner International Travel ($325,000) • Commissioners Conference Travel ($94,760) • Commissioner Washington D.C. Fly-In Events ($148,064) • EX1/EX Committee Retreats ($47,592) • E-Reg Conference Sponsorships ($127,400) • Financial Summit Sponsorships ($85,000) • SBS Product Steering Committee ($43,550) • PIO Forum ($60,325) • VOS Task Force Meeting in New York ($35,800) • SMI Interim Meetings ($29,900) • IAIS Reinsurance Subcommittee Meeting ($20,000) • International Education Fund ($2,000) • NAIC Grant Funds ($728,000) • Commissioner Travel to NAIC National Meetings ($225,000) • Academic Symposium on U.S. Insurance Regulation ($26,440) • Analyst Team System ($74,046) • Needs-Based Grant Funds Available for NAIC National Meetings ($250,000) • NAIC Zone Funds ($140,000) • Education and Training Scholarships ($53,000) • State Legislator Travel ($168,000)
The NAIC base budget (before adding the structured securities project and fiscal impact proposals) includes total revenues of $73.9 million and total expenses of $73.5 million, which represent a 0.34% and 3.52% increase, respectively, from the 2010 budget, for $412,761 in projected net revenue. Viewed in relation to the 2010 projected totals, the 2011 proposal represents an increase of 1.85% and 5.29%, respectively. Detailed explanations of 2010 variances and changes in to 2011 are included through the detailed footnotes of this budget proposal.
As noted above, these comparisons represent the NAIC’s base budget prior to the addition of revenues and expenses associated with the individual Business and Fiscal Impact Statements, which were reviewed individually by the Executive (EX) Committee. Such additional 2010 revenues and expenses are $321,305 and $651,541, respectively, and produce an overall net expense impact of $330,236 in 2010. Additional 2011 revenues and expenses are $1.3 million and $2.0 million, respectively, and produce an overall net expense impact of $700,557 in 2011. Upon adding these proposals, the NAIC consolidated budget includes total revenues of $75.2 million and total expenses of $75.4 million, which represent a 1.6% and 5.3% increase, respectively, from the 2010 budget. While these proposals result in an overall net operating expense in 2011, they represent important capital investments in the NAIC’s products and services, which are expected to generate net operating revenues in future years. Additionally, the proposed investments and resulting margins continue to fall well within the positive margins generated in 2009 and 2010.
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© 2010 National Association of Insurance Commissioners
NAIC Operating Reserve The NAIC’s operating reserve policy provides for a targeted ratio reserve of 80% of the next calendar year’s expense budget, calculated on a “liquid” reserve basis, which excludes fixed asset balances from net assets. This reserve policy has undergone extensive review and consideration by the NAIC Executive Committee, and was validated by an independent professional services firm with financial expertise with non-profit associations, financial planning and reserving. The reserve is designed to ensure the financial stability of the NAIC, in the event of emerging business risks and uncertainties, and to absorb new priority initiatives pursued by the NAIC membership. As such, the Association’s reserve status is of paramount consideration in the budgeting process, along with strong and prudent financial management of the NAIC’s assets. As of December 31, 2009, the NAIC maintained a liquid reserve ratio of 72%. Based upon 2010 projected results, and the 2011 budget proposal, including proposed fiscal impact statements and the structured securities project, the liquid reserve is projected to increase to 72.8% at December 31, 2010 and 73.3% at December 31, 2011. Regulatory Modernization and Initiatives Fund In 2005, the NAIC established a Regulatory Modernization and Initiatives Fund (the Fund) to manage new budget requests that arise following the adoption and implementation of the annual budget. The Fund is based on 1.5% of the projected net assets, or $909,933 for 2011. Business and Fiscal Impact Statements Business and Fiscal Impact Statements are prepared to describe the purpose and scope of each new budget proposal, its impact on the NAIC’s business, operations and finances, a description of the benefits to key stakeholders and an assessment of risks. The 2011 budget includes seven proposals as follows: 1. NAIC Records Management Project – This proposal seeks the upgrade of an existing Records
Specialist position to a Records Manager position during 2011, and to have both positions overlap for up to six months during the year for transition purposes. This proposal also includes $20,000 in records management consulting services in 2011, for the purposes of ensuring the NAIC is effectively managing its corporate records policy and retention requirements, and including an evaluation of any necessary technology to further improve the governance and staff compliance with the policy. This project is estimated to cost $83,953 in 2011.
2. Application Development and Testing Environment Expansion – This proposal seeks capital hardware and software expenditures of $117,841 to purchase the necessary technical infrastructure to improve the existing quality assurance testing environment for NAIC and NIPR software and database applications. This project is estimated to cost $53,944 in 2011 with ongoing depreciation in 2011 and 2012.
3. SBS Maintenance and Staffing Strategy – This proposal requests the addition of eight full-time
employees in early 2011 in an effort to establish the appropriate staffing level on the SBS Team to reduce the NAIC’s future reliance on consulting resources from its SBS business partner, Aithent, in anticipation of the expiration of the existing Aithent licensing agreement and partnership in July 2012. NAIC management believes this proposal also enhances the SBS Team’s ability to maintain and support a growing SBS customer base. The costs associated with the addition of eight employees are offset by eliminating 2011 projected consulting costs of $609,600, such that this project
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© 2010 National Association of Insurance Commissioners
generates a small savings of $23,571 in 2011 expenses and only increases staffing expenses by a net $12,045 and $33,645 (net of projected consulting needs) in 2012 and 2013, respectively.
4. SBS Growth Strategy – This proposal requests the addition of six full-time employees in late 2010
and early 2011 to supplement the SBS Team in order to implement a series of short-term initiatives aimed at improving the overall effectiveness of the system and increase user satisfaction, through the redesign of external interfaces and support of additional state implementation projects. A key focus of this proposal is to augment existing continuing education revenues through the incorporation of incentives for providers to submit online course roster uploads, which generates additional transaction fees to SBS. As noted below, initial resource investments in this proposal are projecting to generate additional revenues of $472,661 in 2011 and $1.2 million in 2012, such that this proposal generates a net cost of $80,236, $660,774 and $36,495 in 2010, 2011 and 2012, respectively.
Further, SBS Team projections indicate $1.5 million in net revenues generated from this proposal over the period 2011 to 2014.
5. SERFF Premium Rate Review Data Collection and Reporting Enhancements – This proposal seeks funding for enhancements to the data collection and reporting functionality of the SERFF system, in response to requirements arising from the Patient Protection and Affordable Care Act and specifications under development by the Department of Health and Human Services. This proposal assumes all costs incurred by the NAIC will be recovered from states receiving grant money from HHS (46 states awarded grants as of September 15, 2010). The proposal is designed to have a net $0 impact on the NAIC’s 2010 projections with only timing differences in the recording of revenues and expenses in 2011 through 2013 (because of depreciation over three years on capital hardware and software acquisitions) and a net $0 impact over the life of the project and underlying capital assets.
6. NAIC Messaging Administrator – This proposal seeks an additional part-time employee to
supplement an existing part-time position in the Technical Services Division. This additional employee will support the growing demands of NAIC messaging systems and communications at an incremental cost of $29,460 in 2011.
7. Impact Study of VM-20 Principal-Based Approach to Valuations – This proposal was sponsored by
the Principles-Based Reserving (EX) Working Group and supports the study of the impact of the Life and Health Actuarial Task Force’s proposed valuation methodology within the recently NAIC-adopted Standard Valuation Law. The impact of the proposed valuation changes will be determined by comparing the reserves as calculated under the proposed principle-based valuation methodology with the reserves calculated under the current formula-based valuation methodology. This information will be valuable to insurance regulators, life insurance companies and state legislators as they contemplate adopting the modifications to the Standard Valuation Law. The Executive (EX) Committee approved the release of an RFP to conduct research on the cost of this type of study, and approved the $250,000 fiscal impact of conducting this study on September 20, 2010.
8. SBS Consumer Assistance Data Collection and Reporting Enhancements – This proposal seeks
funding to support enhancements to SBS, in order to accommodate the data collection and reporting requirements from the recent announcement from HHS regarding federal grants to states to establish, expand, or provide support for the establishment of consumer assistance or ombudsmen programs. For SBS states, enhancements to SBS will allow their consumer assistance staff to continue using one software tool to respond to all consumer inquiries and complaints. Based on limited information,
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© 2010 National Association of Insurance Commissioners
and in the absence of detailed specifications from HHS, the NAIC is currently estimating the project's cost and timeline in an effort to support SBS states. At this time, the cost is estimated at $166,500 or $18,500 for each of the impacted SBS states, which is assumed to be offset by $166,500 in implementation fees from the states for a net $0 impact to the NAIC budget over the term of this project.
Details of the above new initiatives are presented in the various “Business and Fiscal Impact Statement” tabs of this budget proposal. Structured Securities Project As approved by the NAIC Executive (EX) Committee, the NAIC will continue to report the direct and indirect revenues and costs associated with the 2009 and 2010 structured securities projects (residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS)) separate from the base 2010 projections or base 2011 budget, and consistent with the NAIC’s reporting for the RMBS project in 2009. A separate Business and Fiscal Impact Statement highlights the components of project costs within the 2010 projections and 2011 budget proposal. In summary, the NAIC estimates a $6.2 million assessment to the industry in late 2010 to cover:
(1) $6.4 million in direct expenses associated with third party consultants (including Oliver Wyman, PIMCO, BlackRock Solutions, consultants to the NAIC New York Office, temporary personnel and outside legal counsel) for the modeling of an estimated 21,000 RMBS CUSIPs and 7,500 CMBS CUSIPs in 2010.
(2) $673,608 in direct expenses associated with the acquisition of data from Bloomberg to enable the NAIC to provide members with increased information on investments held by insurers, particularly the characteristics of fixed income and structured securities.
(3) $63,600 in direct expenses associated with enhancements to the NAIC’s Automated Valuation
System for improved delivery of RMBS and CMBS modeling results to insurers.
(4) $446,848 in other direct expenses estimated for (i) a $308,350 potential allowance for uncollectible accounts and (ii) $138,498 for other overhead items and contingencies for unplanned expenses arising from this project.
(5) $409,047 in indirect NAIC staff support costs to this initiative, estimated at staff’s best
projection of hours to be spent supporting this project at each employee’s salary (based on the mid-point of their salary grade) and including an estimated employee benefit expense of an additional 32.5%.
The NAIC will carefully account for actual revenues generated and expenses incurred in support of this initiative, and anticipates any net revenue or net expense will be reported and adjusted, as appropriate, as a component of any further NAIC work in the area of RMBS, CMBS and/or other structured securities during fiscal year 2011. Other 2011 Considerations At this time, there are two projects underway, which may further impact the NAIC’s 2011 budget proposal. These projects include:
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© 2010 National Association of Insurance Commissioners
1. The NAIC continues to evaluate its options for its Central Office space in Kansas City, upon expiration of its existing lease in January 2012, and analysis is still underway to fully evaluate potential long-term savings and incentives. The NAIC anticipates very competitive financial offers from four potential office sites, which are anticipated to generate significant savings for the Association in future years. Management continues to focus on the long-term financial terms of the NAIC’s new lease, and will continue to report any impact to the 2010 projections or 2011 budget once the Executive (EX) Committee is able to consider and make decisions regarding this lease.
2. The current NAIC/NIPR License and Services Agreement is scheduled for renewal effective January
1, 2011. Negotiations of the agreement’s renewal are underway and the NAIC engaged PricewaterhouseCoopers to perform an independent valuation and analysis of existing terms. The 2011 budget presently includes no change in the financial terms within the existing agreement, and any impacts to the 2011 budget will be presented upon the successful negotiation between the NAIC and NIPR.
Conclusion NAIC management appreciates the opportunity to present this 2011 budget proposal to the NAIC membership and the general public, and believes its contents provide a comprehensive and useful review of the NAIC’s business and financial operations for the current and upcoming fiscal year. An additional summary of key components of the 2011 budget proposal is included as Appendix A. Please feel free to contact Brady Kelley, Chief Financial and Business Strategy Officer, at (816) 783-8004, or Carol Hartley, NAIC Senior Controller, at (816) 783-8038, should you have any questions or need additional information.
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A
ppendix A
1
2011 Budget Proposal
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• Highlights• 2011 Comparison to 2010 Budget• 2010 Projections• Revenue Increases (Decreases)• Expense Increases (Decreases)• Headcount • Business and Fiscal Impact Statements
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3
Highlights• Revenues up 1.6%, or $1.2 million over 2010 budget to $75.2
million• Drivers: Increases in Insurance Data Product Sales, SERFF,
State Based Systems, and Education and Training registrations, offset by decreases in Licenses Fees from NIPR, Publications sales, National Meeting registrations, and Investment Income
• No Database Filing Fee Schedule Increase – 2% premium growth assumption
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Highlights• Expenses up 5.31%, or $3.8 million from 2010 budget
to $75.4 million• Salaries up $2.3 million – Lifting salary freeze and adding a 3%
average increase and the addition of 14.5 FTEs in 2010 and 2011• Employee Benefits up $248,609 – Increase in health coverage
premiums offset by a decrease in defined benefit plan expenses• Professional Services up $118,159 – Rate Review and Reporting
through SERFF, Consumer Assistance Program through SBS and royalties to NAIC business partner in SBS
• Travel up $474,148 – Increase in member travel, SBS implementations, and international activity
• Net Revenue = ($287,796)
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5
Highlights
• Projected Liquid Operating Reserve Ratio• 72.0% at 12/31/09 (Actual)
• 72.8% at 12/31/10 (After Fiscals)
• 74.2% at 12/31/11 (Before Fiscals)
• 73.3% at 12/31/11 (After Fiscals)
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Highlights• Business & Fiscal Impact Statements
2010 Proposals
• 4 Proposals – Net expense impact of $330,236 and capital funding of $182,593, with 4 new FTEs to support SBS
2011 Proposals
• 7 Proposals – Net expense impact of $700,557 and capital funding of $877,627, with 10 new FTEs to support SBS and .5 new FTE for the Technical Services Division.
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2011 Budget vs. 2010 Budget(Including 2010 and 2011 Fiscals)
Increase %2011B 2010B (Decrease) Change
Revenues:Operations 73,851,208$ 72,536,291$ 1,314,917$ 1.8%Investments 1,304,111 1,433,388 (129,277) 9.0% Subtotal 75,155,319 73,969,679 1,185,640 1.6%
Expenses:Operations 75,443,115 71,636,646 3,806,469 5.3%
Net Revenue (287,796)$ 2,333,033$ (2,620,829)$
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Revenue Increases (Decreases)(2011 Budget vs. 2010 Budget)
Increase from 2010 Budget 1,185,640$ Database Fees (Merger and Acquisition activity) (54,956) Insurance Data Product Sales 682,601 ASFSP and RBCFSP Vendor Royalties (72,665) Publications (390,524) SVO Filing Fees (32,448) SERFF Filing Fees 296,934 SERFF License Fees - Premium Rate Review Data Collection and Reporting 445,790 OPT ins Filing Fees (76,511) SBS Transaction Fees 789,533 SBS License Fees - Consumer Assistance Data Collection and Reporting 18,400 Automated Valuation Services 35,125 National Meeting Registration Fees (133,000) Education and Training Programs (SERFF Training) 182,399 Investment Income (129,277) SPLR Usage Fees from NIPR 88,031 License Fees from NIPR (528,981) Other 65,189 Increase from 2010 Budget 1,185,640$
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Expense Increases (Decreases)(2011 Budget vs. 2010 Budget)
Increase from 2010 Budget 3,806,469$ Salaries/Compensation/Taxes 2,370,345 Employee Benefits (Defined Benefit and Health Plans) 256,725 Professional and Computer Services (249,249) Accreditation Services 88,610 SBS Royalties 353,841 Staff Travel 223,000 Commissioner National Meeting Travel 131,182 Other Member Travel 33,344 International Travel 85,997 Non-Capital (Upgrade Operating System and Virtual Desktops) 69,883 National and Interim Meetings 16,831 Interim Meetings 25,065 Education and Training (Financial Summit) 131,005 Office Services (Conference calls, Supplies, Mail, Printing) 172,288 Other 97,602 Increase from 2010 Budget 3,806,469$
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2011 Budget vs. 2010 Projection(Before 2010 or 2011 Fiscals)
Increase %2011B 2010P (Decrease) Change
Revenues:Operations 73,851,208$ 71,614,188$ 2,237,020$ 3.1%Investments 1,304,111 1,258,795 45,316 -3.6% Subtotal 75,155,319 72,872,983 2,282,336 3.1%
Expenses:Operations 75,443,115 70,442,726 5,000,389 7.1%
Net Revenue (287,796)$ 2,430,257$ (2,718,053)$
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Revenue Increases (Decreases)(2011 Budget vs. 2010 Projected)
Increase from 2010 Projected 2,282,336$ Database Fees (Based on Assumed 2% Industry Premium Growth) 222,637 Publications 115,158 Insurance Data Product Sales 462,390 ASFSP and RBCFSP Vendor Royalties (64,525) SVO Filing Fees (131,950) SBS Transaction Fees 1,058,380 SERFF Filing Fees 445,790 National Meeting Registration Fees (29,700) Investment Income 45,316 Education and Training Program Revenues 64,861 SPLR Usage Fees from NIPR 59,210 License Fees from NIPR (60,702) Other 95,471 Increase from 2010 Projected 2,282,336$
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Expense Increases (Decreases)(2011 Budget vs. 2010 Projected)
Increase from 2010 Projected 5,000,389$ Salaries/Development/Taxes 2,989,122 Employee Benefits (Defined Benefit and Health Plans) 801,489 Professional Service and Computer Services (285,575) SBS Royalties 404,782 Staff Travel 210,073 Commissioner Travel 58,145 Other Member Travel 68,037 International Travel (46,641) Equipment and Maintenance 263,745 Depreciation/Amortization on Capital Assets 21,340 Printing (Obsolete Inventory) 57,789 Non-Capital (Upgrade Operating System and Virtual Desktops) 92,739 National and Interim Meetings 64,832 Education and Training (Financial Summit) 134,354 Other Expense (Bad Debt Expense) 45,448 Other 120,710 Increase from 2010 Projected 5,000,389$
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2011 Revenue Composition(millions)
Revenue % Amounts Comp.
Database Filing Fees 25.7$ 34.2%Publications/InsData 18.7 24.9%Services (SERFF, OPTins, SBS, SVO, IID) 17.5 23.3%Administrative Services/License Fees 7.1 9.4%State Assessments 2.2 2.9%National Meetings 1.5 2.0%Investment Income 1.3 1.7%Education & Training/Other 1.2 1.6%
75.2$ 100.00%
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2011 Expense Composition(millions) Expense %
Amounts Comp.
Salaries, Taxes and Benefits 48.1$ 63.8%Lease and Office Equipment 8.2 10.9%Professional Services 6.0 8.0%Depreciation and Amortization 3.5 4.6%Administrative and Operational 3.2 4.3%Travel 3.5 4.6%National Meetings 1.2 1.6%Zone/Grant Funds 1.0 1.3%Education & Training 0.7 0.9%
75.4$ 100.0%
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Prior Year Margin Comparisons(Before 2010 or 2011 Fiscals)
Year Revenues Expenses Total Margin Operating Margin
2011 75,155,319 75,443,115 (287,796) (1,591,907) 2010 73,969,679 71,636,646 2,333,033 899,645 2009 73,144,396 71,565,501 1,578,895 (474,653) 2008 68,310,077 66,496,601 1,813,476 (207,906) 2007 64,999,252 64,794,735 204,517 (1,242,509) 2006 59,339,190 59,045,281 293,909 (726,041) 2005 59,231,565 56,315,622 2,915,943 2,123,225
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Department Headcount(Authorized FTEs = 449)
• Information • Technology
• 99
• Financial Regulatory • Services
• 50
• Corporate • (Legal, HR, Finance, • Member Services)
• 73.5
• Financial Data • Repository
• 31
• Insurance Products • and Services
• 29
• Securities Valuation • Office• 46
• SERFF • 20
• Government Relations• 16
• State Based Systems• 25
• Research• 14
• Education and • Training
• 10
Information Technology
97.5
Financial RegulatoryServices
43
Corporate(Legal, HR, Finance,Member Services)
71.5
Financial DataRepository
31
Insurance Productsand Services
28.5
Securities Valuation Office46.5
SERFF20
Executive Office(Including CIPR)
24
State Based Systems45
Research16
Education and Training
12.5
Market Regulation13.5
16
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FTE Additions (2010–2011)
The additional headcount above only reflects part of the picture regarding the use of NAIC human resources. NAIC management employs an on-going assessment process of staffing needs and will reallocate vacated positions to help ensure adequate and quality support for NAIC priorities and its mission.
Proposed Proposed
Producer Market GovernmentYear Total IAIS SBS SERFF System Regulation SVO IT Relations
2011 10.5 10 0.5
2010 5 4 1
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Fiscal Impact Statements
2010 2011
Proposed Fiscal Impact Statements Net Impact Net Impact
1 Records Management (83,953)$
2 Application Development and Testing Environments Expansion (53,944)
3 SBS Maintenance and Staffing Strategy 23,571
4 SBS Growth Strategy (80,236)$ (660,774)
5 SERFF Premium Rate Review Data Collection and Reporting Enhancements 104,003
6 NAIC Staffing: Messaging Administrator (29,460)
7 Impact Study of VM-20 Principal-Based Approach to Valuations (250,000)
8 SBS Consumer Assistance Data Collection and Reporting Enhancements
Net Impact (330,236)$ (700,557)$
Structured Securities Project (313,404)$ (248,314)$
See the "Structured Securities Project" proposal within this budget for details.
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get
%P
roje
cted
%
Ope
ratio
nal R
even
ues
69,4
24,5
06$
71,2
92,8
83$
72,2
14,9
86$
(922
,103
)$
72,5
92,9
52$
37
7,96
6$
0.
52%
1,30
0,06
9$
1.82
%O
pera
tiona
l Exp
ense
s69
,614
,825
69
,791
,185
70
,985
,105
(1
,193
,920
)
73
,484
,302
2,49
9,19
7
3.52
%3,
693,
117
5.
29%
Ope
ratio
nal R
even
ues
Ove
r/(U
nder
) Exp
ense
s(1
90,3
19)
1,50
1,69
8
1,
229,
881
271,
817
(891
,350
)
(2,1
21,2
31)
(2,3
93,0
48)
Inve
stm
ent R
even
u e6,
869,
302
1,25
8,79
5
1,
433,
388
(174
,593
)
1,30
4,11
1
(1
29,2
77)
(9
.02%
)45
,316
3.60
%
Tota
l Rev
enue
s B
efor
e B
usin
ess
and
Fisc
al Im
pact
Sta
tem
ents
76,2
93,8
08
72,5
51,6
78
73,6
48,3
74
(1,0
96,6
96)
73,8
97,0
63
24
8,68
9
0.
34%
1,34
5,38
5
1.85
%To
tal E
xpen
ses
Bef
ore
Bus
ines
s an
d Fi
scal
Impa
ct S
tate
men
t s69
,614
,825
69
,791
,185
70
,985
,105
(1
,193
,920
)
73
,484
,302
2,49
9,19
7
3.52
%3,
693,
117
5.
29%
Tota
l Rev
enue
s O
ver/(
Und
er) E
xpen
ses
Bef
ore
Bus
ines
s an
d Fi
scal
Impa
ct
Stat
emen
ts a
nd S
truc
ture
d Se
curit
ies
Proj
ect
6,67
8,98
3
2,
760,
493
2,66
3,26
9
97
,224
412,
761
(2
,250
,508
)
(2
,347
,732
)
Bus
ines
s an
d Fi
scal
Impa
ct S
tate
men
t Rev
enue
s (1
)32
1,30
532
1,30
51,
258,
256
Bus
ines
s an
d Fi
scal
Impa
ct S
tate
men
t Exp
ense
s (1
)65
1,54
1
651,
541
1,
958,
813
Bus
ines
s an
d Fi
scal
Impa
ct S
tate
men
t Rev
enue
s O
ver/(
Und
er) E
xpen
ses
(330
,236
)
(3
30,2
36)
(700
,557
)
Tota
l Pro
pose
d R
even
ues
Afte
r Bus
ines
s an
d Fi
scal
Impa
ct S
tate
men
ts76
,293
,808
72
,872
,983
73
,969
,679
(1
,096
,696
)
75
,155
,319
1,18
5,64
0
1.60
%2,
282,
336
3.
13%
Tota
l Pro
pose
d E
xpen
ses
Afte
r Bus
ines
s an
d Fi
scal
Impa
ct S
tate
men
t s69
,614
,825
70
,442
,726
71
,636
,646
(1
,193
,920
)
75
,443
,115
3,80
6,46
9
5.31
%5,
000,
389
7.
10%
Tota
l Rev
enue
s O
ver/(
Und
er) E
xpen
ses
Bef
ore
Stru
ctur
ed S
ecur
ities
Pro
ject
6,67
8,98
3
2,
430,
257
2,33
3,03
3
97
,224
(287
,796
)
(2,6
20,8
29)
(2,7
18,0
53)
Ope
ratin
g E
xpen
se R
educ
tion
- NA
IC S
taff
Sup
port
of th
e S
truct
ured
Sec
uriti
es P
roje
ct29
8,49
8
374,
047
37
4,04
7
35
,000
35,0
00
(3
39,0
47)
Rev
enue
s O
ver/(
Und
er) E
xpen
ses
Afte
r Stru
ctur
ed S
ecur
ities
Pro
ject
Allo
catio
n6,
977,
481
2,80
4,30
4
2,
333,
033
471,
271
(252
,796
)
(2,5
85,8
29)
(3,0
57,1
00)
Dire
ct S
truct
ured
Sec
uriti
es P
roje
ct R
even
ue (1
)4,
837,
891
7,00
1,10
0
7,
001,
100
(7
,001
,100
)
D
irect
Stru
ctur
ed S
ecur
ities
Pro
ject
Exp
ense
(1)
2,58
3,45
4
7,
314,
504
7,31
4,50
4
248,
314
24
8,31
4
(7
,066
,190
)
Dire
ct S
truct
ured
Sec
uriti
es P
roje
ct R
even
ues
Ove
r/(U
nder
) Exp
ense
s2,
254,
437
(313
,404
)
(3
13,4
04)
(2
48,3
14)
(2
48,3
14)
65
,090
Indi
rect
Stru
ctur
ed S
ecur
ities
Pro
ject
Exp
ense
s (N
AIC
Sta
ff S
uppo
rt)(2
98,4
98)
(374
,047
)
(3
74,0
47)
(3
5,00
0)
(3
5,00
0)
33
9,04
7
Tota
l Str
uctu
red
Secu
ritie
s Pr
ojec
t1,
955,
939
(687
,451
)
(6
87,4
51)
(2
83,3
14)
(2
83,3
14)
40
4,13
7
Tota
l Pro
pose
d R
even
ues
Ove
r/(U
nder
) Exp
ense
s A
fter B
usin
ess
and
Fisc
al
Impa
ct S
tate
men
ts a
nd S
truc
ture
d Se
curit
ies
Proj
ect
8,93
3,42
0$
2,
116,
853
$
2,33
3,03
3$
(2
16,1
80)
$
(5
36,1
10)
$
(2
,869
,143
)$
(2
,652
,963
)$
(1) S
ee th
e "S
truct
ured
Sec
uriti
es P
roje
ct" p
ropo
sal w
ithin
this
bud
get f
or d
etai
ls.
NA
TIO
NA
L A
SSO
CIA
TIO
N O
F IN
SUR
AN
CE
CO
MM
ISSI
ON
ERS
2010
2011
PRO
POSE
D 2
011
BU
DG
ETR
EVEN
UE
AN
D E
XPEN
SE S
UM
MA
RY
19
20
Incr
ease
Incr
ease
2010
(Dec
reas
e)(D
ecre
ase)
2009
6/30
/201
012
/31/
2010
2010
Pro
ject
ed20
11fro
m 2
010
from
201
0D
escr
iptio
nR
efer
ence
Act
ual
Act
ual
Pro
ject
edB
udge
tV
aria
nce
Bud
get
Bud
get
%P
roje
cted
%
Mem
ber A
sses
smen
tsR
12,
113,
949
$
1,07
3,28
8$
2,
162,
611
$
2,16
2,61
1$
2,
210,
160
$
47,5
49$
2.
20%
47,5
49$
2.
20%
Dat
abas
e Fe
esR
225
,539
,949
25
,512
,362
25
,512
,362
25
,789
,955
(2
77,5
93)
$
25
,734
,999
(54,
956)
(0.2
1%)
222,
637
0.87
%P
ublic
atio
ns a
nd In
sura
nce
Dat
a P
rodu
cts
R3
17,2
49,4
70
6,86
8,69
0
18
,154
,175
18
,408
,194
(2
54,0
19)
18
,662
,731
254,
537
1.38
%50
8,55
6
2.
80%
Ser
vice
sR
414
,476
,894
7,
879,
123
16,0
88,7
72
16,0
60,9
64
27,8
08
17
,519
,662
1,45
8,69
8
9.
08%
1,43
0,89
0
8.
89%
Nat
iona
l Mee
ting
Reg
istra
tion
Fee s
R5
1,81
4,07
5
478,
300
1,55
2,60
0
1,65
5,90
0
(103
,300
)
1,52
2,90
0
(1
33,0
00)
(8.0
3%)
(29,
700)
(1
.91%
)In
vest
men
t Inc
ome
R6
6,86
9,30
2
55
9,60
9
1,25
8,79
5
1,
433,
388
(174
,593
)
1,30
4,11
1
(1
29,2
77)
(9
.02%
)45
,316
3.60
%E
duca
tion
and
Trai
ning
R7
1,00
7,01
0
56
4,27
2
1,06
0,18
2
94
2,64
4
117,
538
1,12
5,04
3
18
2,39
9
19
.35%
64,8
61
6.
12%
Adm
inis
trativ
e S
ervi
ces
R8
7,18
1,74
8
3,
573,
959
7,05
3,20
5
7,
492,
663
(439
,458
)
7,05
1,71
3
(4
40,9
50)
(5
.89%
)(1
,492
)
(0.0
2%)
Oth
er In
com
eR
941
,411
18,3
29
30
,281
23,3
60
6,
921
24
,000
640
2.74
%(6
,281
)
(20.
74%
)
Tot
al R
even
ues
76,2
93,8
08
46,5
27,9
32
72,8
72,9
83
73,9
69,6
79
(1,0
96,6
96)
75,1
55,3
19
1,
185,
640
1.60
%2,
282,
336
3.13
%
Sal
arie
sE
132
,702
,517
16
,675
,080
33
,989
,718
34
,531
,519
(5
41,8
01)
36
,795
,179
2,26
3,66
0
6.
56%
2,80
5,46
1
8.
25%
Tem
pora
ry P
erso
nnel
E2
499,
301
13
7,75
6
369,
565
46
4,34
7
(94,
782)
399,
714
(6
4,63
3)
(1
3.92
%)
30,1
49
8.
16%
Pay
roll
Taxe
sE
32,
390,
723
1,40
0,52
2
2,
519,
943
2,48
3,04
1
36
,902
2,59
8,91
8
11
5,87
7
4.
67%
78,9
75
3.
13%
Em
ploy
ee B
enef
its
E4
6,73
2,10
8
3,
201,
300
6,74
8,33
9
7,
301,
219
(552
,880
)
7,54
9,82
8
24
8,60
9
3.
41%
801,
489
11.8
8%E
mpl
oyee
Dev
elop
men
tE
544
3,73
1
413,
147
58
5,53
0
618,
289
(3
2,75
9)
69
0,21
6
71,9
27
11
.63%
104,
686
17.8
8%P
rofe
ssio
nal S
ervi
ces
E6
4,34
1,79
8
1,
631,
166
4,15
0,90
9
4,
176,
356
(25,
447)
4,29
4,51
5
11
8,15
9
2.
83%
143,
606
3.46
%C
ompu
ter S
ervi
ces
E7
1,58
4,41
5
83
5,96
4
1,77
2,36
4
1,
672,
922
99,4
42
1,
747,
965
75,0
43
4.
49%
(24,
399)
(1.3
8%)
Trav
elE
82,
870,
491
1,36
8,68
1
3,
192,
564
3,03
3,49
7
15
9,06
7
3,
507,
645
474,
148
15.6
3%31
5,08
1
9.
87%
Occ
upan
cyE
95,
353,
504
2,67
8,27
0
5,
500,
438
5,45
8,85
1
41
,587
5,49
4,63
1
35
,780
0.66
%(5
,807
)
(0.1
1%)
Equ
ipm
ent R
enta
l and
Mai
nten
ance
E10
2,57
7,54
6
1,
221,
675
2,47
5,68
4
2,
680,
164
(204
,480
)
2,73
9,42
9
59
,265
2.21
%26
3,74
5
10
.65%
Dep
reci
atio
n an
d A
mor
tizat
ion
E11
4,67
7,74
1
1,
942,
581
3,50
1,15
6
3,
511,
836
(10,
680)
3,52
2,49
6
10
,660
0.30
%21
,340
0.61
%In
sura
nce
E12
421,
096
20
4,29
5
391,
880
43
6,56
8
(44,
688)
429,
492
(7
,076
)
(1.6
2%)
37,6
12
9.
60%
Tele
phon
eE
1343
1,20
0
210,
251
43
9,29
8
357,
685
81
,613
445,
413
87
,728
24.5
3%6,
115
1.
39%
Sup
plie
sE
1450
5,54
1
206,
785
48
2,58
0
480,
141
2,
439
57
9,60
8
99,4
67
20
.72%
97,0
28
20
.11%
Mai
l Ser
vice
sE
1528
8,74
3
130,
651
26
1,07
2
254,
159
6,
913
26
9,62
2
15,4
63
6.
08%
8,55
0
3.27
%R
efer
ence
Mat
eria
lsE
1654
7,02
6
285,
553
56
9,45
2
550,
634
18
,818
563,
401
12
,767
2.32
%(6
,051
)
(1.0
6%)
Prin
ting
and
Pro
duct
ion
E17
150,
585
84
,717
145,
762
17
6,75
5
(30,
993)
203,
551
26
,796
15.1
6%57
,789
39.6
5%N
atio
nal a
nd In
terim
Mee
tings
E18
1,52
4,22
8
42
2,87
0
1,15
5,92
9
1,
178,
865
(22,
936)
1,22
0,76
1
41
,896
3.55
%64
,832
5.61
%E
duca
tion
and
Trai
ning
E19
347,
784
32
5,24
6
441,
160
44
4,50
9
(3,3
49)
57
5,51
4
131,
005
29.4
7%13
4,35
4
30
.45%
Sta
te a
nd G
ener
al T
rain
ing
E20
1,10
1,25
3
38
0,59
4
1,15
4,39
3
1,
172,
746
(18,
353)
1,14
4,96
9
(2
7,77
7)
(2
.37%
)(9
,424
)
(0.8
2%)
Oth
er E
xpen
ses
E21
123,
494
51
,764
594,
990
65
2,54
3
(57,
553)
670,
248
17
,705
2.71
%75
,258
12.6
5%
Tota
l Ope
ratin
g E
xpen
ses
69,6
14,8
25
33,8
08,8
68
70,4
42,7
26
71,6
36,6
46
(1,1
93,9
20)
75,4
43,1
15
3,
806,
469
5.31
%5,
000,
389
7.10
%
Rev
enue
s O
ver/(
Und
er) E
xpen
ses
Bef
ore
Stru
ctur
ed S
ecur
ities
Pro
ject
6,67
8,98
3
12
,719
,064
2,
430,
257
2,33
3,03
3
97
,224
(287
,796
)
(2,6
20,8
29)
(2,7
18,0
53)
Ope
ratin
g E
xpen
se R
educ
tion-
NA
IC S
taff
Sup
port
of th
e S
truct
ured
Sec
uriti
es P
roje
ct29
8,49
8
374,
047
37
4,04
7
35
,000
35,0
00
(3
39,0
47)
Rev
enue
s O
ver/(
Und
er) E
xpen
ses
Afte
r Stru
ctur
ed S
ecur
ities
Pro
ject
Allo
catio
n6,
977,
481
12,7
19,0
64
2,80
4,30
4
2,
333,
033
471,
271
(252
,796
)
(2,5
85,8
29)
(3,0
57,1
00)
Dire
ct S
truct
ured
Sec
uriti
es P
roje
ct R
even
ue (1
)4,
837,
891
794,
000
7,
001,
100
7,00
1,10
0
(7
,001
,100
)
D
irect
Stru
ctur
ed S
ecur
ities
Pro
ject
Exp
ense
s (1
)2,
583,
454
878,
309
7,
314,
504
7,31
4,50
4
24
8,31
4
248,
314
(7,0
66,1
90)
Dire
ct S
truct
ured
Sec
uriti
es P
roje
ct R
even
ues
Ove
r/(U
nder
) Exp
ense
s2,
254,
437
(84,
309)
(3
13,4
04)
(313
,404
)
(248
,314
)
(248
,314
)
65,0
90
Indi
rect
Stru
ctur
ed S
ecur
ities
Pro
ject
Exp
ense
s (N
AIC
Sta
ff S
uppo
rt)(2
98,4
98)
(374
,047
)
(3
74,0
47)
(3
5,00
0)
(3
5,00
0)
33
9,04
7
Rev
enue
s O
ver/(
Und
er) E
xpen
ses
- Stru
ctur
ed S
ecur
ities
Pro
ject
1,95
5,93
9
(8
4,30
9)
(687
,451
)
(6
87,4
51)
(2
83,3
14)
(2
83,3
14)
40
4,13
7
Rev
enue
s O
ver/(
Und
er) E
xpen
ses
Afte
r Stru
ctur
ed S
ecur
ities
Pro
ject
8,93
3,42
0$
12
,634
,755
$
2,
116,
853
$
2,33
3,03
3$
(2
16,1
80)
$
(5
36,1
10)
$
(2
,869
,143
)$
(2
,652
,963
)$
A d
etai
led
anal
ysis
of e
ach
line
item
is in
clud
ed in
the
"Det
ail R
even
ues"
and
"Det
ail E
xpen
ses"
tabs
of t
he 2
011
budg
et p
ropo
sal.
(1) S
ee th
e "S
truct
ured
Sec
uriti
es P
roje
ct "
prop
osal
with
in th
is b
udge
t for
det
ails
.
2010
NA
TIO
NA
L A
SSO
CIA
TIO
N O
F IN
SUR
AN
CE
CO
MM
ISSI
ON
ERS
REV
ENU
E A
ND
EXP
ENSE
BY
LIN
E
2011
PRO
POSE
D 2
011
BU
DG
ET
21
22
Tec
hnol
ogy
Gen
eral
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Mem
ber
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nR
efer
ence
Sup
port
Ope
ratio
nsS
ervi
ces
Ser
vice
sS
ervi
ces
Ser
vice
sT
otal
Sal
arie
s E
18,
580,
591
$
7,77
3,71
8$
4,
355,
100
$
8,24
5,51
4$
1,
975,
346
$
5,86
4,91
0$
36
,795
,179
$
T
empo
rary
Per
sonn
el E
233
4,68
5
65,0
29
39
9,71
4
Pay
roll
Tax
es E
367
9,87
4
458,
159
29
5,06
1
602,
088
96
,157
467,
579
2,
598,
918
Em
ploy
ee B
enef
its E
47,
541,
398
2,63
0
5,
800
7,54
9,82
8
E
mpl
oyee
Dev
elop
men
t E
512
9,01
9
71,1
24
32
3,19
8
42,4
12
46
,359
78,1
04
69
0,21
6
Pro
fess
iona
l Ser
vice
s E
631
5,55
6
1,47
9,44
1
73
4,70
5
600
1,
764,
213
4,29
4,51
5
C
ompu
ter
Ser
vice
s E
755
7,72
5
72,3
78
83
,304
706,
650
32
7,90
8
1,74
7,96
5
T
rave
l E
879
,401
1,36
4,75
5
81
9,84
8
358,
345
39
2,90
5
492,
391
3,
507,
645
Occ
upan
cyE
99,
165
4,16
6,75
1
61
3,13
4
695,
731
9,
850
5,49
4,63
1
E
quip
men
t Ren
tal/M
aint
enan
ceE
102,
304,
780
391,
577
22
,510
20,5
62
2,
739,
429
Dep
reci
atio
n an
d A
mor
tizat
ion
E11
3,52
2,49
6
3,
522,
496
Insu
ranc
eE
1242
9,49
2
429,
492
T
elep
hone
E13
108,
885
38
,680
114,
496
79
,783
87,7
57
15
,812
445,
413
O
ffice
Ser
vice
sE
1428
1,81
5
183,
353
33
,235
26,8
60
4,
296
50,0
49
57
9,60
8
Mai
l Ser
vice
sE
152,
825
29,1
14
59
,119
11,8
80
4,
050
162,
634
26
9,62
2
Libr
ary
Mat
eria
lsE
162,
188
13,1
75
24
0,03
7
307,
315
68
6
563,
401
P
rintin
gE
172,
520
11,4
50
18
9,58
1
203,
551
N
atio
nal a
nd In
terim
Mee
tings
E18
1,22
0,76
1
1,
220,
761
Edu
catio
n an
d T
rain
ing
E19
276,
922
23
1,87
7
66,7
15
57
5,51
4
Sta
te &
Gen
eral
Tra
inin
gE
201,
072,
561
68,4
10
3,
998
1,14
4,96
9
O
ther
Exp
ense
sE
2166
2,49
8
5,75
0
2,
000
670,
248
Tot
al O
pera
ting
Exp
ense
s13
,051
,824
$
29
,607
,875
$
9,
344,
699
$
11,3
34,8
17$
2,60
7,47
0$
9,
496,
430
$
75,4
43,1
15$
Com
pone
nts:
Info
rmat
ion
Sys
tem
sC
entr
al O
ffice
Mem
ber
Ser
vice
sF
inan
cial
Reg
ulat
ion
Mar
ket R
egul
atio
nIn
sura
nce
Pro
duct
sT
echn
ical
Ser
vice
sF
inan
ceE
duca
tion
& T
rain
ing
SV
OR
esea
rch
and
Ser
vice
sC
usto
mer
Sup
port
Bus
ines
s S
trat
egy
Mee
tings
SE
RF
FS
tate
Sup
port
Offi
ce S
ervi
ces
Nat
iona
l Mee
tings
SB
SF
inan
cial
Sys
tem
sH
uman
Res
ourc
esC
omm
unic
atio
nsLe
gal
Exe
cutiv
e O
ffice
(I
nclu
ding
CIP
R)
EX
PE
NS
E B
UD
GE
T B
Y A
RE
A
NA
TIO
NA
L A
SS
OC
IAT
ION
OF
INS
UR
AN
CE
CO
MM
ISS
ION
ER
S
PR
OP
OS
ED
201
1 B
UD
GE
T
The
cate
gorie
spr
esen
ted
abov
ear
efo
rex
pens
eco
nsol
idat
ion
and
repo
rtin
gpu
rpos
eson
ly.
The
ym
erel
yre
pres
ent
the
grou
ping
oflik
ede
part
men
tsw
ithin
the
NA
ICfin
anci
alre
port
ing
stru
ctur
ean
dth
em
anne
rin
whi
chth
ese
expe
nses
are
act
ivel
y m
anag
ed b
y D
ivis
ion
Dire
ctor
s. N
o co
st a
lloca
tions
or
dist
ribut
ion
of e
xpen
ses
are
incl
uded
her
ein.
23
24
D
etail Revenues
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Mem
ber
Ass
essm
ents
(1)
2,11
3,94
9$
1,
073,
288
$
2,16
2,61
2$
2,
162,
611
$
2,21
0,16
0$
47,5
49$
2.
20%
(1)
BU
DG
ET
ITE
M:
Mem
ber
Ass
essm
ents
Mem
ber
asse
ssm
ents
refle
ctno
incr
ease
from
2010
inth
e$7
,725
min
imum
asse
ssm
ent
per
mem
ber.
The
min
imum
leve
lof
asse
ssm
ent
was
appr
oved
byth
eIn
tern
alA
dmin
istr
atio
n(E
X1)
Sub
com
mitt
eein
Sep
tem
ber
2001
.T
he$4
7,54
9in
crea
seis
are
sult
ofth
ere
dist
ribut
ion
ofth
eto
tal
asse
ssm
ent
base
don
prem
ium
volu
me
and
the
reap
plic
atio
nof
the
min
imum
asse
ssm
ent,
whi
chis
cons
iste
ntw
ithal
lpr
ior
year
ssi
nce
2001
.P
rem
ium
volu
me
ism
easu
red
asdi
rect
writ
ten
prem
ium
byco
mpa
nies
dom
icile
din
each
stat
efo
rth
eca
lend
arye
ar.
The
budg
eted
amou
ntis
base
don
four
mon
ths
ofth
eM
ay20
10-
Apr
il20
11as
sess
men
tan
dei
ght
mon
ths
ofth
eM
ay20
11-
Apr
il20
12as
sess
men
t.T
heM
ay20
11-
Apr
il 20
12 s
tate
ass
essm
ents
are
illu
stra
ted
in E
xhib
it R
1-O
ne. E
xhib
it R
1-T
wo
illus
trat
es s
tate
ass
essm
ents
as
a pe
rcen
tage
of
tota
l NA
IC r
even
ue.
R1:
Mem
ber
Ass
essm
ents
Item
Des
crip
tion:
Ass
essm
ents
from
allm
embe
rsw
hich
are
used
tofu
ndth
eac
tiviti
esof
the
NA
ICof
fices
.M
embe
rsar
eas
sess
edba
sed
upon
the
rela
tive
prem
ium
volu
me
ofth
eir
resp
ectiv
edo
mic
iled
com
pani
es to
tota
l pre
miu
m v
olum
e.
Inex
chan
gefo
ran
nual
mem
ber
asse
ssm
ents
,th
eN
AIC
deliv
ers
aw
ide
arra
yof
fund
ing,
info
rmat
ion,
prod
ucts
and
serv
ices
,ge
nera
llyat
noch
arge
tost
ate
insu
ranc
ere
gula
tors
,as
abe
nefit
of N
AIC
mem
bers
hip.
See
furt
her
disc
ussi
on o
f the
val
ue o
f NA
IC s
ervi
ces
to m
embe
rs in
the
exec
utiv
e su
mm
ary
of th
e 20
11
budg
et.
25
26
Percent $7,725 Minimum $7,725 Minimum $7,725 MinimumMember Total Premiums To Total Assessment 2011/12 Amount 2010/11 Amount 2009/10 Amount
Alabama 19,095,566,870$ 1.237% 26,956$ 26,956$ 26,097$ 25,831$ Alaska 3,160,089,098 0.205% 4,462 7,725 7,725 7,725 Arizona 24,981,918,472 1.619% 35,266 35,266 35,179 35,211 Arkansas 10,109,831,141 0.655% 14,272 14,272 13,629 13,271 California 121,196,173,956 7.853% 171,089 171,089 172,352 175,313 Colorado 25,577,366,198 1.657% 36,107 36,107 37,346 36,522 Connecticut 34,333,607,099 2.225% 48,468 48,468 43,201 45,386 Delaware 32,838,657,675 2.128% 46,357 46,357 50,387 35,359 District of Columbia 8,882,114,322 0.576% 12,538 12,538 12,306 11,432 Florida 102,571,367,427 6.646% 144,797 144,797 143,669 147,993 Georgia 38,768,144,835 2.512% 54,728 54,728 53,834 52,893 Hawaii 8,388,908,692 0.544% 11,843 11,843 10,870 11,182 Idaho 6,334,508,715 0.410% 8,941 8,941 8,175 8,059 Illinois 60,489,942,205 3.920% 85,392 85,392 82,886 81,814 Indiana 26,456,103,377 1.714% 37,346 37,346 37,572 38,245 Iowa 16,678,473,572 1.081% 23,545 23,545 33,113 31,291 Kansas 15,951,336,689 1.034% 22,518 22,518 22,219 27,926 Kentucky 16,553,842,120 1.073% 23,368 23,368 22,358 21,879 Louisiana 21,861,159,839 1.417% 30,861 30,861 29,783 29,110 Maine 6,003,531,759 0.389% 8,475 8,475 8,134 7,725 Maryland 28,041,053,064 1.817% 39,584 39,584 38,152 41,330 Massachusetts 41,774,320,546 2.707% 58,972 58,972 62,216 57,716 Michigan 51,795,404,034 3.356% 73,118 73,118 70,157 69,564 Minnesota 31,171,403,993 2.020% 44,004 44,004 39,975 40,117 Mississippi 10,080,044,404 0.653% 14,229 14,229 13,586 13,236 Missouri 29,246,472,045 1.895% 41,288 41,288 39,443 37,681 Montana 3,924,697,628 0.254% 5,540 7,725 7,725 7,725 Nebraska 9,741,909,326 0.631% 13,752 13,752 13,171 12,890 Nevada 10,983,796,872 0.712% 15,505 15,505 15,525 15,647 New Hampshire 8,183,515,674 0.530% 11,553 11,553 11,239 9,276 New Jersey 56,208,010,593 3.642% 79,346 79,346 79,618 80,370 New Mexico 9,464,770,174 0.613% 13,362 13,362 11,622 10,745 New York 150,944,378,370 9.781% 213,085 213,085 207,630 187,608 North Carolina 39,968,064,554 2.590% 56,423 56,423 50,837 50,554 North Dakota 4,048,112,312 0.262% 5,715 7,725 7,725 7,725 Ohio 55,282,872,698 3.582% 78,041 78,041 74,780 73,407 Oklahoma 14,337,118,322 0.929% 20,240 20,240 19,420 18,427 Oregon 19,025,400,697 1.233% 26,858 26,858 26,485 25,325 Pennsylvania 81,475,284,391 5.279% 115,017 115,017 111,007 105,424 Rhode Island 6,763,734,535 0.438% 9,549 9,549 9,119 10,635 South Carolina 18,491,021,032 1.198% 26,102 26,102 24,582 23,323 South Dakota 4,309,180,622 0.279% 6,083 7,725 7,725 7,725 Tennessee 26,703,963,264 1.730% 37,697 37,697 35,642 34,922 Texas 99,584,682,957 6.453% 140,582 140,582 135,153 131,365 Utah 10,865,028,380 0.704% 15,338 15,338 14,794 14,380 Vermont 2,927,954,722 0.190% 4,133 7,725 7,725 7,725 Virginia 35,576,884,363 2.305% 50,222 50,222 49,147 49,108 Washington 30,401,094,527 1.970% 42,917 42,917 41,275 40,286 West Virginia 7,769,773,696 0.503% 10,967 10,967 10,359 10,052 Wisconsin 31,244,958,839 2.025% 44,107 44,107 40,815 40,845 Wyoming 2,200,267,432 0.143% 3,107 7,725 7,725 7,725 American Samoa 4,393,685 0.000% 7 7,725 7,725 7,725 Guam 310,663,392 0.020% 438 7,725 7,725 7,725 Puerto Rico 9,878,587,174 0.640% 13,946 13,946 12,538 12,614 U.S. Virgin Islands 326,127,104 0.021% 460 7,725 7,725 7,725 Northern Mariana Islands 21,000,127 0.001% 31 7,725 7,725 7,725
Total Member Assessment 1,543,308,589,609$ 100.00% 2,178,647$ 2,225,921$ 2,178,647$ 2,130,539$
Four months of the May 2010-April 2011 assessment 726,213$ Eight months of the May 2011-April 2012 assessment 1,483,947
Total calendar year 2011 assessment 2,210,160$
NAIC Member Assessments Exhibit R1-One
27
28
*All
Oth
er R
even
ue in
clud
es p
ublic
atio
ns a
nd su
bscr
iptio
ns, s
ervi
ces,
natio
nal m
eetin
g re
gist
ratio
n fe
es, i
nves
tmen
t inc
ome,
edu
catio
n pr
ogra
ms a
nd o
ther
inco
me.
Mem
ber
Ass
essm
ents
as C
ompa
red
to D
atab
ase
Fees
an
d A
ll O
ther
NA
IC R
even
ue
2.77
%3.
31%
2.87
%2.
92%
2.94
%
40.7
6%35
.37%
33.4
8%34
.87%
34.2
4%
61.7
6%
55.9
3%
63.7
5%
62.2
1%62
.82%
$0
$5,0
00,0
00
$10,
000,
000
$15,
000,
000
$20,
000,
000
$25,
000,
000
$30,
000,
000
$35,
000,
000
$40,
000,
000
$45,
000,
000
$50,
000,
000
$55,
000,
000
Exhibit R1-Two
Mem
ber
Ass
essm
ents
Dat
abas
e F
ees
All
Oth
er R
even
ue
2010
Bu
dg
et20
11B
ud
get
2007
2008
2009
29
30
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Dat
abas
e F
ees
(1)
25,5
39,9
49$
25,5
12,3
62$
25,5
12,3
62$
25,7
89,9
55$
25,7
34,9
99$
(5
4,95
6)$
(0
.21%
)
(1)
The
NA
ICus
esan
nual
data
base
filin
gfe
ere
venu
esto
supp
ort
itsfin
anci
also
lven
cypr
ogra
m,
incl
udin
ga
num
ber
ofso
lven
cym
onito
ring
tool
spr
ovid
ed
tost
ate
insu
ranc
ere
gula
tors
.T
hein
dust
rybe
nefit
sfr
omth
eab
ility
toel
ectr
onic
ally
file
itsqu
arte
rlyan
dan
nual
stat
emen
tsw
ithth
eN
AIC
’sce
ntra
lda
taba
se(F
DR
),ra
ther
tha
nsu
bmitt
ing
hard
copy
filin
gsto
each
indi
vidu
alju
risdi
ctio
nin
whi
chth
eco
mpa
nyco
nduc
tsbu
sine
ss.
Com
pany
finan
cial
info
rmat
ion
isge
nera
llym
ade
avai
labl
eto
stat
ein
sura
nce
regu
lato
rsth
roug
hF
DR
with
in24
hour
sof
rec
eipt
of t
he e
lect
roni
c fil
ing.
R2:
Dat
abas
e F
ees
Dat
abas
efil
ing
fees
proj
ecte
dfo
r20
10ar
eba
sed
onac
tual
2009
filin
gsre
ceiv
edth
roug
hJu
ne30
,20
10.
The
varia
nce
from
budg
etfo
r20
10is
due
toco
mp
any
mer
ger
and
acqu
isiti
onac
tivity
,w
hich
redu
ces
the
data
base
filin
gfe
efo
rth
ose
larg
eco
mpa
nies
alre
ady
exce
edin
gfil
ing
fee
caps
.T
he20
11bu
dget
assu
mes
aco
nser
vativ
e2
%gr
owth
inpr
emiu
mov
er20
09pr
emiu
mvo
lum
e,re
sulti
ngin
the
decr
ease
inbu
dget
from
2010
to20
11.
The
com
plet
efil
ing
fee
stru
ctur
eis
illus
trat
edas
Exh
ibit
R2-
One
and
has
not
chan
ged
sinc
e20
07.
Exh
ibit
R2-
Tw
o ill
ustr
ates
dat
abas
e fil
ing
fees
as
a pe
rcen
tage
of t
otal
NA
IC r
even
ues.
BU
DG
ET
ITE
M:
Dat
abas
e F
ees
Item
Des
crip
tion:
Fee
sfr
omal
lins
uran
ceco
mpa
nies
filin
gw
ithth
eN
AIC
’sF
inan
cial
Dat
aR
epos
itory
(FD
R).
Fee
sar
eba
sed
onea
chfil
er’s
prem
ium
volu
me,
whi
chis
mea
sure
das
the
grea
ter
of d
irect
writ
ten
prem
ium
or
rein
sura
nce
assu
med
from
non
-affi
liate
s.
31
32
Exhibit R2-One
NAIC Database Filing Fee StructureFor 2010 Data Year Filings Submitted in March 2011
Premium Base Levels: 2011 Fee
-$ to 100,000$ 247$ 100,001$ to 1,000,000$ 484$
1,000,001$ to 2,500,000$ 722$ 2,500,001$ to 7,500,000$ 1,444$ 7,500,001$ to 25,000,000$ 2,403$
25,000,001$ to 100,000,000$ 3,600$ 100,000,001$ to 200,000,000$ 5,035$ 200,000,001$ to 300,000,000$ 6,289$ 300,000,001$ to 400,000,000$ 7,723$ 400,000,001$ to 500,000,000$ 9,167$ 500,000,001$ to 600,000,000$ 11,039$ 600,000,001$ to 700,000,000$ 12,958$ 700,000,001$ to 800,000,000$ 14,877$ 800,000,001$ to 900,000,000$ 17,271$ 900,000,001$ to 1,000,000,000$ 19,674$
1,000,000,001$ to 1,100,000,000$ 22,068$ 1,100,000,001$ to 1,200,000,000$ 24,472$ 1,200,000,001$ to 1,300,000,000$ 26,866$ 1,300,000,001$ to 1,400,000,000$ 29,269$ 1,400,000,001$ to 1,500,000,000$ 31,663$ 1,500,000,001$ to 1,600,000,000$ 34,067$ 1,600,000,001$ to 1,700,000,000$ 36,461$ 1,700,000,001$ to 1,800,000,000$ 39,339$ 1,800,000,001$ to 1,900,000,000$ 42,218$ 1,900,000,001$ to 2,000,000,000$ 45,096$ 2,000,000,001$ to 2,100,000,000$ 47,975$ 2,100,000,001$ to 2,200,000,000$ 50,853$ 2,200,000,001$ to 2,300,000,000$ 53,732$ 2,300,000,001$ to 2,400,000,000$ 56,610$ 2,400,000,001$ to 2,500,000,000$ 59,489$ 2,500,000,001$ to 2,600,000,000$ 62,367$ 2,600,000,001$ to 2,700,000,000$ 65,246$ 2,700,000,001$ or greater 69,428$
Combined Filing Fee 685$ Individual Filing Fee Cap 69,428$ Group Filing Fee Cap 208,284$
33
34
*All
Oth
er R
even
ue in
clud
es m
embe
r ass
essm
ents
, pub
licat
ions
and
subs
crip
tions
, ser
vice
s, na
tiona
l mee
ting
regi
stra
tion
fees
, inv
estm
ent i
ncom
e, e
duca
tion
prog
ram
s and
ot
her i
ncom
e.
Dat
abas
e F
ees
as a
Per
cen
tag
e o
f N
AIC
Rev
enu
e
35.3
7%40
.76%
33.4
8%34
.87%
34.2
4%
64.6
3%
59.2
4%
66.5
2%
65.1
3%65
.76%
$5,0
00,0
00
$10,
000,
000
$15,
000,
000
$20,
000,
000
$25,
000,
000
$30,
000,
000
$35,
000,
000
$40,
000,
000
$45,
000,
000
$50,
000,
000
$55,
000,
000
Exhibit R2-Two
Dat
abas
e F
ees
All
Oth
er R
even
ue
2010
Bu
dg
et
2011
Bu
dg
et20
0720
0820
09
35
36
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Pub
licat
ions
(1)
5,00
7,35
7$
2,
658,
027
$
4,80
7,30
1$
5,
312,
983
$
4,92
2,45
9$
(390
,524
)$
(7.3
5%)
Insu
ranc
e D
ata
Pro
duct
s (2
)8,
643,
908
2,38
2,65
4
9,
660,
632
9,44
8,56
1
10
,058
,497
609,
936
6.46
%A
utom
ated
Val
uatio
n S
ervi
ce (
3)3,
598,
205
1,82
8,00
9
3,
686,
242
3,64
6,65
0
3,
681,
775
35,1
25
0.
96%
Tot
al17
,249
,470
$
6,
868,
690
$
18
,154
,175
$
18
,408
,194
$
18
,662
,731
$
254,
537
$
1.
38%
(1)
(2)
(3)
BU
DG
ET
ITE
M:
Pub
licat
ions
and
Insu
ranc
e D
ata
Pro
duct
s
R3:
Pub
licat
ions
and
Insu
ranc
e D
ata
Pro
duct
s
Pub
licat
ions
reve
nue
isge
nera
ted
from
the
sale
ofha
rdco
py,
elec
tron
icdo
wnl
oada
ble
and
CD
publ
icat
ions
,re
fere
nce
mat
eria
ls,
and
roya
lties
from
the
sale
ofth
ese
prod
ucts
byth
irdpa
rty
vend
ors.
The
NA
ICpr
oduc
es14
8pu
blic
atio
ns,
whi
char
ede
sign
edto
(1)
prov
ide
stat
ein
sura
nce
regu
lato
rsw
ithha
ndbo
oks,
stat
istic
alre
port
s,an
dw
hite
pape
rs,
amon
got
hers
,in
anef
fort
toof
fer
best
-pra
ctic
esan
dco
ordi
nate
dre
gula
tory
appr
oach
esto
the
stat
e-ba
sed
syst
emof
insu
ranc
ere
gula
tion,
and
(2)
prov
ide
the
insu
ranc
ein
dust
ryw
itha
varie
tyof
hand
book
s, to
ols
and
elec
tron
ic a
pplic
atio
ns to
faci
litat
e in
dust
ry c
ompl
ianc
e w
ith s
tate
insu
ranc
e re
gula
tory
req
uire
men
ts.
Sin
ceea
rly20
09,
sale
sha
vede
crea
sed
slig
htly
,pa
rtic
ular
lyin
the
NA
IC’s
high
est
selli
ngpr
oduc
ts,
whi
chth
eN
AIC
attr
ibut
esto
cost
-sav
ing
mea
sure
sam
ong
itscu
stom
erba
sean
dw
hich
isdr
ivin
gth
esa
les
budg
etde
ficit
in20
10.
The
Insu
ranc
eP
rodu
cts
and
Ser
vice
sD
ivis
ion
has
impl
emen
ted
sale
sca
mpa
igns
,in
clud
ing
mor
eta
rget
edm
arke
ting,
offe
rsto
rene
wal
cus
tom
ers,
dis
coun
ted
pric
ing,
etc
., in
an
effo
rt to
gen
erat
e ad
ditio
nal s
ales
. The
201
1 bu
dget
ass
umes
sal
es v
olum
es w
ill b
e m
ore
cons
iste
nt w
ith 2
010
proj
ecte
d le
vels
.
Cus
tom
ers
leve
rage
NA
ICin
sura
nce
data
prod
ucts
and/
orth
eto
ols
mad
eav
aila
ble
byth
eN
AIC
’sre
dist
ribut
ion
busi
ness
part
ners
inor
der
toen
sure
accu
rate
subm
issi
ons
ofqu
arte
rlyan
d an
nual
filin
gs to
the
NA
IC, c
ondu
ct r
esea
rch,
and
to b
ench
mar
k sp
ecifi
c co
mpa
ny d
ata
and
perf
orm
ance
to v
ario
us in
dust
ry a
ggr
egat
es, a
mon
g ot
her
thin
gs.
Item
Des
crip
tion:
Rev
enue
sge
nera
ted
from
the
sale
ofva
rious
refe
renc
em
ater
ials
,ha
ndbo
oks,
subs
crip
tions
,in
form
atio
nst
ored
with
inth
eN
AIC
'sfin
anci
alda
taba
se,
and
secu
rity
desi
gnat
ions
ass
igne
d by
the
Sec
uriti
es V
alua
tion
Offi
ce (
SV
O).
The
Aut
omat
edV
alua
tion
Ser
vice
(AV
S)
isth
eN
AIC
’sel
ectr
onic
syst
emfo
rth
ede
liver
yof
secu
rity
desi
gnat
ions
assi
gned
byth
eS
ecur
ities
Val
uatio
nO
ffice
(SV
O).
The
AV
Ssy
stem
isut
ilize
dby
com
pani
esw
hen
prep
arin
gth
eir
Sch
edul
eD
filin
gs.
2011
reve
nues
are
cons
iste
ntw
ith20
10pr
ojec
tions
,w
hich
are
slig
htly
high
erth
anth
e20
10bu
dget
resu
lting
from
grow
th in
the
num
ber
of c
ompa
nies
leve
ragi
ng A
VS
dur
ing
2010
.
InJu
ly20
09,
the
NA
ICim
plem
ente
dA
ccou
ntM
anag
er,
anon
line
publ
icat
ion
orde
rsy
stem
,as
anal
tern
ativ
eto
hard
copy
orde
rsin
anef
fort
to(1
)pr
ovid
ecu
stom
ers
with
inst
ant
and
elec
tron
ic a
cces
s to
NA
IC p
ublic
atio
ns, (
2) o
ffer
cust
omer
s an
opt
ion
to s
ave
ship
ping
and
han
dlin
g co
sts
and
(3)
redu
ce N
AIC
pro
duct
ion,
shi
ppin
g an
d in
vent
ory
man
agem
ent c
osts
.
Rev
enue
sge
nera
ted
from
the
sale
ofin
sura
nce
data
prod
ucts
are
budg
eted
at$7
,038
,997
and
incl
ude
cont
ract
sw
ithth
irdpa
rty
vend
ors
who
use,
mar
ket,
and
som
etim
esre
dist
ribut
eN
AIC
data
.It
also
incl
udes
roya
lties
gene
rate
dby
six
busi
ness
part
ners
who
licen
seth
eN
AIC
'sR
isk
Bas
edC
apita
lF
iling
Sup
port
Pro
duct
(RB
CF
SP
)of
$1,5
45,6
00an
dth
eA
nnua
lS
tate
men
tF
iling
Sup
port
Pro
duct
(AS
FS
P)
of$1
,473
,900
.20
10pr
ojec
tions
indi
cate
a$2
12,0
71im
prov
emen
tin
budg
etpe
rfor
man
cean
dre
sult
from
the
nego
tiatio
nof
seve
ral
new
vend
or c
ontr
acts
in 2
010.
The
201
1 bu
dget
ass
umes
con
tinue
d gr
owth
in r
edis
trib
utio
n ro
yalti
es fr
om o
ne o
f the
NA
IC’s
sig
nific
ant
bus
ines
s pa
rtne
rs.
37
38
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
SV
O F
ees
(1)
8,06
8,39
0$
4,
040,
842
$
8,66
2,95
2$
8,
563,
450
$
8,53
1,00
2$
(32,
448)
$
(0.3
8%)
SE
RF
F F
ees
(2)
4,02
1,13
8
2,
166,
614
4,51
0,49
5
4,
256,
007
4,99
8,73
1
74
2,72
4
17
.45%
OP
Tin
s F
ees
(3)
28,3
84
26
,606
46,9
84
14
9,01
9
72,5
08
(7
6,51
1)
(5
1.34
%)
SB
S F
ees
(4)
1,76
7,50
2
1,
078,
011
2,28
4,29
1
2,
534,
738
3,34
2,67
1
80
7,93
3
31
.87%
IID F
ees
(5)
591,
480
56
7,05
0
584,
050
55
7,75
0
574,
750
17
,000
3.05
%
Tot
al14
,476
,894
$
7,
879,
123
$
16
,088
,772
$
16
,060
,964
$
17
,519
,662
$
1,45
8,69
8$
9.
08%
(1)
R4a
: S
ervi
ces
Item
Des
crip
tion:
Fee
sfo
rse
rvic
esfr
omth
eS
ecur
ities
Val
uatio
nO
ffice
(SV
O),
Sys
tem
for
Ele
ctro
nic
Rat
ean
dF
orm
Fili
ng(S
ER
FF
),O
nlin
eP
rem
ium
Tax
for
Insu
ranc
e(O
PT
ins
),S
tate
Bas
ed S
yste
ms
(SB
S)
and
the
Inte
rnat
iona
l Ins
urer
s D
epar
tmen
t (IID
).
The
2011
budg
etas
sum
esco
nser
vativ
efil
ing
volu
mes
,co
nsis
tent
with
2010
proj
ecte
dvo
lum
es,
with
asl
ight
decr
ease
resu
lting
from
anan
ticip
ated
dec
line
inth
evo
lum
eof
initi
alan
dan
nual
upda
tefil
ings
ofco
rpor
ate
secu
ritie
s.T
his
slig
htde
crea
seis
offs
etby
apr
opos
edin
crea
sein
the
fee
for
Adv
ance
dR
atin
gS
ervi
ces
(AR
S)
for
both
corp
orat
ean
dst
ruct
ured
secu
ritie
s.T
heA
RS
fee
will
incr
ease
from
$10,
000
to$1
5,00
0as
are
sult
ofth
ean
alys
ttim
ere
quire
dto
perf
orm
the
nece
ssar
yan
alys
isan
dpr
ovid
ead
vanc
edde
sign
atio
ns,
gene
ratin
g an
incr
ease
of $
75,0
00 in
SV
O fe
es in
201
1.
SV
Opr
oduc
tsan
dse
rvic
esre
venu
esin
clud
e(1
)$6
,456
,000
for
nonr
ated
secu
rity
filin
gs;
(2)
$380
,000
for
the
proc
essi
ngof
subs
idia
ryva
luat
ion
filin
gs;
(3)
$270
,000
for
adva
nce
ratin
gse
rvic
es;
(4)
$120
,000
inse
rvic
espr
ovid
edto
bank
sth
atw
ish
tobe
plac
edon
the
“App
rove
dB
ank
List
”m
aint
aine
dby
the
SV
O;
(5)
$180
,000
inse
rvic
efe
esfo
rth
ere
view
ofm
oney
mar
ket
fund
s;(6
)$2
,000
inS
VO
appe
als
fees
,re
pres
entin
gan
offs
etto
the
cost
ofth
ead
ditio
nale
ffort
byth
eS
VO
staf
fw
hen
requ
este
dto
cond
uct
afa
ce-t
o-fa
cem
eetin
gon
anap
peal
bya
com
pany
that
disa
gree
sw
ithth
eor
igin
alcr
edit
asse
ssm
ent
from
the
SV
O;
(7)
$3,0
00in
serv
ices
fees
for
the
revi
ewof
coun
terp
arty
deriv
ativ
es;
(8)
$30,
000
inS
VO
sove
reig
nfe
es,
repr
esen
ting
anof
fset
toth
eco
stof
the
SV
O’s
requ
irem
ent
toco
nduc
ta
Sov
erei
gnan
alys
ison
the
initi
alsu
bmis
sion
ofis
suin
gde
btin
afo
reig
nco
untr
y,an
d(9
)$3
00,0
00 in
Por
tfolio
Ana
lysi
s M
anag
emen
t (P
AM
) fe
es. N
on-r
ated
sec
urity
filin
g re
venu
es a
re il
lust
rate
d in
Exh
ibit
R4-
One
.
Sin
ce20
04,
SV
Ore
venu
esha
vein
clud
eda
blen
dof
fee-
for-
serv
ices
and
afe
eas
sess
men
tm
odel
.T
his
appr
oach
isth
ere
sult
ofw
ork
byth
eR
even
ueC
onsi
der
atio
ns(E
X1)
Wor
king
Gro
up,
with
the
assi
stan
ceof
inte
rest
edpa
rtie
s,on
apr
opos
alto
ultim
atel
yex
empt
all
NR
SR
Ora
ted
secu
ritie
sfr
omfil
ing
with
the
SV
O,
ona
“rev
enue
neut
ral”
basi
s.T
heW
orki
ngG
roup
’sre
venu
ebl
end
appr
oach
was
appr
oved
byth
eN
AIC
mem
bers
hip
inS
epte
mbe
r20
03an
dw
asef
fect
ive
Janu
ary
1,20
04.
The
2010
budg
etin
clud
es$7
,74
1,00
0in
serv
ice
fees
and
a$7
90,0
00as
sess
men
tto
the
indu
stry
,re
pres
entin
gon
e-ha
lfof
the
annu
alin
dust
ryas
sess
men
tap
prov
edin
2003
.T
heas
sess
men
tis
allo
cate
d,on
apr
opor
tiona
teba
sis,
toth
ose
insu
rers
that
hold
$1bi
llion
orm
ore
ofno
n-go
vern
men
tan
dpr
efer
red
stoc
kin
vest
men
ts.
NA
ICst
aff
are
curr
ently
impl
emen
ting
enha
ncem
ents
toth
eN
AIC
’sN
ewY
ork
Offi
ce,
incl
udin
gpr
ovid
ing
stat
ere
gula
tors
with
enha
nced
secu
rity
data
,ca
pita
lm
arke
tsan
alys
is,
rese
arch
,an
dev
alua
tions
ofin
sure
rin
vest
men
tpo
rtfo
lioris
ks,
whi
chm
ayre
sult
inth
ere
eval
uatio
n of
the
NA
IC fe
e as
sess
men
t to
the
indu
stry
in 2
011.
The
dec
reas
e in
bud
get f
or 2
011
is th
e re
sult
of a
dec
line
in t
he n
umbe
r of
cor
pora
te in
itial
filin
gs a
nd a
nnua
l upd
ates
.
BU
DG
ET
ITE
M:
Ser
vice
s
39
(2) (3
)
(4)
(5)
SE
RF
F fi
ling
volu
mes
con
tinue
to g
row
as
a re
sult
of s
tate
impl
emen
tatio
ns o
f the
Uni
form
Pro
duct
Cod
ing
Mat
rices
and
con
tinue
d g
row
th in
the
use
of S
ER
FF
by
a gr
owin
g nu
mbe
r of
st
ates
and
com
pani
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Exhibit R4-One
Sec
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Val
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Off
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No
n-R
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Sec
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ties
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41
42
Item
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s re
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om a
ttend
ees
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Nat
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.
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Incr
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44
Fee
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egis
tran
tsT
otal
Reg
istr
ants
Tot
alR
egis
tran
tsT
otal
Adv
ance
Reg
istr
atio
n60
0$
734
440,
400
$
75
745
4,20
0$
792
475,
200
$
2,
283
1,36
9,80
0$
Reg
istr
atio
n af
ter
30 D
ays
Prio
r70
0$
7351
,100
76
53,2
00
7955
,300
22
815
9,60
0
Firs
t Tim
e, L
ocal
Reg
istr
ants
325
$
8
2,60
0
7
2,27
5
9
2,92
5
24
7,80
0
S
ubto
tal
815
494,
100
84
050
9,67
5
880
533,
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2,
535
1,53
7,20
0
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cella
tions
325
$
(1
6)(5
,200
)
(1
5)(4
,875
)
(1
3)(4
,225
)
(4
4)(1
4,30
0)
T
otal
Pro
ject
ed P
aid
Atte
ndan
ce a
nd R
even
ues
799
488,
900
$
82
550
4,80
0$
867
529,
200
$
2,
491
1,52
2,90
0$
T
otal
Pro
ject
ed R
egis
trat
ions
(P
aid
and
Unp
aid)
1,55
01,
700
1,77
55,
025
2011
atte
ndan
ce p
roje
ctio
ns w
ere
dete
rmin
ed b
y ta
king
into
con
side
ratio
n lo
catio
n an
d pa
st a
ttend
ance
.
Prio
r Y
ear
Pai
d A
ttend
ance
Sta
tistic
s:
2010
796
D
enve
r87
1
Sea
ttle
Orla
ndo
N/A
2009
761
S
an D
iego
787
M
inne
apol
is88
3
Was
hing
ton
D.C
.85
4
San
Fra
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co20
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9
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ndo
884
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an F
ranc
isco
914
W
ashi
ngto
n D
.C.
798
D
alla
s20
071,
064
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Yor
k C
ity92
5
San
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co89
8
Was
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ton
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.81
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922
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.89
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alt L
ake
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C
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6,96
6
7,
508
5,04
1
6,
361
Ave
rage
atte
ndan
ce 2
007-
2009
905
86
5
898
82
3
Exhibit R5-One
Nat
ion
al M
eeti
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45
46
2009
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/10
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2011
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crip
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me
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932,
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5
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0
750,
578
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Rea
lized
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ealiz
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al6,
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$
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9$
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$
1,
433,
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$
1,
304,
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.02%
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(1)
(2)
(3)
The
inve
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and
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men
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heN
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elo
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me
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paya
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eN
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byth
eIn
ters
tate
Insu
ranc
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rodu
ctR
egul
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C)
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ofth
eir
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ual
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s.T
he20
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dget
isco
nsis
tent
with
port
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ance
in20
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dre
flect
sth
ere
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inth
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RC
inte
rest
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and
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iver
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oric
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me
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ted
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real
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the
$363
,632
inre
aliz
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and
$449
,089
inun
real
ized
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clud
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the
2010
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ectio
nsre
pres
ent
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alre
sults
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ugh
June
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.W
hile
thes
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ojec
tions
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sed
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eral
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eca
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the
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h D
ecem
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to 2
011.
BU
DG
ET
ITE
M:
Inve
stm
ent I
ncom
e
Item
Des
crip
tion:
Inte
rest
,di
vide
nds,
and
real
ized
and
unre
aliz
edga
ins/
loss
eson
the
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vest
men
tpo
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lioan
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uiva
lent
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lso
incl
ude
dis
inte
rest
earn
edon
the
lines
ofcr
edit
gran
ted
to th
e In
ters
tate
Insu
ranc
e P
rodu
ct R
egul
atio
n C
omm
issi
on (
IIPR
C).
R6:
Inve
stm
ent I
ncom
e
Pre
para
tion
ofth
eIIP
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’s20
11bu
dget
indi
cate
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owth
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venu
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ver
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2011
.T
his
grow
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coup
led
with
the
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ntre
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ctur
eof
the
loan
agre
emen
tsm
ayel
imin
ate
the
need
for
addi
tiona
lbo
rrow
ing
from
the
NA
ICin
2011
.IIP
RC
will
reas
sess
the
need
for
fund
ing
assi
stan
ceas
itco
mpl
etes
2010
and
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ider
sca
shre
serv
esin
to20
11.
As
are
sult
ofits
grow
than
dth
ere
nego
tiatio
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exis
ting
loan
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ts,
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IIPR
Can
ticip
ates
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edit
in20
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com
pare
dto
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inal
requ
est
for
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of$8
50,0
00.
47
48
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
NAIC INVESTMENT POLICY STATEMENT
AND ASSET ALLOCATION LONG TERM FUNDS
Effective Date: March 2003 Revision Date: August 2010
PURPOSE The purpose of this Investment Policy Statement (“Statement”) is to establish a clear
understanding between the National Association of Insurance Commissioners’ Long Term Funds (“Client”), Prairie Capital Management LLC (“PCM”) and the investment or mutual fund managers hired by the Client (“Managers”) of the investment policies and objectives of the Client. This Statement outlines an overall philosophy that is specific enough for PCM and the Managers to know what is expected, but sufficiently flexible to allow for changing economic conditions and securities markets. This Statement provides realistic risk policies to guide toward long-term rate of return objectives, which will serve as standards for evaluating investment performance. This Statement also establishes the investment restrictions with respect to the Long Term Funds to be placed upon PCM and the Managers and will outline procedures for policy and performance review.
Investments will be made for the sole interest and exclusive purpose of providing returns, both
capital appreciation and income, for the Client. All investments will be made within the guidelines of quality, marketability and diversification.
OBJECTIVES The objectives of the accounts should be pursued as long-term, designed to provide capital
appreciation and income without exposure to undue risk, as defined herein.
PCM’s primary objectives are to:
1. Assist Client in implementing these policies so as to achieve the Client’s objectives.
2. Notify the Client should circumstances occur in which PCM believes the policies need to be modified to achieve the objectives.
3. Assist Client in implementing these policies with the goal that the portfolio meets or outperforms the target asset mix, which is defined below.
4. Monitor the Managers hired by the Client and keep the Client advised with respect to the performance of such Managers and recommend substitute Managers if the need arises.
Knowing that the Client understands fluctuating rates of return are characteristic of the securities
markets, PCM’s objective for the Long Term Funds should be to first provide required income, and second to obtain long-term appreciation of the assets and consistency of the total portfolio returns relative to comparable indices. The portfolio will be formulated to achieve the following goal over a three-year moving time period: the investments of the Long Term Funds’ portfolio will meet or exceed the Consumer Price Index plus five percent.
Understanding that a long-term positive correlation exists between performance volatility (risk)
and expected returns in the securities markets, the Client has established the following short-term objectives:
49
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
1. The portfolio should be invested in the chosen asset classes by the Managers in order to generate favorable returns given the level of risk employed by the Managers.
2. Following the initial funding period for the selected Managers, the Client expects PCM to
promptly consult with the Client if the asset allocation is not in compliance with the minimum or maximum restrictions set forth herein so as to prevent the returns of the total account from significantly underperforming the target asset allocation.
3. The portfolio should be invested to minimize the probability of low negative total returns,
defined as a one-year return worse than negative eight percent.
POLICIES AND RESTRICTIONS The Client intends to use the investment policies and restrictions presented in this Statement as a framework to help achieve the investment objectives at a level of risk deemed acceptable. These policies and restrictions are designed to minimize interfering with efforts to attain overall objectives and to minimize excluding any appropriate investment opportunities. The policy allows PCM discretion within specified parameters in the asset allocation and diversification of the assets for the purposes of increasing investment returns and/or reducing risk exposure. The Managers will not purchase assets other than those approved herein without the written consent of the Client. It is important for the Managers hired to be sensitive to the objectives and goals of the Client.
ASSET ALLOCATION The Client expects the asset allocation policies to reflect, and be consistent with, the investment objectives and risk tolerances expressed throughout this Statement. These policies, developed after examining the historical and possible future relationships of risk and return among asset classes, are designed to provide the highest probability of meeting or exceeding the return objectives at the lowest possible risk. The target equity asset allocation set forth in the following chart was developed through consultation with the Client. The following chart represents the asset allocation targets, with minimum and maximum allocations applicable to each asset class. Also, the comparative indices with which the results of the portfolio and the various Managers will be compared are defined.
50
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
Although dynamic capital markets may cause fluctuating risk/return opportunities over a market
cycle, the comparative indices set forth in the prior chart will be used to evaluate the asset allocation (as measured at market value) over a three-year moving time period.
GENERAL ASSET ALLOCATION RESTRICTIONS 1. The investment returns of the asset allocation will be measured against those of both a target
portfolio consisting of 7.50% long/short equity fund of funds, 5.00% long/short international equity, 4.25% all cap equities, 4.25% yield focused equities, 8.25% large cap growth equities, 8.25% large cap value equities, 7.50% small cap value equities, 5.00% international equities, and 50.00% income/income alternative securities, including 7.50% multi-strategy fund of funds, and an actual weighted portfolio index blend. Equity and income market performance will be compared to the returns of the indices specified above. Other more appropriate indices may be used at the discretion of PCM.
2. U.S. Publicly traded equities will be represented in the portfolio up to 63.00% with a
minimum requirement of 23.00%. 3. Foreign equities will not exceed 10.00% of the account’s market value, with a minimum
requirement of 3.00%.
4. Long/Short Equity will be represented in the portfolio up to 10.00% with no minimum requirement.
5. Long/Short International Equity will be represented in the portfolio up to 7.50% with no
minimum requirement.
6. Income/income alternative securities will not exceed 67.00% of the account’s market value with a minimum requirement of 37.00%. The principal subcomponent of income securities,
ASSET CLASS TARGET ALLOCATION
MINIMUM ALLOCATION
MAXIMUM ALLOCATION
COMPARATIVE INDEX
U.S. EQUITIES 32.50% 23.00% 63.00% All Cap 4.25% 3.00% 8.00% Russell 3000
Yield Focused Equity 4.25% 3.00% 8.00% Russell 1000 Value Large Cap Growth 8.25% 6.00% 16.00% Russell 1000 Growth
Large Cap Value 8.25% 6.00% 16.00% Russell 1000 Value Small Cap Value 7.50% 5.00% 15.00% Russell 2000 Value
FOREIGN EQUITIES 5.00% 3.00% 10.00% MSCI EAFE LONG/SHORT EQUITY 7.50% 0.00% 10.00% HFRI Composite Fund of Funds LONG/SHORT INTERNATIONAL EQUITY
5.00% 0.00% 7.50% HFRX Global Hedge Fund
INCOME/ALTERNATIVES 50.00% 37.00% 67.00%
Core Plus Bond 13.00% 10.00% 25.00% Barclays Intermediate Government/Credit
Intermediate Fixed Income Securities
20.00% 16.00% 38.00% Barclays Intermediate Government/Credit
Core Bond 4.50% 0.00% 7.00% Barclays Aggregate Bond
International Fixed Income 5.00% 0.00% 10.00% Citigroup World Government Multi-Strategy Fund of Funds 7.50% 0.00% 10.00% HFRI Diversified Fund of Funds
51
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
U.S. publicly traded domestic fixed income securities, will not exceed 38.00% of the account’s market value, with a minimum requirement of 16.00%.
7. Financial Sector allocation may be based on an individual manager’s discretionary allocation
to sector, rather than pursuant to the stated target allocation.
8. The Client foresees the possibility of using limited partnerships and/or mutual funds and understands that it would not have any control over the management of such funds with regard to guidelines and restrictions, and would be subject to the investment provisions set forth in the respective investment vehicle prospectus.
Because securities market conditions can vary greatly throughout a market cycle, it is expected that PCM shall from time to time recommend that the Client change the asset mix within the above ranges or make asset allocations outside the limits prescribed above, for the purpose of increasing investment returns and/or reducing risk. However, the written consent of the Client is required to change the asset mix through reallocation beyond the minimum and maximum parameters set forth herein.
U.S. PUBLICLY TRADED EQUITIES In keeping with the general investment philosophy, the Client expects PCM to monitor the U.S. equity Managers to see that they maintain the publicly traded equity portfolio at a risk level similar to that of the benchmark equity indices as a whole, with the objective of meeting or exceeding its results as represented by the relevant equity indices over a three-year moving time period. Equity holdings in individually managed accounts may be selected from the New York, American and Regional Stock Exchanges, or the NASDAQ markets. U.S. equity Managers are generally prohibited from investing in private placements, letter stock, and options; or from engaging in short sales, margin transactions or other specialized investment activities unless the Client agrees in writing under the terms of the Equity Managers’ investment management agreements. In addition, Managers are prohibited from investing in derivatives. Within the above guidelines, the Client gives the Managers full responsibility for security selection and diversification. However, Managers should carefully review any position exceeding a 10% commitment of the account’s market value for an individual security and the lesser of a 50% commitment or three times the normal sector weighting for a particular economic sector. Such limits should not be exceeded on an ongoing basis, but may, from time to time be exceeded on a short-term basis. Managers also will have full discretion over turnover and allocation of equity holdings among selected securities and industry groups, within the limits described above. While it is understood that Managers will deviate from the representative indices, the Client wishes to limit the extent of potential underperformance. Because of the inherent difficulty in defining specific restrictions, which would cover all possibilities, the Client instructs Managers to invest the equity component of the account to attempt to prevent the returns for that component from underperforming the relevant equity indices by more than 15% in any three consecutive quarters. All equity securities and cash held in individually managed equity accounts will be custodied at First Clearing, LLC (“FCC”), a fully disclosed clearing broker-dealer for UMB Financial Services, Inc. (“UMBFSI”), and a wholly owned subsidiary of Wachovia Corporation. Alternatively, the Client may custody securities at a bank or other financial institution, although the Client will bear the additional costs of any such arrangements. All Managers of individually managed accounts will be instructed to trade equity securities, whenever possible, through FCC. The parties realize that this may not be possible in certain circumstances, for example when FCC does not inventory an over the counter security. Securities in the FCC accounts will be protected up to the full value of the account for RMA and BSA accounts ($500,000 provided by SIPC, not in excess of $100,000 for claims relating to cash, and the remainder provided by a leading U.S. insurance carrier).
52
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
FOREIGN EQUITIES In keeping with the general investment philosophy, the Client expects PCM to monitor the foreign equity Managers/Mutual Funds to see that they maintain the equity portfolio at a risk level similar to that of the benchmark equity indices as a whole, with the objective of meeting or exceeding its results as represented by the relevant equity indices over a three-year moving time period. Foreign equity Managers are generally prohibited from investing in private placements, letter stock, and options; or from engaging in short sales, margin transactions or other specialized investment activities unless the Client agrees in writing under the terms of the equity Managers’ or Mutual Fund investment management agreements. In addition, Managers are prohibited from investing in derivatives. Notwithstanding the foregoing, Mutual Funds may buy or sell option contracts and may hedge currencies. Within the above guidelines, the Client gives the Managers full responsibility for security selection and diversification. However, Managers should carefully review any position exceeding a 10% commitment of the account’s market value for an individual security. Such limits should not be exceeded on an ongoing basis, but may, from time to time be exceeded on a short-term basis. Managers/Mutual Funds also will have full discretion over turnover and allocation of equity holdings among selected securities and countries, within the limits described above. While it is understood that Managers/Mutual Funds will deviate from the representative indices, the Client wishes to limit the extent of potential underperformance. Because of the inherent difficulty in defining specific restrictions, which would cover all possibilities, the Client instructs Manager/Mutual Funds to invest the equity component of the account to attempt to prevent the returns for that component from underperforming the relevant equity indices by more than 15% in any three consecutive quarters.
FIXED INCOME Investments in fixed income securities will be managed actively by the Managers to pursue opportunities presented by changes in interest rates, credit ratings and maturity premiums. Managers may select from appropriately liquid, corporate debt securities, and obligations of the U.S. Government and its agencies, foreign governments and their agencies, and securities convertible to equities. Investments in municipal or other federal tax-exempt securities are prohibited. The Client gives the Managers full responsibility for security selection and diversification. Notwithstanding the foregoing, the Client desires to create a portfolio that is consistent with the duration of the Barclays Government/Corporate Intermediate Bond Index. The Managers shall follow the following guidelines.
1. The investment managers shall invest in fixed-income obligations with maturities or expected life from zero to 20 years. The portfolio duration shall be no longer than that of the Barclays Government/Corporate Intermediate Bond Index plus six months.
2. Securities of a single issuer, the security for which is the same source (with the exception of
the U.S. Government and its agencies) should not exceed 5% of the market value of the fixed income portfolio.
3. Corporate debt issues that are not investment grade quality (that do not have a credit rating of
at least BBB or Baa or better from Standard & Poor’s or Moody’s, respectively); corporate debt issues with a BBB or Baa credit rating from Standard & Poor’s or Moody’s, respectively, should not constitute more than 5% of a Manager’s portfolio. In the event of a split between Standard & Poor’s and Moody’s, the higher shall be the qualified determinant.
Managers are specifically prohibited from investing in private placements, from speculating in
fixed income or interest rate futures, and interest rate options. In addition, the Managers will not engage in investment transactions involving stock options, short sales, purchases on margin, letter stocks, private placement securities or commodities.
While it is understood that the Managers will deviate from the representative indices, the Client
wishes to limit the extent of potential underperformance. Because of the inherent difficulty in defining
53
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
specific restrictions, which would cover all possibilities, the Client instructs the Managers to invest the domestic fixed income component of the account so as to attempt to prevent the returns for that component from underperforming the relevant fixed income indices by more than 15% in any three consecutive quarters.
Within the above restrictions, the Managers have complete discretion over timing and selection of fixed income securities.
ALTERNATIVE INVESTMENTS Alternative investments should be selected to provide the Client with diversification through less correlated asset classes. The Client foresees the possibility of using mutual funds/collective trust funds/limited partnerships that may serve as alternatives to either equity or income investments, and understands that the Client would not have any control over the management of such funds with regard to specific guidelines and restrictions. Specifically, Client anticipates utilizing hedge fund of funds to allocate assets across long/short equity and multi-strategy hedge fund strategies. Underlying managers within alternative investment strategies may invest in private placements, letter stock and options, short sales, margin transactions, derivative contracts and any other strategy permitted within the offering documents of the investment vehicle. The Client and PCM shall review the permitted investment strategies of such vehicles prior to investing in such vehicles. The performance of alternative investments will be expected to meet or exceed the performance of the benchmark determined by PCM, over a full market cycle.
CASH AND EQUIVALENTS The Managers may invest in commercial paper, repurchase agreements, Treasury Bills, certificates of deposit, and money market funds to provide income, liquidity for expense payments, and preservation of the account’s principal value. Commercial paper assets must be rated A-1 or P-1 by Standard & Poor’s or Moody’s, respectively. The Managers may not purchase short-term financial instruments considered to contain speculative characteristics (uncertainty of principal and/or interest). Uninvested cash reserves should be kept to minimum levels. Within the limitations mentioned above, the Managers have complete discretion to allocate and select short-term cash and equivalent securities.
OTHER ASSETS Managers will not purchase assets other than those mentioned above without the written consent of the Client. Investments not specifically addressed by this Statement are prohibited without the Client’s written consent.
COMMUNICATIONS PCM and the Managers shall provide the Client with a quarterly account review detailing investment performance, strategy, and account value, with the following provision to ensure that the management of the financial and health care sectors of the portfolio is performed with limited knowledge of Client. The only Client members or employees authorized to receive investment reports, purchase or sale confirmations, or brokerage statements shall be Ron Goodwin and Teresa Easley. No information regarding individual holdings in the financial and health care sectors shall be communicated to any member of Client’s Audit Committee, any member of Client or any employee of Client, other than Ron Goodwin and Teresa Easley. Sale and purchase strategies with respect to the financial and health care sectors shall not be discussed with or otherwise communicated to any employee or member of Client. Investment reports provided to Client personnel other than Ron Goodwin and Teresa Easley, and to the Client Audit Committee and Client members shall not include information regarding any of the individual holdings in the financial and health care sectors.
54
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
The above restrictions shall only be waived or modified in writing by Client’s Chief Financial Officer. Also, the Client will receive information about changes in investment philosophy, management, ownership, and key personnel of the Managers in a timely fashion. Meetings will be held quarterly or as requested by the Client to discuss:
1. Managers’ investment performance and risk levels in light of the stated policies and objectives, in keeping with the above referenced provision, to ensure that the management of the financial and health care sectors of the portfolio is performed with limited knowledge of Client.
2. Proposed amendments to the policies and objectives presented in this Statement.
The Client or PCM may call more frequent meetings if significant concerns arise about the performance, strategy, personnel and organizational structure of the Managers.
MANAGER ALLOCATION The following chart sets forth the allocation to the selected Managers in all equity and income asset classes. Note that specific descriptions of the styles of U.S. equity managers are provided herein. Managers may be changed from time to time without any amendment of this document, with notice to and agreement of the Client.
55
Exhibit R6-One
© 2010 National Association of Insurance Commissioners
ASSET CLASS TARGET ALLOCATION
MANAGER COMPARATIVE INDEX
EQUITY/ALTERNATIVES U.S. EQUITIES
All Cap 4.25% Horizon Asset Management Russell 3000 Yield Focused Equity 4.25% Schafer Cullen Capital
Management Russell 1000 Value
Large Cap Growth 8.25% Mitchell Capital Management Russell 1000 Growth Large Cap Value 8.25% Eagle Capital Management Russell 1000 Value Small Cap Value 7.50% Cardinal Capital Management Russell 2000 Value
FOREIGN EQUITIES 5.00% Tweedy Browne Global
Value Fund MSCI EAFE
LONG/SHORT EQUITY 7.50% Protégé Partners Ltd. HFRI Composite Fund of Funds LONG/SHORT INTERNATIONAL EQUITY
5.00% Indus Omni Fund, L.P. HFRX Global Hedge Fund
INCOME/ALTERNATIVES
Total Bond
13.00%
PIMCO Total Return Fund
Barclays Intermediate Government/Credit
Intermediate Fixed Income Securities
20.00%
Mitchell Capital Management
Barclays Intermediate Government/Credit
Investment Grade Bond
4.50% Loomis Sayles Investment
Grade Bond
Barclays Aggregate Bond International Fixed Income 2.50% Templeton Global Bond Citigroup World Government
International Fixed Income
2.50%
Oppenheimer International Bond
Citigroup World Government
Multi-Strategy 7.50% Protégé Opportunistic, Ltd. HFRI Diversified Fund of Funds Past performance is no guarantee of future results
56
Item
Des
crip
tion:
Rev
enue
from
NA
IC e
duca
tion
and
trai
ning
pro
gram
s. 2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Com
mis
sion
ers
For
um (
3)31
,521
$
32,4
75$
32
,475
$
100.
00%
Lega
l CLE
Wor
ksho
ps
29,2
70
38
,130
$
38,1
30$
36
,930
(1,2
00)
(3
.15%
)R
egul
atio
n F
or S
olve
ncy
9,32
0
9,
900
9,90
0
9,
405
(4
95)
(5.0
0%)
Sur
plus
Lin
es R
egul
atio
n (3
)9,
790
9,79
0
(9
,790
)
(100
.00%
)P
&C
Ann
ual S
tate
men
t (1)
39,4
80
12
,900
12,9
00
23
,550
10,6
50
82
.56%
Adv
ance
d F
raud
(4)
15,1
25
15
,390
$
15,3
90
15
,420
(15,
420)
(100
.00%
)M
arke
t Con
duct
Exa
min
ers
Han
dboo
k (1
)5,
650
8,69
0
17
,435
8,74
5
100.
63%
Inte
rnat
iona
l Iss
ues
Con
fere
nce
(2)
47,3
50
50
,780
49,8
35
51
,650
47,6
15
(4
,035
)
(7.8
1%)
IMR
/AV
R O
nlin
e (3
)16
,940
16,9
45
16
,945
100.
00%
Onl
ine
Inve
stm
ent S
ched
ules
(1)
61,4
84
9,
215
46,3
85
37
,170
42,8
40
5,
670
15
.25%
Onl
ine
Intr
oduc
tion
To
Fin
anci
al R
egul
atio
n (2
)23
,800
24,3
95
42
,300
35,7
00
28
,560
(7,1
40)
(2
0.00
%)
Onl
ine
ISQ
Tra
inin
g (2
)27
,650
9,87
5
14
,875
9,87
5
6,
320
(3
,555
)
(36.
00%
)O
nlin
e S
ched
ule
P (
4)3,
175
8,09
5
13
,095
(13,
095)
(100
.00%
)O
nlin
e C
ore
Lega
l Iss
ues
(1)
10,8
40
4,
345
8,69
0
8,
260
16,3
35
8,
075
97
.76%
Onl
ine
Rei
nsur
ance
(1)
23,8
16
16
,920
16,9
20
24
,005
7,08
5
41.8
7%O
nlin
e H
ealth
Ann
ual S
tate
men
t Pre
para
tion
(2)
15,9
60
33
,675
33,6
75
19
,575
(14,
100)
(41.
87%
)R
egio
nal M
arke
t Con
duct
Tra
inin
g (1
)15
,343
5,40
0
9,
900
15,4
70
5,
570
56
.26%
Onl
ine
Fin
anci
al R
egul
atio
n &
Sta
ff E
duca
tion
(1)
30,1
95
12
,823
26,1
88
18
,810
30,6
90
11
,880
63.1
6%O
nlin
e M
arke
t Ana
lysi
s T
echn
ique
s(1)
9,40
5
11
,385
18,3
85
8,
415
13,6
25
5,
210
61
.91%
Sta
tuto
ry A
ccou
ntin
g 10
1 P
rogr
am
11,5
00
11
,500
13,3
50
1,
850
16
.09%
SA
P W
ebin
ars
(1)
84,6
00
80
,280
80,2
80
84
,400
4,12
0
5.13
%B
asic
Insu
ranc
e S
elf S
tudy
(2)
11,9
39
4,
590
7,90
0
7,
900
4,96
0
(2,9
40)
(3
7.22
%)
How
to A
naly
ze In
sure
r P
ortfo
lios
(2)
7,70
5
11
,850
6,72
9
(5,1
21)
(4
3.22
%)
How
to F
ile S
ecur
ities
with
the
SV
O O
nlin
e (2
)16
,660
5,88
0
16
,060
16,0
60
11
,300
(4,7
60)
(2
9.64
%)
Con
sum
er A
ssis
tanc
e T
rain
ing
Onl
ine
8,40
8
8,
948
8,94
8
11
,210
10,0
30
(1
,180
)
(10.
53%
)M
odel
Law
s W
ebin
ar
5,04
0
3,
600
3,60
0
5,
250
1,
650
45
.83%
Bun
dles
of L
earn
ing
9,05
0
56
0
1,50
0
8,
000
6,96
0
(1,0
40)
(1
3.00
%)
Pro
duce
r Li
cens
ing
Onl
ine
Tra
inin
g (1
)10
,030
6,49
0
11
,210
11,2
10
21
,250
10,0
40
89
.56%
Man
agem
ent a
nd L
eade
rshi
p E
ffect
iven
ess
(4)
8,41
5
7,
425
7,42
5
(7
,425
)
(100
.00%
)R
eg. O
verv
iew
-Prin
c.-B
ased
Val
. Sys
. (2)
11,6
05
12
,483
12,4
83
21
,960
10,2
70
(1
1,69
0)
(5
3.23
%)
Reg
ulat
ion
of In
sura
nce
Pro
duct
s O
nlin
e (1
)29
,700
6,43
5
10
,890
10,8
90
21
,780
10,8
90
10
0.00
%F
raud
Inve
stig
atio
n 10
1 (3
)7,
900
(395
)
(395
)
8,29
5
8,29
5
100.
00%
Ris
k-B
ased
Cap
ital T
rain
ing
22,0
20
11
,850
11,8
50
11
,850
0.00
%R
egul
atin
g fo
r S
olve
ncy:
Ris
k R
eten
tion
Gro
ups
8,28
0
9,
162
9,16
2
8,
280
9,24
0
960
11.5
9%M
anag
ing
the
Cos
t of R
egul
ator
y C
ompl
ianc
e (2
)31
,051
16,1
50
33
,200
55,2
00
45
,850
(9,3
50)
(1
6.94
%)
Em
ergi
ng Is
sues
(6)
121,
901
(1
55)
21
,595
29,1
00
52
,500
23,4
00
80
.41%
Sal
es a
nd S
uita
bilit
y (4
)15
,325
4,16
5
11
,856
21,7
50
(2
1,75
0)
(1
00.0
0%)
R7a
: E
duca
tion
and
Tra
inin
g
BU
DG
ET
ITE
M:
Edu
catio
n an
d T
rain
ing
57
Item
Des
crip
tion:
Rev
enue
from
NA
IC e
duca
tion
and
trai
ning
pro
gram
s. 2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Pro
fess
iona
l Des
igna
tion
Pro
gram
24
,500
$
8,12
5$
18
,250
$
18,2
50$
20
,250
$
2,00
0$
10.9
6%R
isk
Foc
used
Exa
m (
4)11
,850
5,92
5
(5,9
25)
(5
0.00
%)
Sw
iss
Sol
venc
y W
ebin
ar (
4)49
5
174
17
4
0.00
%S
ER
FF
Tra
inin
g (1
) (6
)57
,450
68,0
00
10
0,00
0
100,
000
100.
00%
Sol
venc
y M
oder
niza
tion
Web
inar
(1)
31,8
85
46
,885
22,5
60
31
,615
9,05
5
40.1
4%M
odel
Aud
it R
ule
Web
inar
(6)
1,75
8
15
,000
0.00
%R
MB
S4,
059
1,65
9
1,
659
0.00
%M
arke
t Con
duct
Ann
ual S
tmt (
1) (
6)4,
455
4,45
5
28
,500
28,5
00
10
0.00
%C
orpo
rate
Gov
erna
nce
(9)
3,54
0
3,54
0
100.
00%
Hol
ding
Com
pany
Reg
ulat
ory
Act
(9)
14,6
25
14
,625
100.
00%
Aud
iting
Ski
ll S
ets
Web
inar
(9)
7,62
5
7,62
5
100.
00%
Pro
gram
s N
ot O
ffere
d A
fter
2009
41,5
45
0.
00%
Roy
alty
Rev
enue
s 7,
000
4,80
0
6,
625
(6,6
25)
(1
00.0
0%)
Ons
ite P
rogr
ams
(5)
47,6
40
30
,738
61,8
25
75
,000
39,9
49
(35,
051)
(46.
73%
)F
inan
cial
Sum
mit
(7)
145,
900
14
5,90
0
72,2
50
10
0,55
0
28,3
00
39
.17%
ER
eg C
onfe
renc
e (8
)63
,523
69,6
07
69
,607
69,7
44
66
,675
(3,0
69)
(4
.40%
)
Tot
al1,
007,
010
$
56
4,27
2$
1,
060,
182
$
94
2,64
4$
1,
125,
043
$
18
2,39
9$
19.3
5%
(1)
(2)
(3)
(4)
(5) (6
)
The
NA
ICof
fers
insu
rers
the
oppo
rtun
ityof
hold
ing
itsA
nnua
lSta
tem
ent
Inve
stm
ents
Sch
edul
es,
Hea
lthA
nnua
lSta
tem
ent
Pre
para
tion,
and
Bas
icR
isk
Ass
essm
ent
prog
ram
son
site
.T
he in
sure
r pr
ovid
es th
e lo
catio
n an
d pa
rtic
ipan
ts, t
he N
AIC
pro
vide
s th
e in
stru
ctor
s, m
ater
ials
, and
adm
inis
trat
ion
of th
e pr
ogr
am fo
r a
fee.
Due
toth
ead
ditio
nof
prog
ram
sin
mid
-yea
raf
ter
the
prep
arat
ion
ofth
ebu
dget
,ba
sed
onem
ergi
ngto
pics
orin
dust
ry/r
egul
ator
ytr
aini
ngne
eds,
anam
ount
has
been
esta
blis
hed
toas
sum
eth
atat
leas
ton
eed
ucat
ion
prog
ram
will
aris
edu
ring
the
year
,w
hich
may
not
have
been
cont
empl
ated
durin
gth
epr
epar
atio
nof
the
budg
et.
The
SE
RF
FT
rain
ing,
Mod
elA
udit
Rul
e,an
dM
arke
tC
ondu
ctA
nnua
lS
tate
men
tpr
ogra
ms
are
the
unbu
dget
edpr
ogra
mth
atar
ose
durin
g20
10.
Due
toth
epo
sitiv
ere
spon
seto
som
eof
thes
epr
ogr
ams,
they
will
beco
ntin
ued
in th
e fo
llow
ing
year
, whi
le o
ther
s se
rved
a p
artic
ular
aud
ienc
e th
at w
ill n
ot r
eocc
ur in
the
follo
win
g ye
ar.
R7b
: E
duca
tion
and
Tra
inin
g
The
se p
rogr
ams
are
offe
red
ever
y ot
her
year
.
The
se p
rogr
ams
will
not
be
offe
red
in 2
011
as p
art o
f an
asso
ciat
ion-
wid
e re
view
of s
ervi
ces
and
prio
ritie
s of
edu
catio
n to
pics
and
issu
es in
to 2
011.
The
purp
ose
ofth
eE
duca
tion
&T
rain
ing
func
tion
with
inth
eN
AIC
isto
man
age
the
NA
IC’s
regu
lato
rycu
rric
ulum
.T
heco
refo
cus
ison
iden
tifyi
ngan
dse
izin
gop
port
uniti
esto
deve
lop
just
-in-
time,
on-d
eman
d,an
d/or
unm
anne
dtr
aini
ngan
dde
velo
pmen
tof
prod
ucts
,w
hile
assu
ring
the
inte
grity
and
com
preh
ensi
vene
ssof
the
curr
icul
umas
aw
hol
e.In
the
exam
inat
ion
ofed
ucat
ion
oppo
rtun
ities
,th
ego
alis
toac
hiev
ea
bala
nce
betw
een
mee
ting
the
regu
lato
rytr
aini
ngne
eds
ofD
epar
tmen
tof
Insu
ranc
eem
ploy
ees
and
assi
stin
gin
dus
try
clie
nts
thro
ugh
abr
oade
rra
nge
ofco
mpl
ianc
e tr
aini
ng to
pics
.
Incr
ease
d re
gist
ratio
ns a
re e
xpec
ted
for
this
pro
gram
in 2
011.
Dec
reas
ed r
egis
trat
ions
are
exp
ecte
d fo
r th
is p
rogr
am in
201
1.BU
DG
ET
ITE
M:
Edu
catio
n an
d T
rain
ing
(con
tinue
d fr
om R
7a)
58
(7)
(8)
(9)
The
NA
ICF
inan
cial
Sum
mit
was
not
held
in20
09to
take
adva
ntag
eof
the
chan
gein
natio
nalm
eetin
gsc
hedu
lean
dm
ove
the
conf
eren
ceto
June
2010
.T
he20
10S
umm
itw
asve
rysu
cces
sful
,ge
nera
ting
regi
stra
tions
inex
cess
ofth
e20
10bu
dget
.G
iven
plan
sto
host
the
Sum
mit
agai
nin
2011
,th
e20
11bu
dget
assu
mes
asl
ight
lym
ore
cons
erva
tive
leve
lof
regi
stra
tions
than
201
0 pr
ojec
tions
, but
an
incr
ease
in r
egis
trat
ions
from
the
2010
bud
get.
BU
DG
ET
ITE
M:
Edu
catio
n an
d T
rain
ing
(con
tinue
d fr
om R
7b)
R7c
: E
duca
tion
and
Tra
inin
g
New
pro
gram
for
2011
.
Rev
enue
for
the
2011
NA
IC E
Reg
Con
fere
nce
is e
xpec
ted
to b
e re
lativ
ely
cons
iste
nt w
ith 2
010
resu
lts.
59
60
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Sys
tem
Usa
ge F
ees
(1)
1,32
5,46
2$
86
2,99
8$
1,71
7,09
6$
1,
688,
275
$
1,77
6,30
6$
88,0
31$
5.
21%
Lice
nse
Fee
s (2
)4,
731,
286
2,14
8,46
1
4,
211,
109
4,67
9,38
8
4,
150,
407
(528
,981
)
(11.
30%
)A
dmin
istr
ativ
e S
ervi
ce F
ees
(3)
1,12
5,00
0
56
2,50
0
1,12
5,00
0
1,
125,
000
1,12
5,00
0
0.
00%
7,18
1,74
8$
3,57
3,95
9$
7,05
3,20
5$
7,49
2,66
3$
7,05
1,71
3$
(440
,950
)$
(5.8
9%)
(1)
(2)
(3)
Adm
inis
trat
ive
serv
ice
fees
incl
udes
$1m
illio
nfo
rse
rvic
efe
esfr
omN
IPR
and
$125
,000
for
serv
ice
fees
from
the
IIPR
Cin
exch
ange
for
adm
inis
trat
ive
supp
ort
serv
ices
,fa
cilit
ies,
and
equi
pmen
t pro
vide
d by
the
NA
IC to
thes
e en
titie
s.
The
licen
sean
dse
rvic
esag
reem
ents
betw
een
NA
ICan
dN
IPR
,in
clud
ing
Sys
tem
Usa
geF
ees,
Lice
nses
Fee
s,an
dA
dmin
istr
ativ
eS
ervi
ceF
ees
bega
non
Janu
ary
1,20
06an
dw
illex
pire
onD
ecem
ber
31,
2010
,w
ithne
gotia
tions
curr
ently
unde
rway
for
the
rene
wal
ofth
eag
reem
ent
effe
ctiv
eJa
nuar
y1,
2011
.T
helic
ense
and
serv
ice
sag
reem
ent
betw
een
the
NA
IC a
nd II
PR
C, i
nclu
ding
the
licen
se fe
e to
SE
RF
F a
nd A
dmin
istr
ativ
e S
ervi
ce F
ees
bega
n on
Jun
e 1,
200
7 an
d w
ill e
xpire
Dec
emb
er 3
1, 2
011.
Item
Des
crip
tion:
Rev
enue
sre
ceiv
edfr
omth
elic
ense
and
serv
ices
agre
emen
tsw
ithN
atio
nal
Insu
ranc
eP
rodu
cer
Reg
istr
y(N
IPR
)an
dIn
ters
tate
Insu
ranc
eP
rodu
ctR
egul
atio
nR
egul
atio
nC
omm
issi
on (
IIPR
C).
BU
DG
ET
ITE
M:
Adm
inis
trat
ive
Ser
vice
s/Li
cens
e F
ees
R8a
: Adm
inis
trat
ive
Ser
vice
s/Li
cens
e F
ees
The
valu
eof
NA
IC/N
IPR
serv
ices
toth
ein
dust
ryar
esi
gnifi
cant
.B
ylic
ensi
ngth
eN
AIC
'sS
tate
Pro
duce
rLi
cens
ing
Dat
abas
e,N
IPR
isab
leto
deliv
era
nat
iona
l,ag
greg
ated
data
base
ofpr
oduc
erin
form
atio
n.In
sura
nce
com
pani
esar
eab
leto
leve
rage
NIP
R's
Pro
duce
rD
atab
ase
(PD
B)
asa
cent
raliz
ed,
one-
stop
shop
tope
rfor
mre
sear
chof
all
licen
sed
prod
ucer
reco
rds,
whi
chis
criti
cal
insa
ving
them
time
and
mon
eyin
ensu
ring
the
appr
opria
telic
ensi
ngan
dap
poin
tmen
tof
prod
ucer
sse
lling
busi
ness
onth
eir
beha
lf,an
dcr
itica
lto
the
com
pani
es c
ompl
ianc
e w
ith s
tate
insu
ranc
e la
ws.
With
out
the
cent
raliz
edda
taba
se,
this
rese
arch
wou
ldha
veto
occu
ron
ast
ate
byst
ate
basi
s,si
gnifi
cant
lyin
crea
sing
the
amou
ntof
time
and
cost
ofco
mpl
ianc
e.T
heN
AIC
belie
ves
this
illus
trat
estr
emen
dous
valu
ean
dco
stsa
ving
sto
insu
rers
man
agin
gth
eco
stof
com
plia
nce.
Fur
ther
,N
IPR
'spr
oduc
tsan
dse
rvic
esha
vebe
enem
bedd
edin
toth
eau
tom
ated
wor
kflo
wpr
oces
ses
ofm
any
insu
ranc
eca
rrie
rs.
The
PD
Bis
now
the
data
sour
cefo
rco
mpa
nies
tosy
nchr
oniz
eth
eir
prod
ucer
data
syst
ems,
whi
chau
tom
ates
man
uald
ata
entr
yan
dge
ts th
e ca
rrie
r cl
oser
to th
e pr
oduc
er's
rea
l tim
e ex
pect
atio
ns. U
se o
f the
dat
a su
ppor
ts c
ompl
ianc
e m
anag
emen
t and
elim
inat
es c
ostly
err
ors.
Pur
suan
tto
alic
ense
and
serv
ices
agre
emen
t,th
eN
AIC
rece
ives
30%
ofce
rtai
nN
IPR
reve
nues
,w
hich
repr
esen
tsa
licen
sefo
rN
IPR
tous
eth
eN
AIC
'spr
oduc
erda
ta.
Whi
leth
eN
AIC
rece
ives
30%
ofce
rtai
nN
IPR
gros
str
ansa
ctio
nre
venu
es,
apo
rtio
nof
this
reve
nue
isal
loca
ted
toth
eS
BS
reve
nue
line,
spec
ifica
llyre
pres
entin
gth
eN
IPR
tran
sact
ions
proc
esse
dth
roug
hth
eS
BS
syst
em.
The
2011
budg
etde
crea
sefr
om20
10bu
dget
edle
vels
rela
tes
toa
larg
eral
loca
tion
toth
eS
BS
budg
etce
nter
in20
11($
99,
939)
,du
eto
anin
crea
sed
num
ber
ofN
IPR
tran
sact
ions
proc
esse
dth
roug
hth
eS
BS
syst
eman
da
decr
ease
reve
nue
shar
ing
from
anov
eral
lde
crea
sein
NIP
Rtr
ansa
ctio
nre
venu
esin
2011
($42
9,04
2), a
nd m
ore
cons
iste
nt w
ith tr
ansa
ctio
n vo
lum
es a
nd r
elat
ed r
even
ues
gene
rate
d by
NIP
R in
201
0, b
ased
on
proj
ectio
ns f
rom
NIP
R.
Effe
ctiv
eA
pril
1,20
08,
the
Sta
teP
rodu
cer
Lice
nsin
gS
yste
m(S
yste
m)
usag
efe
ew
asne
gotia
ted
betw
een
NA
ICan
dN
IPR
tobe
phas
edin
with
the
rele
ase
ofre
engi
neer
edpr
oces
ses
inth
eS
yste
m.
Thi
spe
r-tr
ansa
ctio
nus
age
fee
onN
IPR
tran
sact
ions
proc
esse
dth
roug
hth
ere
engi
neer
edsy
stem
repr
esen
tsN
IPR
'slo
ng-t
erm
com
mitm
ent
and
supp
ort
for
this
syst
eman
dN
AIC
’son
goin
gin
vest
men
tto
furt
her
the
prod
ucer
licen
sing
infr
astr
uctu
re.
The
usag
efe
ebe
gan
inA
pril
2008
at$.
03,
incr
ease
dto
$.06
onJu
ly1,
2008
,$.
09on
Oct
ober
1,20
08,
$.12
onJa
nuar
y1,
2009
,$.
15on
Apr
il1,
2009
,an
d$.
18on
Oct
ober
1,20
09,
whi
chis
the
max
imum
char
geun
der
this
exis
ting
agre
emen
t.T
hein
crea
sefr
om2
009
to20
10is
rela
ted
toth
ere
ceip
tof
$.18
per
tran
sact
ion
for
afu
llye
aran
dan
incr
ease
inpr
ojec
ted
NIP
Rtr
ansa
ctio
nvo
lum
esfr
om20
09to
2010
.T
he20
11bu
dget
isba
sed
onac
tual
and
proj
ecte
dvo
lum
es fo
r 20
10, w
hich
are
slig
htly
hig
her
than
201
0 pr
ojec
ted
leve
ls.
61
BU
DG
ET
ITE
M:
Adm
inis
trat
ive
Ser
vice
s/Li
cens
e F
ees
(co
ntin
ued
from
R8a
)
R8b
: Adm
inis
trat
ive
Ser
vice
s/Li
cens
e F
ees
Spe
cific
toth
ein
divi
dual
prod
ucer
licen
sing
tran
sact
ions
offe
red
byN
IPR
,a
non-
resi
dent
prod
ucer
wis
hing
tobe
licen
sed
ina
larg
enu
mbe
rof
non-
resi
dent
stat
es(e
.g.,
20st
ates
)is
able
tole
vera
geN
IPR
'sno
n-re
side
ntlic
ensi
ng(N
RL)
tran
sact
ion
func
tiona
lity
tosu
bmit
one
unifo
rmap
plic
atio
n,el
ectr
onic
ally
,at
acu
rren
tm
axi
mum
pric
eof
$6.1
8fo
rea
chof
the
20st
ates
,an
dre
ceiv
eth
eap
prov
alor
decl
inat
ion
ofth
eap
plic
atio
nw
ithin
am
axim
umof
48ho
urs
(tho
ugh
mos
tap
plic
atio
nsar
eap
prov
edw
ithin
24ho
urs)
.A
bsen
tN
IPR
'sw
eb-b
ased
optio
n,th
epr
oduc
erw
ould
have
been
requ
ired
tosu
bmit
pape
rap
plic
atio
nsvi
aU
.S.
Mai
l(p
erha
psby
fax
inso
me
stat
es)
toea
chof
the
20st
ates
.V
alue
pro
posi
tions
incl
ude:
(1)
low
erco
stto
the
prod
ucer
tosu
bmit
the
unifo
rmap
plic
atio
nth
roug
hN
IPR
'ssy
stem
com
pare
dto
the
cost
of(i)
hard
copy
mai
lings
and
(ii)
the
pote
ntia
lco
stof
prep
arin
gm
ultip
lere
quire
dfo
rms
inca
ses
whe
reth
eun
iform
appl
icat
ion
isno
tac
cept
edm
anua
lly;
and
(2)
redu
ced
adm
inis
trat
ive
cost
toth
epr
oduc
erin
mon
itorin
gth
est
atus
ofth
eha
rdco
pyap
plic
atio
ns v
ersu
s re
ceiv
ing
the
elec
tron
ic n
otifi
catio
n of
app
rova
l in
48 h
ours
.
62
Item
Des
crip
tion:
Rev
enue
s re
ceiv
ed fr
om m
isce
llane
ous
sour
ces.
2009
6/30
/10
12/3
1/20
1020
1020
11In
crea
seD
escr
iptio
nA
ctua
lA
ctua
lP
roje
cted
Bud
get
Bu
dg
et(D
ecre
ase)
Per
cent
age
Oth
er In
com
e (1
)
41,4
11$
18
,329
$
30,2
81$
23
,360
$
24,0
00$
64
0$
2.
74%
(1)
The
2011
budg
etco
nsis
tspr
imar
ilyof
(1)
$12,
000
for
ase
rvic
ele
vela
gree
men
tw
ithth
eN
ewY
ork
Sta
teIn
sura
nce
Dep
artm
ent
toac
cept
supp
lem
enta
lfili
ngs
toth
eA
nnua
lSta
tem
ent
subm
itted
toth
eD
epar
tmen
tby
New
Yor
klic
ense
din
sure
rsth
roug
hth
eN
AIC
’sin
tern
etfil
ing
appl
icat
ion;
(2)
$3,3
00fo
rth
ege
nera
tion
ofva
rious
repo
rts
for
mem
bers
from
the
NA
IC’s
Sta
te B
ased
Sys
tem
s (S
BS
) pr
oduc
t; an
d (3
) $3
,800
in s
ervi
ce fe
es g
ener
ated
from
res
earc
h co
nduc
ted
by th
e N
AIC
Res
earc
h Li
brar
y fo
r N
AIC
cus
tom
ers.
R9:
Oth
er In
com
e
BU
DG
ET
ITE
M:
Oth
er In
com
e
63
64
D
etail Expenses
Item
Des
crip
tion:
Incl
udes
sal
ary,
a tu
rnov
er fa
ctor
, a p
ay fo
r pe
rfor
man
ce b
udge
t, an
d ov
ertim
e fo
r al
l NA
IC e
mpl
oyee
s.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Sal
arie
s -
Exi
stin
g E
mpl
oyee
s (1
)32
,414
,808
$
16
,569
,067
$
33,8
43,6
94$
34,8
44,4
98$
36
,614
,938
$
1,
770,
440
$
5.08
%T
urno
ver
Fac
tor
(2)
(412
,340
)
(444
,441
)
(3
2,10
1)
7.79
%S
alar
ies
- N
ew E
mpl
oyee
s (3
)19
8,40
1
19
8,40
1
0.00
%S
alar
ies
- P
ay fo
r P
erfo
rman
ce (
4)35
8,48
0
35
8,48
0
100.
00%
Sec
ondm
ent (
5)19
7,64
8
46
,787
46,7
87
40,0
00
(4
0,00
0)
(100
.00%
)O
vert
ime
(6)
90,0
61
59,2
26
99
,237
59
,361
67,8
01
8,44
0
14
.22%
Tot
al32
,702
,517
$
16
,675
,080
$
33,9
89,7
18$
34,5
31,5
19$
36
,795
,179
$
2,
263,
660
$
6.56
%
(1)
As
of J
une
30, 2
010,
the
NA
IC h
as 4
34.5
app
rove
d fu
ll-tim
e eq
uiva
lent
pos
ition
s.T
echn
olog
y S
yste
ms
and
Sup
port
131.
0 B
usin
ess
Ope
ratio
ns58
.0
Ser
vice
s to
Mem
bers
51.5
F
inan
cial
Sol
venc
y S
ervi
ces
89.0
M
arke
t Reg
ulat
ory
Ser
vice
s27
.5
Pro
duct
s an
d S
ervi
ces
77.5
T
otal
Hea
dcou
nt43
4.5
(2)
BU
DG
ET
ITE
M:
Sal
arie
s
E1a
: S
alar
ies
The
NA
ICba
ses
itsan
nual
budg
eted
sala
ryin
crea
seon
natio
nals
alar
ysu
rvey
ssu
chas
the
Will
iam
Mer
cer
Com
pens
atio
nP
lann
ing
Sur
vey,
the
Wor
ldat
Wo
rkS
alar
yB
udge
tSur
vey,
and
the
Soc
iety
for
Hum
anR
esou
rces
Man
agem
ent
(SH
RM
).T
heW
orld
atW
ork
surv
eyin
dica
tes
2010
sala
ryin
crea
ses
tobe
budg
eted
at3.
0%,
with
the
Mer
cer
and
SH
RM
surv
eys
at2.
9%an
d3.
0%,
resp
ectiv
ely.
The
NA
ICis
budg
etin
ga
3.0%
incr
ease
from
the
prev
ious
year
,co
nsis
tent
with
the
aver
age
ofth
ese
natio
nal
surv
eys.
Ho
wev
er,
the
budg
etar
yin
crea
seeq
uate
sto
only
50%
ofth
ean
nual
budg
etar
yim
pact
ofth
e3%
assu
mpt
ion,
such
that
the
sum
ofth
e20
10an
d20
11sa
lary
budg
ets
inco
rpor
ate
afu
llye
ar’s
free
zeof
budg
eted
sal
ary
incr
ease
s.
The
2011
budg
etin
clud
esan
addi
tiona
lam
ount
toad
just
sala
rydo
llars
incl
uded
inth
e20
10bu
dget
for
the
conv
ersi
onof
the
NA
IC's
seco
nded
empl
oyee
toth
eIn
tern
atio
nal
Ass
ocia
tion
ofIn
sura
nce
Sup
ervi
sors
(IA
IS)
toa
full
year
.A
dditi
onal
ly,
the
2011
budg
etin
clud
esth
eac
cum
ulat
ing
impa
ctof
sala
rypr
omot
ions
and
adju
stm
ents
prov
ided
toN
AIC
empl
oyee
spr
ior
toth
eJu
ly1,
2009
sala
ryfr
eeze
and
subs
eque
ntto
the
July
1,20
10re
inst
atem
ent
ofsa
lary
incr
ease
s,bu
tfo
rw
hich
the
NA
IC20
09an
d20
10an
nual
budg
ets
elim
inat
edan
ysp
ecifi
cin
crea
sefo
rth
ese
prom
otio
nsan
dad
just
men
ts.T
heN
AIC
will
gene
rate
sign
ifica
ntsa
lary
savi
ngs
infis
caly
ear
2010
asa
resu
ltof
open
posi
tions
from
Janu
ary
1th
roug
hJu
ne30
,20
10,
som
eof
whi
chha
vere
mai
ned
open
for
long
erth
anth
eus
uals
even
wee
ksdu
eto
man
agem
ent's
prio
rity-
base
dre
view
ofop
enN
AIC
posi
tions
inan
effo
rtto
thor
ough
ly a
sses
s th
e ne
eds
of th
e po
sitio
n w
ithou
t im
pact
ing
criti
cal m
embe
rshi
p se
rvic
es.
The
turn
over
fact
oran
ticip
ates
atu
rnov
erpe
rcen
tage
of9%
with
aver
age
vaca
ncy
dura
tion
ofse
ven
wee
ksin
2011
.T
here
isno
chan
gefr
omth
eas
sum
ptio
nsus
edin
the
2010
budg
et.
65
(3)
(4)
(5)
(6)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Sal
arie
s -
Exi
stin
g E
mpl
oyee
s (1
)8,
515,
633
$
7,44
0,88
2$
4,40
0,39
2$
8,
346,
637
$
1,99
9,56
8$
5,
911,
826
$
Tur
nove
r F
acto
r (2
)(1
04,8
86)
(89,
283)
(5
3,30
4)
(1
01,1
23)
(2
4,22
2)
(71,
623)
Sal
arie
s -
New
Em
ploy
ees
(3)
142,
021
56
,380
S
alar
ies
- P
ay fo
r P
erfo
rman
ce (
4)35
8,48
0S
econ
dmen
t (5)
Ove
rtim
e (6
)27
,823
7,
259
8,01
2
24,7
07
Tot
al8,
580,
591
$
7,
773,
718
$
4,
355,
100
$
8,24
5,51
4$
1,
975,
346
$
5,
864,
910
$
The
NA
ICbe
gan
usin
ga
prom
otio
nsan
dad
just
men
tslin
eeq
ual
to1%
ofsa
larie
sin
2007
for
the
purp
ose
ofat
trac
ting
and
reta
inin
gqu
alifi
edin
divi
dual
sfo
rem
ploy
men
tw
ithth
eN
AIC
.T
hepr
omot
ions
and
adju
stm
ents
budg
etof
1%of
sala
ries
has
been
rein
stat
edin
2011
toac
com
mod
ate
incr
ease
sin
sala
ryas
are
sult
ofm
arke
tad
just
men
tsto
reta
inex
istin
gst
aff a
nd to
cov
er p
rom
otio
ns s
ched
uled
in 2
011.
E1b
: S
alar
ies
The
NA
ICse
cond
men
tto
the
IAIS
was
appr
oved
in20
08,
allo
win
gth
eN
AIC
topl
ayan
impo
rtan
tro
lein
the
IAIS
Sec
reta
riat
byim
prov
ing
the
adm
inis
trat
ion
and
tran
spar
ency
ofth
eor
gani
zatio
nan
den
surin
gth
epr
oper
repr
esen
tatio
nof
U.S
.in
tere
sts
inIA
ISac
tiviti
es.
The
seco
ndm
ent
arra
ngem
ent
ende
din
Feb
ruar
y20
10an
d,co
nsis
tent
with
the
prop
osal
appr
oved
in 2
008,
this
em
ploy
ee r
etur
ned
as a
full-
time
NA
IC e
mpl
oyee
in M
arch
201
0. T
he 2
010
budg
et a
nd p
roje
ctio
n in
clud
es o
nly
thre
e m
onth
s of
the
seco
ndm
ent a
rran
gem
ent.
BU
DG
ET
ITE
M:
Sal
arie
s (c
ontin
ued
from
E1a
)
Req
uest
sfo
rne
wem
ploy
ees
wer
ere
view
edin
divi
dual
lyan
dap
prov
edby
the
Exe
cutiv
e(E
X)
Com
mitt
eean
dIn
tern
alA
dmin
istr
atio
n(E
X1)
Sub
com
mitt
eeon
Oct
ober
4,20
10.
The
rear
e fo
urte
en F
TE
req
uest
s (S
ee F
isca
l Im
pact
3 a
nd F
isca
l Im
pact
4),
one
pos
ition
upg
rade
(S
ee F
isca
l Im
pact
1),
and
one
par
t-tim
e po
sitio
n m
ovin
g to
full-
time
(See
Fis
cal I
mpa
ct 6
).
The
2010
proj
ecte
dam
ount
isa
refle
ctio
nof
the
amou
ntof
over
time
requ
ired
tosu
ppor
tN
AIC
func
tions
durin
gth
eye
aran
dis
expe
rienc
edin
alla
reas
ofth
eN
AIC
.S
ome
exam
ples
incl
ude
(1)
addi
tiona
lhou
rsw
orke
dby
desk
top
com
pute
rte
chni
cian
durin
gso
ftwar
ero
llout
s,ou
tage
s,an
dun
expe
cted
abse
nces
byte
amm
embe
rs;
(2)
trav
eltim
efo
rad
min
istr
ativ
est
aff
who
supp
ort
the
thre
eN
AIC
Nat
iona
lM
eetin
gs;
and
(3)
addi
tiona
lho
urs
wor
ked
byH
elp
Des
kst
aff
toad
dres
sba
cklo
gs.
The
2011
budg
etill
ustr
ate
sm
anag
emen
t’sde
sire
tobe
tter
plan
for
outa
ges
and
back
logs
suc
h th
at o
vert
ime
is d
ecre
ased
.
66
Item
Des
crip
tion:
Fee
s pa
id to
out
side
age
ncie
s an
d w
ages
pai
d to
inte
rns
for
addi
tiona
l per
sonn
el d
urin
g pe
ak w
ork
perio
ds.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Nat
iona
l Mee
tings
(1)
68,5
27$
9,96
7$
62,2
23$
73
,181
$
65,0
29$
(8,1
52)
$
(11.
14%
)In
tern
s (2
)36
5,83
2
12
1,05
0
30
0,00
3
388,
566
33
3,48
5
(5
5,08
1)
(14.
18%
)O
ther
(3)
64,9
42
6,73
9
7,33
9
2,
600
1,20
0
(1
,400
)
(5
3.85
%)
Tot
al49
9,30
1$
13
7,75
6$
36
9,56
5$
464,
347
$
39
9,71
4$
(6
4,63
3)$
(13.
92%
)
(1)
(2)
(3)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Nat
iona
l Mee
tings
(1)
65,0
29$
In
tern
s (2
)33
3,48
5$
O
ther
(3)
1,20
0
Tot
al-
$
334,
685
$
65,0
29$
-
$
-
$
-
$
E2:
Tem
pora
ry P
erso
nnel
BU
DG
ET
ITE
M:
Tem
pora
ry P
erso
nnel
Oth
erte
mpo
rary
pers
onne
lar
ebu
dget
edto
prov
ide
addi
tiona
lre
sour
ces
durin
gbr
ief
perio
dsof
incr
ease
dde
man
d.T
heov
erag
ein
2010
repr
esen
tsth
een
gage
men
tof
tem
pora
ryst
aff
toas
sist
the
inte
rnat
iona
lte
amin
the
Exe
cutiv
eO
ffice
.T
he20
11bu
dget
antic
ipat
esa
cont
inue
dre
duct
ion
inth
ene
edfo
rou
tsid
ete
mpo
rary
reso
urce
sth
roug
hout
the
orga
niza
tion.
The
NA
ICin
tern
ship
prog
ram
isde
sign
edto
com
plem
ent
reso
urce
need
sin
vario
ushi
ghpr
iorit
yar
eas
each
year
.S
ome
ofth
epr
ojec
tssl
ated
for
inte
rna
ssig
nmen
tin
clud
eS
BS
impl
emen
tatio
ns;
SE
RF
Fpr
oduc
tsup
port
;Q
ualit
yA
ssur
ance
test
ing
ofN
AIC
appl
icat
ions
;su
ppor
tfor
the
Com
mun
icat
ions
Div
isio
n;N
AIC
Hel
pD
esk
supp
ort;
sale
sor
der
proc
essi
ngin
the
Insu
ranc
eP
rodu
cts
and
Ser
vice
sD
ivis
ion;
and
lega
lre
sear
ch.
The
use
ofin
tern
sal
low
sth
eN
AIC
tofin
dan
dat
trac
tte
mpo
rary
reso
urce
s,in
aco
mpe
titiv
em
arke
tpla
ce,
resu
lting
ina
very
succ
essf
ulpr
ogra
mfo
rth
eN
AIC
with
resp
ect
toid
entif
ying
and
reta
inin
gqu
alifi
edca
ndid
ates
for
full-
time
posi
tions
.T
hede
crea
sein
inte
rns
in20
10is
due
to(1
)in
tern
sno
tw
orki
ngat
the
full
budg
eted
sche
dule
of97
5ho
urs
due
tocl
ass
sche
dule
s;(2
)in
tern
sno
tbe
ing
utili
zed
for
the
full
budg
etpe
riod
due
toth
eir
date
ofhi
re;
(3)
the
abili
tyto
find
indi
vidu
als
qual
ified
to fi
ll ce
rtai
n in
tern
pos
ition
s; a
nd (
4) h
iring
an
incr
ease
d nu
mbe
r of
inte
rnat
iona
l stu
dent
s, w
hich
are
res
tric
ted
by im
mig
ratio
n la
ws
to o
nly
20 h
ours
per
wee
k.
The
decr
ease
inth
e20
11bu
dget
illus
trat
esco
ntin
ued
redu
ced
relia
nce
onin
tern
reso
urce
sin
2011
,ba
sed
ona
care
ful
revi
ewof
the
need
for
shor
tte
rmre
sour
ces
inar
eas
with
cycl
ical
incr
ease
s in
wor
kloa
d.
Tem
pora
ry r
esou
rces
for
natio
nal m
eetin
gs a
re u
sed
for
secu
rity
and
door
mon
itorin
g pu
rpos
es, a
nd th
e pr
opos
ed 2
011
budg
et is
rel
ativ
ely
cons
iste
nt w
ith 2
010
proj
ecte
d le
vels
.
67
68
Item
Des
crip
tion:
FIC
A a
nd u
nem
ploy
men
t com
pens
atio
n co
sts
incu
rred
for
all N
AIC
em
ploy
ees
and
inte
rns.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
FIC
A (
1)2,
282,
258
$
1,
294,
156
$
2,
395,
553
$
2,43
3,03
2$
2,
507,
083
$
74
,051
$
3.04
%F
ICA
Tur
nove
r (2
)(2
9,29
7)
(30,
727)
(1,4
30)
4.88
%N
ew Y
ork
City
Met
ro C
omm
uter
Tax
(3 )
16,1
23
9,72
3
19,4
27
19,4
44
19,4
44
100.
00%
Une
mpl
oym
ent C
ompe
nsat
ion
(4)
92,3
42
96,6
43
10
4,96
3
79,3
06
10
3,11
8
23
,812
30
.03%
Tot
al2,
390,
723
$
1,
400,
522
$
2,
519,
943
$
2,48
3,04
1$
2,
598,
918
$
11
5,87
7$
4.67
%
(1)
(2)
(3)
(4)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nan
d S
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
FIC
A (
1)66
0,41
7$
443,
570
$
288,
765
$
56
6,04
8$
94,3
38$
453,
945
$
F
ICA
Tur
nove
r (2
)(8
,002
)
(5
,056
)
(3,5
00)
(6,8
58)
(1,8
06)
(5,5
05)
New
Yor
k C
ity M
etro
Com
mut
er T
ax19
,444
Une
mpl
oym
ent C
ompe
nsat
ion
(4)
27,4
59
19,6
45
9,79
6
23,4
54
3,
625
19,1
39
Tot
al67
9,87
4$
45
8,15
9$
29
5,06
1$
602,
088
$
96
,157
$
46
7,57
9$
BU
DG
ET
ITE
M:
Pay
roll
Tax
es
Une
mpl
oym
ent
com
pens
atio
nha
sbe
enbu
dget
edon
the
first
$13,
000
ofea
chin
divi
dual
sala
ryin
Mis
sour
ian
dth
efir
st$9
,000
inW
ashi
ngto
n,D
.C.
New
Yo
rkun
empl
oym
ent
com
pens
atio
n is
pai
d as
cla
ims
are
filed
.
E3:
Pay
roll
Tax
es
The
Met
ropo
litan
Com
mut
erT
rans
port
atio
nM
obili
tyT
ax(M
CT
MT
)is
ane
wta
xim
pose
don
cert
ain
empl
oyer
sen
gagi
ngin
busi
ness
with
inth
em
etro
polit
an
com
mut
ertr
ansp
orta
tion
dist
rict
(MC
TD
),w
hich
incl
udes
the
coun
tyof
New
Yor
k(M
anha
ttan)
whe
reth
eN
AIC
’sN
ewY
ork
Offi
ceis
loca
ted.
Thi
sta
xis
paya
ble
quar
terly
,and
isca
lcul
ated
as0.
34%
(.00
34)
ofth
e sa
lary
exp
ense
for
all c
over
ed e
mpl
oyee
s in
the
New
Yor
k of
fice.
The
turn
over
fact
orap
plie
dto
annu
alsa
larie
sis
also
appl
ied
toth
epa
yrol
ltax
esre
late
dto
thos
esa
larie
s,us
ing
cons
iste
nttu
rnov
eran
dva
canc
yra
tes
asth
ose
desc
ribed
inth
esa
lary
sect
ion
of th
e bu
dget
pro
posa
l.
FIC
Aex
pens
esa
ving
sin
2010
resu
ltfr
omth
eas
soci
ated
sala
rysa
ving
sde
scrib
edin
the
sala
ryse
ctio
nof
the
budg
etpr
opos
al.
The
incr
ease
inF
ICA
for
2011
isre
late
dto
(1)
apr
ojec
ted
incr
ease
inth
eF
ICA
wag
eba
se(in
crea
sing
from
$106
,800
in20
10to
$108
,600
in20
11),
(2)
the
incr
ease
inth
e20
11sa
lary
budg
etas
desc
ribed
inth
esa
lary
sect
ion
ofth
ebu
dget
pro
posa
l, an
d (3
) th
e ad
ditio
n of
14.
5 ne
w e
mpl
oyee
s in
201
1 (S
ee F
isca
l Im
pact
1,3
,4, a
nd 6
).
69
70
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Pen
sion
(1)
4,21
7,62
6$
1,83
3,62
8$
3,74
0,40
1$
4,
478,
242
$
3,89
0,45
2$
(587
,790
)$
(13.
13%
)H
ealth
Ben
efits
(2)
2,21
5,92
6
1,17
8,93
9
2,62
3,11
6
2,
448,
249
3,29
2,69
4
844,
445
34
.49%
Gro
up L
ife a
nd D
isab
ility
(3)
207,
798
111,
107
213,
807
22
6,47
3
219,
474
(6,9
99)
(3.0
9%)
Em
ploy
ee R
elat
ions
(4)
90,7
58
77,6
26
17
1,01
5
148,
255
14
7,20
8
(1
,047
)
(0
.71%
)
Tot
al6,
732,
108
$
3,
201,
300
$
6,
748,
339
$
7,30
1,21
9$
7,
549,
828
$
24
8,60
9$
3.41
%
(1)
(2)
(3)
Item
Des
crip
tion:
Incl
udes
all
pens
ion,
heal
thin
sura
nce,
life
and
disa
bilit
yin
sura
nce
paid
byth
eN
AIC
for
itsem
ploy
ees,
asw
ella
spr
ogra
ms
desi
gne
dto
redu
cehe
alth
insu
ranc
eco
sts
and
reta
in N
AIC
em
ploy
ees.
Als
oin
clud
edin
this
budg
etis
the
defin
edco
ntrib
utio
npl
anto
whi
chth
eN
AIC
mak
esa
2%di
scre
tiona
rym
atch
ofea
chem
ploy
ee’s
annu
alsa
lary
and
mat
ches
anem
ploy
ee’s
cont
ribut
ion
upto
3.5%
,fo
ran
estim
ated
$1.5
mill
ion
in20
11.
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sex
pens
eis
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eted
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crea
se$7
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om20
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sed
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rren
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aff
cont
ribut
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dan
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ease
dsa
lary
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e in
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1.
BU
DG
ET
ITE
M:
Em
ploy
ee B
enef
its
Gro
uplif
ean
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lity
bene
fits
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base
dup
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rren
tem
ploy
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and
sala
ries.
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decr
ease
in20
11di
rect
lyre
late
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rate
redu
ctio
nsfo
rgr
oup
term
life
cove
rage
in20
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offs
et s
light
ly b
y th
e in
crea
se in
the
wag
e ba
se p
ropo
sed
for
2011
and
new
em
ploy
ee r
eque
sts
for
2011
.
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2011
net
perio
dic
pens
ion
cost
for
the
NA
IC’s
defin
edbe
nefit
plan
ises
timat
edat
$2.2
mill
ion,
base
don
actu
aria
lass
umpt
ions
and
proj
ectio
nspe
rfor
med
byth
eN
AIC
’sac
tuar
ial
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ulta
ntto
the
plan
,an
dfu
rthe
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sed
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tual
plan
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rienc
e,pl
ans
asse
tsan
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arke
tdi
scou
ntra
tes
asof
June
30,
2010
.T
he20
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stis
rela
tivel
yco
nsis
tent
with
the
2010
proj
ectio
nof
$2.0
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ion,
whi
chis
$782
,840
low
erth
anth
e20
10bu
dget
.T
his
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nce
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rect
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oved
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orm
ance
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anas
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pare
dto
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sum
ed7%
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cted
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rnon
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ts,
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etby
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cing
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ount
rate
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ronm
ent
in20
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bina
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hich
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ced
pres
ent
valu
eof
futu
rebe
nefit
liabi
litie
san
dtr
ansl
ates
into
the
redu
ced
2010
plan
year
expe
nse.
NA
ICm
anag
emen
tw
orks
clos
ely
with
the
plan
’sac
tuar
yan
dth
eN
AIC
Aud
itC
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itte
eto
care
fully
revi
ewpl
anpe
rfor
man
ce in
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atio
n to
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erly
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plan
ass
umpt
ions
, and
ant
icip
ated
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ealth
y co
st r
educ
tion
for
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plan
as
the
finan
cial
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kets
rec
over
and
dis
coun
t rat
es im
prov
e.
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help
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rbso
me
ofth
eco
sts
in20
10,
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Ass
ocia
tion
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ferr
ing
seve
rale
mpl
oyee
wel
lnes
sin
itiat
ives
budg
eted
at$1
31,0
00.T
hein
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sein
cost
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latte
rpa
rtof
2010
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uded
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e20
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emiu
min
crea
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omth
eN
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ovid
er,
offs
etby
the
incr
ease
inN
AIC
empl
oyee
cont
ribut
ion
leve
ls.
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etas
sum
esa
10%
incr
ease
atth
eA
ugus
t20
11re
new
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te,
for
ato
tal$
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mill
ion
in20
11he
alth
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ranc
eco
vera
ge,
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also
assu
mes
rein
stitu
tion
ofse
vera
lem
ploy
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elln
ess
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ativ
esbu
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edat
$143
,352
.A
dditi
onal
ly,t
he20
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been
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ease
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mm
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ehe
alth
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rage
for
the
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new
empl
oyee
requ
ests
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uded
inth
e20
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dget
(See
Fis
cal I
mpa
cts
1,3,
4, a
nd 6
).
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ploy
eehe
alth
bene
fits
are
proj
ecte
dba
sed
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ent
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oyee
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dth
eir
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lect
ions
asof
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Aug
ust
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10re
new
al.
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edon
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ms
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rienc
ein
the
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plan
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gth
em
ost
rece
ntpl
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ar,
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NA
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orke
dw
ithits
heal
than
dw
elfa
rebr
oker
toid
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ypo
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leal
tern
ativ
esto
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rge
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ium
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ease
,in
clud
ing
anu
mbe
rof
alte
rnat
ive
cont
ribut
ion
stra
tegi
esto
abso
rba
34.9
%pr
emiu
min
crea
se.
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der
tom
aint
ain
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oyee
cont
ribut
ions
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eto
mar
ket
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mai
ntai
ngr
andf
athe
red
stat
uspu
rsua
ntto
PP
AC
A,
the
Ass
ocia
tion
will
cove
rap
prox
imat
ely
75%
ofth
ein
crea
sew
ithem
ploy
ees
cove
ring
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rem
aini
ng25
%.
Eve
nw
ithth
eA
ssoc
iatio
nco
verin
ga
larg
esh
are
ofth
ein
crea
se,
empl
oyee
con
trib
utio
ns r
ose
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tant
ially
, at a
ppro
xim
atel
y 56
% o
n av
erag
e w
hen
com
parin
g em
ploy
ee c
ontr
ibut
ion
leve
ls fr
om 2
009
to 2
010.
E4a
: E
mpl
oyee
Ben
efits
71
(4)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
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vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Pen
sion
(1)
3,89
0,45
2$
Hea
lth B
enef
its (
2)3,
292,
694
G
roup
Life
and
Dis
abili
ty (
3)21
9,47
4
E
mpl
oyee
Rel
atio
ns (
4)13
8,77
8
2,
630
$
5,
800
$
Tot
al-
$
7,54
1,39
8$
2,63
0$
5,
800
$
-$
-$
Em
ploy
eere
latio
nsin
clud
epe
rfor
man
cere
cogn
ition
prog
ram
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cide
ntal
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tions
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chas
Em
ploy
eeA
ppre
ciat
ion
Day
,an
dth
ean
nual
holid
aylu
nche
on.
The
2010
proj
ectio
nre
flect
san
incr
ease
inth
eov
eral
lcos
tof
thes
epr
ogra
ms
and
even
ts,
and
anin
crea
sed
use
ofth
ere
cogn
ition
prog
ram
sas
are
sult
ofse
vera
lhig
hpr
ofile
proj
ects
and
staf
fac
com
plis
hmen
tsin
the
latte
rpa
rtof
2009
and
into
2010
.T
hebu
dget
dem
onst
rate
sco
ntin
ued
conf
iden
cein
the
bene
fitof
thes
epr
ogra
ms
and
are
turn
tohi
stor
ical
leve
ls,
excl
udin
gth
e cu
rtai
lmen
t of t
hese
pro
gram
s du
ring
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last
six
mon
ths
of 2
009.
E4b
: E
mpl
oyee
Ben
efits
BU
DG
ET
ITE
M:
Em
ploy
ee B
enef
its (
cont
inue
d fr
om E
4a)
72
Item
Des
crip
tion:
Inc
lude
s fe
es fo
r se
min
ars,
pro
fess
iona
l tra
inin
g co
urse
s an
d pr
ofes
sion
al a
ssoc
iatio
n m
embe
rshi
ps p
aid
by t
he N
AIC
.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Edu
catio
n R
eim
burs
emen
ts (
1)28
,377
$
17
,696
$
38
,848
$
34,3
19$
51
,692
$
17
,373
$
50.6
2%P
rofe
ssio
nal T
rain
ing
(2)
118,
070
89,9
02
21
4,87
9
246,
954
25
9,26
6
12
,312
4.
99%
Pro
fess
iona
l Ass
ocia
tion
Due
s (3
)29
7,28
4
30
5,54
9
33
1,80
3
337,
016
37
9,25
8
42
,242
12
.53%
Tot
al44
3,73
1$
41
3,14
7$
58
5,53
0$
618,
289
$
69
0,21
6$
71
,927
$
11.6
3%
(1)
(2)
(3)
2011
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get b
y A
rea
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hnol
ogy
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alM
arke
tP
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ess
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vice
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egul
ator
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iptio
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tions
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vice
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ces
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catio
n R
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ts (
1)22
,162
$
2,
410
$
5,13
9$
7,93
1$
7,75
0$
6,
300
$
P
rofe
ssio
nal T
rain
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(2)
102,
698
21
,914
15
,293
24,5
16
26
,895
67,9
50
P
rofe
ssio
nal A
ssoc
iatio
n D
ues
(3)
4,15
9
46
,800
30
2,76
6
9,96
5
11,7
14
3,
854
Tot
al12
9,01
9$
71
,124
$
32
3,19
8$
42,4
12$
46
,359
$
78
,104
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nal
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rry
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per
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ose
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ns,
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only
appl
yto
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ifica
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ploy
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he20
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rianc
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ombu
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ents
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isem
ploy
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ram
in20
10.
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2011
budg
etal
soas
sum
esfu
rthe
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owth
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man
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ead
ditio
nof
seve
ral p
rofe
ssio
nal c
ertif
icat
ions
as
a re
sult
of n
ew te
chno
logy
dep
loye
d by
the
NA
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rec
ent y
ears
.
E5:
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ploy
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ent
BU
DG
ET
ITE
M:
Em
ploy
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ent
Pro
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ents
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ired
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sor
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ions
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e20
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tes
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ngcl
asse
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the
SB
Sar
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ition
ally
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stcu
tting
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sure
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plem
ente
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ntia
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ated
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cant
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.T
here
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in20
09an
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ease
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ng in
201
1 to
kee
p pa
ce w
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logi
es d
eplo
yed
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e N
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.
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fess
iona
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atio
ndu
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clud
e$2
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rth
eN
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’san
nual
mem
bers
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inth
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tern
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nal
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nce
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ervi
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ting
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etal
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ploy
eem
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te b
ar a
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ns, t
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Inst
itute
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ertif
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Pub
lic A
ccou
ntan
ts, a
nd s
tate
CP
A a
ssoc
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ns, a
mon
g ot
hers
.
73
74
Item
Des
crip
tion:
Fee
s pa
id to
out
side
con
sulta
nts
for
lega
l, ac
tuar
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info
rmat
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tech
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2011
Incr
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crip
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udge
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ud
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erce
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e
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l (1)
586,
927
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336,
563
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25
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ccre
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m (
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5,78
2
24
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6
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0
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320
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ther
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l Ser
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089,
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1,
334,
427
3,
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3,33
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3,
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585
29
,549
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89%
Tot
al4,
341,
798
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631,
166
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6$
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294,
515
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With
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nce
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e lic
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ting
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nce
indu
stry
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ls fo
r N
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catio
n an
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aini
ng p
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ams,
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eted
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in S
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ces
to M
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ects
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;(3
)co
rpor
ate
mat
ters
rela
ting
toco
ntra
cts,
tax,
and
bene
fits;
and
(4)
amic
usbr
iefs
filed
atth
ere
ques
tof
NA
ICm
embe
rs.
The
expe
nditu
res
in20
09ar
ela
rgel
yre
late
dto
use
ofle
gal
serv
ices
for
proj
ects
such
asS
ecur
ities
Exc
hang
eC
omm
issi
onlit
igat
ion,
rein
sura
nce
mod
erni
zatio
nfr
amew
ork,
regu
lato
rym
oder
niza
tion,
and
vario
usbu
sine
ssm
atte
rs.T
hede
crea
sein
2011
refle
cts
the
antic
ipat
edco
mpl
etio
nof
the
nego
tiatio
nof
the
licen
sean
dse
rvic
esag
reem
entw
ithth
eN
atio
nalI
nsur
ance
Pro
duce
rR
egis
try
(NIP
R).
The
2011
budg
etfo
rot
her
prof
essi
onal
serv
ices
incl
udes
:(1
)$1
42,2
76in
fees
for
the
adm
inis
trat
ion,
leas
e,an
dov
ersi
ght
ofth
eco
-loca
tion
faci
lity
and
serv
ices
,in
clud
ing
apo
tent
ial
mov
eof
the
co-lo
catio
nfa
cilit
yto
ane
wlo
catio
nin
2011
;an
d(2
)$1
70,7
80in
cons
ultin
gfo
rte
chno
logy
perf
orm
ance
mon
itorin
gan
dva
lidat
ion,
allb
udge
ted
inth
ete
chno
logy
syst
ems
and
supp
ort a
reas
.
BU
DG
ET
ITE
M:
Pro
fess
iona
l Ser
vice
s
InJu
ne19
90,
the
Inte
rnal
Adm
inis
trat
ion
(EX
1)S
ubco
mm
ittee
auth
oriz
edth
eN
AIC
toco
mpe
nsat
ein
depe
nden
tte
ams
who
cond
uct
revi
ews
ofin
sura
nce
dep
artm
ents
seek
ing
accr
edita
tion
unde
rth
eN
AIC
Fin
anci
alR
egul
atio
nS
tand
ards
and
Acc
redi
tatio
npr
ogra
m.
The
budg
etis
com
pose
das
sum
ing
the
num
ber
ofex
amin
atio
nsto
beco
nduc
ted,
whi
chflu
ctua
tes
from
year
toye
ar.T
he20
11bu
dget
assu
mes
nine
stat
esun
derg
oing
full
revi
ews
and
13st
ates
unde
rgoi
ngpr
e-re
view
s,bo
theq
ualt
oth
e20
10bu
dget
edle
vels
and
thre
est
ate
rere
view
s,co
mpa
red
totw
oin
the
2010
budg
et.
Thi
slin
eal
soin
clud
esfu
ndin
gfo
ra
bi-a
nnua
ltra
inin
gse
ssio
n,ho
sted
for
the
inde
pend
ent
team
mem
bers
,to
disc
uss
prog
ram
guid
elin
es, s
tand
ards
, rev
iew
team
pra
ctic
es, c
hang
es to
the
prog
ram
and
NA
IC to
ols
used
by
mem
bers
to c
ompl
y w
ith th
e pr
ogra
m.
75
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Lega
l (1)
250,
000
$
Acc
redi
tatio
n T
eam
(2)
677,
930
Oth
er P
rofe
ssio
nal S
ervi
ces
(3)
315,
556
$
55
1,51
1
73
4,70
5$
600
$
1,
764,
213
$
Tot
al31
5,55
6$
1,
479,
441
$
73
4,70
5$
-$
600
$
1,
764,
213
$
The
incr
ease
inex
pens
ein
2011
rela
tes
to:(
1)a
slig
htin
crea
sein
the
num
ber
ofac
cred
itatio
nre
view
san
dpl
ans
toho
stth
ebi
annu
alac
cred
itatio
nte
amm
embe
rtr
aini
ngin
2011
;(2
)in
crea
sed
cost
antic
ipat
edfo
ra
pote
ntia
lm
ove
ofth
eN
AIC
’sco
-loca
tion
faci
lity
and
utili
tyin
crea
ses
from
co-lo
catio
nse
rvic
esba
sed
ongr
owin
gbu
sine
ssre
quire
men
ts;
(3)
data
mod
elin
gre
quire
dto
reen
gine
erth
est
ate
prod
ucer
licen
sing
(SP
L)lo
adpr
oces
s;(4
)pu
blic
rela
tions
cons
ultin
gse
rvic
esto
supp
ort
cons
umer
awar
enes
san
ded
ucat
ion
med
iaca
mpa
igns
; and
(5)
roy
alty
pay
men
ts to
the
NA
IC's
SB
S b
usin
ess
part
ner,
due
to in
crea
sed
SB
S tr
ansa
ctio
n pr
oces
sing
and
rel
ated
SB
S r
even
ues.
E6b
: P
rofe
ssio
nal S
ervi
ces
BU
DG
ET
ITE
M:
Pro
fess
iona
l Ser
vice
s (c
ontin
ued
from
E6a
)
Inad
ditio
n,se
vera
lB
usin
ess
and
Fis
cal
Impa
ctS
tate
men
tsw
ere
revi
ewed
indi
vidu
ally
and
appr
oved
byth
eE
xecu
tive
(EX
)C
omm
ittee
and
Inte
rnal
Adm
inis
trat
ion
(EX
1)S
ubco
mm
ittee
onO
ctob
er4,
2010
.F
orth
e20
11bu
dget
,th
ese
incl
ude
(1)
$20,
000
for
the
2011
Rec
ords
Man
agem
ent
Pro
ject
(See
Fis
cal
Impa
ct1)
;(2
)a
red
uctio
nof
$609
,600
inco
nsul
ting
expe
nses
rela
ted
toth
eS
BS
Mai
nten
ance
Str
ateg
ypr
opos
als
(See
Fis
cal
Impa
ct3)
;(3
)an
incr
ease
inco
nsul
ting
expe
nses
rela
ted
toth
eS
BS
Gro
wth
prop
osal
(See
Fis
calI
mpa
ct4)
;(4)
$529
,661
,with
offs
ettin
gre
venu
es,
for
the
Pre
miu
mR
evie
wD
ata
Col
lect
ion
and
Rep
ortin
gth
roug
hS
ER
FF
(See
Fis
calI
mpa
ct5)
;and
(5)
$92,
500,
with
offs
ettin
gre
venu
es,
for
the
Con
sum
erA
ssis
tanc
eD
ata
Col
lect
ion
and
Rep
ortin
gth
roug
hS
BS
(See
Fis
cal
Impa
ct8)
.F
or20
10pr
ojec
tions
,ad
ditio
nal
amou
nts
app
rove
dar
e(1
)$7
4,00
0,w
ithof
fset
ting
reve
nues
,fo
rth
eC
onsu
mer
Ass
ista
nce
Dat
aC
olle
ctio
nan
dR
epor
ting
thro
ugh
SB
S(S
eeF
isca
lIm
pact
8);
(2)
$225
,600
,w
ithof
fset
ting
reve
nues
,fo
rth
eP
rem
ium
Rev
iew
Dat
a C
olle
ctio
n an
d R
epor
ting
thro
ugh
SE
RF
F (
See
Fis
cal I
mpa
ct 5
); a
nd $
250,
000
for
the
Impa
ct S
tudy
of V
M-2
0 P
rinci
pal-B
ased
App
roac
h to
Val
uatio
ns (
See
Fis
cal I
mpa
ct 7
).
Fin
ally
,th
e20
11bu
dget
incl
udes
(1)
$30,
000
indi
gita
lrig
hts
secu
rity
serv
ices
insu
ppor
tof
the
NA
IC's
onlin
epu
blic
atio
nsor
der
and
deliv
ery
syst
em;
(2)
$24,
000
inse
rvic
esfe
esto
the
edito
rof
the
Jour
nalo
fIn
sura
nce
Reg
ulat
ion;
(3)
$609
,600
for
cons
ultin
gas
sist
ance
from
the
NA
IC's
busi
ness
part
ner
inS
tate
Bas
edS
yste
ms
(SB
S)
rela
ted
toex
istin
gS
BS
stat
esu
ppor
t and
new
SB
S im
plem
enta
tions
and
enh
ance
men
ts; a
nd (
4) $
834,
178
in r
oyal
ty p
aym
ents
to th
e N
AIC
’s b
usin
ess
part
ner
in S
BS
, bud
gete
d in
the
Pro
duct
s an
d S
ervi
ces
area
.
76
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Dat
abas
e N
etw
ork
(1)
527,
283
$
294,
844
$
599,
821
$
59
8,78
8$
557,
725
$
(41,
063)
$
(6
.86%
)S
ecur
ity D
ata
Fee
s (2
)62
9,80
8
32
8,12
3
69
3,36
0
637,
517
69
4,35
0
56
,833
8.
91%
Cre
dit C
ard
Fee
s (3
)24
7,37
3
11
2,05
7
25
7,27
6
247,
415
28
2,17
1
34
,756
14
.05%
Oth
er (
4)17
9,95
1
10
0,94
0
22
1,90
7
189,
202
21
3,71
9
24
,517
12
.96%
Tot
al1,
584,
415
$
83
5,96
4$
1,
772,
364
$
1,67
2,92
2$
1,
747,
965
$
75
,043
$
4.49
%
(1) (2)
(3)
Inad
ditio
n,a
Bus
ines
san
dF
isca
lIm
pact
Sta
tem
ent
was
revi
ewed
and
appr
oved
byth
eE
xecu
tive
(EX
)C
omm
ittee
and
Inte
rnal
Adm
inis
trat
ion
(EX
1)S
ubco
mm
ittee
onO
ctob
er4,
2010
. F
or th
e 20
11 b
udge
t, an
add
ition
al $
17,9
32 fo
r cr
edit
card
fees
is d
etai
led
in th
e S
BS
Gro
wth
Str
ateg
y pr
opos
al (
See
Fis
cal I
mpa
ct 4
).
E7a
: C
ompu
ter
Ser
vice
s
Dat
abas
eN
etw
ork
expe
nses
incl
ude
(1)
Inte
rnet
conn
ectiv
ity($
79,0
98);
(2)
New
Yor
kO
ffice
and
Exe
cutiv
eO
ffice
circ
uits
and
back
ups
toth
eC
entr
alO
ffice
inK
ansa
sC
ity($
88,8
15);
(3)
wire
less
devi
ces
($10
0,87
2);
and
(4)
data
line
circ
uits
for
data
repl
icat
ion
and
netw
ork
sync
hron
izat
ion
betw
een
the
NA
IC’s
co-lo
catio
nsi
tean
dth
eC
entr
alO
ffice
data
cent
er($
288,
940)
.T
hede
crea
sein
2011
ispr
imar
ilyre
late
dto
the
mov
emen
tof
$69,
096
invo
ice
com
mun
icat
ion
expe
nses
toth
ete
leph
one
budg
etlin
e,in
anef
fort
tobe
tter
refle
ctne
twor
kan
dvo
ice
com
mun
icat
ion
char
ges
amon
gbu
dget
lines
.T
his
decr
ease
ispa
rtia
llyof
fset
byan
incr
ease
inth
enu
mbe
rof
wire
less
devi
ces
nece
ssar
yto
enab
lese
nior
man
agem
ent
and
spec
ific
staf
f mem
bers
to c
ondu
ct A
ssoc
iatio
n bu
sine
ss w
hile
trav
elin
g an
d ou
tsid
e of
cor
e of
fice
hour
s.
BU
DG
ET
ITE
M:
Com
pute
r S
ervi
ces
Sec
uriti
esda
tafe
eds
repr
esen
tsth
epu
rcha
seof
natio
nally
reco
gniz
edst
atis
tical
ratin
gor
gani
zatio
ns(N
RS
RO
)ra
tings
and
secu
rity
data
feed
su
sed
topr
oduc
eS
VO
desi
gnat
ions
for
NR
SR
O-r
ated
secu
ritie
s,in
clud
ing
mun
icip
albo
ndpr
icin
g,co
rpor
ate
bond
pric
ing,
Blo
ombe
rg,
Moo
dy’s
and
CU
SIP
.T
hese
data
feed
sar
eal
sous
edto
pop
ulat
eth
eA
VS
data
base
with
NR
SR
Ora
tings
for
use
byA
VS
cust
omer
sin
prep
arin
gce
rtai
nin
vest
men
tsc
hedu
les.
The
maj
ority
ofth
ein
crea
sein
2010
,w
hich
cont
inue
sin
to20
11,i
sre
late
dto
the
sign
ifica
ntpr
ice
incr
ease
s fo
r th
e da
ta fe
eds
rece
ived
by
the
SV
O.
Cre
dit
card
fees
incl
ude
char
ges
from
vend
ors
and
bank
sto
settl
eN
AIC
cust
omer
cred
itca
rdtr
ansa
ctio
nsan
dde
posi
tfu
nds
inth
eN
AIC
bank
acco
unt.
Th
eov
erag
ein
2010
and
the
resu
lting
incr
ease
inth
e20
11bu
dget
rela
tes
to(1
)an
incr
ease
inon
line
sale
sof
publ
icat
ions
;(2
)an
incr
ease
inth
enu
mbe
rof
cust
omer
sw
ishi
ngto
satis
fyth
eir
outs
tand
ing
acco
unt
bala
nces
bycr
edit
card
;and
(3)
anin
crea
sein
onlin
eco
ntin
uing
educ
atio
n(C
E)
tran
sact
ions
proc
esse
dth
roug
hth
eS
BS
syst
emin
2011
.The
SB
Sin
crea
seis
offs
etby
anin
crea
sein
tran
sact
ion
reve
nue.
Add
ition
ally
,th
e20
11bu
dget
incr
ease
dby
$17,
932
asa
resu
ltof
addi
tiona
lrev
enue
spr
ojec
ted
unde
rth
eS
BS
Gro
wth
Pro
posa
l(S
eeF
isca
lIm
pact
4).
Acr
edit
card
fee
redu
ctio
n w
as n
egot
iate
d w
ith th
e N
AIC
's v
endo
r ef
fect
ive
July
1, 2
009,
and
add
ition
al c
ost s
avin
g m
easu
res
are
curr
ently
in th
e de
velo
pmen
t pha
se.
Item
Des
crip
tion:
Fee
s pa
id to
out
side
pro
vide
rs fo
r co
mpu
ter
proc
essi
ng, p
ayro
ll pr
oces
sing
, cre
dit c
ard
proc
essi
ng, e
vent
re
gist
ratio
ns fo
r na
tiona
l mee
tings
and
edu
catio
n pr
ogra
ms,
and
sec
urity
dat
a fe
eds
from
rat
ing
agen
cies
.
77
(4)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Dat
abas
e N
etw
ork
(1)
557,
725
$
S
ecur
ity D
ata
Fee
s (2
)69
4,35
0$
Cre
dit C
ard
Fee
s (3
)20
,887
$
61
,926
$
12,3
0018
7,05
8$
Oth
er (
4)51
,491
21
,378
140,
850
Tot
al55
7,72
5$
72
,378
$
83
,304
$
706,
650
$
-
$
32
7,90
8$
BU
DG
ET
ITE
M:
Com
pute
r S
ervi
ces
(con
tinue
d fr
om E
7a)
Oth
erco
mpu
ter
serv
ices
incl
uded
inth
e20
11bu
dget
repr
esen
t:(1
)th
eco
stof
outs
ourc
ing
the
prep
arat
ion
ofN
AIC
’spa
yrol
l($4
9,59
1);
(2)
fees
for
pro
cess
ing
onlin
ere
gist
ratio
nsfo
rna
tiona
lm
eetin
gs($
10,2
51);
(3)
serv
ice
fees
for
the
NA
ICR
esea
rch
Libr
ary
cata
log
softw
are
($10
,891
);(4
)C
omm
ittee
onU
nifo
rmS
ecur
ities
Iden
tific
atio
nP
roce
dure
s(C
US
IP)
and
Inte
rnat
iona
lS
ecur
ities
Iden
tific
atio
nD
irect
ory
(IS
ID)
roya
ltypa
ymen
ts($
114,
318)
;an
d(5
)F
OLI
Oro
yalty
paym
ents
($23
,771
).T
hese
roya
ltie
sar
epa
idas
are
sult
ofN
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udge
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es fo
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ud
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ff T
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fere
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ease
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dget
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tes
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dle
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ativ
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olve
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inan
ticip
ated
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lato
r fu
ndin
g re
ques
ts d
urin
g th
e 20
11 N
AIC
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R E
Reg
Con
fere
nce
base
d on
util
izat
ion
in 2
009
and
2010
.
Item
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crip
tion:
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lude
s ai
rfar
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odgi
ng, m
eals
, and
inci
dent
al tr
avel
exp
ense
s in
curr
ed b
y th
e N
AIC
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ff, c
omm
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oner
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unde
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clud
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rtic
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trad
esh
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or N
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ff eb
ers
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lect
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ade
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fftr
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udes
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lm
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ts,
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trav
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sem
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dtr
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ngpr
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ms.
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elin
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tes
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kF
orce
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atte
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tern
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ittee
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ltof
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opea
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cial
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ent
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plem
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tions
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nses
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ulat
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ithin
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itiat
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inth
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crea
sein
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ding
and
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to20
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flect
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rof
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atte
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gth
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ratio
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r tr
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get b
y A
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and
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sein
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dem
onst
rate
sth
eN
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'sco
ntin
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com
mitm
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toa
lead
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lein
the
IAIS
and
mem
ber
dete
rmin
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nto
ensu
reU
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regu
lato
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oces
ses
and
prac
tices
are
alig
ned
with
inte
rnat
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anda
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pmen
tan
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nate
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eral
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ranc
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hein
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tern
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trav
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ploy
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ente
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icy
and
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sear
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ceed
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budg
eted
expe
ctat
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as
they
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mor
e in
volv
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nd fo
cuse
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inte
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ndar
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pens
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icip
ate
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ose
ssio
nsof
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annu
alA
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proj
ect;
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sala
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for
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omth
ose
stat
esth
atre
quire
sala
ryre
imbu
rsem
ent
for
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artic
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inth
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inor
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cella
neou
sex
pens
esto
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ort
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ect.
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ticip
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gre
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nce
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min
erC
FE
rate
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heva
rianc
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2010
isre
late
dto
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antic
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sein
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num
ber
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rtic
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ssa
ving
sis
not
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the
2011
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part
icip
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will
con
tinue
to h
ave
the
optio
n to
ret
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hom
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wee
kend
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proj
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dov
erag
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2010
rela
tes
toC
omm
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trav
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pens
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with
the
inte
rnat
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lstr
ateg
icse
ssio
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hich
was
unan
ticip
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din
the
2010
budg
et,
and
mem
ber
trav
elre
late
dto
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ging
issu
es,
such
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alth
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rm,
inex
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quire
d as
a r
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form
and
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om E
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tern
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trav
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lect
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e 20
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atio
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cons
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budg
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nded
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spon
sor
natio
nalm
eetin
gtr
avel
part
icip
atio
nin
NA
ICte
leco
nfer
ence
san
dlu
nche
ons
for
the
NA
ICC
onsu
mer
Boa
rdof
Tru
stee
s.A
lthou
ghth
enu
mbe
rof
natio
nalm
eetin
gsde
crea
sed
from
four
toth
ree
in20
10,
ther
ew
asno
chan
gein
the
fund
ing
leve
lfor
the
NA
ICfu
nded
cons
umer
rep
rese
ntat
ives
.
80
Item
Des
crip
tion:
Inc
lude
s al
l ren
t, bu
ildin
g op
erat
ing
expe
nses
, m
aint
enan
ce fe
es, c
lean
ing
and
war
ehou
se s
tora
ge fe
es in
curr
ed b
y th
e th
ree
NA
IC o
ffice
s.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Ren
t (1)
4,79
1,51
2$
2,34
4,69
7$
4,85
7,68
7$
4,
843,
196
$
4,85
6,76
1$
13,5
65$
0.
28%
Util
ities
& P
arki
ng (
2)52
6,73
631
6,12
560
5,25
2
580,
685
604,
370
23,6
85
4.08
%W
areh
ouse
35
,256
17,4
4837
,499
34
,970
33,5
00
(1,4
70)
(4.2
0%)
Tot
al5,
353,
504
$
2,
678,
270
$
5,
500,
438
$
5,45
8,85
1$
5,
494,
631
$
35
,780
$
0.66
%
(1)
Bas
ere
ntfo
rth
eK
ansa
sC
ityle
aseh
old
is$2
85,8
66m
onth
lyfo
r13
2,51
8re
ntab
lesq
uare
feet
ofof
fice
spac
eat
2301
McG
eeS
tree
t($
25.8
8pe
rsq
uare
foot
aver
age)
with
ale
ase
expi
ratio
nof
Janu
ary
31,
2012
.D
ueto
the
appr
oach
ing
expi
ratio
nof
this
leas
e,th
eN
AIC
has
reta
ined
aco
mm
erci
alre
ales
tate
brok
er,
anar
chite
ctur
alfir
man
da
law
firm
toas
sist
inde
finin
gsp
ace
requ
irem
ents
,id
entif
ying
leas
ing
optio
ns,
nego
tiatin
gle
ase
term
san
dpu
rsui
ngpo
tent
iali
ncen
tive
pack
ages
from
Kan
sas
and
Mis
sour
i.T
heN
AIC
antic
ipat
essa
ving
sfo
r th
e A
ssoc
iatio
n in
a n
ew le
ase
as a
res
ult o
f cur
rent
com
mer
cial
rea
l est
ate
mar
ket r
ates
in K
ansa
s C
ity.
●L
ow
erM
anh
atta
nE
ner
gy
Pro
gra
m-
Thi
spr
ogra
mre
pres
ents
12ye
ars
ofel
ectr
ical
usag
ere
bate
seq
ualt
o30
%fo
rye
ars
1-8,
24%
for
year
9,18
%fo
rye
ar10
,12
%fo
rye
ar11
,an
d6%
for
year
12.
The
land
lord
was
acce
pted
for
this
ince
ntiv
epr
ogra
man
dbe
gan
pass
ing
the
appl
icab
leex
empt
ions
toth
eN
AIC
inth
efo
rmof
redu
ced
oper
atin
gco
sts
inla
te20
05.
E9a
: O
ccup
ancy
Bas
ere
ntfo
rth
eN
ewY
ork
Offi
ceis
$43,
362
mon
thly
for
18,7
26re
ntab
lesq
uare
feet
ofof
fice
spac
e($
27.7
9pe
rsq
uare
foot
aver
age)
,with
ale
ase
expi
ratio
nof
July
2014
.T
heN
AIC
cont
inue
sto
bene
fitfr
omin
cent
ives
and
abat
emen
tpr
ogra
ms
rela
ted
toth
eJu
ly20
04re
loca
tion
ofth
eN
ewY
ork
Offi
ceto
the
finan
cial
dist
rict
afte
rth
ede
stru
ctio
nof
7W
orld
Tra
deC
ente
r on
Sep
tem
ber
11, 2
001
incl
udin
g:
● In
du
stri
al a
nd
Co
mm
erci
al In
cen
tive
Pro
gra
m -
Thi
s pr
ogra
m o
ffers
an
exem
ptio
n fr
om a
dditi
onal
rea
l est
ate
asse
ssm
ents
for
capi
tal i
mpr
ovem
ents
. The
NA
IC w
as a
ccep
ted
for
this
reb
ate
prog
ram
and
ref
lect
s re
duce
d re
nt e
xpen
se fo
r th
e S
VO
leas
ehol
d.
Bas
ere
ntfo
rth
eW
ashi
ngto
nD
.C.
offic
esp
ace
inth
eH
allo
fth
eS
tate
sis
$28,
801
mon
thly
for
7,21
2re
ntab
lesq
uare
feet
ofof
fice
spac
e($
47.9
2pe
rsq
uar
efo
ot).
The
curr
ent
leas
eex
pire
sin
Janu
ary
2014
.T
heN
AIC
expa
nded
this
leas
ehol
din
2008
toin
clud
ean
addi
tiona
l2,
703
squa
refe
etof
offic
esp
ace
at$1
1,06
9pe
rm
onth
($49
.14
per
squa
refo
ot)
toac
com
mod
ate
the
tran
sitio
n of
the
Was
hing
ton
D.C
. offi
ce to
the
NA
IC E
xecu
tive
Offi
ce a
nd th
e ad
ditio
n of
Cen
ter
for
Insu
ranc
e P
olic
y an
d R
esea
rch
supp
ort s
taff.
BU
DG
ET
ITE
M:
Occ
upan
cy
Inac
cord
ance
with
Gen
eral
lyA
ccep
ted
Acc
ount
ing
Prin
cipl
es(G
AA
P),
the
tota
lcos
tof
each
leas
eis
reco
rded
asex
pens
eev
enly
thro
ugho
utth
elif
eof
the
leas
e.T
hean
nual
budg
etfo
rre
ntex
pens
eis
deriv
edby
calc
ulat
ing
the
tota
lcos
tof
the
leas
e,in
clud
ing
sche
dule
din
crea
ses
inre
ntal
paym
ents
,and
divi
ding
that
byth
enu
mb
erof
year
sco
vere
dby
the
leas
e.A
dditi
onal
ren
t cha
rges
for
com
mon
are
a m
aint
enan
ce a
nd r
eal e
stat
e ta
xes
are
reco
rded
as
incu
rred
and
in a
dditi
on to
the
cont
ract
ual r
ent e
xpen
se.
81
(2)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Ren
t (1)
3,71
8,58
1$
549,
882
$
58
8,29
8$
Util
ities
& P
arki
ng (
2)1,
125
$
432,
560
63,2
52
10
7,43
3
War
ehou
se
8,04
0
15
,610
9,
850
$
Tot
al9,
165
$
4,16
6,75
1$
613,
134
$
69
5,73
1$
-$
9,85
0$
The
over
age
in20
10is
the
resu
ltof
incr
ease
sin
com
mon
area
mai
nten
ance
cost
sfo
rth
eC
entr
alO
ffice
inK
ansa
sC
ity,
offs
etby
incr
ease
sin
the
com
mon
are
am
aint
enan
cefo
rth
eN
ewY
ork
Offi
cebe
ing
less
than
antic
ipat
edin
the
2010
budg
et.
The
incr
ease
inth
e20
11bu
dget
isdu
eto
anan
ticip
ated
incr
ease
inpa
rkin
gex
pens
esfo
rth
eC
entr
alO
ffice
asso
ciat
ed w
ith th
e ne
w p
ositi
ons
appr
oved
by
the
Exe
cutiv
e (E
X)
Com
mitt
ee a
nd In
tern
al A
dmin
istr
atio
n (E
X1)
Sub
com
mitt
ee o
n O
ctob
er 4
, 201
0, r
elat
ed to
Fis
cal I
mpa
cts
3 an
d 4.
E9b
: O
ccup
ancy
BU
DG
ET
ITE
M:
Occ
upan
cy (
cont
inue
d fr
om E
9a)
82
Item
Des
crip
tion:
Ren
tal a
nd m
aint
enan
ce fe
es fo
r of
fice
equi
pmen
t, ha
rdw
are,
and
sof
twar
e, in
clud
ing
pers
onal
com
pute
rs, p
rinte
rs, c
opie
rs, e
tc.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Equ
ipm
ent R
enta
l (1)
210,
079
$
112,
157
$
229,
998
$
23
1,37
3$
221,
875
$
(9,4
98)
$
(4.1
1%)
Nat
iona
l Mee
ting
Equ
ipm
ent R
enta
l (2)
5,61
8
10
,477
17,0
17
14,0
46
18
,490
4,
444
31.6
4%E
quip
men
t, H
ardw
are
& S
oftw
are
Mai
nten
ance
(3
)2,
361,
849
1,
099,
041
2,
228,
669
2,43
4,74
5
2,
499,
064
64
,319
2.
64%
Tot
al2,
577,
546
$
1,
221,
675
$
2,
475,
684
$
2,68
0,16
4$
2,
739,
429
$
59
,265
$
2.21
%
(1)
(2) (3)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Equ
ipm
ent R
enta
l (1)
936
$
19
6,47
7$
3,
900
$
20
,562
$
Nat
iona
l Mee
ting
Equ
ipm
ent R
enta
l (2)
18,4
90
E
quip
men
t, H
ardw
are
& S
oftw
are
Mai
nten
ance
(3)
2,30
3,84
4
19
5,10
0
12
0
Tot
al2,
304,
780
$
39
1,57
7$
22
,510
$
20,5
62$
-
$
-
$
The
incr
ease
ineq
uipm
ent
rent
alco
sts
rela
ted
tona
tiona
lm
eetin
gsis
are
sult
ofun
antic
ipat
edro
omch
ange
sat
the
conv
entio
nce
nter
used
for
the
NA
IC20
10S
prin
gN
atio
nal
Mee
ting.
The
201
1 bu
dget
is c
onsi
sten
t with
pro
ject
ed 2
010
spen
ding
due
to th
e us
e of
a c
onve
ntio
n ce
nter
for
the
NA
IC 2
011
Spr
ing
Nat
iona
l Mee
ting.
Inad
ditio
n,ex
pens
esre
late
dto
Bus
ines
san
dF
isca
lIm
pact
Sta
tem
ents
wer
ere
view
edin
divi
dual
lyan
dap
prov
edby
the
Exe
cutiv
e(E
X)
Com
mitt
eean
dIn
tern
alA
dmin
istr
atio
n(E
X1)
Sub
com
mitt
eeon
Oct
ober
4,20
10.
For
the
2011
budg
et,
thes
ein
clud
e$1
7,13
0fo
rth
eA
pplic
atio
nD
evel
opm
ent
and
Tes
ting
Env
ironm
ents
Exp
ansi
on(s
eeF
isca
lIm
pact
2)an
d$1
15,6
49 fo
r th
e S
BS
Gro
wth
Str
ateg
y (S
ee F
isca
l Im
pact
4).
Equ
ipm
ent
rent
alin
clud
esth
eco
stto
rent
copi
ers
for
the
NA
ICco
pyce
nter
s,ce
rtai
nco
mpu
ter
equi
pmen
tan
dot
her
rent
als
whe
rea
capi
tal
purc
hase
isno
tas
cost
effe
ctiv
e.T
hede
crea
sein
expe
nse
for
2011
isre
late
dto
the
upgr
ade
ofco
pyeq
uipm
ent
inth
eE
xecu
tive
offic
e.A
high
spee
dbl
ack
and
whi
teco
pier
was
rece
ntly
plac
edin
the
Was
hing
ton
D.C
.of
fice
tosu
ppor
tgro
win
gne
eds
and
addi
tiona
lem
ploy
ees,
incl
udin
gth
eC
ente
rfo
rIn
sura
nce
and
Res
earc
h(C
IPR
).T
his
upgr
ade
was
nego
tiate
dfo
rle
ssth
anth
eam
ount
incl
uded
inth
e 20
10 b
udge
t. A
full
year
of t
his
savi
ngs
is r
efle
cted
in th
e 20
11 b
udge
t.
E10
: E
quip
men
t Ren
tal a
nd M
aint
enan
ce
Equ
ipm
ent,
hard
war
ean
dso
ftwar
em
aint
enan
cein
clud
esm
aint
enan
ceon
hard
war
e,so
ftwar
e,an
dot
her
equi
pmen
tow
ned
orre
nted
byth
eN
AIC
.T
heN
AIC
gen
eral
lyse
cure
sm
aint
enan
cean
dse
rvic
eag
reem
ents
onth
eof
fice
equi
pmen
t,ha
rdw
are
and
softw
are
that
have
exce
eded
the
initi
alw
arra
nty
perio
dw
hen
the
cost
and
risk
ofeq
uipm
ent
failu
res
exce
eds
the
cost
ofth
ese
rvic
eag
reem
ent.
Exa
mpl
esof
such
incl
ude
copi
ers,
prin
ters
,co
mpu
ter
hard
war
e(e
.g.,
rout
ers,
switc
hes,
serv
ers,
etc.
)a
ndsu
ppor
tag
reem
ents
for
heav
ilyus
ed s
oftw
are
prod
ucts
, am
ong
othe
rs.
Thi
sbu
dget
requ
est
repr
esen
tsth
eco
stto
supp
ort
exis
ting
proj
ects
,en
hanc
emen
ts,
and
capi
tal
purc
hase
s,of
fset
slig
htly
bym
aint
enan
cere
duct
ions
oneq
uipm
ent
plan
ned
for
retir
emen
tin
late
2010
and
into
2011
.T
he20
10va
rianc
eof
$206
,076
isth
ere
sult
of(1
)co
mpe
titio
nin
the
data
stor
age
mar
ket
gene
ratin
gsu
bsta
ntia
lsav
ings
onth
em
aint
enan
ceof
the
2010
Sto
rage
Are
aN
etw
ork
(SA
N)
refr
esh;
(2)
the
post
ponm
ento
fthe
chan
gein
back
upar
chite
ctur
ebu
dget
edin
2010
,unt
ilth
ete
chno
logy
has
fully
evol
ved;
and
(3)
repl
acem
ent
ofag
ing
reso
urce
s(e
.g.,
serv
ers)
and
stor
age
(e.g
.,N
AS
)w
ithth
ree-
year
war
rant
yup
lifts
atde
epdi
scou
nts.
The
sesa
ving
sco
ntin
uein
to20
11bu
ta
repa
rtia
llyof
fset
bym
aint
enan
ceco
ntra
cts
on a
dditi
onal
cap
ital p
urch
ases
.
BU
DG
ET
ITE
M:
Equ
ipm
ent R
enta
l and
Mai
nten
ance
83
8484
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Dep
reci
atio
n (
1)3,
083,
614
$
1,
286,
622
$
2,
247,
399
$
2,24
6,51
8$
2,
389,
158
$
14
2,64
0$
6.35
%A
mor
tizat
ion
(2)
1,59
4,12
7
655,
959
1,25
3,75
7
1,
265,
318
1,13
3,33
8
(131
,980
)
(1
0.43
%)
Tot
al4,
677,
741
$
1,
942,
581
$
3,
501,
156
$
3,51
1,83
6$
3,
522,
496
$
10
,660
$
0.30
%
(1)
(2)
See
Exh
ibit
E11
-One
and
Exh
ibit
E11
-Tw
o fo
r de
tails
of p
ropo
sed
capi
tal p
urch
ases
with
a c
ost $
25,0
00 o
r gr
eate
r.
BU
DG
ET
ITE
M:
Dep
reci
atio
n an
d A
mor
tizat
ion
Dep
reci
atio
nis
calc
ulat
edon
ast
raig
ht-li
neba
sis
over
the
usef
ullif
eof
capi
tal
asse
tsow
ned
byth
eN
AIC
,w
hich
isfiv
eye
ars
for
furn
iture
and
equi
pmen
t,th
ree
year
sfo
rco
mpu
ter
hard
war
ean
dso
ftwar
e,an
dpe
rson
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mpu
ters
(exc
ept
asno
ted
belo
w).
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amou
ntof
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ecia
tion
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nse
ina
give
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aris
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ted
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epu
rcha
seof
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tal
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curr
ent
and
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edin
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ars.
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decr
ease
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10is
dire
ctly
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ted
toth
epu
rcha
sing
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rns
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las
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and
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tizat
ion
ofla
rge
capi
tal
pro
ject
s.P
ortio
nsof
asse
tspu
rcha
sed
in20
06of
$2.5
mill
ion
and
in20
07of
$4.2
mill
ion,
rela
ted
toth
eim
plem
enta
tion
ofth
eS
tate
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g(S
PLR
)pr
ojec
t,be
com
efu
llyde
prec
iate
din
201
0.
Item
Des
crip
tion:
Incl
udes
depr
ecia
tion
for
all
furn
iture
and
equi
pmen
tow
ned
asof
June
30,
2010
with
proj
ecte
dpu
rcha
ses
thro
ugh
Dec
embe
r31
,20
10,
and
depr
ecia
tion
for
budg
eted
2011
cap
ital o
utla
ys.
His
toric
ally
,pe
rson
alco
mpu
ters
have
been
repl
aced
ever
yfo
urye
ars.
The
sepu
rcha
ses
are
capi
taliz
edan
dam
ortiz
edov
erth
eA
ssoc
iatio
n's
hard
wa
ream
ortiz
atio
npe
riod
ofth
ree
year
s.In
2009
,th
eT
echn
ical
Ser
vice
sD
ivis
ion
bega
nin
trod
ucin
gne
wte
chno
logy
inth
isar
eaca
lled
virt
uald
eskt
ops.
Virt
uald
eskt
ops
are
basi
cally
com
mun
icat
ions
devi
ces
with
the
netw
ork,
allo
win
gm
aint
enan
ceto
bepe
rfor
med
onhu
ndre
dsof
devi
ces
with
asi
ngle
upgr
ade
toth
ene
twor
k.A
dditi
onal
ly,
thes
ede
vice
sw
illal
low
deve
lope
rs,
who
are
regu
larly
requ
ired
tova
lidat
eda
taor
mai
nten
ance
syst
ems
late
atni
ght
oron
wee
kend
sto
doso
from
thei
rho
mes
rath
erth
anha
ving
todr
ive
toth
eN
AIC
offic
es.
Vir
tual
desk
top
devi
ces
pote
ntia
lly h
ave
a m
uch
grea
ter
life
cycl
e, a
s m
uch
as tw
ice
that
of a
trad
ition
al P
C a
nd a
re m
uch
less
pro
ne to
thef
t or
man
ipul
atio
n.
Cur
rent
ly,
stan
dard
virt
ual
desk
tops
cost
$990
,8%
less
than
the
$1,0
75fo
ra
trad
ition
alP
C,
whi
lede
velo
per
virt
ual
desk
tops
cost
$1,1
30,
whi
chis
5%
high
er.
Bas
edon
the
decr
easi
ngco
stan
dex
tend
edlif
eof
thes
ede
vice
sth
eN
AIC
has
chos
ento
expe
nse
rath
erth
anca
pita
lize
thes
epu
rcha
ses,
elim
inat
ing
hour
sof
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iled
acco
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gw
ork
for
item
sth
at a
re m
onito
red
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yste
m s
cans
on
a m
onth
ly b
asis
. At t
he p
rese
nt ti
me
the
cost
of P
Cs
will
con
tinue
to b
e ca
pita
lized
.
Add
ition
ally
,th
e20
11bu
dget
incl
udes
(1)
$251
,829
for
the
SB
SG
row
thS
trat
egypr
opos
al(S
eeF
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lIm
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$59,
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for
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mR
ate
Rev
iew
Dat
aC
olle
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nan
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epor
ting
Enh
ance
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alth
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ER
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cal
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ct5)
,an
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rth
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ent
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ting
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ents
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al(S
eeF
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pact
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2011
budg
etin
clud
es31
virt
ual
desk
top
devi
ces.
Thi
sre
duce
sca
pita
lpu
rcha
ses
by$3
3,32
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dth
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ngde
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iatio
nby
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ital
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hase
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sed
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esul
ting
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inal
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,542
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ease
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xpen
se. V
irtua
l des
ktop
s w
ith a
dev
elop
er s
et u
p in
clud
ed in
the
201
1 bu
dget
acc
ount
for
45%
of t
he p
urch
ase.
With
de
velo
pers
mak
ing
uple
ssth
an15
%of
the
NA
IC's
PC
popu
latio
n,th
eam
ount
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ged
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pens
ew
illde
crea
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est
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butm
ost
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ctfu
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eral
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uctio
n in
spe
ndin
g as
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acem
ent o
f virt
ual d
eskt
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ur tw
o to
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rs la
ter
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aditi
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l PC
.
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a: D
epre
ciat
ion
and
Am
ortiz
atio
n
Am
ortiz
atio
nis
also
com
pute
don
ast
raig
ht-li
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sis
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eca
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lized
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chas
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tsan
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nsul
ting
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ices
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ajor
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pute
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plic
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ojec
tsan
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ades
.T
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imat
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tar
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ific
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ullif
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mor
itiza
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nse
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decr
ease
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011
as th
e F
inan
cial
Dat
a R
epos
itory
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DR
), w
hich
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ced
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ervi
ce in
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ruar
y 20
00, c
ompl
eted
its
10-y
ear
amor
tizat
ion
cycl
e in
Feb
ruar
y 20
10.
85
2011
Dep
reci
atio
n20
1020
10B
udge
tE
xpen
seB
udge
tP
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ctio
nB
udge
t Req
uest
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urni
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ipm
ent
13,0
00$
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ompu
ter
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e2,
092,
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838
1,47
3,82
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ompu
ter
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twar
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030,
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351,
354
34
3,48
3
Tot
al R
eque
sts
3,12
3,24
8$
487,
528
$
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$
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Dep
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atio
n on
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r Y
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901,
630
Tot
al D
epre
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ion
2,38
9,15
8$
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ortiz
atio
n20
1020
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udge
t Req
uest
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udge
tE
xpen
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al R
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-
$
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A
mor
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rior
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r E
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res
1,13
3,33
8$
Tot
al A
mor
tizat
ion
1,13
3,33
8$
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
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tem
s an
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ess
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vice
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venc
yR
egul
ator
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iptio
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tions
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bers
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ervi
ces
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Dep
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n (
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389,
158
$
A
mor
tizat
ion
(2)
1,13
3,33
8
Tot
al-
$
3,52
2,49
6$
-$
-$
-$
-$
E11
b: D
epre
ciat
ion
and
Am
ortiz
atio
n
BU
DG
ET
ITE
M:
Dep
reci
atio
n an
d A
mor
tizat
ion
(Con
tinue
d fr
om E
11a)
86
Description Qty Cost Total Qty Cost Total Total Cost
Itanium Database Blade Servers 6 71,962$ 431,772$ 431,772$ Itanium Application Blade Servers 8 32,319 258,552 258,552 Blade Enclosure 2 52,173 104,346 104,346 BL460c (2 Quad Core Processors, 32GB Memory) 2 7,500 15,000 15,000 NAS Storage Refresh 2 81,149 162,298 162,298 Fiber Channel over Ethernet (FCoE) 1 231,840 231,840 231,840 VoIP Server Upgrades 4 7,800 31,200 31,200 Blade Server Refresh (Intel Servers) 6 7,500 45,000 45,000 Exchange Server Refresh 4 6,000 24,000 24,000 Proliant DL360 - Upgrade Altiris Server 1 5,400 5,400 5,400 Desktop PCs for Staff 82 1,075 88,150 88,150 Laptops-Loaner 10 1,100 11,000 11,000 Laptops-Staff 1 1,595 1,595 1,595 Video Conference Upgrades 1 23,552 23,552 23,552 HP Color MFP Printer (DC and KC) 2 8,500 17,000 17,000 HP Network Printer (KC) 4 4,100 16,400 16,400 HP Black and White MFP Printer (KC) 2 4,700 9,400 9,400 Backup Architecture Evolution (Tape to Disk) 1 290,000 290,000 290,000 Web Server 1 53,041 53,041 53,041 Application Server (Blades) 2 6,908 13,816 13,816 Database Server 2 79,033 158,065 158,065 SBS Storage 1 82,932 82,932 82,932 Application Server Memory (HP-UX) 7 2,573 18,011 18,011 BL460c (2 Quad Core Processors, 32GB Memory) 4 5,087$ 20,348$ 20,348 NAS Storage Refresh 2 118,652 237,304 237,304 Oracle Partition Licenses 10 8,280 82,800 82,800 Oracle GRID Plugin for Microsoft SQL Server 4 1,296 5,184 5,184 Oracle WebLogic Suite 2 32,400 64,800 64,800 Backup Architecture Evolution (Tape to Disk) 1 45,000 45,000 45,000 ARC Enterprise Attendant Console + Whisper Clients 1 9,750 9,750 9,750 SIP Trunking Licenses 1 6,500 6,500 6,500 Quest Migration Tool for Sharepoint 1 18,180 18,180 18,180 Application Server (Blades) 4 4,038 16,152 16,152 Glassfish Enterprise Server 8 3,250 26,000 26,000 Database Server 2 8,292 16,584 16,584 Oracle RAC License 16 14,950 239,200 239,200 Oracle Partition License 8 7,475 59,800 59,800 SBS Storage 1 13,289 13,289 13,289 Informatica ETL 1 105,188 105,188 105,188 Oracle Web Logic Suite 1 64,800 64,800 64,800
2,092,370$ 1,030,879$ 3,123,248$
Computer Hardware Computer Software
2011 Capital Expenditures
Exhibit E11-One
87
88
Exhibit E11-Two
2011 Proposed Capital Expenditures Unit Cost $25,000 or Greater
Maintaining the technology infrastructure falls into four primary categories (1) cost or labor saving; (2) high availability or disaster recovery; (3) technology trend; and (4) useful life. A technology trend is a project that would better utilize an existing resource (e.g., upgrade the fiber infrastructure from 2GB to 4GB because recent server purchases come standard with 4GB interfaces) or to address a current issue (e.g., moving to new tape storage devices to get more data on a tape and survive within existing backup windows).
High Availability or Disaster Recovery
• Backup Architecture Evolution ($290,000/$45,000) – In 2010, budget dollars were approved to advance the Association’s overall backup architecture. After many months of research with numerous vendors, NAIC management made a decision to postpone this project due to an overall belief this technology and market were still evolving. This line item represents a device which will compress backup data before writing it onto inexpensive disks. This will allow NAIC to migrate the current tape based backup solution to a more robust and reliable disk based solution. It will also over time eliminate off-site storage of tapes. This will reduce backup times an estimated 75%, eliminate costs associated with physical tape, provide faster restore speeds, and reduce storage required for backups due to the compression of the data. This technology change is estimated to save $70,092 in annual costs for tapes, off-site storage, tape libraries, and backup client software maintenance (i.e., Veritas).
Technology Trend
• Fiber Channel over Ethernet (FCoE) ($231,840) – This line item represents the cost for hardware devices required to expand the current Fiber Channel over Ethernet (FCoE) footprint to support an additional 10 redundant ports, which is the continuation of a 2010 business decision. In addition, two more cards are needed for the core switches to support the expanding number of 10 Gbps devices. NAIC is leveraging the FCoE technology to slowly upgrade the legacy fiber switch gear that connects all the servers to storage. The legacy fiber switch gear only supports 2Gbps speeds while new server hardware is shipping with base support for 4Gbps speeds. An increase to 4Gbps doubles the speed at which the database servers could request data. The legacy fiber switch gear costs approximately $400,000 to upgrade, has a maximum speed today of 4Gbps, and is expected to not be expanded beyond this point because of FCoE. FCoE supports speeds up to 10Gbps today with 40Gbps in the near future. The FCoE implementation will not only replace the legacy fiber switch gear, but will increase the Ethernet network speeds from 1Gbps to 10Gbps (i.e., speed at which servers communicate with each other). In addition, FCoE will help reduce cable clutter in the Data Center.
• Oracle WebLogic Suite ($64,800) – In 2007, the NAIC began migrating applications from SunOne
Web Server and JRun to Oracle’s Internet Application Server (IAS). In 2008, Oracle purchased BEA Systems, Inc., which had the competing product to IAS named WebLogic. Oracle’s direction is to continue support of the WebLogic product and to discontinue their IAS product. The effort to migrate NAIC applications from the current Oracle product to WebLogic is unknown at this time. This cost is to build an environment on which to test the migration and to accurately gauge the server resources required to fully migrate all NAIC applications in 2012. The building of the environment and migration testing will be a joint effort between Technical Services and the Application Architects. Oracle does offer an Oracle Technology Network (OTN) license for this product free of charge but it limits the audience who can participate in testing the applications and would also not allow NAIC to leverage Oracle support to troubleshoot any migration issues. Since WebLogic is the strategic direction for NAIC applications, these licenses will be reused when the migration is complete in 2012.
89
Exhibit E11-Two
Useful Life
• Itanium Database Blade Servers ($431,722)/Itanium Application Blade Servers ($258,552) – In 2007, a total of 27 servers were purchased for new projects (e.g., State Producer Licensing Reengineering) and the expanding strategic initiatives (e.g., clustering of NAIC databases). This is the beginning of a two-year project to replace that server hardware. The industry standard of replacing servers at a three-year interval proved impractical because of the cost involved given the quantity held by the NAIC, such that a two-year plan was devised and begins when the servers will be more than four years old. By moving to new server hardware, the NAIC is able to take advantage of a more complete use of hardware resources by implementing virtualization. Hewlett Packard’s Integrity Virtual Machines allow NAIC to deploy a standard hardware configuration and run multiple database images on the same hardware. Currently, servers are isolated to their individual business area, which often means in times of non-peak loads they are idle resources on the isolated servers. With Integrity Virtual Machines, NAIC can shift available resources between business areas while still keeping the database images isolated. The six database servers this purchase represents will replace the existing FDR and SERFF production environments (2), State Producer Licensing production environments (2), and both the production and non-production State Based Systems environments (2). Currently, these servers represent approximately $55,700 in annual maintenance. The Itanium Blade servers proposed carry an estimated annual maintenance cost of $23,604, an annual savings of more than $32,000.
The eight application servers this purchase represents will replace the existing State Producer Licensing Production environment (1), FDR and SERFF production and non-production environments (3), the develop, quality assurance and user assurance web server environments (2), and two of the seven production web server environments (2). Currently, these servers represent approximately $50,800 in annual maintenance. The Itanium Blade servers proposed carry an estimated annual maintenance cost of $21,768, for an annual savings of $29,032.
• Blade Enclosure ($104,346) – New server hardware continues to move to blade technology. Initially
this move was focused on non-UNIX servers running Windows and Linux operating systems or for server virtualization. In the past year, the industry continues to migrate more server technology to blade servers including high-end UNIX servers used for databases and backend applications. The blade technology creates a physical separation of processing power from input/output resources (i.e., network, disks, etc.). This allows one area to be upgraded without impacting the other. This also allows multiple servers to share the same input/output resources, which is a critical aspect of server virtualization. This separation is achieved with the blade enclosure, where each blade enclosure can support up to eight full height blades or 16 half height blades. Included in the 2011 budget are 14 full height blades and eight half height blades. To support the number of server blades being purchased, two additional blade enclosures are required in addition to the existing capacity purchased in 2010.
• NAS Storage Refresh ($162,298/$237,304) – The existing Network Attached Storage (NAS)
environment used by the NAIC and NIPR was purchased in 2007. Originally purchased to provide both NAS support and Storage Area Network (SAN) support to servers with lower performance needs, over a four year span the current solution now supports NAS and VMWare environments. Several challenges exist in the support of the VMWare environment on the current storage solution. This purchase replaces the existing NAS storage environment with a solution that more closely ties to the needs of the VMWare environments at the NAIC. New functionality provided with this NAS system will include the ability for developers to have snapshots of their desktops. This will allow them to make a backup before significantly changing their configuration or deploying new tools. If the change renders their desktop unusable, they can revert to the backup version without significant down time for re-loading software and configuring tools. This also saves time for the Desktop Support team, who currently has to re-image a developer’s workstation if it becomes unusable. In addition to VMWare integration, this NAS solution will also provide improved performance to the many NAIC applications that rely on NAS file systems. NAS file systems allow multiple servers to access the same files. For the NAIC, this allows six physical web servers to all share a single set of data on our web sites. It also
90
Exhibit E11-Two
allows for separate physical servers to operate in a workflow manner on the same files without the need to transfer files from server to server saving time for large batch applications. The current NAS environment will be over four years old when replaced and currently represents an annual maintenance cost of $45,336. The proposed NAS solution would carry an annual maintenance cost of $37,140 representing an annual savings of $8,196.
New Initiatives Several Business and Fiscal Impact Statements were reviewed individually and approved by the Executive (EX) Committee and Internal Administration (EX1) Subcommittee on October 4, 2010, which included the following capital purchases.
• Database Server ($158,065)/SBS Storage ($82,932)/Informatica ETL ($105,188) – The current application server farm for State Based Systems (SBS) is designed to support twenty four production and non-production environments. Since legacy SBS is a Windows environment, this maintains a ratio of 0.67 CPUs and 2.66GB of memory per production environment or state. This ratio is reduced for the non-production environments (e.g., develop & integration) to 0.33 CPUs and 1.33GB of memory per environment or state. Currently, SBS has twenty environments defined between existing states, a test area for NIPR, a demo environment, and an environment for Professional Designation. SBS has recently licensed two additional states, is working with a third state, and projects four or five more states will become SBS users in the next fifteen months. This projected growth exceeds the NAIC’s current capacity. Fiscal Impact 4 provides for the additional servers and storage to support up to thirty six environments or states and the component that is associated to an expansion of external services offered under SBS.
• Web Server ($53,041)/Oracle Web Logic ($64,800) – Fiscal Impact 2 includes the necessary
infrastructure to improve a constrained quality assurance testing environment for NAIC and NIPR computer applications, which today lacks the ability to adequately support the breadth of application testing required based on the types of integrated systems currently in place. This proposal seeks to (1) improve the Association’s ability to make high priority, business critical changes to production quickly and without error; (2) improve the ability of the application areas to adequately test applications for high volume and high load conditions; and (3) provide an environment that ensures testing is adequately representative of the conditions experienced in the production environment.
91
92
Item
Des
crip
tion:
Inc
lude
s ex
pens
es fo
r al
l gen
eral
bus
ines
s an
d lia
bilit
y in
sura
nce
polic
ies
owne
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the
NA
IC.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
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Des
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tion
Act
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Act
ual
Pro
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edB
udge
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ud
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Gen
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ines
s In
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nce
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27
5,53
9$
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9,51
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2,80
6$
280,
918
$
24
3,26
4$
(3
7,65
4)$
(13.
40%
)P
rofe
ssio
nal L
iabi
lity
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96,1
69
46,2
65
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rror
s an
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)49
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64,9
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55,6
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$7
5,76
320
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36
.13%
Tot
al42
1,09
6$
20
4,29
5$
39
1,88
0$
436,
568
$
42
9,49
2$
(7
,076
)$
(1
.62%
)
(1)
(2)
(3)
2011
Bud
get b
y A
rea
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hnol
ogy
Fin
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alM
arke
tP
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Sys
tem
s an
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ess
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yR
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ator
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Gen
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4$
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(2)
110,
465
Err
ors
and
Om
issi
ons
(3)
75,7
63
Tot
al-
$
429,
492
$
-$
-$
-$
-$
E12
: In
sura
nce
The
incr
ease
inpr
ofes
sion
allia
bilit
yin
sura
nce
cove
rage
sat
the
May
2010
rene
wal
was
due
toth
ead
ditio
nof
cove
rage
.T
his
incr
ease
isof
fset
bysa
ving
sas
are
sult
ofm
arke
ting
the
exis
ting
lines
of c
over
age.
The
201
1 bu
dget
ass
umes
an
incr
ease
of 6
% o
ver
exis
ting
cove
rage
s an
d pr
emiu
ms
at th
e M
ay 2
011
rene
wal
.
BU
DG
ET
ITE
M:
Insu
ranc
e
The
rene
wal
ofer
rors
and
omis
sion
insu
ranc
eco
vera
geat
the
May
2010
rene
wal
was
high
erth
anth
e5%
assu
mpt
ion
inth
e20
10bu
dget
.T
he20
11bu
dget
assu
mes
anin
crea
seof
6% o
ver
exis
ting
cove
rage
s an
d pr
emiu
ms
at th
e M
ay 2
011
rene
wal
.
The
May
2010
rene
wal
ofge
nera
lbus
ines
sin
sura
nce
cove
rage
spo
licie
sre
sulte
din
asu
bsta
ntia
lsav
ings
asa
resu
ltof
taki
ngco
vera
gelin
esto
mar
ket.
The
2011
budg
etas
sum
esan
incr
ease
of 6
% o
ver
exis
ting
cove
rage
s an
d pr
emiu
ms
at th
e M
ay 2
011
rene
wal
bas
ed o
n co
unse
l fro
m th
e N
AIC
's c
omm
erci
al in
sura
nce
bro
ker.
93
94
Item
Des
crip
tion:
Inc
lude
s co
nfer
ence
cal
ls a
nd lo
cal a
nd lo
ng-d
ista
nce
char
ges
for
staf
f, th
e N
AIC
Offi
cers
, and
at n
atio
nal m
eetin
gs.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Tel
epho
ne (
1)43
1,20
0$
21
0,25
1$
43
9,29
8$
357,
685
$
44
5,41
3$
87
,728
$
24.5
3%
(1)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Tel
epho
ne (
1)10
8,88
5$
38,6
80$
114,
496
$
79
,783
$
87,7
57$
15,8
12$
E13
: T
elep
hone
BU
DG
ET
ITE
M:
Tel
epho
ne
The
incr
ease
in te
leph
one
expe
nse
for
2010
and
201
1 is
for
conf
eren
ce c
all c
osts
, prim
arily
due
to in
crea
sed
com
mitt
ee a
ctiv
ity r
elat
ed to
hea
lth c
are
refo
rm.
95
96
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Cop
ier
Sup
plie
s (1
)10
9,52
2$
44
,317
$
10
7,19
6$
107,
196
$
11
2,55
6$
5,
360
$
5.00
%O
ther
Sup
plie
s (2
)23
7,50
2
11
3,60
5
24
1,26
2
219,
365
24
0,19
1
20
,826
9.
49%
Non
-Cap
ital E
quip
men
t (3)
158,
517
48,8
63
13
4,12
2
153,
580
22
6,86
1
73
,281
47
.72%
Tot
al50
5,54
1$
20
6,78
5$
48
2,58
0$
480,
141
$
57
9,60
8$
99
,467
$
20.7
2%
(1)
(2)
(3)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Cop
ier
Sup
plie
s (1
)11
2,55
6$
O
ther
Sup
plie
s (2
)86
,006
$
70
,647
25
,760
$
26,8
60$
4,
296
$
26,6
22$
N
on-C
apita
l Equ
ipm
ent (
3)19
5,80
915
07,
475
23
,427
Tot
al28
1,81
5$
18
3,35
3$
33
,235
$
26,8
60$
4,
296
$
50,0
49$
Cop
ier
supp
lies
rela
tes
topa
per,
tone
r,an
dot
her
supp
lies
need
edby
the
NA
ICC
opy
Cen
ter
for
the
prep
arat
ion
ofco
mm
ittee
mat
eria
lsfo
rna
tiona
land
inte
rimm
eetin
gs,
the
prin
ting
of N
AIC
pub
licat
ions
, mat
eria
ls, a
nd a
mul
titud
e of
add
ition
al p
roje
cts.
The
201
1 bu
dget
ant
icip
ates
a 5
% in
crea
se in
pap
er c
osts
.
BU
DG
ET
ITE
M:
Sup
plie
s
Item
Des
crip
tion:
Incl
udes
com
pute
rha
rdw
are
and
softw
are
and
furn
iture
and
equi
pmen
tpu
rcha
ses
unde
r$2
,000
,co
mpu
ter
supp
lies,
copy
pape
r,st
atio
nery
,pe
rfor
ated
invo
ice
pape
r,bu
sine
ss c
ards
, and
oth
er s
uppl
ies.
E14
: S
uppl
ies
Non
-cap
itale
quip
men
tpu
rcha
ses
incl
ude
min
orso
ftwar
eup
grad
esan
dpu
rcha
ses
asw
ella
sm
inor
offic
eeq
uipm
ent
and
com
pute
rsu
pplie
sne
eded
tofu
rnis
hst
aff
mem
bers
with
the
tool
sth
atar
ene
cess
ary
toco
mpl
ete
thei
ras
sign
edta
sks.
The
incr
ease
in20
11is
attr
ibut
able
toth
eup
grad
eof
the
oper
atin
gsy
stem
onal
lNA
ICst
aff
com
pute
rsan
dth
ead
ditio
nof
four
teen
full-
time
posi
tions
from
the
Bus
ines
san
dF
isca
lIm
pact
Sta
tem
ents
.The
2011
budg
etal
soin
clud
es31
virt
uald
eskt
opde
vice
sat
ato
talc
ost
of$3
2,65
0.P
leas
ere
fer
toE
11:
Dep
reci
aito
n an
d A
mor
itiza
tion
for
a de
taile
d ex
plan
atio
n of
virt
ual d
eskt
ops
devi
ces
and
the
NA
IC's
dec
isio
n to
exp
ense
rat
her
than
cap
italiz
e th
ese
purc
hase
s.
Inad
ditio
n,ex
pens
esre
late
dto
Bus
ines
san
dF
isca
lIm
pact
Sta
tem
ents
wer
ere
view
edin
divi
dual
lyan
dap
prov
edby
the
Exe
cutiv
e(E
X)
Com
mitt
eean
dIn
tern
alA
dmin
istr
atio
n(E
X1)
Sub
com
mitt
eeon
Oct
ober
4,20
10.
For
the
2011
budg
et,
thes
ein
clud
e(1
)$1
0,21
9fo
rth
eS
BS
Mai
nten
ance
and
Sta
ffing
Str
ateg
y(S
eeF
isca
lIm
pact
3);
(2)
$7,5
83fo
rth
eS
BS
Gro
wth
Str
ateg
y(S
eeF
isca
lIm
pact
4);a
nd(3
)$8
00fo
rth
eA
pplic
atio
nan
dD
evel
opm
ent
Tes
ting
Env
ironm
ent
Exp
ansi
on(S
eeF
isca
lIm
pact
2).
The
2010
proj
ectio
nin
clud
es$6
,846
for
the
Pre
miu
m R
evie
w D
ata
Col
lect
ion
and
Rep
ortin
g th
roug
h S
ER
FF
(S
ee F
isca
l Im
pact
5);
and
$5,
147
for
the
SB
S G
row
th S
trat
egy
(See
Fis
cal I
mpa
ct 4
).
The
incr
ease
in o
ther
sup
plie
s fo
r 20
10 a
nd 2
011
is d
ue to
incr
ease
d co
nsum
ptio
n an
d co
st o
f mis
cella
neou
s of
fice
supp
lies.
97
98
Item
Des
crip
tion:
Inc
lude
s m
eter
mai
l, U
PS
, exp
ress
, and
oth
er c
arrie
r ch
arge
s.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Mai
l Ser
vice
s (1
)28
8,74
3$
13
0,65
1$
26
1,07
2$
254,
159
$
26
9,62
2$
15
,463
$
6.08
%
(1)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Mai
l Ser
vice
s (1
)2,
825
$
29,1
14$
59,1
19$
11
,880
$
4,05
0$
16
2,63
4$
In20
09,
the
NA
ICbe
gan
aca
mpa
ign
tode
liver
mor
em
erch
andi
seel
ectr
onic
ally
,get
ting
the
prod
uct
toth
est
ate
depa
rtm
ents
and
outs
ide
cust
omer
sm
ore
timel
yan
din
am
ore
user
-fr
iend
lyfo
rmat
,el
imin
atin
gm
uch
ofth
esh
ippi
ngco
sts
inth
ede
liver
yof
prod
ucts
.T
heN
AIC
’son
line
publ
icat
ion
orde
ran
dde
liver
ysy
stem
,A
ccou
nt
Man
ager,w
asre
leas
edin
July
2009
,al
low
ing
the
NA
ICto
offe
ral
lpu
blic
atio
ns,
even
the
Acc
ount
ing
Pra
ctic
esan
dP
roce
dure
sM
anua
l,in
anel
ectr
onic
and
dow
nloa
dabl
efo
rmat
.U
nfo
rtun
atel
y,th
ere
ques
tsfo
rha
rdco
pym
ater
ials
have
not
decr
ease
dto
the
exte
ntan
ticip
ated
inth
e20
10bu
dget
.A
lthou
ghth
isva
rianc
eha
sbe
enca
rrie
dfo
rwar
din
toth
e20
11bu
dget
,ef
fort
sto
prom
ote
the
elec
tron
ic d
eliv
ery
of d
ocum
ents
con
tinue
.
BU
DG
ET
ITE
M:
Mai
l Ser
vice
s
E15
: M
ail S
ervi
ces
99
100
Item
Des
crip
tion:
Inc
lude
s co
sts
for
book
s, p
erio
dica
ls, a
nd o
n-lin
e re
fere
nce
serv
ices
.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Ref
eren
ce M
ater
ials
(1)
332,
692
$
181,
891
$
389,
745
$
36
9,57
0$
376,
847
$
7,27
7$
1.
97%
Per
iodi
cals
(2)
78,3
99
35,8
97
47
,134
75
,484
57,3
98
(18,
086)
(2
3.96
%)
Loos
e Le
af S
ervi
ces
(3)
17,5
42
10,2
80
18
,573
22
,528
15,1
56
(7,3
72)
(32.
72%
)O
nlin
e R
esea
rchi
ng (
4)11
8,39
3
57
,485
114,
000
83
,052
114,
000
30,9
48
37.2
6%
Tot
al54
7,02
6$
28
5,55
3$
56
9,45
2$
550,
634
$
56
3,40
1$
12
,767
$
2.32
%
(1) (2)
(3)
(4)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Ref
eren
ce M
ater
ials
(1)
2,18
8$
13
,175
$
61
,343
$
299,
455
$
68
6$
P
erio
dica
ls (
2)49
,538
7,86
0
Loos
e Le
af S
ervi
ces
(3)
15,1
56
O
nlin
e R
esea
rchi
ng (
4)11
4,00
0
Tot
al2,
188
$
13,1
75$
240,
037
$
30
7,31
5$
-$
686
$
Onl
ine
rese
arch
ing
incl
udes
serv
ices
such
asW
estla
wan
dLe
xis/
Nex
isar
eus
edex
tens
ivel
yby
the
Lega
lDiv
isio
nan
dse
rver
alot
her
area
sw
ithin
the
NA
IC.
Use
ofth
isre
sear
chto
olha
s ou
tpac
ed b
udge
t as
a re
sult
of u
npre
cede
nted
legi
slat
ive
activ
ity o
ccur
ing
in H
ealth
Car
e an
d F
inan
cial
Ser
vice
s R
efor
m. T
his
leve
l of u
sage
is e
xpec
ted
to c
ontin
ue in
to 2
011.
Sta
tistic
alre
fere
nce
mat
eria
lsin
clud
ere
fere
nce
sour
ces
onC
D-R
OM
and
subs
crip
tion
serv
ices
for
reso
urce
sus
edin
perf
orm
ing
rese
arch
inth
eN
AIC
Res
earc
hLi
brar
yan
dS
ecur
ities
Val
uatio
nO
ffice
.T
here
fere
nce
colle
ctio
nis
avi
tals
ourc
eof
up-t
o-da
tein
form
atio
non
insu
ranc
e,bu
sine
ss,
finan
cean
dte
chno
logy
-rel
ated
issu
esan
dsu
ppor
tsth
eN
AIC
'sfu
lfillm
ent
ofre
sear
chqu
estio
nsfr
omth
eN
AIC
mem
bers
,N
AIC
staf
f,an
din
tere
sted
part
ies.
The
2010
incr
ease
rela
tes
toth
eco
ntin
ued
incr
ease
inth
eco
stof
refe
renc
em
ater
ials
for
the
Sec
uriti
es V
alua
tion
Offi
ce a
nd th
e in
tern
atio
nal a
rea
of th
e E
xecu
tive
Offi
ce, o
ffset
by
cost
sav
ing
mea
sure
s im
plem
ente
d in
the
NA
IC R
esea
rch
Libr
ary.
E16
: R
efer
ence
Mat
eria
ls
An
exte
nsiv
ere
view
oftit
les
prov
ided
unde
rlo
ose
leaf
serv
ices
,as
cond
ucte
din
2010
,el
imin
ated
anu
mbe
rof
publ
icat
ions
whe
reus
age
was
not
suffi
cent
tosu
ppor
tth
epu
rcha
seof
the
mat
eria
ls. T
he 2
011
budg
et in
clud
es a
full
year
of t
hese
red
uctio
ns.
BU
DG
ET
ITE
M:
Ref
eren
ce M
ater
ials
Per
iodi
cals
are
also
used
inpe
rfor
min
gth
ese
rvic
esof
the
NA
ICR
esea
rch
Libr
ary
and
Sec
uriti
esV
alua
tion
Offi
ceam
ong
othe
rdi
visi
ons
ofth
eN
AIC
.E
xpen
sein
2010
will
beun
der
budg
etas
are
sult
ofm
ovin
gto
ane
wse
rvic
epr
ovid
erin
late
2009
and
the
disc
ontin
uatio
nof
perio
dica
lsw
here
onlin
ede
liver
yof
info
rmat
ion
ispr
ovid
edby
othe
rso
urce
s.T
he20
11bu
dget
incl
udes
thes
e co
st s
avin
g m
easu
res
but i
s of
fset
som
ewha
t by
an a
ntic
ipat
ed in
crea
se in
pric
ing.
101
102
Item
Des
crip
tion:
Out
side
cos
ts in
curr
ed fo
r pr
intin
g bo
oks,
sub
scrip
tion
upda
tes,
CD
pro
duct
s, m
arke
ting
mat
eria
ls, t
he N
AIC
Ann
ual R
epor
t, an
d ot
her
publ
icat
ions
.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Pub
licat
ions
(1)
141,
908
$
77,7
02$
133,
085
16
3,05
5$
189,
581
$
26,5
26
16.2
7%O
utsi
de P
rintin
g (
2)8,
677
7,01
5
12,6
77
13,7
00
13
,970
27
0
1.97
%
Tot
al15
0,58
5$
84
,717
$
14
5,76
2$
176,
755
$
20
3,55
1$
26
,796
$
15.1
6%
(1)
(2)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Pub
licat
ions
(1)
189,
581
$
O
utsi
de P
rintin
g (
2)2,
520
$
11,4
50$
Tot
al-
$
2,52
0$
11,4
50$
-
$
-
$
18
9,58
1$
E17
: P
rintin
g an
d P
rodu
ctio
n
Out
side
prin
ting
incl
udes
the
cost
ofpr
intin
gth
eN
AIC
Ann
ual
Rep
ort,
prod
uct
cata
logs
,na
tiona
lm
eetin
gsi
gnag
e,an
dm
arke
ting
mat
eria
lsth
atre
qui
reou
tsid
epr
intin
gdu
eto
size
and
pape
r re
quire
men
ts.
Pub
licat
ions
prin
ting
expe
nse
repr
esen
tsth
eco
stof
allp
ublic
atio
nin
vent
ory
item
sso
ld,
incl
udin
gth
eco
stof
spec
ialp
aper
and
othe
rsu
pplie
sus
edto
prod
uce
apu
blic
atio
nan
dth
eco
stof
exte
rnal
prin
ting
and
bind
ing
serv
ices
.T
heva
rianc
efr
ombu
dget
in20
10is
attr
ibut
able
tode
crea
sed
publ
icat
ion
sale
sin
2010
.T
hein
crea
sein
the
2011
budg
etis
the
resu
ltof
the
writ
e of
f of i
nven
tory
item
s be
com
ing
obso
lete
dur
ing
2011
.
BU
DG
ET
ITE
M:
Prin
ting
and
Pro
duct
ion
103
104
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Rec
eptio
ns (
1)19
4,61
0$
41
,338
$
11
9,84
6$
122,
208
$
13
4,01
3$
11
,805
$
9.66
%H
otel
Ser
vice
(2)
721,
140
198,
258
477,
456
52
3,82
7
523,
377
(450
)
(0.0
9%)
Rep
rodu
ctio
ns (
3)96
,475
28
,585
86,7
15
88,8
95
89
,571
67
6
0.76
%A
udio
-Vis
ual S
ervi
ces
(4)
387,
504
114,
039
320,
039
31
7,00
0
321,
800
4,80
0
1.
51%
Inte
rim M
eetin
gs (
5)12
4,49
9
40
,650
151,
873
12
6,93
5
152,
000
25,0
65
19.7
5%
Tot
al1,
524,
228
$
42
2,87
0$
1,
155,
929
$
1,17
8,86
5$
1,
220,
761
$
41
,896
$
3.55
%
(1)
(2)
(3)
(4)
(5)
Rec
eptio
nex
pens
esre
flect
the
cost
offo
odan
dbe
vera
gese
rvic
esan
dse
rvic
ech
arge
sfo
rth
eN
AIC
’sw
elco
min
gre
cept
ion
atna
tiona
lmee
tings
.T
hein
crea
sein
2011
isdu
eto
food
and
beve
rage
min
imum
requ
irem
ents
inco
njuc
tion
with
the
use
ofa
Con
vent
ion
Cen
ter
spac
efo
rth
isev
ent
atth
eN
AIC
Sum
mer
Nat
iona
lM
eetin
gan
dth
eva
rian
cebe
twee
nfo
odan
d be
vera
ge m
inim
ums
for
the
Fal
l Nat
iona
l Mee
ting
loca
tions
in 2
011,
Was
hing
ton,
D.C
. and
201
0, O
rland
o.
Item
Des
crip
tion:
Out
side
cost
sth
atar
edi
rect
lyre
late
dto
cond
uctin
gth
eC
omm
issi
oner
sC
onfe
renc
ean
dna
tiona
l,in
terim
,an
dco
mm
ittee
mee
ting
sth
atca
nnot
becl
assi
fied
with
inot
her
budg
et it
em c
ateg
orie
s.
E18
a: N
atio
nal a
nd In
terim
Mee
tings
Hot
else
rvic
esin
clud
esth
eco
stof
(1)
tech
nici
ans
and
setu
psu
ppor
t,(2
)el
ectr
ical
supp
ort,
(3)
regu
lato
ran
dst
aff
brea
kfas
ts,
lunc
hes,
and
brea
ks,
and
(4)
tran
spor
tatio
n.T
hepr
ojec
ted
varia
nce
from
the
2010
budg
etis
due
prim
arily
toth
ree
reba
tes
atta
ched
toth
eN
AIC
2011
Spr
ing
Nat
iona
lM
eetin
g.T
here
duct
ion
inho
tel
serv
ices
from
the
2009
leve
lre
late
s to
the
redu
ctio
n fr
om fo
ur to
thre
e na
tiona
l mee
tings
beg
inni
ng in
201
0.
BU
DG
ET
ITE
M:
Nat
iona
l and
Inte
rim M
eetin
gs
The
NA
ICis
unde
rco
ntra
ctw
ithan
outs
ide
vend
orto
prov
ide
natio
nalm
eetin
gco
pyce
nter
serv
ices
for
asp
ecifi
edam
ount
per
year
rega
rdle
ssof
the
num
ber
ofm
eetin
gshe
ld.
The
redu
ctio
n fr
om 2
009
is a
res
ult o
f elim
inat
ing
over
ages
for
one
natio
nal m
eetin
g pe
r ye
ar.
The
inte
rimm
eetin
gbu
dget
varia
nce
in20
10re
sults
from
anin
crea
sein
the
num
ber
ofre
ques
tsfo
rin
terim
mee
tings
,as
wel
las
the
addi
tion
ofa
seco
ndC
omm
issi
oner
Fly
-In,
NA
ICin
terim
mee
ting
onH
ealth
Insu
ranc
eR
efor
mIm
plem
enta
tion
(Hea
lthan
dM
anag
edC
are
(B)
Com
mitt
ee),
and
the
July
Cen
ter
for
Insu
ranc
eP
olic
yan
dR
ese
arch
(CIP
R)
Sym
posi
um.
The
201
1 bu
dget
ant
icip
ates
the
num
ber
of in
terim
mee
tings
to b
e co
nsis
tent
with
201
0 gi
ven
the
activ
ity r
elat
ed to
hea
lth c
are
ref
orm
.
Aud
iovi
sual
serv
ices
incl
ude
the
utili
zatio
n,co
stan
dse
tup
fees
for
mic
roph
ones
,el
ectr
onic
pres
enta
tions
,etc
.,to
faci
litat
em
eetin
gsan
dde
liver
pres
enta
tions
.It
also
incl
udes
NA
ICco
mpu
ter
netw
ork
conn
ectio
nsin
Com
mis
sion
erS
ervi
ces
atna
tiona
lmee
tings
.T
hebu
dget
edam
ount
sfo
rth
ese
serv
ices
are
base
don
cont
ract
uala
mou
nts
and/
orpr
ice
quot
esfr
omth
e se
lect
ed n
atio
nal m
eetin
g si
tes.
The
dec
reas
e fr
om th
e 20
09 e
xpen
ditu
re le
vel i
s re
late
d to
the
elim
inat
ion
of o
ne n
atio
nal m
eetin
g.
105
Yea
rS
prin
gS
umm
erF
all
Win
ter
2011
Aus
tinP
hila
delp
hia
Was
hing
ton
D.C
.20
10D
enve
rS
eattl
eO
rland
o20
09S
an D
iego
Min
neap
olis
Was
hing
ton
D.C
.S
an F
ranc
isco
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Rec
eptio
ns (
1)13
4,01
3$
Hot
el S
ervi
ce (
2)52
3,37
7
Rep
rodu
ctio
ns (
3)89
,571
Aud
io-V
isua
l Ser
vice
s (4
)32
1,80
0
Inte
rim M
eetin
gs (
5)15
2,00
0
Tot
al-
$
-$
1,
220,
761
$
-$
-$
-$
E18
b: N
atio
nal a
nd In
terim
Mee
tings
BU
DG
ET
ITE
M:
Nat
iona
l and
Inte
rim M
eetin
gs (
cont
inue
d fr
om E
18a)
106
Item
Des
crip
tion:
Exp
ense
s in
curr
ed b
y th
e N
AIC
for
educ
atio
n pr
ogra
ms.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Com
mis
sion
ers
For
um (
3)25
,085
$
30
,855
$
30
,855
$
100.
00%
Lega
l CLE
Wor
ksho
ps
11,8
09
15,4
25$
15
,425
$
15,0
49
(376
)
(2.4
4%)
Reg
ulat
ion
for
Sol
venc
y (2
)57
1
5,24
9
5,
249
2,88
9
(2
,360
)
(4
4.96
%)
Sur
plus
Lin
es R
egul
atio
n (
3) (
10)
(5,2
70)
(3,7
62)
3,76
2
(1
00.0
0%)
P &
C A
nnua
l Sta
tem
ent (
2)3,
513
5,91
6
5,
916
4,16
0
(1
,756
)(2
9.68
%)
Adv
ance
d F
raud
(4)
8,83
1
2,
625
$
3,
322
10,1
52
(1
0,15
2)
(100
.00%
)M
arke
t Con
duct
Exa
min
ers
Han
dboo
k 52
4,
794
4,79
4
4,
573
(221
)
(4.6
1%)
IMR
/AV
R O
nlin
e (3
)3,
548
2,37
1
2,
371
100.
00%
Inte
rnat
iona
l Iss
ues
Con
fere
nce
(1)
25,3
1229
,323
29,3
08
31,8
81
40
,411
8,
530
26.7
6%O
nlin
e In
vest
men
t Sch
edul
es (
2)7,
402
916
6,70
0
5,
784
4,71
9
(1
,065
)
(1
8.41
%)
Onl
ine
Intr
oduc
tion
To
Fin
anci
al R
egul
atio
n (2
)9,
888
8,08
0
11,5
31
12,7
31
7,
701
(5,0
30)
(39.
51%
)O
nlin
e IS
Q T
rain
ing
7,73
9
2,
831
2,
831
2,94
4
2,
013
(931
)
(31.
62%
)O
nlin
e S
ched
ule
P (
4)83
2
2,61
2
3,
737
(3,7
37)
(100
.00%
)O
nlin
e C
ore
Lega
l Iss
ues
(1)
4,07
3
1,
559
2,
563
2,28
6
3,
476
1,19
0
52
.06%
Onl
ine
Rei
nsur
ance
5,
009
2,84
7
4,
047
3,96
6
(8
1)
(2.0
0%)
Onl
ine
Hea
lth A
nnua
l Sta
tem
ent P
repa
ratio
n (2
)3,
089
7,27
6
7,
276
3,61
5
(3
,661
)
(5
0.32
%)
Reg
iona
l Mar
ket C
ondu
ct T
rain
ing
(1)
3,15
7
1,
306
3,18
4
4,
511
1,32
7
41
.68%
Onl
ine
Fin
anci
al R
egul
atio
n &
Sta
ff E
duca
tion
(1)
9,08
0
3,
734
7,
484
5,94
2
7,
743
1,80
1
30
.31%
Onl
ine
Mar
ket A
naly
sis
Tec
hniq
ues
4,10
6
2,
363
5,
538
3,30
3
3,
880
577
17
.47%
Sta
tuto
ry A
ccou
ntin
g 10
1Pro
gram
3,
208
3,20
82,
879
(329
)
(10.
26%
)D
esig
natio
n P
rogr
am (
11)
12,6
23
4,24
5
12,9
38
13,8
83
12
,035
(1
,848
)
(1
3.31
%)
SA
P W
ebin
ars
(1)
13,0
84
8,73
6
8,
736
12,9
32
4,19
6
48
.03%
Bas
ic In
sura
nce
Sel
f Stu
dy
1,56
4
73
9
1,
095
900
1,
040
140
15
.56%
How
to A
naly
ze In
sure
r P
ortfo
lios
2,07
1
3,
246
2,93
6
(3
10)
(9
.55%
)H
ow to
File
Sec
uriti
es w
ith th
e S
VO
Onl
ine
(2)
3,29
3
1,
463
3,
631
3,63
1
1,
977
(1,6
54)
(45.
55%
)C
onsu
mer
Ass
ista
nce
Tra
inin
g O
nlin
e 3,
275
1,70
7
1,70
7
2,
923
2,59
6
(3
27)
(1
1.19
%)
Mod
el L
aws
Web
inar
(1)
1,65
6
1,
141
1,14
1
2,
501
1,36
0
11
9.19
%B
undl
es o
f Lea
rnin
g 3,
800
1,02
1
2,26
0
3,
531
2,69
2
(8
39)
(2
3.76
%)
Pro
duce
r Li
cens
ing
Onl
ine
Tra
inin
g 3,
544
1,84
7
2,83
0
3,
314
3,78
8
47
4
14.3
0%M
gmt.
and
Lead
ersh
ip E
ffect
iven
ess
(2)
834
2,
664
2,66
4
(2
,664
)
(1
00.0
0%)
Reg
. Ove
rvie
w-P
rinc.
-Bas
ed V
al. S
ys. (
8)
1,05
2
2,
821
2,
868
6,42
5
10
,061
3,
636
56.5
9%R
egul
atio
n of
Insu
ranc
e P
rodu
cts
Onl
ine
(1)
8,56
3
2,
110
3,
365
3,36
5
5,
882
2,51
7
74
.80%
Fra
ud In
vest
igat
ion
101(
3)2,
353
2,49
5
2,
495
100.
00%
Ris
k-B
ased
Cap
ital T
rain
ing
6,96
4
3,
454
3,45
4
3,
313
(141
)
(4.0
8%)
Reg
ulat
ing
for
Sol
venc
y: R
isk
Ret
entio
n G
roup
s1,
072
2,39
1
2,39
1
2,
294
3,00
5
71
1
30.9
9%
E19
a: E
duca
tion
and
Tra
inin
g
BU
DG
ET
ITE
M:
Edu
catio
n an
d T
rain
ing
107
Man
agin
g th
e C
ost o
f Reg
ulat
ory
Com
plia
nce
6,79
3
3,
632
7,
122
10,6
59
10
,089
(5
70)
(5
.35%
)E
mer
ging
Issu
es (
6)13
,583
(2
16)
4,51
6
26
,217
21
,701
48
0.54
%S
ales
and
Sui
tabi
lity
(3)
1,91
410
,914
10
,923
(10,
923)
(1
00.0
0%)
Ris
k F
ocus
ed E
xam
(4)
2,70
8
2,
535
3,66
0
1,
408
(2,2
52)
(61.
53%
)S
ER
FF
Tra
inin
g (1
) (6
)5,
829
9,
961
7,12
3
7,
123
100.
00%
Sol
venc
y M
oder
niza
tion
Web
inar
(12
)4,
047
4,
047
2,62
5
5,
723
3,09
8
11
8.02
%P
rinci
pal o
f Ins
uran
ce fo
r P
rodu
cers
(4)
51
51
0.
00%
Mod
el A
udit
Rul
e (6
)1,
500
0.00
%M
arke
t Con
duct
Ann
ual S
tate
men
t (6)
(8
)67
5
69
0
6,37
8
6,
378
100.
00%
Cor
pora
te G
over
nanc
e (9
)1,
471
1,47
1
10
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%H
oldi
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ompa
ny R
egul
ator
y A
ct (
9)
1,79
3
1,
793
100.
00%
Aud
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ll S
ets
Web
inar
(9)
1,84
5
1,
845
100.
00%
Pro
gram
s N
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ffere
d A
fter
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9,42
0
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00%
Ons
ite P
rogr
ams
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4,17
9
6,
354
6,
354
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811
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isk
Ass
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ent T
rain
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28,5
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Fin
anci
al S
umm
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153,
861
23
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7
78
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ER
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e 86
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68
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72
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61
66
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Tot
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7,78
4$
325,
246
$
441,
160
$
44
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9$
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514
$
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5$
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7%
(1) (2)
(3)
(4)
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E19
b: E
duca
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Tra
inin
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BU
DG
ET
ITE
M:
Edu
catio
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rain
ing
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tinue
d fr
om E
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The
se p
rogr
ams
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red
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y ot
her
year
.
Incr
ease
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gist
ratio
ns a
re e
xpec
ted
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thes
e pr
ogra
ms
in 2
011.
The
NA
ICof
fers
insu
rers
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rtun
ityof
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itsA
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lSta
tem
ent
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edul
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lthA
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tem
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rtic
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dad
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rth
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ra
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reas
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expe
nses
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this
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ram
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ased
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a de
crea
se in
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ated
eng
agem
ents
dur
ing
2011
.
The
se p
rogr
ams
will
not
be
offe
red
in 2
011
as p
art o
f an
asso
ciat
ion-
wid
e re
view
of s
ervi
ces
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catio
n to
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to 2
011.
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reas
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egis
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ions
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ecte
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r th
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prog
ram
s in
201
1.
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tion
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inth
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port
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eetin
gth
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ning
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Dep
artm
ent
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nce
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oyee
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das
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ing
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stry
clie
nts
thro
ugh
abr
oade
r ra
nge
of c
ompl
ianc
e tr
aini
ng to
pics
.
108
(6)
(7)
(8)
(9)
(10)
(11)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
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tem
s an
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ess
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vice
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venc
yR
egul
ator
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iptio
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tions
Mem
bers
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vice
sS
ervi
ces
Ser
vice
s
Edu
catio
n an
d T
rain
ing
Pro
gram
s27
6,92
2$
Fin
anci
al S
umm
it 23
1,87
7$
Ris
k A
sses
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t Tra
inin
g P
rogr
am
ER
eg C
onfe
renc
e66
,715
$
Tot
al-
$
-$
27
6,92
2$
231,
877
$
-
$
66
,715
$
New
pro
gram
for
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.
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plus
Line
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ogra
mis
co-s
pons
ored
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eN
atio
nalA
ssoc
iatio
nof
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fess
iona
lSur
plus
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ffice
s(N
AP
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),w
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ysth
eN
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$8,0
00pe
rye
arto
fund
the
cost
ofth
ispr
ogra
m.
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c: E
duca
tion
and
Tra
inin
g
The
NA
ICF
inan
cial
Sum
mit
was
not
held
in20
09to
take
adva
ntag
eof
the
chan
gein
natio
nalm
eetin
gsc
hedu
lean
dm
ove
the
offe
ring
ofth
isco
nfer
ence
toJu
nein
2010
.T
he20
11bu
dget
assu
mes
am
ore
cons
erva
tive
leve
lof
regi
stra
tions
than
2010
proj
ectio
ns,
but
anin
crea
sein
regi
stra
tions
from
the
2010
budg
et.
The
maj
ority
ofth
eco
stin
crea
sein
2011
isre
late
dto
min
imum
char
ges
for
audi
o/vi
sual
and
food
and
beve
rage
serv
ices
inco
njun
ctio
nw
ithne
gotia
tions
tore
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asi
zeab
leat
triti
onch
arge
asa
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ltof
decr
ease
dre
gist
ratio
nfo
rth
eN
AIC
2009
Sum
mer
Nat
iona
lM
eetin
gin
the
sam
eho
tel.
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2011
budg
etal
soas
sum
esfu
llut
iliza
tion
ofth
etr
avel
spon
sors
hips
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red
tore
gula
tors
,w
hich
wer
eno
tfu
llyco
nsum
ed in
the
2009
pro
gram
.
The
cos
t for
thes
e pr
ogra
ms
will
var
y ba
sed
on p
artic
ipat
ion,
spe
aker
exp
ense
s, in
tern
et h
ostin
g co
sts
for
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e pr
ogra
ms,
and
loca
tion
and
trav
el c
osts
for
clas
sroo
m p
rogr
ams.
The
prof
essi
onal
desi
gnat
ion
prog
ram
bega
nin
2007
topr
ovid
est
ruct
ured
expe
rienc
esin
whi
chco
ncep
tsan
dsk
ills
are
taug
htan
dle
arne
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ueto
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rtan
ceof
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lato
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ugh
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arsh
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ally
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orki
ngto
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ssio
nalD
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natio
n.W
ithth
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ogra
m,
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rals
ervi
ces
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nger
nece
ssar
yha
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enel
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ated
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plac
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ithlo
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cos
t pro
mot
iona
l str
ateg
ies.
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ead
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nof
prog
ram
sin
mid
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ter
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prep
arat
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sed
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ergi
ngto
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ry/r
egul
ator
ytr
aini
ngne
eds,
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ount
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been
esta
blis
hed
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eth
atat
leas
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ucat
ion
prog
ram
will
aris
edu
ring
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year
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ayno
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ntem
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ring
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FT
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Mod
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udit
Rul
e,an
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arke
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ctA
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lS
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ms
are
the
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ogra
ms
that
aros
edu
ring
2010
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ueto
the
posi
tive
resp
onse
toso
me
ofth
ese
prog
ram
sth
eyw
illbe
cont
inue
d in
the
follo
win
g ye
ar, w
hile
oth
ers
serv
ed a
par
ticul
ar a
udie
nce
that
will
not
reo
ccur
in th
e fo
llow
ing
year
.
BU
DG
ET
ITE
M:
Edu
catio
n an
d T
rain
ing
(con
tinue
d fr
om E
19b)
109
110
Item
Des
crip
tion:
Util
izat
ion
of g
rant
and
zon
e fu
nds
and
expe
nses
incu
rred
by
the
NA
IC fo
r st
ate
and
gene
ral N
AIC
trai
ning
eve
nts.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Gra
nt F
unds
(1)
949,
029
$
295,
940
$
978,
000
$
97
8,00
0$
978,
000
$
0.00
%Z
one
Fun
ds (
2)61
,320
41
,651
78,5
51
77,6
43
70
,200
(7
,443
)$
(9
.59%
)S
tate
Tra
inin
g (3
)28
,943
11
,163
18,4
55
37,6
56
17
,908
(1
9,74
8)
(52.
44%
)G
ener
al T
rain
ing
Exp
ense
(4)
61,9
61
31,8
40
79
,387
79
,447
78,8
61
(586
)
(0.7
4%)
Tot
al1,
101,
253
$
38
0,59
4$
1,
154,
393
$
1,17
2,74
6$
1,
144,
969
$
(2
7,77
7)$
(2.3
7%)
(1) (2)
(3)
(4)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
usin
ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
dD
escr
iptio
nS
uppo
rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Gra
nt F
unds
(1)
978,
000
$
Zon
e F
unds
(2)
70,2
00
Sta
te T
rain
ing
(3)
13,9
10$
3,
998
$
G
ener
al T
rain
ing
Exp
ense
(4)
24,3
61
54,5
00
Tot
al-
$
1,07
2,56
1$
68,4
10$
-
$
-
$
3,
998
$
Sta
tetr
aini
ngco
sts
incl
ude
the
cost
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liver
tech
nica
lan
dN
AIC
syst
emtr
aini
ngto
NA
ICm
embe
rs,
incl
udin
gN
AIC
trai
ning
staf
ftr
avel
toa
stat
ein
sura
nce
depa
rtm
ent,
mai
ling
expe
nses
,an
dth
eco
stof
man
uals
deliv
ered
inth
etr
aini
ngse
ssio
n.T
hesi
gnifi
cant
decr
ease
in20
11is
due
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ere
tool
ing
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eI-
SIT
Etr
aini
ngfo
rde
liver
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ath
eW
ebra
ther
than
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assr
oom
set
ting.
Zon
efu
nds
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esen
tth
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iliza
tion
ofth
etr
aini
ngdo
llars
allo
cate
dto
each
mem
ber
byth
efo
urZ
ones
.A
nin
crea
sein
the
spen
ding
leve
lof
thes
efu
nds
isan
ticip
ated
durin
g20
10ba
sed
onac
tual
spen
ding
inth
islin
eth
roug
hJu
ne20
10an
dan
incr
ease
inre
ques
tsfo
ran
allo
catio
nof
the
$250
,000
inad
ditio
nalf
undi
ng.
Sta
tes
mus
tde
mon
stra
teth
eex
haus
tion
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eir
exis
ting
zone
and
gra
nt fu
nd b
alan
ces
prio
r to
rec
eivi
ng a
n al
loca
tion
from
the
addi
tiona
l fun
d.
The
gran
tfun
ding
leve
lfor
2011
will
rem
ain
atth
e$1
3,00
0pe
rm
embe
res
tabl
ishe
din
2009
and
incl
udes
the
$250
,000
insc
hola
rshi
psfo
rre
gula
tors
nee
ding
assi
stan
ceto
part
icip
ate
inN
AIC
natio
nal
mee
tings
,w
hich
was
appr
oved
for
the
first
time
durin
gth
e20
09bu
dget
proc
ess.
As
ofth
eN
AIC
2010
Fal
lN
atio
nal
Mee
ting
requ
ests
for
add
ition
alfu
ndin
gha
vebe
en r
ecei
ved
and
appr
oved
for
21 s
tate
s fo
r a
tota
l of $
247,
993
of th
e $2
50,0
00 b
udge
t for
201
0.
BU
DG
ET
ITE
M:
Sta
te a
nd G
ener
al T
rain
ing
E20
: S
tate
and
Gen
eral
Tra
inin
g
The
gene
ralt
rain
ing
expe
nse
incl
udes
(1)
the
cost
sof
natio
nally
prod
uced
trai
ning
prog
ram
san
din
stru
ctio
nalv
ideo
sus
edby
the
Hum
anR
esou
rces
De
part
men
tfo
ras
soci
atio
nst
aff
trai
ning
nee
ds a
nd (
2) r
egul
ator
trav
el e
xpen
ses
reim
burs
ed u
nder
the
DeA
ngel
o an
d D
esig
natio
n sc
hola
rshi
p pr
ogra
ms
of $
20,0
00 a
nd $
33,0
00, r
espe
ctiv
ely.
111
112
Item
Des
crip
tion:
Cos
ts in
curr
ed fo
r re
crui
ting
expe
nses
, bad
deb
t allo
wan
ce a
nd w
rite-
offs
, zon
e sp
onso
red
even
ts, J
IR r
esea
rch
gran
ts, a
nd m
embe
r re
latio
ns.
2009
6/30
/10
12/3
1/10
2010
2011
Incr
ease
Des
crip
tion
Act
ual
Act
ual
Pro
ject
edB
udge
tB
ud
get
(Dec
reas
e)P
erce
ntag
e
Rec
ruiti
ng a
nd R
eloc
atio
n (1
)46
,119
$
60
,658
$
10
9,35
9$
108,
243
$
11
8,29
8$
10
,055
$
9.29
%B
ad D
ebt E
xpen
se (
2)(1
00,8
03)
(45,
073)
354,
552
40
0,00
0
400,
000
0.00
%Z
one
Exp
ense
s (3
)16
9,63
7
32
,491
121,
291
14
0,60
0
144,
200
3,60
0
2.
56%
Res
earc
h G
rant
s (4
)2,
000
2,00
0
2,
000
2,00
0
0.
00%
Mem
ber
Rel
atio
ns (
5)6,
541
3,68
8
7,78
8
1,
700
5,75
0
4,
050
238.
24%
Tot
al12
3,49
4$
51
,764
$
59
4,99
0$
652,
543
$
67
0,24
8$
17
,705
$
2.71
%
(1) (2)
(3)
(4)
(5)
2011
Bud
get b
y A
rea
Tec
hnol
ogy
Fin
anci
alM
arke
tP
rodu
cts
Sys
tem
s an
dB
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ess
Ser
vice
s to
Sol
venc
yR
egul
ator
yan
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iptio
nS
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rtO
pera
tions
Mem
bers
Ser
vice
sS
ervi
ces
Ser
vice
s
Rec
ruiti
ng a
nd R
eloc
atio
n (1
)11
8,29
8$
B
ad D
ebt E
xpen
se (
2)40
0,00
0
Z
one
Exp
ense
s (3
)14
4,20
0
O
ther
Exp
ense
(3)
Res
earc
h G
rant
s (4
)2,
000
$
M
embe
r R
elat
ions
(5)
5,75
0$
Tot
al-
$
662,
498
$
5,75
0$
-
$
-
$
2,
000
$
The
use
ofre
crui
ting
agen
cies
tofil
lop
enpo
sitio
nsw
itha
uniq
uesk
illse
tan
dth
ose
atth
ehi
gher
leve
lsof
man
agem
ent
with
inth
eas
soci
atio
nw
ascu
rtai
led
for
2009
asa
resu
ltof
cost
redu
ctio
nm
easu
res
impl
emen
ted
inJu
ne20
09.
The
2011
budg
etas
sum
esa
slig
htin
crea
sein
relia
nce
onex
tern
alre
crui
ting
serv
ices
for
the
attr
act
ion
and
rete
ntio
nof
NA
ICem
ploy
ees
in 2
011
base
d on
the
assu
mpt
ion
that
job
mar
kets
will
impr
ove
and
com
petit
ion
for
qual
ified
indi
vidu
als
with
spe
cific
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ll se
ts w
ill in
crea
se.
BU
DG
ET
ITE
M:
Oth
er E
xpen
ses
E21
: Oth
er E
xpen
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The
pro
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ed a
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udge
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amou
nts
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divi
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s fo
r th
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bmis
sion
of a
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The
Jou
rnal
of I
nsu
ranc
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.T
hese
expe
nditu
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are
expe
cted
tobe
unde
rbu
dge
tin
2010
with
the
num
ber
and
sele
ctio
n of
site
s fo
r zo
ne r
etre
ats,
but
incr
ease
slig
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in 2
011
base
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one
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ivab
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expe
nse
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unco
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isof
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llect
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year
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. The
bud
get a
ssum
es a
n av
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stor
ical
leve
l of b
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s in
201
1.
The
mem
ber
rela
tions
acc
ount
incl
udes
exp
ense
s as
soci
ated
with
the
Din
een
Aw
ard
reci
pien
t and
rec
ogni
tion
of N
AIC
mem
bers
and
the
NA
IC O
ffice
rs.
113
114
Business &
Fiscal
Im
pact Statement
Summ
ary
Fis
cal
Impa
ctN
et Im
pact
Net
Impa
ctN
umbe
rD
escr
iptio
nC
apita
lized
Rev
enue
Exp
ense
2010
Bud
get
Cap
italiz
edR
even
ueE
xpen
se20
11 B
udge
t
NA
IC 2
010
Pro
ject
ions
/201
1 B
udge
t Bef
ore
Fis
cal I
mpa
cts
and
Str
uctu
red
S
ecur
ities
Pro
ject
72,5
51,6
78$
69
,791
,185
$
2,76
0,49
3$
73
,897
,063
$
73,4
84,3
02$
41
2,76
1$
Pro
pose
d B
usin
ess
and
Fis
cal I
mpa
ct S
tate
men
ts
1R
ecor
ds M
anag
emen
t Pro
ject
83,9
53(8
3,95
3)2
App
licat
ion
Dev
elop
men
t and
Tes
ting
Env
ironm
ents
Exp
ansi
on11
7,84
1$
53,9
44(5
3,94
4)3
SB
S M
aint
enan
ce a
nd S
taffi
ng S
trat
egy
8,60
0(2
3,57
1)23
,571
4S
BS
Gro
wth
Str
ateg
y 4,
300
$
80
,236
(80,
236)
751,
186
472,
661
1,13
3,43
5(6
60,7
74)
5S
ER
FF
Pre
miu
m R
ate
Rev
iew
Dat
a C
olle
ctio
n an
d R
epor
ting
Enh
ance
men
ts17
8,29
3
24
7,30
524
7,30
569
3,09
558
9,09
210
4,00
36
NA
IC S
taffi
ng: M
essa
ging
Adm
inis
trat
or29
,460
(29,
460)
7Im
pact
Stu
dy o
f VM
-20
Prin
cipa
l-Bas
ed A
ppro
ach
to V
alua
tions
250,
000
(250
,000
)8
SB
S C
onsu
mer
Ass
ista
nce
Dat
a C
olle
ctio
n an
d R
epor
ting
Enh
ance
men
ts74
,000
74,0
0092
,500
92,5
00
S
ubto
tal P
ropo
sed
Bus
ines
s an
d F
isca
l Im
pact
Sta
tem
ents
182,
593
321,
305
651,
541
(330
,236
)87
7,62
71,
258,
256
1,95
8,81
3(7
00,5
57)
NA
IC 2
010
Pro
ject
ions
/201
1 B
udge
t Bef
ore
Str
uctu
red
Sec
uriti
es P
roje
ct18
2,59
3$
72,8
72,9
83$
70,4
42,7
26$
2,43
0,25
7$
87
7,62
7$
75
,155
,319
$ 75
,443
,115
$ (2
87,7
96)
$
NA
TIO
NA
L A
SS
OC
IAT
ION
OF
INS
UR
AN
CE
CO
MM
ISS
ION
ER
S
2010
PR
OJE
CT
ION
S/2
011
BU
DG
ET
BU
SIN
ES
S A
ND
FIS
CA
L IM
PA
CT
ST
AT
EM
EN
TS
2010
Pro
ject
ion
2011
Bud
get
115
116
Fiscal Im
pact 1
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: AUGUST 17, 2010 NAME OF PROJECT/INITIATIVE: RECORDS MANAGEMENT PROJECT
REGULATOR/BUSINESS SPONSOR: NAIC CENTRAL OFFICE NAIC STAFF SUPPORT: BRENT ROPER, DIRECTOR HR & INTERNAL SERVICES DIVISION
REQUESTED PROJECT START DATE: JANUARY 1, 2011
ANTICIPATED COMPLETION DATE: DECEMBER 31, 2011
TOTAL REVENUE GENERATED: $0
TOTAL EXPENSE REQUESTED: $83,953
TOTAL CAPITAL REQUESTED: $0
I. Executive Summary:
This proposal includes (1) the upgrade of the current Records Specialist position in the Office Services Department to a Records Program Manager position, and (2) hiring a consultant to advise the Association on alternative technologies regarding a comprehensive records management system. The Association recently completed a comprehensive review of its records management systems. A number of “best practices” were identified, that if implemented, would greatly enhance the NAIC’s overall records management program. The NAIC’s records management needs have grown to the extent a corporate records manager position is important because of: • The increased complexities of the NAIC’s records systems, including increased reliance on
NAIC to maintain state regulatory data and records; • The Association’s increased reliance on electronic records; • The need for the Association to eventually move to a comprehensive records system to
accommodate both electronic and physical records; and
117
• The need to implement more advanced records management practices including annual department audits, e-mail mailbox and network server limitations, more sophisticated records policies and the ability to hold directors, managers and staff accountable for their records practices.
Currently, the Association has an outdated software product called Advantage, which manages physical/hard copy records only. The program was purchased in 1991 and, while it has gone through some revised releases since that time, the functionality of the program remains largely the same. Currently, the Association uses the standard file management functionality in Windows to manage electronic files. As a first step toward a comprehensive system to manage physical and electronic records (including e-mail), the Association proposes to retain a consultant to perform a preliminary review of needs and options of products that could meet NAIC needs and budget. A high quality records management system is important for the Association in terms of: • Maintaining and searching records to document, backup and support regulatory initiatives
and decisions; • Enhancing the maintenance and support of state data that is housed at the NAIC; and • Providing better maintenance and protection of the intellectual property of the NAIC. The cost of an enterprise-wide comprehensive records system to meet the NAIC’s needs is currently unknown. However, the NAIC has made substantial progress in the area of records management and is ready to further evaluate its needs and the potential for implementing a more comprehensive records system. II. Benefits of Project/Initiative to NAIC Members:
Benefits of this project include: • Enhanced quality and management of the Association’s overall records management program
by professional level staff; • Better alignment with state regulatory data and records needs; • Increased accountability for NAIC staff for complying with records policies; • Staff productivity gains will be realized as new records systems and processes are put in
place that allow staff to more efficiently search and find needed information; • Reduced cost as the Records Program Manager enforces electronic storage limits which will
control the purchase of electronic storage capability; and • Elimination of redundant physical and electronic records including the storage of the same. A primary benefit of hiring a records consultant to review current systems is to gain valuable experience and knowledge without prematurely spending dollars on a system that may or may not ultimately meet NAIC needs. Many of the systems on the market are extremely complex, costly and take years to implement. Without the professional expertise in-house, it is prudent to get unbiased professional level experience before making any long-term decisions. Further, the Association will likely save warehouse storage costs as the NAIC moves from physical to electronic storage. The NAIC currently has approximately 3,200 boxes and spends
118
approximately $7,000 annually in off-site storage. While the physical storage costs are not excessive, the process of managing, controlling and tracking the boxes is difficult and time consuming. This project will improve the Association’s ability to manage and control its records on an ongoing and permanent basis. III. Stakeholders: The primary stakeholders in this initiative are NAIC management and members. It is critical to the long-term success of the Association to retain and have ready access to historical information, and uniquely important to an organization that is nearly 140 years old. This initiative is the first step in building and upgrading the capability of the NAIC to retain and retrieve its vital corporate records. Further, this project will eventually assist the NAIC and its employees in doing a better job in searching, retrieving, and organizing information on a daily basis. IV. Business and Operational Impact: The business and operational impacts of this project are minimal. To upgrade the Records Specialist position to a Records Program Manager, it is recommended to maintain an overlap of the two positions for three to six months. This will allow NAIC Records Specialist to train the new Records Program Manager on current NAIC systems and provide for continuity. The two positions will also work together to streamline current systems and implement new processes to improve the Association’s overall records system. V. Financial Impact: • Upgrade Records Specialist Position to Records Program Manager – To achieve a three
to six month overlap between the Records Specialist and the Records Program Manager positions, in 2011, the cost for this project is estimated at $63,953.
• Records Consultant – This proposal includes $20,000 to retain a records consultant to
review the NAIC’s needs regarding a comprehensive records system and to evaluate suitable systems that would meet NAIC needs and budget. Because the Association must retain a records consultant it was estimated a budget of $20,000 was necessary. The necessity of a consultant with a deep background in information systems, electronic records, electronic storage, and the myriad of comprehensive records systems is a key component of this project. However, the Association will limit these costs to the extent possible.
See Attachment I for a detailed summary of costs associated with this proposal.
VI. Alternatives or Partnerships: Other alternatives include the following: • One alternative is to simply maintain the status quo, which is not desirable in the
Association’s long-term plans and solutions to better manage electronic records, and organize and store e-mails that are corporate records. With a greater dependency on electronic records status quo represents a number of disadvantages and greater legal liability.
119
• Another alternative is to completely outsource all records management both hardcopy and
electronic to a third party. This can be costly, but is an option the Association plans to explore with the records consultant.
• A third alternative is to simply spend the money now to purchase a comprehensive records
system. This type of system can be very costly both in terms of purchase price and human resources to implement the system (sometimes years). By upgrading our internal infrastructure in terms of hiring a professional records manager and engaging a consultant with expertise in records management the Association may be able to save time and money and achieve a more cost effective long-term solution.
VII. Risk Management:
The NAIC’s current records systems are fragmented in that the Association has no comprehensive system to manage all of its records and information. In addition, the Association is lacking a records system to manage electronic records and its physical records system is outdated.
The risks associated with this request are fairly limited, while the risks associated with the larger records management project are substantial as the Association moves forward to better track, organize, search and produce its corporate records. Association management believes this project is a reasonable and measured first step toward enhancing its records management systems.
120
Bus
ines
s and
Fis
cal I
mpa
ct S
tate
men
t Pro
ject
Cos
t Ana
lysi
sR
even
ues,
Exp
ense
s and
Cap
ital E
xpen
ditu
res
Proj
ect/I
nitia
tive:
Rec
ords
Man
agem
ent P
roje
ct
Bus
ines
s Ent
ity-N
AIC
2011
Ann
ual
2011
2012
2013
Des
crip
tion
Bud
get
Janu
ary
Febr
uary
Mar
chA
pril
May
June
July
Aug
ust
Sept
embe
rO
ctob
erN
ovem
ber
Dec
embe
rT
otal
Bud
get
Bud
get
Rev
enue
s:R
even
ue
Tot
al R
even
ues
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exp
ense
s:Sa
lary
and
Ben
efits
-Rec
ords
Man
ager
90,7
26$
7,
479
$
7,01
8$
7,
937
$
7,62
4$
7,
311
$
7,62
4$
7,
624
$
7,62
4$
7,
624
$
7,31
0$
7,
623
$
7,92
8$
90
,726
$
89,7
48$
95
,244
$
Sa
lary
and
Ben
efits
-Rec
ords
Spe
cial
ist
(26,
773)
(4
,463
)
(4
,463
)
(4
,463
)
(4
,292
)
(4
,463
)
(4
,629
)
(2
6,77
3)
(54,
384)
(5
5,77
1)
R
ecor
ds C
onsu
ltant
20,0
00
6,
666
6,66
6
6,
668
20,0
00
Tot
al E
xpen
ses
83,9
53
14
,145
13,6
84
14
,605
7,62
4
7,
311
7,62
4
3,
161
3,16
1
3,
161
3,01
8
3,
160
3,29
9
83
,953
35,3
64
39
,473
Rev
enue
s Ove
r (U
nder
) Exp
ense
s(8
3,95
3)$
(14,
145)
$
(1
3,68
4)$
(14,
605)
$
(7
,624
)$
(7
,311
)$
(7
,624
)$
(3
,161
)$
(3
,161
)$
(3
,161
)$
(3
,018
)$
(3
,160
)$
(3
,299
)$
(8
3,95
3)$
(35,
364)
$
(3
9,47
3)$
2011
Bud
get S
prea
d
Attachment I
121
122
Fiscal Impact 2
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: JULY 6, 2010 NAME OF PROJECT/INITIATIVE: APPLICATION DEVELOPMENT AND
TESTING ENVIRONMENTS EXPANSION
REGULATOR/BUSINESS SPONSOR: INFORMATION SYSTEMS (EX1) TASK FORCE COMMISSIONER SANDY PRAEGER (KS), CHAIR
NAIC STAFF SUPPORT: DENISE MATTHEWS, DIRECTOR INFORMATION SYSTEMS DIVISION
REQUESTED PROJECT START DATE: JANUARY 2011
ANTICIPATED COMPLETION DATE: DECEMBER 2011
TOTAL REVENUE GENERATED: $0
TOTAL EXPENSE REQUESTED: $53,944
TOTAL CAPITAL REQUESTED: $117,841
I. Executive Summary: The NAIC has developed and supports over 400 computer applications supporting key regulatory business functions for all 56 member jurisdictions including financial solvency, market regulatory analysis, electronic rate and form filings, company licensing, online fraud reporting and receivership data. NAIC also works closely with its affiliate, NIPR, in support of numerous applications transacting electronically the business of producer licensing. NAIC provides a technology infrastructure that securely connects over 12,000 state insurance regulators with over 4,500 insurance companies and 4 million producers, as well as supports 8,000 individual insurance industry users transacting daily regulatory compliance activities. In 2009, over 16.8 million transactions were processed using these NAIC on-line applications on behalf of participating state insurance departments, insurance companies, and insurance producers, as well as $350 million in electronically processed state and transaction fees. Because these systems perform such a critical role in helping to streamline and make more uniform state-based insurance regulation, it is vital the NAIC continue to enhance and provide improvements to meet the growing needs of the members and related business partners. This
123
proposal seeks to respond to customer requests to upgrade the testing infrastructure in support of these computer systems. Specifically, it would improve NAIC’s and NIPR’s ability to make high priority, business critical changes to production quickly and without error, improve the ability of the application areas to adequately test applications for high volume and high load conditions and provide an environment that ensures testing is adequately representative of the conditions that will be experienced in the production environment. The request is for 2011 capital expenditure of $117,841 and additional expenses of $17,930, to purchase the necessary infrastructure to improve a constrained quality assurance testing environment for these computer applications, which today lacks the ability to adequately support the breadth of application testing required based on the types of integrated systems currently in place. II. Benefits of Project/Initiative to NAIC Members: NAIC is a significant technology provider in the state-based insurance regulatory arena. State regulators, along with their customers and business partners, expect to have reliable access to these online software systems and technology services, to successfully transact thousands of insurance regulatory processes each day. Therefore, it is essential for NAIC to enhance, expand and enforce its information systems best practices to meet this ever-increasing responsibility. The successful growth of our state producer licensing systems and increase in their transaction volumes have produced constraints on the current technology infrastructure “environments”, which are used to test this system software. This has resulted in falling short on some state and business partner’s expectations regarding access and availability to these systems. This initiative proposes a solution, using an incremental expenditure approach, to expand the infrastructure capacity and resolve the current system’s limitations. The proposal requests adding additional hardware and software to expand the testing environment capacity, which would allow computer developers and analysts the ability to test software applications with a more complete set of data fields; load-test a larger number of transactions, or test a greater variety of test-scenarios; to help insure when new versions of the software are rolled-out to customers, they are stable and error-free. Having a larger capacity testing environment should also improve the ability to resolve system errors more quickly, thus reducing the amount of system disruption time for users. This upgraded hardware configuration would provide more flexibility in the available times to schedule the roll-out of a software release or perform load/volume tests. This project would introduce a new testing environment component, allowing NAIC the ability to code, test and roll-out an “emergency fix” quickly, without disrupting the work in progress for a “scheduled maintenance” software release. Today, NAIC’s testing environments limit the ability to successfully perform this type of simultaneous testing. The new testing environment will improve the NAIC’s ability to resolve system errors quickly, thus reducing the amount of time these disruptions affect system users. The upgraded hardware
124
configuration would also provide more flexibility in the roll-out of software releases and greater capacity for performing load/volume tests. An additional benefit is future cost savings in application developer resources. Today there are application development workflows that require an extensive amount of time to be spent in testing environments, due to the capacity constraints. The increased system availability provided by this initiative would dramatically shorten the time frame for development and testing, and would significantly reduce the impact on other software releases by not compromising an existing environment while making urgent repairs.
III. Stakeholders: Stakeholders for this initiative include NAIC members; NIPR and their business partners; state insurance department regulators; insurance companies; insurance agents and brokers, as well as their third-party vendors who support these groups. IV. Business and Operational Impact: This project would work in tandem with other process improvements, which will be implemented within the information technology divisions – including a significant enhancement of services provided by the NAIC Information Systems Quality Assurance Testing team (ISQA); a new workflow initiative being implemented by the NIPR developer and testing analyst teams; as well as leveraging several new monitoring tools and process metrics NAIC technology teams will be utilizing to be able to quantify and measure the expected system improvements. Specific NAIC staff resource teams which will be impacted by this project are: • Technical Services for procurement and hardware and software component set-up; • Database Analysts to monitor and tune new hardware components; • Application Developers for initial application set-up of new testing environments; • ISQA staff will have an additional environment to monitor and maintain; • All information systems staff will be required to place a greater emphasis on documented
workflows and proper disciplines put into practice; • Training in all areas in using the new environments will be required; and • Testing teams will need to validate roles and responsibilities. Note: There should be no noticeable impact to system users and customers during the project implementation. V. Financial Impact: The request is for 2011 capital expenditures of $117,841 which represents expenses for hardware and software to purchase the necessary infrastructure for this initiative and includes (1) a hardware server for $39,623; (2) software UNIX operating system for $13,418; and (3) the Oracle Web Logic Suite for $64,800. Additional expenses include (1) a fee for the one-time Unix backup client of $800; (2) annual SSL certification fees of $2,503; and (3) annual maintenance expenses for the hardware and software components of $14,627. See Attachment I for a detailed summary of costs associated with this proposal.
125
VI. Alternatives or Partnerships: Alternatives for this initiative include: (1) Remain with the current NAIC hardware infrastructure for the computer testing
environments. This provides an avoidance of any expenditure in 2011, but will also negate realizing any of the benefits described within this proposal.
(2) Expand this proposal to purchase and install more than one server with data storage, to
proactively plan for a continued increase in transaction volumes and users. However, the cost analysis for this alternative was greater than the achievable business benefit.
(3) No partnerships were investigated. VII. Risk Management: Risks include: • An unplanned delay during the procurement process or server set-up could cause the delivery
of the project to be delayed. • Once the project is implemented, system improvements could initially trend lower than
expected, until environments can be further tuned and adjusted, or until procedural changes and staff training were completed.
• This initiative, once implemented, may require the purchase of an unbudgeted database,
which would also require additional employee head count. While this risk was contemplated, a decision that this component will not be necessary was reached, at least during the first year of operation.
If this project is not approved, the ability to gain any of the benefits described within this proposal would be severely limited, which would result in impact to users of NAIC systems and services. Finally, the success of this project depends on a disciplined approached by all business areas using the new environments to maintain up-to-date, documented system workflows and testing guidelines and procedures.
126
Bus
ines
s and
Fis
cal I
mpa
ct S
tate
men
t Pro
ject
Cos
t Ana
lysi
sR
even
ues,
Exp
ense
s and
Cap
ital E
xpen
ditu
res
Proj
ect/I
nitia
tive:
App
licat
ion
Dev
elop
men
t and
Tes
ting
Env
iron
men
t Exp
ansi
on
Bus
ines
s Ent
ity-N
AIC
2011
Ann
ual
2011
2012
2013
Des
crip
tion
Bud
get
Janu
ary
Febr
uary
Mar
chA
pril
May
June
July
Aug
ust
Sept
embe
rO
ctob
erN
ovem
ber
Dec
embe
rT
otal
Bud
get
Bud
get
Rev
enue
s:
T
otal
Rev
enue
s-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exp
ense
s:U
nix
Net
back
up C
lient
800
$
800
$
80
0$
W
eb S
erve
r (H
ardw
are)
471
47$
47
$
47$
47
$
47$
47
$
47$
47
$
47$
47
$
471
566
$
566
$
Web
Ser
ver (
Softw
are)
2,27
6
227
22
7
227
22
7
228
22
8
228
22
8
228
22
8
2,27
6
2,73
0
2,73
0
Ora
cle
Web
Log
ic S
uite
11,8
80
1,
188
1,18
8
1,
188
1,18
8
1,
188
1,18
8
1,
188
1,18
8
1,
188
1,18
8
11
,880
14,2
56
14
,256
SS
L C
ertif
icat
es
2,50
3
2,50
3
2,
503
44
8
44
8
Dep
reci
atio
n36
,014
3,27
4
3,
274
3,27
4
3,
274
3,27
4
3,
274
3,27
4
3,
274
3,27
4
3,
274
3,27
4
36
,014
39,2
88
39
,288
Tot
al E
xpen
ses
53,9
44
-
6,
577
4,73
6
4,
736
4,73
6
4,
736
4,73
7
4,
737
4,73
7
4,
737
4,73
7
4,
737
53,9
44
57
,288
57,2
88
Rev
enue
s Ove
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-
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,736
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,736
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(4
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-$
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117,
841
$
-$
-
$
2011
Bud
get S
prea
d
Attachment I
127
128
Fiscal Im
pact 3
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: JUNE 18, 2010 NAME OF PROJECT/INITIATIVE: SBS MAINTENANCE AND STAFFING STRATEGY
REGULATOR/BUSINESS SPONSOR: INTERNAL ADMINISTRATION (EX1) SUBCOMMITTEE
NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES
REQUESTED PROJECT START DATE: JANUARY 1, 2011
ANTICIPATED COMPLETION DATE: ONGOING
TOTAL REVENUE GENERATED: $0
TOTAL EXPENSE SAVINGS: $23,571
TOTAL CAPITAL AMOUNT REQUESTED: $8,600
I. Executive Summary:
State Based Systems (SBS) is a membership-supported project designed to provide a comprehensive web-based application to state regulators for more efficient and expeditious licensing processes of producers, companies, and other regulated entities (bail bondsmen, motor vehicle service providers, pre-need funeral, and much more). In addition, the software supports continuing education, consumer complaints/assistance, regulatory enforcement, investigations, revenue, examinations and project tracking. Originally, this project was established as a ‘pay as you go’ type initiative. In 2006, the membership recognized the budgetary and resource constraints facing the states and supported a shift in the cost structure such that states were no longer required to pay for an SBS implementation effective January 2007. This move was based on an assumption that, over time, SBS would be subsidized by revenue generating transactions.
The NAIC entered into a 10-year licensing and services agreements with a business partner, Aithent, Inc. (Aithent) in July 2002. This partnership allowed the NAIC to leverage a set of web-based software from Aithent that served as the initial code base for SBS, supporting only
129
producer licensing, company licensing services and limited reporting. All other services have since been built into SBS (continuing education, pre-licensing education, complaints, enforcement, investigations, regulated industries, revenue, examinations, project tracking, and expanded reporting). As compensation for Aithent’s contribution to the partnership, the NAIC is obligated to share revenues with Aithent and must provide Aithent a right of first refusal for all consulting services through July 2012.
The purpose of this proposal is to meet the following objectives:
(1) Initiate efforts to establish an appropriate staffing level to maintain State Based Systems (SBS);
(2) Enhance ability to respond effectively and quickly when code changes are needed in preparation for production deployment;
(3) Augment testing capabilities; and
(4) Expand the customer support area to meet the needs of the growing customer base resulting from the expansion in licensees.
Strengthen SBS Staffing
Experience has proven that a state implementation is typically more involved than it was in 2002, due to the states’ desire to have SBS cover more back office functionality to support regulatory needs and membership initiatives, resulting in the expansion of SBS services/functionality over time (see Appendix A). These factors, combined with the more recent rapid growth in SBS licensees with significantly more detailed and stringent requirements and covering a broader range of services has resulted in an expanded need for resources. The NAIC now has 20 states licensed to use SBS (Appendix B), with five licensed in 2007, four licensed in 2008, four licensed in 2009 and one licensed in January 2010. This has resulted in over 200% licensee growth in three years, a period during which staff increased by 50%. In order to address the growing need for resources, the NAIC has become more reliant upon consulting resources.
A primary objective of this fiscal is to establish a resource pool sufficient to support the growth in SBS into 2011.
Improve Ability to Respond Quickly to Meet Production Deadlines
By augmenting full time staff the NAIC will be able to avoid delays and implement projects.
Improved Software Testing
Over time, as more states have licensed SBS, the testing cycles have become longer and more complex. This is the direct result of the SBS software structure and state specific business rules. The underlying code that serves as the basis for SBS contains separate state databases for each state. In addition, while the general business practices in each state are similar, the business rules vary with respect to license types, lines of authority, fees, expirations cycles, grace periods, continuing education requirements, letter templates, license templates, etc. As a result, for each software release to all licensed states, which occurs 3-4 times per year, NAIC staff must fully test all new functionality and regression test all existing functionality for each state. This is very time
130
consuming and must be successful or it can result in the release of code with potential issues that must subsequently be addressed, diverting critical resources from future projects.
In converting consulting dollars to full time resources, the NAIC will be able to add two additional quality assurance staff, one at a senior level assigned responsibility for improving testing plans and processes. In addition, adding these staff will allow the team to shift testing responsibilities to the testing staff and away from the business analyst and developer resources needed for other state implementation and enhancement projects.
Customer Support
With the growth in SBS licensed states, SBS customer support needs have significantly expanded. Some staff restructuring in this area has already assisted in mitigating a backlog, but the team anticipates moving two states into production in 2010 and four more in 2011, SBS customer support needs will automatically expand. This proposal incorporates one customer support analyst as a result of the consulting for full time staff substitution.
The SBS initiative supports the NAIC mission of providing tools to regulators to support their regulatory responsibilities and is a critical component to 20 states today. It is anticipated this license base will continue to grow as other states discover the benefits of leveraging SBS as a no cost initiative. In fact, the NAIC has been notified of three additional contract awards, not included in the six states previously slated for production as mentioned above. SBS is guaranteed to comply with member initiatives in the areas of producer and company licensing, continuing education, complaints, enforcement and investigations.
Ultimately, this proposal will reduce the long term net cost to NAIC of supporting the existing licensees with the existing software. After careful analysis of the SBS project, it has been determined the NAIC can replace consulting resources (currently seven developers) with four full time development/data migration staff, two quality assurance staff, one customer support analyst, and one database analyst. Further, this staffing can be accomplished with little impact to the NAIC budget and enhance the NAIC’s ability to meet SBS software release dates. II. Benefits of Project/Initiative to NAIC Members:
The direct benefits of this fiscal include:
• Reduction in Consulting Costs: Currently, the NAIC budgets approximately $600,000 per year in consulting related to SBS for resource augmentation. This proposal is designed to result in the elimination of future consulting expenses.
• Reduced Duration of Code Modifications Prior to Production Release: A significant benefit of replacing consultants with full time employees is the ability to respond quickly to necessary code modification immediately prior to an implementation, using onsite resources intimately involved in the project.
The benefits the SBS initiative in general are identified and described below.
• Compliance with NAIC Initiatives: Continuing to develop SBS as a consistent back office system for states provides licensed states a low-cost solution for complying with national state regulatory initiatives. Examples include changes to the producer uniform application
131
and changes in complaint coding (both due in 2010). Ultimately, this results in greater uniformity across states, which is critically important to the 20 licensed states and was a primary factor in selecting SBS. This proposal will enable staff to continue to meet these obligations and support of the increased number of SBS state implementations.
• Enhanced Functionality: The expansion of SBS services is a key component to several states’ consideration of SBS as a viable solution for their regulatory needs. Several years ago, the state focus was on internal functionality. However, with increased focus on providing regulated entities with the ability to comply with regulatory requirements and streamline access to information, states have increasingly focused on the development of external customer online functionality. These requests can be very state specific, so it is critical SBS is able to fill the wide variety of needs across states. This proposal will enable SBS to better support state requirements to provide more services online.
• Cost Savings to the States: By improving the efficiency of processing, SBS can significantly reduce costs. Cost savings vary by state, but examples include:
(1) One state licensing SBS realized an immediate cost savings of over $3 million dollars
annually as a result of the SBS implementation; (2) Other states have been able to maintain their staffing levels, but process considerably
more applications and consumer complaints or other types of requests due to efficiencies emanating from the SBS tool suite;
(3) States are able to redeploy resources to projects that were previously not prioritized due to the need to expend resources on functionality that is now provided by the NAIC;
(4) SBS licensees are able to avoid the resource and financial costs of making system modifications to software as a result of member initiatives;
(5) Reduced cost of publishing information online in each state; (6) Elimination or reduction in hardware/software costs to state insurance departments that
are necessary when the state develops and supports its own software; (7) Elimination or reduction in hardware/software costs charged to the insurance
department by state IT agencies that provide services to the insurance department; and (8) End user productivity gains through the submission of applications and reports online,
thus reducing low value data entry burdens on state staff and ultimately enabling resources to focus on higher value work.
• Streamlined Data Entry Processes: Implementing the online functionality for SBS, which includes using NIPR resident and non-resident producer licensing, significantly reduces the amount of data entry required of state insurance department staff. These interfaces allow data entry by the applicant and only require regulatory staff to audit and approve the application. This should provide significant labor cost savings to state insurance departments. The same benefits apply to complaints processing where complaints are submitted to the state online.
• Speed to Market: By improving the efficiency of the licensing and appointment process, insurance companies and producers benefit by being able to market products more quickly.
• Modernization: A web application eliminates or significantly reduces time and effort required to maintain software on the desktop and operating system and processor issues encountered using client server systems. In addition, the SBS system includes the advantages of increasing customer (i.e., licensee) satisfaction and reducing demands on states’
132
licensing/customer service personnel, as licensees are able to initiate licensing applications/changes 24-7 and can obtain status checks online.
• Increased Services to Consumers and Regulated Entities: Leveraging SBS generally results in a significant and immediate increase in services provided to consumers and other regulated entities. For example, consumers can easily access information regarding licensed entities in order to confirm whether or not a producer has an active license for the type of insurance sought. Licensed entities are able to access their license record, print a copy of licenses, sign up for online notifications, conduct licensing transactions, etc. Other regulated entities are also able to conduct licensing business and submit reports and payments to the states as required by law. Undertaking the proposed work will result in improving online services to users by enhancing their experience and making it easier to conduct business across states.
• Excellent Customer Service: SBS implementations feature a high level of customer service and support as the NAIC understands the needs of the regulators and it is the NAIC’s mission to support those needs. A high priority is placed on excellent customer service. Implementation of SBS has resulted in a transfer of considerable customer support to the NAIC as customers access online services to meet their needs (license printing, continuing education transcripts, licensee lookup features, etc.). As a result, states have benefitted by receiving fewer phone calls, letters and other forms of inquiries that can be easily addressed through online services. This proposal is designed to improve online services for constituents, further reducing needed state support.
III. Stakeholders:
• SBS Licensees/NAIC Members: The key stakeholder would be those NAIC members who have licensed SBS and those that are interested in participating in the SBS initiative, in that they would receive the benefit of utilizing the low-cost, web-based system for licensing, market regulation, consumer services, legal, enforcement, investigations, revenue, project tracking, regulated industries, and financial examinations business areas incorporated into SBS. The licensee states agreed to purchase SBS with the expectation the system would evolve to include the aforementioned modules, and they would receive the level of customer service that the NAIC is known to provide. The NAIC will continue to market SBS to states as a full service suite of tools designed to minimize cost to the states, improve services to constituents, and increase the value of regulatory work by eliminating low value activities.
The NAIC has added 14 states to the SBS family since January 2007. The NAIC will remain focused on maintaining a suite of tools that continue to be enhanced in order to meet state needs. It is difficult to anticipate how many additional states will license SBS, but it is anticipated a full service application that enhances regulatory efficiencies within the state and for constituents will continue to increase the demand for SBS.
• NIPR is a stakeholder for resident and nonresident licensing, appointment and termination, attachment warehouse and address change data needs that flow through the NIPR and SBS systems for SBS states.
• Insurance Companies, Insurance Agencies, Producers, Providers, other Regulated Entities and Consumers: Licensed entities have the advantage of being able to submit their licensing applications, renewals, registrations, and reports online, which should reduce the
133
time for approval and receiving of the license or certificate of authority. It also eliminates the potential for data errors that can occur with hard copy submissions to state that require data entry. Providers benefit from the ability to submit provider applications, course applications, instructor applications and course rosters online, thus streamlining the process of meeting regulatory requirements.
• Consumers are a stakeholder with the complaints functionality. Consumers are able to utilize the system to file complaints against insurance entities online.
IV. Business and Operational Impact:
The business and operational impact is limited to the hiring of additional staff, offset by the reduced cost and administration of utilizing outside consulting resources.
V. Financial Impact:
2011 2012 2013
Revenues $0 $0 $0
Expenses ($23,571) $12,045 $33,645
Net Revenue $23,571 ($12,045) ($33,645)
• Salary and associated expenses and Employee Benefits: The majority of expenses are derived from salary and associated salary items such as FICA and unemployment compensation and from health insurance, life and disability insurance and parking. The expenses associated with hiring the staff are offset by a reduction in professional consulting services.
• Minor computer equipment: A small amount of expenses are associated with minor computer software purchases.
• Professional Consulting Services: From 2011 and 2013, expenses are reduced by the projected consulting expenses in each future year.
See Attachment I for a detailed summary of costs associated with this proposal. VI. Alternatives or Partnerships:
Alternatives to this proposal are to increase reliance upon consulting as the NAIC licenses additional states and increases services. This will only serve to increase consulting costs to the NAIC through 2012. Absent the NAIC’s ability to reduce reliance upon consulting, currently at $609,800 per year, the need for these resources are projected to continue beyond 2012. VII. Risk Management:
This proposal is focused on risk management. At this time, the NAIC is heavily dependent upon consulting services and reducing NAIC reliance should more effectively position the NAIC for long term SBS support.
134
APPENDIX A
SBS Service Augmentation History
2002 2003 2004 2005 2006 2007 2008 2009 2010
State Services
Producer X X X X X X X X X
Continuing Education X X X
Company X X X X X X X
Complaints X X X X X X
Enforcement X X X X X
Investigations X X X
Market Conduct Exams X X X
Financial Exams X X X X
Project Tracking X X X
Revenue X X X X
Regulated Industries X X
External Services
Licensee Lookup X X X X X X
Online Licensee Services X X X X X
Online CE X X X
Regulated Industry Services
X
Connect X X
135
APPENDIX B
State License History
State 2002 2003 2004 2005 2006 2007 2008 2009 2010
Alabama X X X X
Delaware X X X X X X X X X
District of Columbia X X X X X X X X X
Florida X X X X
Illinois X X X X
Iowa X X X X
Kansas X X X X
Maryland X X
Missouri X X X X
Nebraska X X
New Hampshire X X X X X X
New Jersey X X X X X X X X X
North Carolina X X X X
North Dakota X X X X
Oklahoma X X
Puerto Rico X X X X
Rhode Island X X X X X X X X
Tennessee X X X X
U.S. Virgin Islands X
West Virginia X X
136
Bus
ines
s and
Fis
cal I
mpa
ct S
tate
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t Pro
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t Ana
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even
ues,
Exp
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Cap
ital E
xpen
ditu
res
Proj
ect/I
nitia
tive:
SB
S M
aint
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ce a
nd S
taff
ing
Stra
tegy
2011
Bud
get
Bus
ines
s Ent
ity-N
AIC
2011
Ann
ual
2011
2012
2013
Des
crip
tion
Bud
get
Janu
ary
Febr
uary
Mar
chA
pril
May
June
July
Aug
ust
Sept
embe
rO
ctob
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ovem
ber
Dec
embe
rT
otal
Bud
get
Bud
get
Rev
enue
s:
T
otal
Rev
enue
s-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exp
ense
s:Sa
larie
s and
Ben
efits
572,
943
$
24
,911
$
49
,821
$
49,8
21$
49
,821
$
49,8
21$
49
,821
$
49,8
21$
49
,821
$
49,8
21$
49
,821
$
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21$
49
,822
$
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$
61
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$
Pr
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sion
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ervi
ces
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,600
)
(50,
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(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(5
0,80
0)
(6
09,6
00)
(609
,600
)
(6
09,6
00)
Dep
reci
atio
n2,
868
23
9
239
239
239
239
239
239
239
239
239
239
239
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8
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868
2,86
8
N
on-C
apita
l Pur
chas
es (p
hone
, sof
twar
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tc.)
10,2
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10
,219
10
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T
otal
Exp
ense
s(2
3,57
1)
(1
5,43
2)
(740
)
(740
)
(740
)
(740
)
(740
)
(740
)
(740
)
(740
)
(740
)
(740
)
(739
)
(23,
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12
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33
,645
Rev
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s Ove
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nder
) Exp
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,571
$
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32$
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$
740
$
740
$
740
$
740
$
740
$
740
$
740
$
740
$
740
$
739
$
23,5
71$
(12,
045)
$
(3
3,64
5)$
Cap
ital:
PCs
8,60
0$
8,60
0$
8,
600
$
-$
-$
T
otal
Cap
ital
8,60
0$
8,60
0$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
8,
600
$
-$
-$
2011
Bud
get S
prea
d
Attachment I
137
138
Fiscal Im
pact 4
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: AUGUST 30, 2010 NAME OF PROJECT/INITIATIVE: SBS GROWTH STRATEGY
REGULATOR/BUSINESS SPONSOR: INTERNAL ADMINISTRATION (EX1) SUBCOMMITTEE
NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES
REQUESTED PROJECT START DATE: OCTOBER 1, 2010
ANTICIPATED COMPLETION DATE: ONGOING
TOTAL REVENUE GENERATED: $1,678,181 (2010-2012)
TOTAL EXPENSE REQUESTED: $2,455,686 (2010-2012)
TOTAL CAPITAL REQUESTED: $755,486 (2010-2012)
I. Executive Summary:
The SBS project has just completed its eighth year and has two years remaining in a contractual relationship with its business partner, Aithent. Over the last eight years, the NAIC has licensed 20 states and implemented 15. The remaining five states are slated for production release in 2011. Initially, the SBS software focus was solely on Producer functionality. Following the initial release with two states, the Company features were enhanced and made available for production release. During the ensuing seven years, the NAIC staff significantly enhanced the originally delivered base functionality by adding Consumer Services, Enforcement, Revenue, Investigations, Continuing Education (CE), Pre-Licensing Exams, Market Conduct Exams, Financial Exams, Project Tracking and Regulated Industry Services. In addition, the NAIC has rewritten all reporting functionality originally delivered, enhanced standard reports, built export functionality to allow access to all underlying data, created correspondence templates, added attachment capabilities and scan client functions, and modified the ‘to-do list’ workflow. Furthermore, the NAIC has developed many external transaction functions, some of which generate revenue and some of which do not, as demanded by the state licensees.
139
Given the complexity and expansion of the SBS product suite, each state implementation project is more involved and time consuming. And despite the fact the software has grown significantly, states often require various state-specific features and functions challenging the original concept of a uniform system deployed in all states. The NAIC integrates all new SBS state code into existing software through a time-consuming code merge process following each state implementation, but due to the underlying structure of SBS, each new state adds another layer of complexity, resulting in exponential testing requirements and additional customer support, both of which would be significantly enhanced with an augmented testing team. In addition, the underlying infrastructure places a heavy burden on the SBS staff and the Technical Services Division staff in supporting database requests, code releases, state implementation projects, data migrations, and more. In 2002, a state implementation required four staff: a manager; a business analyst; a software engineer; and a data migration analyst. These staff shared testing and customer support functions. This team of four was able to support a Producer or Producer/Company implementation only. As the NAIC has expanded the SBS product suite to include additional services, the staffing requirement per implementation has grown. Today, a typical state implementation is generally completed in two phases: Licensing (Producer, CE, Pre-Licensing Education and Company) and Market Regulation (Consumer Services and Enforcement). Should a state desire Investigations or Regulated Industry Services, additional phases are required. A licensing implementation today generally requires seven or eight staff: two business analysts (one producer/company and one for CE); one data migration analyst; two or three software engineers (depending on state requirements); and one tester, all led by a manager. A market regulation implementation requires five staff: one business analyst, one data migration analyst, one software engineer, one tester, and a manager. To the extent a state does not complete a full implementation upon initial release, which is common, the NAIC staff must support additional service implementations as the states become ready for additional SBS modules. Given the current staffing levels, the NAIC will be able to complete the five licensing implementations currently underway, four market regulation implementations, one market regulation service enhancement (complaints coding), one market regulation service development (external health care review), and three general enhancement releases in 2011. However, this leaves a number of initiatives under-resourced, including: (1) Replacement of existing credit card functionality with NAIC standard functionality; (2) Incorporating web services functionality to enhance the transfer of state data initiated by
NIPR transactions; (3) Redesign of external services to streamline and reduce customer confusion upon using and
enhance revenue generating capability; and (4) Servicing any new executed contracts.
It should also be noted that adding states requires expanded testing and customer service support. This proposal is designed to establish a separate team focused on testing, thus relieving business analyst staff, software engineers and marketing staff of testing responsibilities, which will enable them to focus on other tasks that require their time. Given the rapid growth in SBS licensees, a series of short-term initiatives are being proposed to improve overall effectiveness and increase user satisfaction. These steps will enable the NAIC to
140
improve high quality products through the redesign of external interfaces allowing customers access to all states with a single user identification and password, streamline the customer registration process and support additional state implementation projects. In addition, the NAIC will be able to streamline internal fee collection reporting and monitoring as well as introduce electronic payments to states rather than monthly paper check remittances. Specifically, this proposal is designed to allow the NAIC to: (1) License two to three additional states in 2010 and initiate their implementations. One must
deliver by June 30, 2011. Two would deliver in 2012; (2) Initiate a redesign of external reporting and transaction interfaces, resulting in a single sign-
on approach for user access to all SBS states, a more intuitive design and fewer Help Desk calls;
(3) Augment continuing education revenues through the incorporation of incentives for providers to submit online course roster uploads by publishing schedules and ‘advertising’ which providers use the online upload process;
(4) Replace existing credit card processing functionality with NAIC standard credit card processing functions, in an effort to more easily meet Payment Card Industry (PCI) compliance requirements;
(5) Enhance fee reporting and introduce online payments to states; (6) Build web services to improve database updates stemming from NIPR transactions; (7) Further augment the testing team to free up additional business analyst resources,
marketing and software engineer resources, resulting in a more effective use of resources; (8) Augment data migration capacity to facilitate acceleration of state deployments; (9) Augment the Technical Services Division by adding a web administrator who will function
as a key player in the many code deployment processes, thus enhancing state implementations;
(10) Expand capacity so the NAIC is able to handle five licensing implementations, staggering the implementations between two licensing teams;
(11) Augment market regulation state implementation efforts to allow for five state implementations each year;
(12) Accommodate the new complaint codes in SBS; (13) Initiate a new External Health Review service, which will support the Patient Protection
and Affordable Care Act; and (14) Expand the technical infrastructure to handle the addition of new states and growth in
capacity for existing licensed states.
II. Benefits of Project/Initiative to NAIC Members:
The benefits of this proposal and the SBS initiative in general are identified and described below.
• Compliance with NAIC Initiatives: Continuing to develop SBS as a consistent back office system for states provides licensed states a low-cost solution for complying with national state regulatory initiatives. Examples include changes to the producer uniform application and changes in complaint coding (both due in 2010). Ultimately, this results in greater uniformity across states, which is critically important to the 20 licensed states and was a primary factor in selecting SBS. This proposal will enable staff to continue to meet these obligations and support of the increased number of SBS state implementations.
141
• Enhanced Functionality: The expansion of SBS services is a key component to several states’ consideration of SBS as a viable solution for their regulatory needs. Several years ago, the state focus was on internal functionality. However, with increased focus on providing regulated entities with the ability to comply with regulatory requirements and streamline access to information, states have increasingly focused on the development of external customer online functionality. The requests can be very state specific, so it is critical SBS be able to fill the wide variety of needs across states. This proposal will enable the NAIC to better support state requirements to provide more services online.
• Cost Savings to the States: By improving the efficiency of processing, SBS can significantly reduce costs. Cost savings vary by state, but examples include:
• One state licensing SBS realized an immediate cost savings of over $3 million dollars
annually as a result of the SBS implementation; • Other states have been able to maintain their staffing levels, but process considerably
more applications and consumer complaints or other types of requests due to efficiencies emanating from the SBS tool suite;
• States are able to redeploy resources to projects previously not prioritized due to the need to expend resources on functionality now provided by the NAIC;
• SBS licensees are able to avoid the resource and financial costs of making system modifications to software as a result of member initiatives;
• Reduced cost of publishing information online in each state; • Elimination or reduction in hardware/software costs to state insurance departments
necessary when the state develops and supports its own software; • Elimination or reduction in hardware/software costs charged to the insurance department
by state IT agencies providing services to the insurance department; and • End user productivity gains through the submission of applications and reports online,
thus reducing low value data entry burdens on state staff and ultimately enabling resources to focus on higher value work.
• Streamlined Data Entry Processes: Implementing the online functionality for SBS, which includes using NIPR resident and non-resident producer licensing, significantly reduces the amount of data entry required of state insurance department staff. These interfaces allow data entry by the applicant and only require regulatory staff to audit and approve the application. This should provide significant labor cost savings to state insurance departments. The same benefits accrue to complaints processing where complaints are submitted to the state online.
• Speed to Market: By improving the efficiency of the licensing and appointment process, insurance companies and producers benefit by being able to market products more quickly.
• Modernization: A web application eliminates or significantly reduces time and effort required to maintain software on the desktop and operating system and processor issues encountered using client server systems. In addition, the SBS system includes the advantages of increasing customer (i.e., licensee) satisfaction and reducing demands on states’ licensing/customer service personnel, as licensees are able to initiate licensing applications/changes 24-7 and can obtain status checks online.
• Increased Services to Consumers and Regulated Entities: Leveraging SBS generally results in a significant and immediate increase in services provided to consumers and other
142
regulated entities. For example, consumers can easily access information regarding licensed entities in order to confirm whether or not a producer has an active license for the type of insurance sought. Licensed entities are able to access their license record, print a copy of licenses, sign up for online notifications, conduct licensing transactions, etc. Other regulated entities are also able to conduct licensing business and submit reports and payments to the states as required by law. Undertaking the proposed work will result in improving online services to users by enhancing their experience and making it easier to conduct business across states.
• Excellent Customer Service: SBS implementations feature a high level of customer service
and support as the NAIC understands the needs of the regulators and it is the NAIC’s mission to support those needs. A high priority is placed on excellent customer service. Implementation of SBS has resulted in a transfer of considerable customer support to the NAIC as customers access online services to meet their needs (license printing, continuing education transcripts, licensee lookup features, etc.). As a result, states have benefitted by receiving fewer phone calls, letters and other forms of inquiries easily addressed through online services. This proposal is designed to improve online services for constituents, further reducing needed state support.
III. Stakeholders:
• SBS Licensees/NAIC Members. The key stakeholder would be those NAIC members who have licensed SBS and those interested in participating in the SBS initiative, as they would receive the benefit of utilizing the low-cost, web-based system for licensing, market regulation, consumer services, legal, enforcement, investigations, revenue, project tracking, regulated industries, and financial examinations business areas incorporated into SBS. The licensee states agreed to use SBS with the expectation the system would evolve to include the aforementioned modules, and they would receive the level of customer service the NAIC is known to provide. The NAIC will continue to market SBS to states as a full service suite of tools designed to minimize cost to the states, improve services to constituents, and increase the value of regulatory work by eliminating low-value activities.
• The NAIC has added 14 states to the SBS family since January 2007. The NAIC will remain focused on maintaining a suite of tools which continue to be enhanced in order to meet state needs. It is difficult to anticipate how many additional states will license SBS, but it is believed with a full service application enhancing regulatory efficiencies within the state and for constituents, the appeal of SBS will continue to grow.
• NIPR is a stakeholder for resident and non-resident licensing as well as appointment and termination and address change data needs flowing through the NIPR and into SBS.
• Insurance Companies, Insurance Agencies, Producers, Providers, other Regulated Entities and Consumers are stakeholders. Licensed entities will have the advantage of being able to submit their licensing applications, renewals, registrations, and reports online, which should reduce the time for approval and receiving of the license or certificate of authority. It also eliminates the potential for data errors and result in cost savings as compared to hardcopy submissions to the state. Providers will benefit from the ability to submit provider applications, course applications, instructor applications and course rosters online, thus streamlining the process of meeting regulatory requirements. Furthermore, users of online
143
course roster upload services will be able to benefit from posting course schedules and links to provider websites for easier participant registration.
• Consumers are a stakeholder with the release of the complaints functionality. Consumers will be able to utilize the system to file complaints against insurance entities.
IV. Business and Operational Impact:
The business and operational impact is limited to the hiring of additional staff and to the teams supporting the implementation and maintenance of SBS: the Insurance Products and Services Division, Information Systems Division, Technical Services Division, and NIPR. No new financial, legal or enterprise processes are expected to change as a result of this proposal. V. Financial Impact: 2010 2011 2012
Revenues $0 $472,661 $1,205,520
Expenses $80,236 $1,133,435 $1,242,015
Net Revenue ($80,236) ($660,774) ($36,495)
Revenues are generated primarily from online continuing education services. The assumption is a 15% increase in market share in states using the services as of year end 2009 or planned for 2010. Salaries and employee benefits: Nearly 90% of 2010 expenses and 37-39% of 2011 and 2012 expenses are derived from salary and associated salary items such as FICA and Unemployment Compensation and from health insurance, life and disability insurance and parking. 2010 2011 2012
Salary and Associated Expenses $74,732 $447,278 $462,933
Travel: Travel expenses are expected to increase as a result of this proposal. Expenses are related to staff travel for state implementations as well as state travel for attendance at the SBS Product Steering Committee Summit. 2010 2011 2012
Travel $0 $54,302 $56,985
Miscellaneous Expenses: A small amount of expenses are associated with items such as training, minor computer software purchases, staff training, telephone, mail services and reference materials. 2010 2011 2012
Miscellaneous Expenses $5,147 $14,982 $6,586
144
Professional Services (Other): As revenues grow, so does the NAIC’s obligation to share royalties with Aithent. In addition, credit card or online check expenses are anticipated to increase. 2010 2011 2012
Professional Services (Other) $0 $249,395 $348,033
Maintenance and Depreciation: In order to provide the technical infrastructure necessary to support the growth in SBS, additional hardware and software purchases are required. These also result in ongoing maintenance costs. 2010 2011 2012
Maintenance and Depreciation $357 $367,478 $367,478
See Attachment I for a detailed summary of costs associated with this proposal.
VI. Alternatives or Partnerships: One alternative to this proposal would be to increase the NAIC’s reliance on consultants. However, augmenting full time staff better positions the project in addressing the current and long term needs for SBS. This approach allows the NAIC to build the knowledge base and expertise in state regulatory business areas supported by the SBS product suite. Part of this proposal will enable the SBS staff to create two licensing implementation teams, thus allowing the SBS team to increase the number of concurrent state implementation projects. This is required in order to accommodate new state licensees. The alternative is to delay new licensee implementations, which again compromises the NAIC’s strategy for SBS and its service to members. With regard to rebuilding external interfaces, an alternative would be to continue using the existing SBS toolset. However, this would prevent SBS from enhancing the user experience and significantly limit the NAIC’s ability to generate additional revenues designed to cover project expenses. VII. Risk Management: If this proposal is not approved, the NAIC is subject to the following risks:
• Reduced ability to meet member needs through SBS; • Delayed redesign of the external services inhibiting the ability to generate revenues to cover
SBS expenses and limiting the NAIC’s ability to improve the user experience; and • Continued resource challenges in testing, database administration, data migration and
customer support areas.
145
146
Bus
ines
s and
Fis
cal I
mpa
ct S
tate
men
t Pro
ject
Cos
t Ana
lysi
sR
even
ues,
Exp
ense
s and
Cap
ital E
xpen
ditu
res
Proj
ect/I
nitia
tive:
SB
S G
row
th S
trat
egy
2010
Pro
ject
ions
and
201
1 B
udge
tB
usin
ess E
ntity
-NA
IC
2010
Ann
ual
2010
2011
2012
Des
crip
tion
Bud
get
Janu
ary
Febr
uary
Mar
chA
pril
May
June
July
Aug
ust
Sept
embe
rO
ctob
erN
ovem
ber
Dec
embe
rT
otal
Bud
get
Bud
get
Rev
enue
s:O
LS R
even
ue3,
902
$
15
,288
$
CE
Rev
enue
460,
695
1,13
1,49
7
SBS
Rev
enue
Sha
re (N
IPR
)8,
064
58
,735
T
otal
Rev
enue
s-
-
-
-
-
-
-
-
-
-
-
-
-
-
472,
661
1,20
5,52
0
Exp
ense
s:Sa
larie
s and
Ben
efits
74,7
32$
24
,911
$
24,9
11$
24
,911
$
74,7
32$
44
7,27
8
46
2,93
3
Tr
aini
ng6,
950
5,
975
Pr
ofes
sion
al S
ervi
ces O
ther
(Aith
ent r
oyal
ty)
231,
463
304,
394
CC
Fee
s17
,932
43
,639
Staf
f Tra
vel
50,0
22
51,4
65
N
on-S
taff
Tra
vel
4,28
0
5,52
0
Tele
phon
e37
4
561
Supp
lies
25
Non
-Cap
ital P
urch
ases
(pho
ne, s
oftw
are,
etc
.)5,
147
5,14
7
5,
147
7,
583
M
aint
enan
ce11
5,64
9
11
5,64
9
D
epre
ciat
ion
357
11
9
119
119
357
251,
829
251,
829
Mai
l Ser
vice
s50
50
Tot
al E
xpen
ses
80,2
36
-
-
-
-
-
-
-
-
-
30
,177
25,0
30
25
,030
80,2
36
1,
133,
435
1,
242,
015
Rev
enue
s Ove
r (U
nder
) Exp
ense
s(8
0,23
6)$
-$
-$
-$
-$
-$
-$
-$
-$
-$
(30,
177)
$
(2
5,03
0)$
(2
5,03
0)$
(8
0,23
6)$
(6
60,7
74)
$
(36,
495)
$
Cap
ital:
App
licat
ion
Serv
er (b
lade
s)13
,816
$
D
atab
ase
Serv
er15
8,06
5
St
orag
e47
,368
St
orag
e (C
onne
ct)
35,5
64
App
licat
ion
Serv
er M
emor
y (H
P-U
X)
18,0
11
PCs
4,30
0$
4,
300
$
4,30
0$
2,15
0
App
licat
ion
Serv
er (b
lade
s)16
,152
G
lass
fish
Ente
rpris
e Se
rver
26,0
00
Dat
abas
e Se
rver
16,5
84
Ora
cle
RA
C L
icen
se23
9,20
0
O
racl
e Pa
rtitio
n Li
cnes
e59
,800
St
orag
e7,
499
St
orag
e (C
onne
ct)
5,78
9
Info
rmat
ica
ETL
105,
188
T
otal
Cap
ital
4,30
0$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
4,
300
$
-$
-
$
4,30
0$
751,
186
$
-$
2010
Bud
get S
prea
d
Attachment I
147
148
Fiscal Impact 5
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: SEPTEMBER 9, 2010 NAME OF SERFF PREMIUM RATE REVIEW DATA PROJECT/INITIATIVE: COLLECTION AND REPORTING
ENHANCEMENTS REGULATOR/BUSINESS SPONSOR: SPEED TO MARKET (EX) TASK FORCE NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES
REQUESTED PROJECT START DATE: OCTOBER 1, 2010
ANTICIPATED COMPLETION DATE: APRIL 30, 2011
TOTAL REVENUE GENERATED: $940,400 (2010 TO 2011)
TOTAL EXPENSE REQUESTED: $940,400 (2010 TO 2013)
TOTAL CAPITAL REQUESTED: $178,293
I. Executive Summary:
On June 7, 2010, the U.S. Department of Health and Human Services (HHS) announced an invitation for states to apply for a Health Premium Review – Cycle I grant. The deadline for submission of applications was July 7, 2010. This grant opportunity was established under Section 2794 of the Public Health Service Act (PPACA Section 1003) entitled, ‘Ensuring That Consumers Get Value for Their Dollars’. This program is designed to increase the transparency of the health insurance system through enhanced rate review processes and reporting.
Section 1003 of the PPACA requires the Secretary of HHS, in working with the states, to establish a process for the review of health insurance rates to protect consumers from unreasonable, unjustified and/or excessive rate increases, a requirement taking effect with the 2010 plan year. Key components of the oversight includes insurers providing the Secretary and states with specified information when rate increases reach an unreasonable threshold (not yet defined by HHS as of the date above) and justifications for those unreasonable increases.
149
Section 2794 provided a program of grants to states to assist with improving health insurance rate review and reporting. In order to receive grant funds, the applicant was required to propose a plan for using grant funds to develop or enhance current state processes for health insurance rate review, including a plan for disclosing rates to the public and the Secretary. Proposed plans could include money to support the development or enhancement of database systems used to support rate review and disclosure processes. In addition, states accepting grant funds will be required to collect, analyze, and report to the Secretary critical information about rate filings and the review and, to the extent permitted by law, the approval and disapproval process.
Forty-six states applied for grant funds pertaining to Cycle I (rate review). In addition, another submission period was opened on September 1, 2010 and extends to September 30, 2010, applicable to states and territories initially choosing not to apply for grant funds.
Prior to submitting applications for grant funding, some states requested NAIC assistance with the requirements for collecting and reporting data, per the grant, given the widespread use of SERFF and the logic in leveraging an existing system. The NAIC evaluated the requirements presented in the grant announcement and held several discussions with state insurance regulators regarding the interpretation of requirements. Based on limited information and in the absence of detailed specifications from HHS, the NAIC estimated the project effort and implementation schedule and shared this information with the states, requesting states that submitted for a grant share in the cost of enhancing SERFF. The cost per state was estimated at $18,808.
The purpose of this proposal is to assist states with meeting the data collection and reporting requirements. II. Benefits of Project/Initiative to NAIC Members:
The direct benefits of this proposal include:
• Minimize the cost of meeting grant requirements: In leveraging SERFF, the cost for developing a data collection and reporting process is spread across states, eliminating the need for states to develop duplicate systems requiring companies to report separately, using 50 different systems.
• Reduce implementation timeline: In leveraging SERFF, states will be able to meet the grant requirements in a more expedient manner as a result of leveraging the existing infrastructure for rate filing reporting.
• Allow states to divert grant funds to other rate review enhancement processes: In leveraging SERFF and minimizing the cost per state, each state applying for grant funds was able to allocate remaining grant funds to other rate review processes rather than spending a significant amount on the data collection and reporting requirements.
III. Stakeholders:
• State Insurance Regulators: Key stakeholders are those NAIC members who have licensed SERFF, or 51 jurisdictions (including Puerto Rico and excluding Florida). All members, whether or not they applied for grant funds, will be able to leverage the enhanced functionality.
150
• Insurers: Nearly 3,100 insurers are licensed to use SERFF. Given the transparency requirements being developed per the PPACA, all insurers will benefit from leveraging the same system they use to submit rate filings today in meeting new filing requirements.
• The U.S. Department of Health and Human Services: Leveraging SERFF opens the potential for streamlining the reporting to HHS, eliminating the need to receive reports separately from each jurisdiction.
• Consumers receive greater transparency and rate disclosure requirements, such that information should be more easily accessible to all consumers.
IV. Business and Operational Impact:
The business and operational impact is limited to the SERFF team. In order to accomplish the project within prescribed timelines, the NAIC will be required to hire consultants to backfill for existing SERFF projects in order to allocate more experienced NAIC SERFF staff to this project. V. Financial Impact:
2010 2011 2012-2013 Totals
Revenues $247,305 $693,095 $0 $940,400
Expenses (including depreciation on capital assets)
$247,305 $589,092 $104,003 $940,400
Net Revenue $0 $104,003 ($104,003) $0
This project is designed to have a net zero budget impact to the NAIC. Funding will be received in 2010 and 2011, while expenses will be incurred from 2010-2013. Total revenue is projected at $940,400. The cost for the project is projected to be the same and includes primarily consulting and capital hardware and software purchases. The consulting costs will be expensed, while the capital hardware and software will be depreciated over a three-year expected life.
Revenues of $940,000 represent $18,808 payments from 50 jurisdictions using the SERFF system. Expenses include: • Professional Services ($755,261): Consulting will be acquired and used to augment and
backfill for existing SERFF staff. • Capital Hardware and Software ($178,293): These expenditures include additional memory
for two existing servers and a server upgrade that has approached CPU utilization capacity, as well as computers for the consultants.
• Minor Computer: ($6,846): These expenses cover developer software purchases and phones for the consultants.
Attachment I includes overview of the project’s revenues and costs from 2010 through 2013.
151
VI. Alternatives or Partnerships:
The only alternative to this proposal is to require states to develop their own reporting mechanisms. However, the NAIC does not view this as a viable alternative given the low cost, efficiency and uniformity of leverage the existing SERFF system. VII. Risk Management:
Leveraging SERFF minimizes the risk any state insurance department will be unable to meet this portion of the grant requirements. Risks associated with this funding arise from the fact that, as of the above date, HHS has not yet provided final data collection and reporting specifications. Therefore, this proposal contains project estimates based on the limited amount of information currently available. Should the final requirements be more expansive than anticipated, the project scope and cost could grow.
152
Bus
ines
s and
Fis
cal I
mpa
ct S
tate
men
t Pro
ject
Cos
t Ana
lysi
sR
even
ues,
Exp
ense
s and
Cap
ital E
xpen
ditu
res
Proj
ect/I
nitia
tive:
SE
RFF
Pre
miu
m R
ate
Rev
iew
Dat
a C
olle
ctio
n an
d R
epor
ting
Enh
ance
men
ts
Bus
ines
s Ent
ity-N
AIC
2010
Ann
ual
2010
2011
2012
2013
Tot
alD
escr
iptio
nB
udge
tJa
nuar
yFe
brua
ryM
arch
Apr
ilM
ayJu
neJu
lyA
ugus
tSe
ptem
ber
Oct
ober
Nov
embe
rD
ecem
ber
Tot
alB
udge
tB
udge
tB
udge
tPr
ojec
t
Rev
enue
s:H
ealth
Insu
ranc
e Pr
emiu
m R
evie
w
Gra
nt F
ees f
rom
Mem
bers
247,
305
$
24
7,30
5$
24
7,30
5$
693,
095
$
Tot
al R
even
ues
247,
305
-
-
-
-
-
-
-
-
-
-
-
24
7,30
5
24
7,30
5
693,
095
94
0,40
0$
Exp
ense
s:Pr
ofes
sion
al S
ervi
ces C
onsu
lting
225,
600
54
,400
97
,600
73
,600
22
5,60
0
529,
661
So
ftwar
e2,
800
1,20
0
1,60
0
2,
800
Dep
reci
atio
n14
,859
4,95
3
4,95
3
4,
953
14
,859
59
,431
59
,431
$
44
,572
$
N
on-C
apita
l Equ
ipm
ent (
phon
es)
4,04
6
4,
046
4,
046
T
otal
Exp
ense
s24
7,30
5
-
-
-
-
-
-
-
-
-
64
,599
10
4,15
3
78
,553
24
7,30
5
589,
092
59
,431
44
,572
94
0,40
0
Rev
enue
s Ove
r (U
nder
) Exp
ense
s-
$
-
$
-$
-$
-$
-$
-$
-$
-$
-$
(64,
599)
$
(104
,153
)$
16
8,75
2$
-
$
104,
003
$
(59,
431)
$
(44,
572)
$
-$
Cap
ital P
urch
ases
:H
P-U
X S
erve
r and
Enc
losu
re83
,474
$
83,4
74$
83,4
74$
HP-
UX
Ser
ver M
emor
y4,
250
4,25
0
4,25
0
H
P-U
X S
erve
r and
Enc
losu
re20
,044
20,0
44
20,0
44
Ora
cle
Web
Logi
c Su
ite63
,000
63,0
00
63,0
00
PCs
7,52
5
7,
525
7,
525
T
otal
Cap
ital P
urch
ases
178,
293
$
-
$
-$
-$
-$
-$
-$
-$
-$
-$
178,
293
$
-$
-
$
178,
293
$
-$
-
$
-$
2010
Bud
get S
prea
d
Attachment I
153
154
Fiscal Im
pact 6
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: JUNE 15, 2010 NAME OF PROJECT/INITIATIVE: NAIC STAFFING: MESSAGING
ADMINISTRATOR
REGULATOR/BUSINESS SPONSOR: NAIC CENTRAL OFFICE NAIC STAFF SUPPORT: FROSTY MOHN, DIRECTOR TECHNICAL SERVICES
REQUESTED PROJECT START DATE: MARCH 1, 2011
ANTICIPATED COMPLETION DATE: ONGOING
TOTAL REVENUE GENERATED: $0
TOTAL EXPENSE REQUESTED: $29,460
TOTAL CAPITAL REQUESTED: $0
I. Executive Summary:
The Technical Services Division is requesting the addition of a part-time (.5) head count in order to meet the messaging support needs of the Association. This will provide the Messaging Systems team with the flexibility to move one of the part-time positions to a full-time exempt position or add a third part-time position. Utilization of the messaging systems is the primary communication method the NAIC uses daily to support its business operations and facilitate strategic discussions. The growth of the messaging systems and reliance of NAIC business operations on this technology has increased the demands on the Message Systems team. To maintain the quality service and support the organization expects, additional resources must be added to the Messaging Systems team in 2011. II. Benefits of Project/Initiative to NAIC Members:
Adding a part-time resource to the Messaging Systems team has both tangible and intangible benefits. These benefits are as follows:
155
Increased services and customer support – The Messaging Systems team can utilize this part-time resource to implement new services or support messaging issues relating to NAIC staff.
End user productivity gains – More time can be devoted to helping end users with issues and teaching them better ways to utilize the messaging systems.
Increased knowledge of technologies, resulting in improved staff efficiency – The Messaging Systems team will be able to devote more time to understanding the details of how the systems work. This knowledge can then be relayed to the end user making them more efficient in utilizing the messaging systems.
Improved efficiency or effectiveness of the department resources – Having the correct technology in place will help departments to become more effective in their daily tasks. The Messaging System team will have more time to share their knowledge with the end users with the addition of this resource.
Faster adoption of technologies – The Messaging Systems team will have more resources to help with implementation of new technologies thereby getting them to the end users quicker.
Improved communications – The Messaging Systems team plays a key role in the organization’s daily communications and we will be able to provide improved support and make ensure the systems are running at top performance. III. Stakeholders:
All NAIC staff and state regulators that use NAIC messaging systems, such as email, Blackberry devices, distribution lists, and forums are stakeholders. The quality and amount of support that can be provided for the messaging systems are at risk.
IV. Business and Operational Impact:
All NAIC areas would see a positive impact if this resource were to be added. Support levels would be maintained or improved and there would be an increase in the amount of support delivered by the Messaging Systems team. There will be no additional impact to existing resources with this addition, other than salary and benefit dollars.
V. Financial Impact:
The addition of part-time resources will have a financial impact of $29,460, which includes salary, benefits, and taxes.
See Attachment I for a detailed summary of costs associated with this proposal. VI. Alternatives or Partnerships:
Doing nothing means retaining the status quo and with that the messaging systems support level will suffer due to the amount of work related to administrative duties required of the Messaging Systems team.
156
VII. Risk Management:
The risk of not approving this request is resulting decline in the quality support Messaging Systems provides to the end users and a decline in the number of new services that can be added (e.g., Lyris lists). Available resources will have to be redirected to maintain this infrastructure. The measure of success by adding this part-time resource will be the continuation of quality support and maintenance of systems the Messaging Systems team delivers and their ability to grow these systems.
157
158
Bus
ines
s and
Fis
cal I
mpa
ct S
tate
men
t Pro
ject
Cos
t Ana
lysi
sR
even
ues,
Exp
ense
s and
Cap
ital E
xpen
ditu
res
Proj
ect/I
nitia
tive:
NA
IC S
taff
ing:
Mes
sagi
ng A
dmin
istr
ator
Bus
ines
s Ent
ity-N
AIC
2011
Ann
ual
2011
2012
2013
Des
crip
tion
Bud
get
Janu
ary
Febr
uary
Mar
chA
pril
May
June
July
Aug
ust
Sept
embe
rO
ctob
erN
ovem
ber
Dec
embe
rT
otal
Bud
get
Bud
get
Rev
enue
s:-
T
otal
Rev
enue
s-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exp
ense
s:Sa
lary
and
Ben
efits
29,4
60$
3,
064
$
2,
946
$
2,
829
$
2,
946
$
2,
946
$
2,
946
$
2,
946
$
2,
829
$
2,
946
$
3,
062
$
29
,460
$
36
,290
$
37
,256
$
Tot
al E
xpen
ses
29,4
60
-
-
3,06
4
2,94
6
2,82
9
2,94
6
2,94
6
2,94
6
2,94
6
2,82
9
2,94
6
3,06
2
29,4
60
36,2
90
37,2
56
Rev
enue
s Ove
r (U
nder
) Exp
ense
s(2
9,46
0)$
-$
-
$
(3
,064
)$
(2
,946
)$
(2
,829
)$
(2
,946
)$
(2
,946
)$
(2
,946
)$
(2
,946
)$
(2
,829
)$
(2
,946
)$
(3
,062
)$
(2
9,46
0)$
(36,
290)
$
(3
7,25
6)$
2011
Bud
get S
prea
d
Attachment I
159
160
Fiscal Impact 7
BUSINESS AND FISCAL IMPACT STATEMENT DATE SUBMITTED: SEPTEMBER 17, 2010 NAME OF PROJECT/INITIATIVE: IMPACT STUDY OF VM-20 PRINCIPAL-
BASED APPROACH TO VALUATIONS REGULATOR/BUSINESS SPONSOR: PRINCIPLES-BASED RESERVING (EX)
WORKING GROUP COMMISSIONER ADAM HAMM, CHAIR
NAIC STAFF SUPPORT: JOHN ENGELHARDT, CHIEF LIFE AND HEALTH ACTUARY
REQUESTED PROJECT START DATE: OCTOBER 1, 2010 ANTICIPATED COMPLETION DATE: MARCH 31, 2011 TOTAL REVENUE GENERATED: $0 TOTAL EXPENSE REQUESTED: $250,000 TOTAL CAPITAL REQUESTED: $0 I. Executive Summary: In September 2009, the NAIC adopted modifications to the Standard Valuation Law, which sets forth minimum valuation requirements for life insurance liabilities. The modifications authorize the use of a principle-based valuation methodology, which will be implemented through the use of a valuation manual. The Life and Health Actuarial Task Force (LHATF) has developed a principle-based valuation methodology for the calculation of reserves for life insurance products. The principle-based valuation requirements for life insurance products are detailed in the working draft valuation manual, section VM-20. The most recent version of the working draft can be located on the NAIC webpage for the Life and Health Actuarial Task Force. The Principles-Based Reserving (EX) Working Group believes it is important to understand the impact of the proposed valuation methodology on the life insurance industry as a whole, and specifically life insurance companies writing a mix of life insurance new business. Therefore, the
161
Working Group believes it is important to conduct a study for the purpose of determining the impact of these proposed changes. The potential impact of the proposed valuation changes will be analyzed by comparing the reserves as calculated under the proposed principle-based valuation methodology with the reserves calculated under the current formula-based valuation methodology. This information will be valuable to insurance regulators, life insurance companies and state legislators as they contemplate adopting the modifications to the Standard Valuation Law. The objectives of the proposed impact study will be to analyze various provisions of VM-20, including: • Exclusion tests that allow an insurer to use simpler valuation methods if one of the tests is
met.
• The use of the American Academy of Actuary’s Economic Scenario Generator and the provisions to use small numbers of scenarios and still be statistically credible.
• The method of recognizing different forms of reinsurance, both proportional and non-proportional agreements, determination of pre and post reinsurance amounts and reinsurance reserve credits.
• The processes involved with determining anticipated experience assumptions and establish margins for adverse deviation and company variation using credibility theory and sensitivity testing.
• The reporting and documentation of reserve results, modeling assumptions, experience assumptions, margins and sensitivity testing.
• The ease of implementation of the proposed methodology taking into account human resources, information technology resources, computer modeling run times and required sensitivity analysis. The ease of implementation should take into account available scenario reduction techniques or processes that may be implemented.
• Areas where further refinements or changes, if any, to the methodology are needed or suggested based on the results of the modeling or analysis to improve the risk measurement functionality of the methodology.
• Areas where further clarification of the proposed methodology or processes are needed in order to facilitate a smooth implementation.
As a first step in evaluating this proposal, on July 12, 2010, the NAIC Executive (EX) Committee approved the release of a Request for Proposal (RFP) for the purpose of conducting the impact study of proposed new valuation methodologies for life insurance. The NAIC issued an RFP on July 29, 2010 (posted on NAIC website), soliciting proposals for an actuarial firm to perform the study. Eight responses were received, and each was reviewed by the Regulatory Testing Subgroup (RTS), a subgroup of the LHATF, on August 27, 2010. The eight responses were refined to a list of four candidates and each candidate was then requested to provide additional information and update their proposal based on the testing of 25 companies averaging three products each for a total of 75 total products. The responses from the four finalists were
162
reviewed by the RTS on September 3, 2010, and a recommendation was reached to select Towers Watson based on their experience and project approach. Before the NAIC can enter into a contact with Towers Watson to conduct this study, the Executive (EX) Committee and Internal Administration (EX1) Subcommittee was asked to approve this project and agree to commit the required funding in 2010. Based on the work of the RTS of LHATF, the Principles-Based Working Group recommends moving forward with this project and entering into a contract with Towers Watson, with a goal of completing the study by March 31, 2011 in an effort to facilitate adoption of the valuation manual at the NAIC 2011 Summer National Meeting. II. Benefits of Project/Initiative to NAIC Members: The results of the impact study will be valuable to insurance regulators and state legislators as they contemplate adopting the modifications to the Standard Valuation Law. The study may uncover areas of VM-20 in need of modification. At present, the NAIC and its members do not know the financial impact of this methodology on the reserves required to be maintained by insurance companies on their life insurance products. This study would qualify the amount and would also assist regulators in fine-tuning components of the principle-based valuation methodology. In addition, the impact study will assist regulators in determining the best and most efficient reporting and documentation requirements. III. Stakeholders: The primary stakeholders of this project are NAIC members and insurance companies. Insurance policyholders and state legislators also have an indirect interest in this project. • NAIC Members: This project will provide NAIC members and regulators information on the
impact of the principle-based valuation requirements on the life insurance industry. In addition, the members will have assurance the requirements in VM-20 are appropriate for statutory valuations.
• Insurance Companies: Insurance companies will apply the proposed requirements in VM-20 on their new business and have the assurance the methodology is appropriate prior to its implementation. The study will indentify potential issues and allow methodologies to be modified prior to acceptance thereby enhancing state legislative consideration of the SVL and valuation manual.
• Insurance Customers: Insurance customers will benefit by having the appropriate level of reserves established for each type of policy sold under this framework.
• State legislators: State legislators will benefit by having credible data they can rely on in crafting their state laws to implement this new methodology.
163
IV. Business and Operational Impact: During the operational phase of this study, there will be a number of representatives from state insurance departments, associations (e.g., American Academy of Actuaries and American Council of Life Insurers), life insurance companies and the actuarial consulting firm involved in this project. The key teams and their primary function is as follows: • The consultant(s) will work closely with the Regulatory Testing Subgroup (RTS), the
Profession and Industry Liaisons (PIL) and the Actuarial Task Forces (ATFs) to meet the impact study objectives.
• The RTS will provide oversight and direction for the project, including recruiting ATFs. The RTS will consist of members of LHATF representing the states of Kansas, Alaska, California, Florida, New York, Ohio and Texas.
• The PIL will consist of representatives of the Life Reserve Working Group (LRWG) of the American Academy of Actuaries, and representatives of the American Council of Life Insurers (ACLI). RTS and the consultant(s) will work with PIL on potential changes to the methodology or any alternatives to be studied.
• ATFs are working groups comprised of company actuaries who will model the proposed valuation methodology and any alternatives using new business issued in the last 12 months and projected new business for each future modeling year consisting of actual insurance products that are currently being issued by their individual insurance companies. They would also identify areas where guidance or clarification is needed. The ATFs have the assignment of producing the information that the consultant(s) will utilize in producing the report.
• The consultant(s) role will be to manage and coordinate the project on a day to day basis, collaborate with the RTS in finalizing the list of products and companies to be modeled and the instructions to the ATFs; collaborate with the RTS and PIL on any methodology changes or alternatives to be tested; keep the RTS informed of the project progress and any issues that arise, aggregate and analyze the results of the ATFs, validate the work of the ATFs; fill modeling holes (if any), and prepare a summary report containing the results of the study that will be useful to the NAIC.
The impact study will include all products subject to the scope of VM-20 which includes, but not necessarily is limited to, the testing of the following life insurance products:
• Term Insurance (various types) with no return of premium benefits • Term Insurance with return of premium benefits • Universal Life with no secondary guarantee (various types) • Universal Life with secondary guarantee (various types) • Variable Universal Life with no secondary guarantee (various types) • Variable Universal Life with secondary guarantee (various types) • Participating and Non-participating Whole Life (various types)
164
The impact study is a short duration project and should be completed by March 31, 2011. The results of this study will be improvements in VM-20 and assistance in the adoption of the modifications to the Standard Valuation Law. There will be no lasting impact on the business operations of the NAIC. V. Financial Impact: The study is currently proposed to be comprised of 25 companies with an average of three products each for a total of 75 products. It has also been determined the final report should be completed by March 31, 2011 – this date provides sufficient time to design the study, coordinate with the various insurance companies, compile the results and have adequate time to analyze the results prior to the NAIC 2011 Summer National Meeting. The cost of this project is estimated to be $250,000 which includes consulting costs and incremental support costs. See Attachment I for detailed summary of costs associated with this proposal. VI. Alternatives:
If a consulting actuarial firm were not hired to help coordinate and perform the impact study and compile the required reports, the NAIC membership could pursue the following alternatives: (1) rely on NAIC staff to develop the study, coordinate the teams involved in this project, and compile the final report, or (2) decide not conduct the impact study altogether. However, the first alternative presents significant challenges, as the NAIC does not have the staff resources to complete this project within the required time-frame. Moreover, absent the proposed impact study, there will be less information available to assist in the adoption of the modifications to the Standard Valuation Law. VII. Risk Management: Given the importance of this project and the requirement to have insurance company support, the Principles-Based Reserving (EX) Working Group believes it is critical to finalize the work plan for conducting the study, identify the participating companies as quickly as possible, and then perform the actual study in a timely manner. The actuarial consulting firm will have project management responsibilities; the strength of Tower Watson’s project manager was one of the key criteria in their selection as the consulting firm for this project. In addition, LHATF will be engaged in this project to ensure it stays on task and on-time.
165
166
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AIC
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Ann
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2010
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June
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T
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2010
Bud
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Attachment I
167
168
Fiscal Im
pact 8
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: OCTOBER 4, 2010 NAME OF SBS CONSUMER ASSISTANCE DATA PROJECT/INITIATIVE: COLLECTION AND REPORTING
ENHANCEMENTS REGULATOR/BUSINESS SPONSOR: INTERNAL ADMINISTRATION (EX1) SUBCOMMITTEE NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES
REQUESTED PROJECT START DATE: OCTOBER 8, 2010
ANTICIPATED COMPLETION DATE: APRIL 30, 2011
TOTAL REVENUE GENERATED: $166,500 (2010 TO 2011) TOTAL EXPENSE REQUESTED: $166,500 (2010 TO 2011)
TOTAL CAPITAL REQUESTED: $0
I. Executive Summary:
On July 22, 2010, the U.S. Department of Health and Human Services (HHS) announced an invitation for states to apply for a Consumer Assistance Program grant. The deadline for submission of applications was September 10, 2010. This grant opportunity was established under Section 2793 of the Public Health Service Act (PHS Act) which provides for federal grants to states to establish, expand, or provide support for the establishment of consumer assistance or ombudsman programs.
Section 2793 of the PHS Act requires states, as a condition of receiving grant funds to assist consumers with filing complaints and appeals, to assist with the enrollment into health coverage and to educate consumers regarding their rights and responsibilities under their health insurance coverage. In addition, the states must collect data on consumer complaints, inquiries and referrals to assist the HHS Secretary in identifying problems in the marketplace. Data collection and reporting under the grant program includes reporting the types of problems and questions consumers experience with health insurance, regardless of their health insurance coverage, as
169
well as how their problems and questions are resolved. In addition, the grantee is required to assist consumers with the filing of appeals. HHS intends to share reports with the U.S. Department of Labor and the U.S. Treasury.
This grant opportunity was for state insurance departments as well as other state agencies meeting the eligibility requirement for the grant. Prior to submitting applications for grant funding, a number of state insurance departments using the NAIC’s State Based Systems (SBS) product suite requested the NAIC consider enhancing SBS to accommodate the data collection and reporting requirements of the grant. For these states, it was determined to be much more efficient to enhance SBS and allow their consumer assistance staff to continue using one software tool to respond to all consumer inquiries and complaints, regardless of whether or not the issue was health insurance related. Using a single tool to track and monitor all complaints, inquiries and referrals would allow consumer assistance staff to work more rapidly and avoid introducing tracking anomalies resulting from having to use two separate systems. In addition, using a single existing system to track all closed complaints ensures all closed complaints will be submitted to the NAIC’s Complaint Database System (CDS).
Based on limited information and in the absence of detailed specifications from HHS, the NAIC estimated the project effort and implementation schedule and shared this information with the states, requesting states submitting a grant to share in the cost of enhancing SBS. The cost per state was estimated at $18,500.
The purpose of this proposal is to assist states with meeting the data collection and reporting requirements under this grant. A description of the deliverables and proposed timeline are included in Appendix A. II. Benefits of Project/Initiative to NAIC Members:
The direct benefits of this proposal include:
• Minimize the cost of meeting grant requirements: While HHS is offering software to states for the purpose of data collection and reporting, using the alternative software will likely increase the cost of consumer assistance support in the state by introducing the inefficiencies of using two separate software tools to track consumer inquiries and complaints.
• Assist states with the ability to track external appeals based on NAIC Uniform Health Carrier External Review Model Act: The grant requires states to assist with the filing of appeals. This ultimately requires states to comply with requirements developed based on the NAIC Uniform Health Carrier External Review Model Act for the purpose of addressing external appeals. SBS will be enhanced to support the external appeal process.
• Continue to submit all closed complaints to the NAIC Complaints Database System (CDS): In leveraging SBS, states choosing this solution will be able to continue to track all closed complaints and automatically upload to CDS. States leveraging the HHS system may have to perform dual entry into the state tracking system used to submit complaints to CDS; otherwise, these complaints will not be loaded to CDS.
170
• Allow states to partner with other non-profit agencies in monitoring and tracking complaints, inquiries and referrals: In the grant announcement, states were encouraged to partner with other state agencies or non-profits to further the objectives of the grant. From an issue tracking standpoint, this means the partners must also have access to the same system to ensure all issues required to be tracked can be recorded. SBS will be modified to allow access by entities authorized by the state.
III. Stakeholders:
• State Insurance Regulators: Key stakeholders are those NAIC members who have licensed SBS, 20 states, as well as any non-SBS licensee choosing to leverage SBS for this purpose. All licensed states will be able to leverage this functionality, regardless of whether or not the state insurance department applied for grant funds. In addition, in leveraging SBS, all states benefit by ensuring all associated closed complaints are uploaded to CDS in a timely manner.
• The U.S. Department of Health and Human Services: Leveraging SBS creates the potential for streamlining the reporting to HHS from SBS states, ensuring reporting is uniform.
IV. Business and Operational Impact: In order to meet the requirements of this initiative, NAIC staff devoted to other projects will be redeployed. V. Financial Impact:
2010 2011 Totals Implementation Fees for Enhanced Functionality $74,000 $92,500 $166,500
Costs Associated with Using NAIC Resources $74,000 $92,500 $166,500
Net Budget Impact $0 $0 $0
Total implementation fees are projected at $166,500, representing $18,500 payments from eight states currently licensed for SBS and one additional state licensing SBS for this express purpose. The cost for the project covers redeployed resources from another NAIC project.
Attachment I includes overview of the project’s revenues and costs for 2010 and 2011. VI. Alternatives or Partnerships:
While HHS is offering software to states for the purpose of data collection and reporting, using the alternative software will likely increase costs by introducing the inefficiencies of using two separate software tools to track consumer inquiries and complaints, along with the reconciliation issues between the HHS software and the NAIC’s CDS. Therefore, the NAIC does not view this as a viable alternative given the low cost, efficiency and uniformity of leveraging the existing SBS system.
171
VII. Risk Management:
Leveraging SBS by product licensees minimizes the risk the state insurance department, as a grantee, will be unable to meet the data collection and reporting requirements. Risks associated with this funding may arise because HHS has not yet provided final data collection and reporting specifications. Therefore, this proposal contains project estimates based on the limited amount of information currently available. Should the final requirements be more expansive than anticipated, the project scope and cost could grow.
172
Bus
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-
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74
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173
Attachment I
174
Structured Securities
Project
BUSINESS AND FISCAL IMPACT STATEMENT
DATE SUBMITTED: SEPTEMBER 17, 2010 NAME OF PROJECT/INITIATIVE: 2010 STRUCTURED SECURITIES PROJECT
REGULATOR/BUSINESS SPONSOR: EXECUTIVE (EX) COMMITTEE FINANCIAL CONDITION (E) COMMITTEE
NAIC STAFF SUPPORT: JIM WOODY, SR. MANAGER
REQUESTED PROJECT START DATE: ONGOING SINCE 2009
ANTICIPATED COMPLETION DATE: MARCH 31, 2011
TOTAL REVENUE GENERATED: $7.0 MILLION IN 2010 TO 2011
TOTAL EXPENSE REQUESTED: $7.6 MILLION IN 2010 TO 2011 TOTAL CAPITAL REQUESTED: $0
I. Executive Summary: During the past several years, the world’s financial markets have experienced a period of extreme volatility which has resulted in severe downgrades of many financial securities, particularly investments in different types of structured securities. In late 2009, the NAIC determined it could no longer rely on the ratings of residential mortgage-backed securities (RMBS) by nationally recognized statistical rating organizations (NRSROs) to establish the level of Risk Based Capital (RBC) insurance companies must maintain. The NAIC established a new process to evaluate RMBS. This project was coordinated through the NAIC’s New York Office and involved retaining several third party consultants, including a financial modeler, to assist in establishing the “expected loss” for each RMBS owned by U.S. domiciled insurance companies at the end of 2009.
175
The facts driving the decision to model non-agency RMBS in 2009 have not changed and the NAIC membership has determined returning to pre-2009 reliance on NRSROs is not an option. Therefore, in 2010 the NAIC will leverage the lessons learned from the 2009 project and expand the modeling of structured securities to include commercial mortgage-backed securities (CMBS). On March 28, 2010, at the 2010 Spring National Meeting, the Financial Condition (E) Committee discussed recommendations from the Valuation of Securities (E) Task Force (VOSTF) as they relate to the evaluation of structured securities in 2010. There were two primary recommendations from the VOSTF: (1) extending the RMBS solution that was used at the end of 2009 until a long-term solution for loan-backed and structured securities is adopted and effective; and (2) RMBS modeling should be performed semi-annually, if technically feasible. The latter recommendation also included a proposal that the modeling process used for RMBS be expanded to include CMBS and other asset classes where modeling is applicable and deemed to be cost effective. Commissioner Gross, Chair of the Financial Condition (E) Committee, noted these recommendations involve NAIC resources, which ultimately would be determined by the Executive (EX) Committee and Internal Administration (EX1) Subcommittee. The Executive (EX) Committee and Internal Administrative (EX1) Subcommittee met on July 6, 2010, to review the status of a number of structured security projects. During this meeting, the Executive (EX) Committee: • Approved plans to move forward with 2010 mid-year and year-end residential
mortgage-backed securities (RMBS) modeling and to retain PIMCO to perform the modeling;
• Approved the release of a Request for Proposal (RFP) for the purpose of selecting a commercial mortgage backed securities (CMBS) financial modeler and the retention of a consultant, Oliver Wyman, to assist with the 2010 CMBS modeling project;
• Approved the acquisition of data from Bloomberg to enable the NAIC to provide members with increased information on investments held by insurers, particularly the characteristics of fixed income and structured securities;
• Approved a proposal to enhance the delivery system for both RMBS and CMBS in 2010; and
• Approved, in concept, the recommended approach to budgeting the project and assessing its overall cost to the insurance companies benefitting from the RMBS and CMBS data.
The financial modeling of CMBS and RMBS under the direction of the NAIC both reduces state regulators’ dependence on NRSROs and ensures the valuations generated are in line with expected losses. This initiative further enhances the value of the NAIC securities valuation function to the state insurance regulators and will ultimately increase the NAIC and state regulators’ analytical capabilities. Improving the NAIC’s analytical capability is an on-going focus as all classes of structured securities are monitored to ensure statutory valuation methodologies are appropriate.
176
II. Benefit of Project/Initiative to NAIC Members The NAIC membership depends on the SVO to provide accurate financial designations for financial instruments owned by insurance companies. Historically, the SVO’s designations have been based on either internally generated credit ratings (generally for non-publicly traded securities) or public ratings issued by Authorized Rating Organizations (AROs), a subset of NRSROs approved by the NAIC to provide credit ratings. These designations and related unit prices are produced solely for the benefit of NAIC members who may utilize them as part of the statutory financial surveillance of the insurance industry. Essentially, the higher the designation (NAIC-1 is the highest designation while NAIC-6 is the lowest), the higher the quality of financial security and lower level of reserves that must be maintained through risk-based capital (RBC) calculations. RMBS During 2009, it became increasingly apparent the NAIC could no longer rely on NRSRO ratings of RMBS holdings for purposes of establishing appropriate RBC levels. Rating agencies revised their expectations on losses of certain types of securities by as much as 20 times their original estimates, downgrading as much as 70% of originally Aaa rated securities to Caa or below, actions which significantly impacted most collateral types and vintages. This activity had two noticeable effects: (1) a lack of confidence by market participants in the rating process and rating models; and (2) a search for alternative methodologies to evaluate these securities in a more granular manner. Under the then-current ratings methodology employed by the NAIC, the impact of the market turmoil and related rating downgrades meant most of the estimated $190 billion of RMBS held by insurers at the end of 2008 would have declined from an industry aggregate 84% NAIC-1 designations at the beginning of the year to 44% NAIC-1 designations in September 2009. This reduction would have resulted in a significant impact (estimated to be a seven fold increase) on the industry’s RBC. As a result, the NAIC membership approved a recommendation from the Valuation of Securities (E) Task Force and Financial Condition (E) Committee to create a new modeling and assessment process for RMBS. The NAIC selected PIMCO as a third party financial modeler to calculate the intrinsic value of each security with assumptions established by the state insurance regulators. Once the intrinsic value was determined, a price grid for life/non-life companies was established for each security and mapped to a NAIC designation based on the insurer’s carrying value. This approach was formally adopted by the VOSTF and the Financial Condition (E) Committee on October 14, 2009. Immediately following the selection of PIMCO, work began establishing the macroeconomic assumptions to be used in the modeling process. The analytical objective was the “reasonableness” of the assumptions from the perspective of knowledgeable and reliable market participants. In addition, five probability (best case to worst case) scenarios were selected to capture the risk inherent in any financial modeling process.
177
High level details of the model methodology and assumptions were released to the public for comment before they were finalized by the Valuation of Securities (E) Task Force. The NAIC worked closely with the financial modeler, state insurance regulators, insurance companies and other interested parties to ensure the results were issued accurately and on time. Considering the short timeframe to scope and complete this process, the project successfully achieved its objectives of providing more analytically appropriate results in time for insurance companies to file their December 31, 2009 annual statements. CMBS Based on December 31, 2009 statutory filings, there was approximately $483 billion in book adjusted carrying value (BACV) in structured securities held by insurance companies. Although this amount is comprised of a number of different categories, CMBS ($207 billion or 42.9%) and RMBS ($163 billion or 33.1%) investments comprised over 75% of the total. Similar concerns with the rating accuracy of RMBS apply to CMBS, and given the substantial investment insurance companies have in CMBS; the NAIC will expand its modeling process for the designation of CMBS investments as of December 31, 2010. The financial modeling of CMBS is significantly different than RMBS. CMBS consists of different commercial property types, primarily (1) office, (2) multi-family units (apartments), (3) retail, (4) industrial and (5) hotels. These pools tend to contain fewer loans/underlying assets with larger dollar exposure. The lower level of diversification and greater heterogeneity of the asset group will require more incremental differences in assumptions, which require most loans to be individually analyzed with the assistance of a commercial real estate (CRE) professional. Factors such as local unemployment rates, competing rents, vacancy rates and type of property are critical variables in the valuation process. Given the complexity of the variables involved in the modeling of CMBS, plus the security specific knowledge (e.g., property location, financial strength covenants, etc.) required, financial modeling for this security class is significantly more labor intensive than RMBS. Since the NAIC will use a similar approach for evaluating CMBS and RMBS, a RFP was issued on July 27, 2010, to select a financial modeler for CMBS. A total of sixteen responses were reviewed and, pursuant to a similar process as the selection of the RMBS financial modeler in 2009, BlackRock Solutions was selected by the Executive (EX) Committee on September 2, 2010. Now that PIMCO and BlackRock Solutions have been retained for RMBS and CMBS, respectively, activities are underway to (1) produce the NAIC designation price-grids for life/non-life insurance companies, with macroeconomic assumptions to be developed and finalized prior to the NAIC 2010 Fall National Meeting; (2) compile lists of insurer-owned CMBS and RMBS CUSIPs; (3) develop the communication strategy; (4) develop the price-grid delivery system for deployment in late December; and (5) define the budget and 2010 assessment to insurers to support these initiatives.
178
III. Stakeholders There are a number of stakeholders that are impacted by this project, including: • Consumers – Consumers benefit as they are assured the reserves held by insurance
companies are appropriate based on the value of the assets they own. The appropriate amount of reserves is important for two key reasons – too little in reserve subjects the policyholder to a risk of unpaid claims – too much in reserve may result in higher than necessary premiums. The appropriate amount of reserves minimizes these risks with an appropriate balance.
• NAIC Members – From a financial regulatory perspective, the states benefit by
having more accurate analysis and valuations for a major category of investments held by insurance companies. This accuracy ensures the reserves held by insurers are properly aligned with the risk of their investment. In addition, the ability of the members to modify their approach to the valuation of structured securities illustrates state insurance regulators’ proactive and targeted review of the economic impact of structured assets on the insurance industry, modifying their defined methodologies as conditions warrant. The members of the Valuation of Securities Task Force and the Financial Condition (E) Committee have been instrumental in driving these changes.
• Other Regulators – Regulators, both domestic and international, strive to ensure the
companies they regulate have sufficient resources to meet their financial commitments to customers (policyholders in insurance companies, depositors in financial institutions). Regulators benefit by being able to leverage the results of the NAIC’s structured security analysis in reviewing the investments of the entities they regulate.
• Insurance Companies – As the approach to valuation of investments in CBMS and
RMBS has changed to reflect their intrinsic value rather than a NRSRO rating which reflects the probability of default, the required RBC reserves for these investments more closely aligns with the value of the investment. As noted earlier, most NRSRO ratings have experienced dramatic downgrades and don’t take into consideration the true underlying value of the asset. The new approach is more asset-specific and more accurately reflects the value of a particular investment. Insurance companies have to modify their internal processes to reflect the designation price-grid based on the carrying value of each CUSIP rather than the designation generated by a NRSRO rating. The cost of the new methodology, including the cost of administration, will be billed to each insurer based on the number of CMBS and RMBS CUSIPs they own.
• NAIC Staff – A number of staff functions are impacted by this project, most notably
the NAIC’s New York Office. The SVO has been actively involved in the monitoring of structured securities and has participated in a number of meetings with regulators, insurance companies, industry associations, rating agencies and interested parties to identify the most appropriate methodology for monitoring and evaluating structured securities investments. As a result, a number of revisions to policies and procedures
179
of the SVO have been approved by the NAIC membership. Other impacted NAIC Divisions include Finance, Insurance Products & Services, Information Services, Financial Regulatory Services, and Legal.
IV. Business and Operational Impact The structured securities project is a major undertaking for the NAIC and has had and will continue to have a significant impact on NAIC staff, insurance regulators, insurance companies and third party administrators. An overview of the 2010 structured security process is outlined below highlighting the key operational impacts. • The first step in the process was the decision by the Executive (EX) Committee on
July 7, 2010, to model insurers’ investments in CMBS and RMBS using a third party financial modeler to determine the intrinsic value of each security, which will be used to develop the price-grid to map to NAIC designations based on each insurer’s carrying value.
• A RFP was issued on July 27, 2010, for a financial modeler to develop intrinsic prices for CMBS. Sixteen responses were received on August 11, 2010 and, following a detailed and thorough review process, BlackRock Solutions was selected to model CMBS on September 2, 2010. The contract process is now underway and it is expected to be completed in late September/early October.
• The NAIC has elected to continue its relationship with PIMCO for the modeling of RMBS at the end of 2010. The contract process for this relationship is also underway and the contract is expected to be completed by late September.
• The process to develop and finalize the macroeconomic assumptions in the models will begin in mid-September 2010. It is important for the assumptions to be consistent between the RMBS and CMBS financial models and will be a primary focus of Valuation of Securities Task Force, NAIC staff and financial modeling consultants. It is anticipated the macroeconomic assumptions will be made public and comments will be discussed on a public call prior to their approval by the NAIC membership. The process is anticipated to be completed prior to the NAIC 2010 Fall National Meeting.
• A report of all CMBS and RMBS CUSIPs owned by insurers as of June 30, 2010 will be provided to each financial modeler no later than early October 2010. A process will be developed to identify additional CUSIPs purchased by insurance companies during the third and fourth quarters which are not currently part of any insurer’s portfolio, and it is envisioned these additional CUSIPs will be delivered to the financial modelers in early January 2011.
• The financial modelers will be responsible for generating intrinsic prices for each CUSIP in order to develop the NAIC designation price-grid. The financial modelers will work closely with NAIC staff and consultants to ensure delivery dates are met and modeling questions are addressed quickly.
• The SVO will be responsible for validating the intrinsic prices for each CUSIP and will implement a quality assurance (QA) process for each type of security. This process will require coordination with the financial modelers, with results to be made public once the QA Team has approved the valuations.
180
• A new CUSIP delivery system is being developed which will be part of the NAIC’s Automated Valuation Service (AVS). This system will allow each insurer to view their specific CMBS and RMBS holdings in a secured environment following remittance of their respective RMBS and/or CMBS assessments to the NAIC. Assessment invoices will be created and distributed in November 2010 based on the insurance company’s holdings as of June 30, 2010. The invoice will be based on the number of CUSIPs held, and the price per CUSIP is currently under development and anticipated to be finalized by mid-October 2010.
• A webpage will be available on the NAIC website for both CBMS and RMBS in order to provide useful information to insurance companies, regulators and interested third parties.
V. Financial Impact Given the complexity of valuing structured securities and the expertise required to do so, this project requires a substantial financial investment. The NAIC’s primary objective is to recover the direct and indirect costs incurred in the development of NAIC designation price-grids by assessing insurance companies for the RMBS and CMBS CUSIPs they own. Members of the NAIC have authorized an assessment of the costs associated with this project to those U.S. insurers that own non-agency RMBS and CMBS subject to the modeling process. The total direct and indirect costs arising from the RMBS and CMBS modeling and assessment process in 2010 and through February 2011 are estimated at $6.2 million and include: (1) $6.4 million in direct expenses associated with third party consultants (including
Oliver Wyman, PIMCO, BlackRock Solutions, consultants to the NAIC New York Office, temporary personnel and outside legal counsel) for the modeling of an estimated 21,000 RMBS CUSIPs and 7,500 CMBS CUSIPs in 2010.
(2) $673,608 in direct expenses associated with the acquisition of data from Bloomberg
to enable the NAIC to provide members with increased information on investments held by insurers, particularly the characteristics of fixed income and structured securities.
(3) $63,600 in direct expenses associated with enhancements to the NAIC’s Automated
Valuation System for improved delivery of RMBS and CMBS modeling results to insurers.
(4) $446,848 in other direct expenses estimated for (i) a $308,350 potential allowance
for uncollectible accounts and (ii) $138,498 for other overhead items and contingencies for unplanned expenses arising from this project.
(5) $409,047 in indirect NAIC staff support costs to this initiative in 2010, estimated at
staff’s best projection of hours to be spent supporting this project at each
181
employee’s salary (based on the mid-point of their salary grade) and including an estimated employee benefit expense of an additional 32.5%.
The NAIC will carefully account for actual revenues generated and expenses incurred in support of this initiative, and anticipates any net revenue or net expense will be reported and adjusted, as appropriate, as a component of any further NAIC work in the area of RMBS, CMBS and/or other structured securities during fiscal year 2011. The assessment of costs associated with this project will be allocated among all insurance companies owning non-agency RMBS CUSIPs and non-agency CMBS CUSIPs, estimated based on Schedule D information from December 31, 2009, statutory annual statement filings. Based on current cost estimates and assumed RMBS and CMBS holdings, the RMBS assessment will be $70 per CUSIP per individual company (assuming a total of 38,100 in RMBS CUSIP holdings) and the CMBS assessment will be $100 per CUSIP per individual company (assuming a total of 35,000 in CMBS CUSIP holdings). Of course, the estimated per CUSIP price may be adjusted depending on actual holding information at the time the RMBS and CMBS assessment invoices are prepared and delivered by the NAIC to individual insurers, primarily depending on any significant changes in the composition of RMBS and CMBS holdings by the industry between December 31, 2009 and December 31, 2010. Attachment I includes an overview of the project’s revenues and costs since inception in late 2009 through February 2011. VI. Alternatives or Partnerships From a conceptual perspective, the NAIC’s approach to this project is based on a partnership of NAIC staff, insurance regulators, third party consultants and financial modelers. This approach was approved in 2009 and again in 2010 due to the complexity inherent in modeling complex financial securities and the fact the NAIC currently does not have the staff, systems or expertise to conduct this type of financial evaluation, particularly for a large number of complex securities, on its own. The NAIC has specific requirements regarding its evaluation of both CMBS and RMBS CUSIPs, so reliance on publicly available information is not enough. As a result, the NAIC, in conjunction with external consultants, has determined financial modeling firm partnerships are the best approach to managing these projects. Given the NAIC’s success with PIMCO in 2009, and the desire to have a consistent methodology between years, the NAIC elected to continue this relationship for another year. The NAIC anticipates similar success with BlackRock Solutions, based on its thorough due diligence process, for CMBS modeling in 2010. During the upcoming year, staff will investigate the possibility of bringing this service into the NAIC from staffing, systems, policy and financial perspectives. Until the NAIC has the level of expertise necessary to perform these valuations internally, it must rely on external consultants and financial modelers.
182
VII. Risk Management Given the importance, complexity and financial cost of the structured securities project to the NAIC and its members, this project has visibility at all levels within the NAIC. Periodically, during the year, and now on a bi-weekly basis, a cross-departmental team of representatives from various NAIC staff divisions (Business & Corporate Development, Capital Markets, Finance, Financial Regulatory Services, Information Services, Insurance Products and Services, Legal and Securities Valuation Office) meet to manage the daily activities of the project. Working with two vendors in 2010, the NAIC must be diligent in ensuring both vendors employ similar macro-economic assumptions in their models. NAIC staff will hold regular meetings with representatives from both groups to ensure the models are in sync. In addition, the Quality Assurance (QA) process coordinated by the NAIC’s independent consultant will serve as a check to ensure (1) macro-economic assumptions are consistent and (2) reported results by CUSIPs appear reasonable.
183
184
Business and Fiscal Impact Statement Project Cost AnalysisRevenues, Expenses and Capital Expenditures
Project/Initiative: 2010 Structured Securities Project
Business Entity - NAIC
2009 6/30/10 July - December 2010 2011 CumulativeDescription Actuals Actual Projections Total Budget Project
Direct Revenues:RMBS Assessment to Insurers 4,617,891$ (6,000)$ 2,667,100$ 2,661,100$ 7,278,991$ CMBS Assessment to Insurers 3,500,000 3,500,000 3,500,000 Data Sales to TPAs and Other Third Parties 220,000 800,000 40,000 840,000 1,060,000 Total Direct Revenues 4,837,891 794,000 6,207,100 7,001,100 - 11,838,991
Direct Expenses:Professional Consulting Services 2,543,896 869,730 5,284,382 6,154,112 224,650$ 8,922,658 Bloomberg Data Acquisition 10,397 639,547 649,944 23,664 673,608 Automated Valuation System Delivery Enhancements 63,600 63,600 63,600 Allowance for Bad Debt 20,708 308,350 308,350 329,058 Other Expenses 18,850 (1,818) 140,316 138,498 157,348 Total Direct Expenses 2,583,454 878,309 6,436,195 7,314,504 248,314 10,146,272
Direct Allocated Net Assets 2,254,437 (84,309) (229,095) (313,404) (248,314) 1,692,719
Indirect NAIC Staff Expenses (Salary/Hours) 298,498 164,047 210,000 374,047 35,000 707,545
Total Allocated Net Assets 1,955,939$ (248,356)$ (439,095)$ (687,451)$ (283,314)$ 985,174$
2010 Projections
Attachment I
185
186
Unrestricted
Net A
ssets
UN
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Str
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2005
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54,3
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54
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53,5
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82
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2006
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4,
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189
M
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20
06 E
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,652
,480
58,6
52,4
80
57
,770
,373
882,
107
2007
Rev
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s O
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Exp
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528,
315
5,
528,
315
D
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58)
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2007
End
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Bal
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59,6
07,2
83
59
,607
,283
58,6
85,9
72
92
1,31
1
2008
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FA
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58)
(2)
(6,4
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(6,4
48,6
85)
2008
End
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Bal
ance
48,3
76,6
68
48
,376
,668
47,6
14,3
04
76
2,36
4
2009
Rev
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s O
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Exp
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678,
983
6,
678,
983
D
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FA
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58)
(2)
1,77
1,34
0
1,77
1,34
0
2009
Str
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Sec
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254,
437
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2,
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N
AIC
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Str
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Sec
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-
2009
End
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57,1
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89
1,
955,
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59
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58,1
55,2
58
92
6,17
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Pro
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Pro
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1,95
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9
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21
60
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909,
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Pro
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NA
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Afte
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Pro
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Pro
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Pro
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late
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uts
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sted
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esof
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31, 2
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188
2011 Program
Budget
Date: October 11, 2010 To: All NAIC Members and Interested Parties From: Terri Vaughan, Chief Executive Officer Andy Beal, Chief Operating Officer and Chief Legal Officer Brady Kelley, Chief Financial and Business Strategy Officer Re: Program Budget The purpose of NAIC program budgeting is to illustrate the NAIC’s budgeted revenues and expenses allocated across three broad categories, including Solvency Regulatory Support, Market Regulatory Support and General Regulatory Support. At the direction of the membership, NAIC staff prepared the first program budget in early 1996, using a crosswalk methodology to convert the conventional budget to a program-reporting format based upon program categories established by the Strategic Framework (EX1) Working Group. Since that time, continual refinements have been made to the program budget process to accommodate changes in NAIC programs and initiatives and to provide for a more precise crosswalk and illustration. The method of allocation used in preparing the 2011 program budget is consistent with previous years. The NAIC has dedicated a great deal of time and resources to the program budget process. However, the allocation of certain revenues and expenses not directly related to individual programs requires significant judgment and estimation. NAIC management has analyzed these allocation methods and believes they represent reasonable estimates of the NAIC resources dedicated to each NAIC program. Please fee free to contact us at (816) 783-8011 with any questions. Thank you!
189
190
Solvency Market General TotalRegulatory Regulatory Regulatory Regulatory
Support Support Support Support
Member Assessments 2,210,160$ 2,210,160$ Database Filing Fees 25,734,999$ 25,734,999 Publications and Insurance Data Products 15,992,922 1,418,338$ 1,251,471 18,662,731 Services 9,774,286 7,745,376 17,519,662 National Meeting Registration Fees 686,339 583,165 253,396 1,522,900 Investment Income 1,030,209 195,343 78,559 1,304,111 Education Programs 561,691 255,596 307,756 1,125,043 Administrative Services/License Fees 7,051,713 7,051,713 Miscellaneous Income 16,984 5,720 1,296 24,000
Total Revenues 53,797,430 17,255,251 4,102,638 75,155,319
Salaries 17,408,434 10,228,553 6,865,054 34,502,041$ Temporary Personnel 26,662 28,521 15,606 70,789 Payroll Taxes 1,250,287 732,546 426,825 2,409,658 Employee Benefits 3,696,514 1,867,737 1,353,848 6,918,099 Employee Development 303,456 258,174 140,598 702,228 Professional Services 1,317,411 1,802,960 932,894 4,053,266 Computer Services 1,167,300 54,335 175,168 1,396,803 Travel 894,763 873,961 1,600,529 3,369,254 Occupancy 2,888,533 1,904,197 1,200,515 5,993,244 Equipment Rental/Maintenance 1,558,308 227,727 728,838 2,514,873 Depreciation 1,445,200 722,600 240,867 2,408,667 Telephone 204,283 147,792 88,177 440,252 Other Supplies 274,994 70,029 121,013 466,036 Mail Services 120,936 66,441 60,609 247,986 Reference Materials 351,392 108,773 97,305 557,469 Printing 104,085 51,852 48,373 204,309 National & Interim Meetings 536,760 400,578 283,423 1,220,761 Education Programs & Communications 513,906 213,367 1,215,532 1,942,805 Miscellaneous Expenses 427,624 2,464 2,973 433,062 Overhead 2,748,018 1,837,545 1,005,952 5,591,515
Total Expenses 37,238,864 21,600,152 16,604,099 75,443,115
Revenues Over/(Under) Expenses before Structured Securities Project 16,558,566$ (4,344,901)$ (12,501,461)$ (287,796)$
Revenue Percentage 71.58% 22.96% 5.46% 100.00%
Expense Percentage 49.36% 28.63% 22.01% 100.00%
Direct and Indirect Structured Securities Project Revenue -$ -$ Direct and Indirect Structured Securities Project Expenses 248,314 248,314
Revenues Over/(Under) Expenses-Structured Securities Project (248,314) (248,314)
Total Revenues Over/(Under) Expenses Including Structured Securities Project 16,310,252$ (4,344,901)$ (12,501,461)$ (536,110)$
National Association of Insurance Commissioners2011 Program Budget
191
192
2011
Pro
gram
Bud
get
Sol
venc
y R
egul
ator
y S
uppo
rtG
over
nmen
tT
otal
Ear
ly W
arni
ngS
ecur
ities
Res
earc
hR
elat
ions
Sol
venc
yS
olve
ncy
Fin
anci
alF
inan
cial
Val
uatio
nIn
solv
ency
Edu
catio
n an
dS
uppo
rtS
olve
ncy-
Onl
yIn
clud
ing
Sol
venc
yC
ompu
ter
Reg
ulat
ory
Rep
ortin
gA
naly
sis
Offi
ceA
ccre
dita
tion
(Leg
al)
Rei
nsur
ance
Tra
inin
gE
xam
inat
ions
Incl
udin
g R
BC
Pub
licat
ions
Inte
rnat
iona
lM
eetin
gsA
pplic
atio
nsS
uppo
rt
Mem
ber
Ass
essm
ents
-$
Dat
abas
e F
iling
Fee
s25
,734
,999
$
25
,734
,999
Pub
licat
ions
/Sub
scrip
tions
13,7
40,2
72
2,25
2,65
0$
15,9
92,9
22
Ser
vice
s11
4,95
0
45
9,80
0$
8,
531,
002
$
66
8,53
4$
9,77
4,28
6
Nat
iona
l Mee
ting
Reg
istr
atio
n F
ees
686,
339
68
6,33
9
Inte
rest
Inco
me
773,
198
8,98
0
166,
607
10,9
70$
43,9
93
26,4
61
1,03
0,20
9
Edu
catio
n P
rogr
ams
561,
691
561,
691
Adm
inis
trat
ive
Ser
vice
s/Li
cens
e F
ees
-
Indi
rect
Mis
cella
neou
s In
com
e12
,747
14
8
2,
747
18
1
725
436
16
,984
T
otal
Rev
enue
s40
,376
,166
46
8,92
8
8,
700,
356
-
-
-
572,
842
-
-
2,29
7,36
8
-
1,
381,
770
-
53
,797
,430
Sal
arie
s2,
630,
051
1,
143,
463
5,
883,
177
27
5,96
9$
20
9,95
7$
82,1
07$
49
1,00
7
17
1,46
5$
62
0,38
3$
91
6,36
4
1,
300,
767
$
14
7,80
1
3,53
5,92
2$
17,4
08,4
34
Tem
pora
ry P
erso
nnel
26,6
62
26,6
62
Pay
roll
Tax
es20
5,27
7
86
,531
39
7,75
4
20
,429
14
,392
6,
295
39
,393
13
,146
30
,371
69
,890
77
,669
12
,128
27
7,01
2
1,
250,
287
Em
ploy
ee B
enef
its55
8,46
8
24
2,80
6
1,
249,
237
58
,599
44
,586
17
,433
104,
259
36,4
06
131,
730
194,
578
276,
207
31,3
87
750,
818
3,69
6,51
4
Em
ploy
ee D
evel
opm
ent
33,4
62
8,06
1
27,1
59
3,64
0
2,60
9
65
8
7,
029
1,37
5
11,3
42
12,0
49
122,
294
20,1
52
53,6
26
303,
456
Pro
fess
iona
l Ser
vice
s42
,061
30
,325
70
2,82
9
41
,458
25
,096
23
6
30,3
76
976
17,0
85
426,
970
1,31
7,41
1
Com
pute
r S
ervi
ces
694,
350
8,73
9
1,
556
92,6
99
369,
956
1,16
7,30
0
Tra
vel
39,1
82
121,
106
85,9
84
18,6
43
10,8
44
2,56
3
11,1
31
5,35
2
43,1
92
92,2
03
318,
070
57,5
59
88,9
35
894,
763
Occ
upan
cy45
3,83
6
21
4,69
9
70
9,00
7
46
,466
30
,535
15
,334
118,
649
32,0
22
101,
189
219,
258
273,
001
5,57
6
66
8,96
2
2,
888,
533
Equ
ipm
ent R
enta
l/Mai
nten
ance
55,9
07
1,90
0
18,6
62
13,6
36
37,0
38
1,48
8
7,58
1
1,
422,
096
1,
558,
308
Dep
reci
atio
n1,
445,
200
1,
445,
200
Insu
ranc
e-
Tel
epho
ne16
,161
28
,082
5,
342
2,
190
1,
643
1,60
1
3,59
1
3,
344
15
,345
3,
642
29
,518
17
,522
76
,301
20
4,28
3
Oth
er S
uppl
ies
27,8
14
902
24,4
29
825
296
99
6,
753
206
1,45
5
30
,098
6,
331
4,
233
171,
553
274,
994
Mai
l Ser
vice
s2,
599
1,77
6
6,92
6
1,25
0
197
19
4
49
0
405
1,02
8
83
,009
2,
267
19
,310
1,
485
12
0,93
6
Ref
eren
ce M
ater
ials
1,76
7
1,
120
30
4,31
3
10
0
32
9
111
265
23
3
30
,316
32
7
11
,857
8
646
351,
392
Prin
ting
180
414
10
0,47
8
30
7
2,
706
104,
085
Nat
iona
l & In
terim
Mee
tings
536,
760
53
6,76
0
Edu
catio
n P
rogr
ams
& C
omm
unic
atio
ns51
3,90
6
51
3,90
6
Mis
cella
neou
s40
0,00
0
82
1
915
25,8
88
427,
624
Ove
rhea
d44
0,07
0
22
4,15
9
67
2,25
5
27
,721
31
,880
16
,009
115,
649
33,4
33
105,
649
201,
110
156,
488
32,8
51
690,
744
2,74
8,01
8
T
otal
Exp
ense
s4,
906,
654
2,
074,
606
10
,109
,100
1,15
8,66
1
389,
140
14
2,40
5
1,
459,
592
29
7,38
6
1,
094,
613
2,
084,
035
2,
577,
239
96
5,20
8
9,98
0,22
7
37,2
38,8
64
Rev
enue
s O
ver/
(Und
er)
Exp
ense
s35
,469
,512
$
(1
,605
,678
)$
(1,4
08,7
44)
$
(1,1
58,6
61)
$
(389
,140
)$
(1
42,4
05)
$
(8
86,7
50)
$
(297
,386
)$
(1
,094
,613
)$
213,
333
$
(2,5
77,2
39)
$
416,
563
$
(9
,980
,227
)$
16
,558
,566
$
193
194
2011
Pro
gram
Bud
get
Mar
ket R
egul
ator
y S
uppo
rtM
arke
tG
over
nmen
tT
otal
Oth
erR
egul
atio
n an
dR
elat
ions
Mar
ket
Mar
ket
Tec
hnic
alE
duca
tion
Com
mitt
eeR
esea
rch
Mar
ket-
Rel
ated
Mar
ket
Incl
udin
gC
ompu
ter
Reg
ulat
ory
Ass
ista
nce
and
Tra
inin
gS
uppo
rtS
uppo
rtP
ublic
atio
nsM
eetin
gsIn
tern
atio
nal
App
licat
ions
Sup
port
Mem
ber
Ass
essm
ents
-$
D
atab
ase
Fili
ng F
ees
-
P
ublic
atio
ns/S
ubsc
riptio
ns1,
418,
338
$
1,41
8,33
8
Ser
vice
s-S
tate
Bas
ed S
yste
ms/
SE
RF
F7,
745,
376
$
7,74
5,37
6
Nat
iona
l Mee
ting
Reg
istr
atio
n F
ees
583,
165
$
58
3,16
5
In
tere
st In
com
e2,
711
$
16,2
64
6,68
7
16
9,68
1
195,
343
Edu
catio
n P
rogr
ams
255,
596
25
5,59
6
A
dmin
istr
ativ
e S
ervi
ces/
Lice
nse
Fee
s7,
051,
713
7,05
1,71
3
Indi
rect
Mis
cella
neou
s In
com
e45
2,50
0$
26
8
110
2,
797
5,
720
T
otal
Rev
enue
s-
258,
352
-
2,50
0
1,
434,
870
589,
962
-
14,9
69,5
67
17
,255
,251
Sal
arie
s79
5,98
6$
27
6,87
5
870,
527
$
482,
977
41
3,47
1
115,
220
1,
170,
645
$
6,
102,
851
10,2
28,5
53
T
empo
rary
Per
sonn
el22
,761
5,
760
28
,521
P
ayro
ll T
axes
36,5
18
21
,912
62,6
57
20
,291
31
,594
9,
705
67,9
53
48
1,91
6
732,
546
Em
ploy
ee B
enef
its16
9,01
7
58
,792
184,
851
102,
557
87
,795
24
,466
24
8,57
3
99
1,68
6
1,86
7,73
7
Em
ploy
ee D
evel
opm
ent
15,8
45
15
,305
10,8
83
10
,041
5,
797
1,90
3
12
1,57
4
76
,826
258,
174
Pro
fess
iona
l Ser
vice
s30
,973
83,9
29
2,
603
59,6
00
31,3
64
976
1,59
3,51
6
1,
802,
960
C
ompu
ter
Ser
vice
s2,
334
3,
933
48,0
68
54
,335
T
rave
l67
,584
23,8
36
97
,072
43,1
59
46,8
48
53,9
47
217,
979
323,
536
87
3,96
1
O
ccup
ancy
122,
695
64,2
65
14
6,63
4
76
,588
12
4,09
1
25,2
25
248,
480
1,09
6,21
8
1,
904,
197
E
quip
men
t Ren
tal/M
aint
enan
ce6,
136
17,4
71
6,47
2
1,
488
19
6,16
0
227,
727
Dep
reci
atio
n72
2,60
0
722,
600
Insu
ranc
e-
Tel
epho
ne19
,025
5,86
3
24
,554
12,7
22
1,35
3
14
,259
28
,652
41,3
65
14
7,79
2
O
ther
Sup
plie
s2,
074
3,
193
1,35
4
1,55
1
14
,217
3,
827
3,72
5
40,0
87
70
,029
M
ail S
ervi
ces
1,18
1
467
1,
672
86
5
39,1
82
17,2
47
2,25
7
3,57
1
66,4
41
Ref
eren
ce M
ater
ials
45,3
60
53
45,1
17
11,7
16
6,
526
10
8,77
3
P
rintin
g30
6
67
1
48
,085
2,
310
240
240
51,8
52
Nat
iona
l & In
terim
Mee
tings
400,
578
40
0,57
8
E
duca
tion
Pro
gram
s &
Com
mun
icat
ions
208,
523
84
6
3,
998
21
3,36
7
M
isce
llane
ous
Exp
ense
s1,
232
1,
232
2,46
4
Ove
rhea
d12
8,10
4
63
,394
153,
093
79,9
65
116,
443
26
,336
13
0,88
7
1,
139,
323
1,83
7,54
5
T
otal
Exp
ense
s1,
438,
235
75
2,54
7
1,63
8,74
3
879,
669
1,
005,
947
755,
620
2,
255,
145
12
,874
,246
21,6
00,1
52
Rev
enue
s O
ver/
(Und
er)
Exp
ense
s(1
,438
,235
)$
(4
94,1
95)
$
(1
,638
,743
)$
(8
77,1
69)
$
428,
923
$
(1
65,6
58)
$
(2,2
55,1
45)
$
2,09
5,32
1$
(4
,344
,901
)$
195
196
2011
Pro
gram
Bud
get
Gen
eral
Reg
ulat
ory
Sup
port
Com
mun
icat
ions
Gov
ernm
ent
Tot
alin
clud
ing
Com
mis
sion
erO
ther
Gen
eral
Rel
atio
nsG
ener
alM
edia
Mem
bers
hip
Info
rmat
ion/
Gen
eral
Com
mitt
eeE
duca
tion
Com
pute
rIn
clud
ing
Reg
ulat
ory
Tra
inin
gS
ervi
ces
Res
earc
hM
eetin
gsS
uppo
rtLe
gal
and
Tra
inin
gA
pplic
atio
nsIn
tern
atio
nal
Sup
port
Mem
ber
Ass
essm
ents
2,21
0,16
0$
2,
210,
160
$
D
atab
ase
Fili
ng F
ees
-
Pub
licat
ions
/Sub
scrip
tions
1,25
1,47
1$
1,
251,
471
S
ervi
ces
-
Nat
iona
l Mee
ting
Reg
istr
atio
n F
ees
253,
396
$
25
3,39
6
In
tere
st In
com
e44
,915
24
,543
4,96
9
4,
132
$
78
,559
E
duca
tion
Pro
gram
s80
,090
22
7,66
6
30
7,75
6
A
dmin
istr
ativ
e S
ervi
ces/
Lice
nse
Fee
s-
In
dire
ct M
isce
llane
ous
Inco
me
740
40
6
82
68
1,
296
T
otal
Rev
enue
s-
2,33
5,90
5
1,
276,
420
258,
447
-
-
23
1,86
6
-
-
4,
102,
638
Sal
arie
s52
6,11
3$
1,
164,
481
785,
588
29
4,92
4
177,
360
$
36
0,57
8$
312,
104
2,44
1,93
7$
801,
969
$
6,86
5,05
4
Tem
pora
ry P
erso
nnel
15,6
06
15,6
06
Pay
roll
Tax
es38
,823
48
,910
41
,841
13,3
63
8,64
7
24
,716
19
,916
189,
779
40,8
31
42
6,82
5
E
mpl
oyee
Ben
efits
111,
713
191,
186
16
6,81
2
62,6
26
37,6
57
76,5
65
66,2
75
51
8,52
3
12
2,49
1
1,
353,
848
E
mpl
oyee
Dev
elop
men
t2,
610
13
,431
13
,005
3,98
9
2,
308
4,48
0
4,
777
32
,465
63,5
33
14
0,59
8
P
rofe
ssio
nal S
ervi
ces
646,
932
13,3
08
57,9
39
25
,479
6,
070
71,2
00
15,9
38
93
,741
2,28
8
932,
894
Com
pute
r S
ervi
ces
4,66
8
4,
370
16
6,13
0
17
5,16
8
T
rave
l91
,824
1,
224,
592
61,9
01
51
,986
6,
762
18,6
24
7,92
3
24,1
70
11
2,74
8
1,
600,
529
O
ccup
ancy
92,9
32
158,
266
16
2,10
3
41,4
40
24,5
03
52,4
40
63,2
50
45
6,78
3
14
8,79
8
1,
200,
515
E
quip
men
t Ren
tal/M
aint
enan
ce30
0
1,
364
15,3
74
4,
437
6,81
8
699,
801
744
728,
838
Dep
reci
atio
n24
0,86
7
24
0,86
7
In
sura
nce
-
Tel
epho
ne1,
600
10
,968
8,
244
12,5
52
1,65
3
2,
821
1,43
4
32,5
55
16
,350
88,1
77
Oth
er S
uppl
ies
7,80
0
4,77
2
13
,512
3,08
5
61
1
508
3,
701
84
,577
2,44
8
121,
013
Mai
l Ser
vice
s1,
325
4,
677
35,5
93
14
,311
71
5
339
70
4
94
1
2,
004
60
,609
R
efer
ence
Mat
eria
ls90
,257
11
0
20
56
4
69
428
5,85
7
97,3
05
Prin
ting
4,25
0
41,7
08
1,
584
711
12
0
48
,373
N
atio
nal &
Inte
rim M
eetin
gs28
3,42
3
283,
423
Edu
catio
n P
rogr
ams
& C
omm
unic
atio
ns1,
009,
606
205,
926
1,21
5,53
2
Mis
cella
neou
s E
xpen
ses
2,46
4
50
9
2,97
3
O
verh
ead
97,0
31
73,8
29
133,
497
21
,138
10
,361
54
,750
48
,780
497,
609
68,9
57
1,
005,
952
T
otal
Exp
ense
s1,
623,
253
4,
016,
777
1,53
7,73
6
84
9,94
3
276,
666
66
8,29
6
761,
984
5,48
0,30
6
1,38
9,13
8
16,6
04,0
99
Rev
enue
s O
ver/
(Und
er)
Exp
ense
s(1
,623
,253
)$
(1,6
80,8
72)
$
(2
61,3
16)
$
(5
91,4
96)
$
(276
,666
)$
(6
68,2
96)
$
(530
,118
)$
(5,4
80,3
06)
$
(1,3
89,1
38)
$
(12,
501,
461)
$
197
198
Annual R
eport
National Association of Insurance Commissioners Management’s Discussion and Analysis
December 31, 2009
This discussion and analysis of the financial performance of the National Association of Insurance Commissioners (NAIC) provides management’s overview of the financial activities for the year ended December 31, 2009. While the NAIC’s 2009 Annual Report includes information on the actual financial results of the organization, this report provides management’s analysis of the organization’s financial performance in relation to the annual budget and mid-2009 financials projections. Budget Performance As published throughout the NAIC’s 2010 budget, and consistent with many businesses in the recent economy, the NAIC experienced budget challenges in 2009, primarily resulting from shortfalls in certain revenues. As concerns with the 2009 projections were identified in May 2009, NAIC management worked to identify potential areas for enhancing revenues and reducing costs. Working with the Internal Administration (EX1) Subcommittee, NAIC management implemented proactive measures to address projected revenue shortfalls and implement certain cost reductions in order to generate an estimated $2.0 million reduction in net spending from July to December 2009, while minimizing the impact to NAIC services to members. Key cost reductions implemented by staff in 2009 included (1) a systematic, priority-based review of hiring to fill vacant NAIC staff positions and (2) a freeze on NAIC salary increases effective July 1, 2009 through June 30, 2010. As a result of these measures, the NAIC published a 2009 projected net operating loss of $176,969, compared to the budgeted net operating loss of $474,656. When including investment income, the NAIC projected a total net revenue margin of $2.8 million, again driven primarily by positive investment performance through 6/30/09 and excluding any potential downturn in investment returns from July to December 2009. The table below illustrates key components of the NAIC’s 2009 financial results. In summary: • Operational revenues performed below budget $1,666,341 (2.3%) but within $238,309 (.34%) of the published
2009 target. Operating expenses yielded savings of $1,950,677 (2.7%) from budget and performed within $251,658 (.36%) of the published 2009 target. As a result, NAIC operations exceeded budget expectations by $284,336 and performed within $13,349 (.02%) of the projections published in mid-2009.
• The NAIC investment portfolio produced net gains generating investment income of $6,869,301, exceeding its $2,053,548 budget by $4,815,753.
• The residential mortgage-backed securities (RMBS) project was another significant component of the NAIC’s
positive financial results at December 31, 2009. While unanticipated as part of the 2009 budget or mid-2009 projections, the NAIC billed $4.6 million in assessments to insurers holding RMBS securities in early December 2009 and incurred $2.6 million of project expenses through December 31, 2009. The amount of direct RMBS revenues in excess of direct RMBS expenses has been allocated and is expected to be spent on further work in the area of RMBS and other structured asset classes during 2010. Further, the indirect costs of staff support to this initiative in both 2009 and 2010 will be allocated toward the total costs of this project as the NAIC evaluates the full costs of these projects and considers any further funding requirements this year.
• The NAIC also experienced a positive adjustment for its defined benefit pension plan as a result of (1) the
improved performance of plan assets compared to the 7% expected return on plan assets and (2) the reducing discount rate environment in 2009, which reduces the present value of future benefit liabilities.
• Overall, and as a result of each of the above components, the NAIC generated an increase in net assets of $10.7
million compared to the 2009 budget of $1.6 million and revised 2009 target of $2.8 million. However, it is important to note the RMBS project will have an opposite impact on the NAIC in 2010, as 2009 net project revenues are spent for similar modeling of RMBS or other structured asset classes in 2010.
199
National Association of Insurance Commissioners Management’s Discussion and Analysis
December 31, 2009
2009 TargetVariance Published in Variance %
2009 2009 from Budget 2010 Budget from Target Variance fromActual Budget at 12/31/09 Proposal at 12/31/09 Target
Operating Revenues 69,424,507 71,090,848 (1,666,341) 69,186,198 238,309 0.34%Operating Expenses 69,614,825 71,565,502 (1,950,677) 69,363,167 251,658 0.36%
Operating Margin (190,318) (474,654) 284,336 (176,969) (13,349) -0.02%
Investment Income 6,869,301 2,053,548 4,815,753 3,025,385 3,843,916 RMBS Project Revenues 4,837,891 4,837,891 4,837,891 RMBS Project Expenses (2,583,454) - (2,583,454) (2,583,454)
Margin Before Pension Adjustment 8,933,420 1,578,894 7,354,526 2,848,416 6,085,004
Pension Adjustment 1,771,340 - 1,771,340 - 1,771,340
Total Change in Net Assets 10,704,760 1,578,894 9,125,866 2,848,416 7,856,344
Net Assets NAIC net assets were impacted significantly by 2008 investment downturns, with the operating reserve reducing to $48.4 million at December 31, 2008, from $59.6 million at December 31, 2007, taking the total operating reserve from 89.6% to 67.6%, respectively, and reducing the liquid operating reserve from 69.9% to 52.3%, respectively. The NAIC’s operating results and investment gains in 2009, coupled with improvements in the performance of the NAIC defined benefit plan and the temporary impact of the RMBS project, have improved net assets by $10.7 million for a total of $59.1 million and representing a total operating reserve of 83.2% and liquid operating reserve of 72.0% at December 31, 2009. Historical Perspective The NAIC budget and annual operating expenditures are very carefully managed by NAIC senior management, the Internal Administration (EX1) Subcommittee, the Executive (EX) Committee and the entire membership. NAIC resources are continually evaluated and aligned with important and priority membership services, systems, products and data that serve as the backbone of a complex variety of regulatory programs and tools. Management believes this is evident in NAIC expense management, where cumulative expense variances from 2005 to 2009 totaled $2.1 million in savings, with $2.0 million of savings results from 2009 cost reduction measures alone. As a result of the 2009 cost reduction measures, NAIC operations performed within $13,349 (.02%) of the projections published in mid-2009. Put in perspective, over the $317.7 million of budgeted operating revenues and $318.2 million of budgeted operating expenses, the NAIC managed within 1.4% of revenue and –0.7% of expense budgets from 2005 to 2009 – statistics we believe demonstrate discipline, accountability, and internal management and membership leadership to manage NAIC budgets. Further, key drivers of such variances in each year are disclosed and described in each fiscal year’s budget documentation. Management appreciates the opportunity to present this discussion and analysis to the NAIC membership and the general public, and believes it provides useful information regarding the NAIC’s budget and financial projections, which are not already included in the 2009 Annual Report. The NAIC’s 2010 budget also provides a comprehensive and useful review of the NAIC’s business and financial plan for the upcoming fiscal year and can be found at http://www.naic.org/about_budget.htm. Please feel free to contact Brady Kelley, Chief Financial and Business Strategy Officer, at (816) 783-8004 should you have any questions or need additional information.
200
201
The National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insur-ance regulatory officials of the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands. Formed in 1871, it is the oldest association of state officials.
The NAIC provides its members with national forums for discussing common issues and interests, as well as for working cooperatively on regulatory matters that transcend the boundaries of their own jurisdictions. Collectively, members work to develop model legislation, rules, regulations and white papers to coordinate regulatory policy. The overriding objective is to protect consumers and help maintain the financial stability of the insurance industry.
The NAIC provides a wide range of services to support the work of its committees, the state insurance depart-ments, state and federal officials and the public. The Association maintains three offices: the Executive Office, in Washington, D.C.; the Central Office, in Kansas City, Mo.; and the Securities Valuations Office (SVO) in New York, N.Y.
The NAIC maintains extensive systems linking all insur-ance departments and provides financial, actuarial, legal, research, technology, market conduct and economic exper-tise. Its staff maintains, researches and prepares standard and custom reports, develops uniform statutory financial statements, monitors federal activity, submits legal briefs, tracks alien insurers, creates publications, conducts educa-tional training programs and much more.
The success of the NAIC rests largely on its staff’s exceptional service to its members, regulators, the insurance industry and the public. Snapshots of the NAIC reflect the work/life balance, flexible benefits, diversity and innovative employment practices that support the efforts of the Association’s 433 employees.
In 2009, facing the worst economy since the Great Depression, the NAIC sustained this work/life balance with-out major cuts in staffing or benefits. Employee turnover, excluding unavoidable separations such as retirements, was 3.1% in 2009. The NAIC’s total employee turnover of only 5.1% is well below the national average.
Many of the most popular programs continued in earnest,
including the Infants in the Workplace program. Marking its 11th year, the staff welcomed 14 new babies to the NAIC offices, bringing the total number of children who have accompanied their parents to work to 92.
Employee fundraising events raised more than $8,500 for local charities, of which more than $6,300 was distributed in 2009. NAIC employees also donated personal time as volunteers at local shelters and with Habitat for Humanity, as well as collecting much needed personal items, school supplies and holiday gifts to share with local families.
Unique benefits and work/life programs put the NAIC in competition for top talent, while fostering a friendly and productive workplace.
AssociAtion Profile
WorkPlAce & community
202
A little silver. A touch of light. The advent of modern photography involved a process of treating silver-plated copper sheets with iodine to make them sensitive to light, exposing them in a camera and then developing the images with warm mercury vapor. This process created a lasting image, one that would not change if exposed to light.
The visual medium of photography has applicable undertones for the NAIC in 2009 — a year that exposed the inherent strength of state-based regulation during a time when challenges to it were more pro-nounced than ever. And like the art of photography, effective insurance regulation requires both techni-cal aptitude and a dis-cerning eye. Indeed, this year provided many indelible images from a momentous and unprecedented period.
We continued to deal with the residual effects of the pre-vious year’s financial turmoil, coordinating our efforts to protect American consumers from insolvencies and help-ing shield the global economy from further uncertainty. However, we also engaged in salient issues that would dominate the national dialogue in 2009 and reflect our col-lective consciousness: health care reform, climate change, modernization of the industry and all things credit — from credit-based scoring to credit rating agencies.
As we step into another year, it is important to continue the significant strides we have made. We remain committed to improving the national system of state-based insurance reg-ulation by advancing the rigor of consumer protection and effective solvency oversight. For 138 years, the NAIC has reflected and responded to the demands and challenges of the times.
There are always multiple points of view — some that obscure our field of vision, some that enhance it — but the diversity of perspectives we saw in 2009 ultimately brought our priorities into focus. We remain dedicated to ensuring that the decisive strength of the industry remains the endur-ing imprint of our commitment to consumers.
officers’ messAge
Jane l. clineNAIC President-ElectCommissioner, West VirginiaOffices of Insurance Commissioner
roger A. sevignyNAIC PresidentCommissioner, New HampshireDepartment of Insurance
susan e. VossNAIC Vice PresidentCommissioner, IowaInsurance Division
kevin m. mccartyNAIC Secretary-TreasurerCommissioner, FloridaOffice of Insurance Regulation
PHOTO: Run on East Side Bank, N.Y. , Feb. 16, 1912 (Library of Congress)
Prior to the Glass-Steagall Act, bank panics such as the one depicted in this 1912 photo were relatively common. Nearly a century later, banking instability and an economic crisis led to more regulatory reform efforts.
Photos like this were most likely taken with a portable camera manufactured by Eastman-Kodak. These cameras were made available to the general public circa 1888. Turn of the century professional photographers relied primarily on hand-crafted, large format plate cameras, such as this English-style example made of mahogany and brass.
203
Jim l. ridlingCommissioner, AlabamaDepartment of Insurance
linda s. HallDirector, State of Alaska Department of Commerce Community & Economic Development Division of Insurance
fiaigoa A. PaogofieInsurance Commissioner,Office of the GovernorAmerican Samoa Government
christina uriasDirector, ArizonaDepartment of Insurance
Jay BradfordCommissioner, Arkansas Insurance Department
steve PoiznerCommissioner, CaliforniaDepartment of Insurance
marcy morrisonCommissioner, ColoradoDivision of Insurance
thomas r. sullivanCommissioner, ConnecticutInsurance Department
karen Weldin stewartCommissioner, DelawareInsurance Department
gennet PurcellCommissioner, District of ColumbiaDepartment of Insurance,Securities & Banking
Adelaide “Alex” sinkChief Financial Officer, FloridaDepartment of Financial Services
kevin m. mccartyCommissioner, Florida Office of Insurance Regulation
John oxendineCommissioner, GeorgiaOffice of Insurance & Safety Fire Commissioner
John P. camachoCommissioner, Guam Department of Revenue & TaxationRegulatory Division
J.P. schmidtCommissioner, HawaiiDepartment of Commerce & Consumer Affairs, Insurance Division
William W. DealDirector, IdahoDepartment of Insurance
michael t. mcraithDirector, IllinoisDepartment of Insurance
carol cutterCommissioner, IndianaDepartment of Insurance
susan e. VossCommissioner, IowaInsurance Division
sandy PraegerCommissioner, KansasInsurance Department
sharon P. clarkCommissioner, KentuckyDepartment of Insurance
James J. DonelonCommissioner, Louisiana Department of Insurance
mila kofmanSuperintendent, Maine Department of Professional & Financial Regulation, Bureau of Insurance
ralph s. tyler, iiiCommissioner, MarylandInsurance Administration
Joseph g. murphyActing Commissioner, Massachusetts Office of Consumer Affairs & Business Regulation Division of Insurance
ken rossCommissioner, MichiganOffice of Financial& Insurance Regulation
glenn WilsonCommissioner, MinnesotaDepartment of Commerce
mike chaneyCommissioner, MississippiInsurance Department
John m. Huff Director, MissouriDepartment of Insurance, Financial Institutions & Professional Registration
monica J. lindeenCommissioner, Montana Office of the Commissioner of Securities & Insurance Ann m. frohmanDirector, NebraskaDepartment of Insurance
scott J. kipperCommissioner, NevadaDivision of Insurance
roger A. sevignyCommissioner, New HampshireInsurance Department
neil n. JaseyCommissioner, New JerseyDepartment of Banking& Insurance
morris J. chavezSuperintendent, New MexicoPublic Regulation Commission,Division of Insurance
James J. WrynnSuperintendent, New York State Insurance Department
Wayne goodwinCommissioner, North CarolinaDepartment of Insurance
Adam HammCommissioner, North DakotaInsurance Department
michael J. AdaCommissioner, Northern Mariana Islands Department of Commerce, Office of the Insurance Commissioner
mary Jo HudsonDirector, OhioDepartment of Insurance
kim HollandCommissioner, OklahomaInsurance Department
teresa D. millerInsurance Administrator, Oregon Insurance Division
Joel ArioCommissioner, Pennsylvania Insurance Department
ramón l. cruz-colónCommissioner, Puerto RicoOffice of the Commissioner of Insurance
Joseph torti, iiiSuperintendent, Rhode IslandDepartment of Business Regulation, Division of Insurance
scott H. richardsonDirector, South CarolinaDepartment of Insurance
merle D. scheiberDirector, South DakotaDepartment of Revenue & Regulation, Division of Insurance
leslie A. newmanCommissioner, TennesseeDepartment of Commerce & Insurance, Insurance Division
mike geeslinCommissioner, TexasDepartment of Insurance
D. kent michieCommissioner, UtahInsurance Department
Paulette J. thabaultCommissioner, VermontDepartment of Banking, Insurance, Securities & Healthcare Administration
gregory r. francisLieutenant Governor/Commissioner Virgin IslandsDivision of Banking & Insurance,
Alfred W. grossCommissioner, Virginia State Corporation Commission, Bureau of Insurance
mike kreidlerCommissioner, Washington StateOffice of the Insurance Commissioner
Jane l. clineCommissioner, West VirginiaOffices of the Insurance Commissioner
sean DilwegCommissioner, Wisconsin Office of the Commissioner of Insurance
ken VinesCommissioner, WyomingInsurance Department
2009 memBers
204
PAst memBers (served during 2009)thomas e. HamptonCommissioner, District of Columbia Department of Insurance,Securities & Banking
Jim AtterholtCommissioner, IndianaDepartment of Insurance
nonnie BurnesCommissioner, MassachusettsOffice of Consumer Affairs & Business Regulation Division of Insurance
linda BohrerActing Director, MissouriDepartment of Insurance, Financial Institutions & Professional Registration
steven m. goldmanCommissioner, New JerseyDepartment of Banking& Insurance
eric DinalloSuperintendent, New York State Insurance Department
NORTHEASTERN ZONE
thomas r. sullivan, Chair, Connecticut
Joel Ario, Vice Chair, Pennsylvania
Paulette J. thabault, Secretary, Vermont
SOUTHEASTERN ZONE
scott H. richardson, Chair, South Carolina
leslie A. newman, Vice Chair, Tennessee
James J. Donelon, Secretary, Louisiana
MIDWESTERN ZONE
kim Holland, Chair, Oklahoma
sean Dilweg, Vice Chair, Wisconsin
merle D. scheiber, Secretary, South Dakota
WESTERN ZONE
linda s. Hall, Chair, Alaska
D. kent michie, Vice Chair, Utah
morris J. chavez, Secretary, New Mexico
2009 nAic officersroger A. sevigny, President, New Hampshire Jane l. cline, President-Elect, West Virginiasusan e. Voss, Vice President, Iowakevin m. mccarty, Secretary-Treasurer, Florida
immeDiAte PAst PresiDentsandy Praeger, Kansas
Zone officers
205
Letter from theChief Executive Officer
centrAl office2301 McGee Street, Suite 800Kansas City, MO 64108-2662
816 842 3600
eXecutiVe office444 North Capital St. NW, Suite 701
Washington, D.C. 20001-1509202 471 3990
securities VAluAtion office48 Wall Street, 6th Floor
New York, NY 10005-2906212 398 9000
Dear Members,
Derived from the Greek words meaning “drawing with light,” photography captures a precise moment in time. As we reflect on 2009, we see the efforts of state insurance regulation were often illuminated, and this past year saw the contours of many compelling images: Congressional testimony about the strength of the insurance industry; the evolving landscape surrounding climate change; developing solvency modernization initiatives; and the creation of the Center for Insurance Policy and Research.
This annual report uses concepts from photography to describe the strengths of state insurance regulation: depth of field, balance, consistency and clarity of focus. My return to the NAIC this year has been an affirmation of my belief in the unique ability of state regulation to protect consumers. I am privileged and pleased to be working for all of you, and supporting your efforts to make our national system of state-based insurance regulation as effective as it can be. There is a distinct energy in this organization that excites me — a synergy and engagement among the mem-bers that makes many things possible. I am excited to be a part of this effort, in what I believe is a historic time.
I look forward to another year of working closely with all of you in support of the important work you do every day to protect insurance consumers across this country.
Sincerely,
Therese M. (Terri) Vaughan, Ph.D. NAIC Chief Executive Officer
206
2009 DEVELOPMENTS locAtions
4 National Meetings with 6,451 Total Attendees
34 NAIC Interim Meetings
1,711 Conference Calls (Member Toll-Free Access)
oPtics & lenses
16 Funded Consumer Representatives
731 Million Total Media Impressions (TV, Radio PSAs, Consumer Alerts)
1200+ Fulfilled Media Requests
5.5 Million Visits to NAIC Web Site (www.naic.org)
164,008 Visits to Consumer Information Source (CIS) Web Site
339,593 Visits to Insure U Web Site (www.insureUonline.org)
Processing & DeVeloPment
332,606 Visits to NAIC’s Regulator-Only I-SITE Web Site
527,139 Insurance product submissions to the System for ElectronicRate and Form Filing (SERFF)
6,796 Online Fraud Referrals to Members
4,800 Annual and Quarterly Financial Statements
160 NAIC Publications and Data Products
400 Million Data Elements in Financial Data Repository
eXPosures & enlArgements
347 Uniform Certificate of Authority Applications Transmitted to Members
81 Classroom or Online Education Courses
115,889 Fulfilled NAIC Help Desk Inquiries (Phone/E-mail)
13,000 Fulfilled Statutory Accounting & Financial Reporting Inquiries
2,705 Fulfilled Research Library Inquiries
11 Full Accreditation Reviews
11 Pre-Accreditation Reviews
40 Interim Accreditation Reviews
“There are always two people in every picture: the photographer and the viewer.”
—Ansel Adams Quicker. Clearer. Sharper. The immediacy and efficiency of today’s digital photography is an apt metaphor for state insur-ance regulation. Just as photography has evolved from tintype to film to digital, the NAIC has likewise transcended to meet the ever-developing changes and challenges of the regulatory landscape.
Pictures capture the passage of time — from the reminiscent hues of sepia to the contemporary vibrancy of color photo-graphs. This past year has been imbued with the full spectrum of colors, with a nod to the past and with vivid optimism for the future of state-based regulation. While their tools, subjects and situations may change, regulators are charged with seeing the bigger picture and having the ability to adjust and change focus, when necessary. In that vein, 2009 rendered images that left an indelible impression of strong consumer protections and solvency standards.
PORTFOLIO CONTENTS:2009 Review and Discussion . . . . . . . . . . . . . . . . . 06
Independent Auditors’ Report . . . . . . . . . . . . . . . . 11
Financial Statements Statements of Financial Position . . . . . . . . . . 12Statements of Activities . . . . . . . . . . . . . . . . . 13Statements of Cash Flows . . . . . . . . . . . . . . . . 14Notes to Financial Statements . . . . . . . . . 15-19
NAIC Accreditations and Awards . . . . . . . . . . . . . 20
PHOTO: Cars at the Curb in Lincoln, Neb., 1942 (Library of Congress)
U.S. automakers enjoyed a golden era from 1930-1948, when sedan-style cars made by Ford, Buick, Chevrolet and Chrysler became fixtures on American roadways. Those same manufacturers required assistance from Uncle Sam during the financial crisis of 2008-09.
Kodak’s Brownie was first introduced to the public in 1900, costing $1.00. Simple enough for a child to use, it made the hand-held camera and photography a permanent part of American life. Even as technology changes the practice of photography, the basic principles and functions hold firm. Whether on cartridges of film or the most modern silicon chip — the final image remains the product of the focus and timing of the photographer.
207
capital emphasis: D.C. Becomes Point of Executive PerspectiveIn 2009, the NAIC established a stronger and more visible presence in the nation’s capital — a timely move reflecting the increasingly important role of state insurance regulation.
As Congress and the Administration worked to address health care and financial services reform, NAIC members and leadership testified 18 times before Congressional panels, while NAIC staff conducted more than 300 meetings on Capitol Hill.
In May, more than 35 regulators and staff came to Washington, D.C. to meet with their Congressional delegations and discuss insurance regula-tory reform with Health and Human Services Secretary Kathleen Sebelius and House Financial Services Committee Chairman Barney Frank. During the meetings, state regulators stressed that any reforms must provide consumers with the time-tested protections of the current national system of state insurance regulatory oversight.
Center for Insurance Policy and Research (CIPR)
An increasing emphasis on enhancing research capabilities in insurance regulation and information sharing was the impetus for the creation of the Center for Insurance Policy and Research (CIPR).
The CIPR leverages NAIC resources to support the needs of policy- makers in Washington, D.C. and the states.
Among its accomplishments in its inaugural year, the CIPR co-hosted an Aca demic Symposium on Solvency Regulation in partnership with the American Risk and Insurance Association (ARIA) and the Fox School of Business at Temple University. The event brought together key strategic leaders from government, academia and interested parties to deliberate on lessons learned from the financial crisis and international developments in insurance regulation. The presentations addressed developments with respect to systemic risk and insurance; whether the insurance industry could be considered systemically risky; the role of groups in systemic risk; and proposed legislation regarding systemic risk regulation. Symposium attendees also discussed topics such as capital adequacy standards; state guaranty funds; and the regulation of holding companies.
international update: Panoramic ProgressThe NAIC participated in the Financial Sector Assessment Program (FSAP), a joint International Monetary Fund and World Bank program assessing the U.S. financial regulatory system. Through visits to the NAIC and several states, the FSAP compared U.S. regulatory practices to Insurance Core Principles maintained by the International Association
of Insurance Supervisors (IAIS), an organization co-founded by the NAIC more than 15 years ago. Published in August, this self assessment offers an overview of U.S. insurance regulation juxtaposed with the IAIS standards.
The NAIC continues to hold leadership roles at the IAIS. Members play prominent roles on committees looking outwardly at financial stability concerns and inwardly at the IAIS internal structure and strategic plan-ning. Key among emerging market reforms is the growing involvement of international regulators in supervisory colleges, where regulators gather to share information about internationally active groups. Many of the features of these colleges mirror the coordination exercised among U.S. insurance regulators on company supervision.
The NAIC hosted an International Insurance Forum, bringing together more than 100 participants from the U.S. financial sector to explore recent and continuing developments and progress in international insurance. Also, for the sixth year, member states participated in the International Intern Program, where international regulators were placed in states to learn first-hand about U.S. practices.
financial regulation: Clearing the Way Ahead State regulators entered 2009 experiencing the most challenging financial crisis since the Great Depression. Through it all, conservative solvency principles helped protect the insurance industry from much of the dev-astation felt by the rest of the financial sector. Still, the industry was not fully immune from the challenges of non-insurance holding companies, securities lending practices and the lack of coordination between func-tional, federal and state regulators.
Perhaps no case better illustrated this than AIG. A conglomerate of com-panies ranging from investment services and insurance to aircraft leasing, its holding company nearly collapsed under the weight of credit default swaps (CDS) written by its Financial Products unit, a non-insurance operation. Since these swaps were not subject to regulatory restrictions and were issued by a non-insurance entity, state insurance regulators
To fully appreciate our picture of 2009, it is important to acknowl-edge the impact of significant events in 2008. Many of the important actions taken by the NAIC this year — moving the Executive Office to the nation’s capital, the Solvency Modernization Initiative, the creation of the Center for Insurance Policy and Research and establishment of clear principles for health reform and systemic risk regulation — were in direct response to a struggling economy and forceful challenges to state-based insurance regulation. These critical measures have provided the foundation for our work going forward as we maintain our unwaver-ing commitment to consumer protection.
The full spectrum of the NAIC’s accomplishments in the wake of unprecedented economic challenges is captured in this annual report.
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were not able to apply conservative reserve and accounting require-ments along with minimum capital requirements. Although insurance consumers remained relatively safe while the economy began its tenta-tive recovery, regulators found themselves with a list of issues to address. As Congress continues to debate how best to accomplish financial regu-latory reform, the NAIC and its members immediately set themselves to applying lessons learned in 2009 by:
•Strengthening securities lending accounting anddisclosure require-ments, while beginning to propose strict limits for securities lending activities;
•Draftingchanges in theNAICInsuranceHoldingCompanySystemRegulatory (Model) Act to improve knowledge of risks posed by non-insurance entities;
•Pushing forgreatercooperationandcommunicationbetween func-tional regulators — participating in international efforts to establish best practices for supervisory colleges; and
•Developingaregulatorymodelthatavoidsrelianceonratingagenciesfor evaluating residential mortgage-backed securities (RMBS), while looking to extend this approach to additional structured securities in the future.
As the year closed, asset values had clawed back much of 2008’s losses. Though challenges remain, state insurance regulators continue to meet the challenges of solvency supervision and consumer protection.
Residential Mortgage-Backed Securities
The financial crisis exposed many weaknesses in the tools used by the financial industry to evaluate the risks of invested assets. Nationally rec-ognized statistical rating organizations (NRSRO) had underestimated the risks taken by large segments of the market, then added to market strains when they moved to correct their positions. Complex derivatives tied to the failing mortgage industry became toxic — not simply due to the losses related to defaulting mortgage loans, but also because the mar-ket’s view of the amount of expected loss was unclear.
To avoid state insurance regulatory reliance on ratings generated by rat-ing agencies, the NAIC embarked on an innovative effort to model the expected loss of more than 22,000 residential mortgage-backed securities held by U.S. insurers. This effort would link an insurer’s carrying value to the modeled expected loss for each RMBS and assess the appropriate risk-based capital (RBC) charge used to establish the insurers’ regulatory capital levels.
Innovative efforts such as this, in concert with persistent and conserva-tive financial solvency oversight, have helped keep the insurance industry from many of the pains felt by other segments of the financial sector.
solvency modernization: Creating a Deeper Regulatory ViewThe U.S. Solvency Modernization Initiative (SMI) includes a study of international solvency initiatives to ultimately find new ideas to imple-ment in the U.S. financial regulatory system. The initiative encompasses projects already under way at the NAIC and includes the study of finan-cial supervisory modernization initiatives and solvency proposals in place or under development in other jurisdictions, including Australia,
Canada, Switzerland and the European Union.
In 2009, the International Solvency (EX) Working Group met jointly with the International Association of Insurance Supervisors (IAIS) Solvency and Actuarial Issues Subcommittee to discuss the introduction of enterprise risk management (ERM) requirements and the utilization of a company’s Own Risk and Solvency Assessment (ORSA) in financial solvency supervision.
PHOTO: Dr. Therese Vaughan, IIQ Satellite Media Tour, Feb. 1, 2009
Satellite media tours and live TV interviews are a routine part of the NAIC’s consumer media outreach efforts. TV, radio, print and online stories focusing on 2009’s Insurance IQ survey generated more than 36 million media impressions.
The idea to focus a live image through a lens and transmit it through electronic signals was devel-oped by Philo Farnsworth at age 14. Since the end of WWII, television has created the ability to reach large audiences with timely messages.
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The International Solvency Working Group also released two consulta-tion papers for comment. One paper highlights numerous ideas being discussed around the world about RBC methodology and calculations, international accounting and valuation, and potential new group capital requirements. The ideas in this paper could result in significant modifi-cation to U.S. RBC requirements. The other paper released for comment explores the possibility of having companies report the significant risks they face and how solvency might be impacted.
The Financial Condition (E) Committee also released a draft of the U.S. Solvency Regulatory Framework and Principles. This document will aid progress on the SMI, as well as share the expertise of state insurance regulators with U.S. federal and international insurance regulators.
The Center for Insurance Policy and Research hosted a panel titled “Perspectives on Systemic Risk” during the NAIC Winter National Meeting in San Francisco. The experts discussed aspects of systemic risk in insurance and its regulation; provided an update on international views about systemic risk; discussed its pros and cons; and addressed the concept of “too big to fail.”
consumer education: Snapshots of Consumer Knowledge (IIQ) The NAIC continued its commitment to helping consumers make informed insurance decisions with the new Insurance IQ Survey, a test for consumers to assess their Insurance Intelligence Quotient (IIQ). The study found many consumers are considering reducing or dropping health insurance altogether in an effort to save money. In response to this alarming information, the NAIC sought to fill in consumers’ knowl-edge gaps about insurance and help them remain protected during chal-lenging economic times. The study’s results also revealed a snapshot of consumer insurance knowledge, including the financial and emotional impact of uninformed decisions. On average, respondents only scored a four out of 10 on the survey, displaying a startling need for greater under-standing about insurance. Using the results of the IIQ Survey, the NAIC distributed consumer alerts addressing commonly missed questions. For example, April’s consumer alert focused on building an “Insurance Safety Net,” stressing the importance of being adequately protected during a faltering economy.
Since its debut on the NAIC Web site in March, more than 8,200 people have taken the IIQ Survey. Following the release of the survey results, Dr. Vaughan’s television and radio interviews generated 785,000 media impressions. Print and online coverage of the IIQ Survey reached an addi-tional audience of approximately 5.4 million readers through national
outlets such as the Associated Press, The Washington Post, Newsweek, MSN Money and Yahoo News, in addition to numerous local outlets.
Communications Outreach Awarded
The NAIC’s Insure U consumer education program was honored for its public relations initiatives for the second consecutive year. The Greater Kansas City Public Relations Society of America (GKC PRSA) recognized the NAIC with three PRISM awards for excellence in communications.
The NAIC received a first place PRISM award for its two nationwide pub-lic service announcements: one helping consumers make informed deci-sions about long-term care insurance and another reminding consumers of the importance of being prepared before a natural disaster strikes.
GKC PRSA judges remarked on the “impressive turnkey PSA approach and noteworthy participation by NAIC membership.”
To date, the 2009 PSAs have been broadcast more than 700 times, generating more than 2.7 million impressions.
The NAIC also received two silver PRISM awards for its 2008 Annual Report and Public Information Officer (PIO) Forum. Using a theme of “Navigating Change,” the annual report summarized how state insurance regulators weathered the financial turmoil of 2008 by applying lessons learned to chart the course ahead. The 2008 PIO Forum brought PIOs from around the country together to focus on writing and communica-tions skills.
market regulation: New Optics for Market Conduct The goal of the Market Conduct Annual Statement (MCAS) initiative is to provide a uniform system of collecting market related information. Until 2009, each state retained the collected data in their own state data-base without any national aggregation of the data. Last year, the 29 juris-dictions participating in the MCAS submitted their data to the NAIC for storage and analysis to create a national database of market regula-tion data. As part of the overall vision, the NAIC also adopted a formal, long-term proposal and allocated the necessary resources to build a new system to provide for the uniform collection of 2010 MCAS data for all jurisdictions and the centralized storage of this data at the NAIC in 2011. Through the centralized collection, tracking, validating, analyzing and reporting of MCAS data, the NAIC will provide its membership with a sophisticated market analysis resource to better assist them in protecting insurance consumers.
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Life Insurance Compensation Tool for Military
The NAIC released a new online tool to help military servicemembers research and recover compensation resulting from a 2006 multi-state regulatory settlement agreement over life insurance sales practices to the military.
More than 14,000 servicemembers who purchased life insurance products from American-Amicable Life Insurance Company of Texas or its two affiliates — Pioneer American Insurance Company and Pioneer Security Life Insurance Company — are owed more than $2.3 million from the multi-state settlement. Servicemember policyholders (or a named beneficiary) meeting the agreement’s qualifications may be enti-tled to compensation and/or increased benefits.
With this Web tool, military members can determine their eligibility for compensation by simply entering an individual’s first and last name in the search engine.
The multi-state agreement was signed by 46 states, the District of Columbia and Guam. The settlement was the culmination of a 20-month inves-tigation led by the Texas and Georgia insurance departments, the U.S. Department of Justice and the U.S. Securities and Exchange Commission. The investigation followed allegations the American-Amicable compa-nies violated insurance and consumer protection statutes while market-ing certain life insurance products to U.S. military servicemembers.
As of February 2010, the NAIC search tool has had 16,706 unique users, 30,994 searches and 1,929 hits (first and last name matches). American-
Amicable has reported issuing checks totaling $56,504.86 in restitution to policyholders in the period between April 23 – Nov. 17, 2009.
Health care: Maintaining a Principled Perspective Access to affordable and equitable health care is an issue that resonated with millions of Americans this past year and dominated the national agenda. State insurance regulators were a constant and visible presence on Capitol Hill, meet-ing with leaders of the health reform initiative and providing Congressional testimony. Central to the collective effort in Washington, D.C. was identifying and articulating top line pri-orities for reform: addressing the cost of health care, protecting
consumers and preserving a strong state role.
Underscoring the influence of state insurance regulators at this critical juncture, Vice President Joe Biden delivered an address at the NAIC Fall National Meeting. His address focused on the Administration’s health care proposal and the importance of state regulators’ input in achieving successful reform.
Throughout the year, members made sustained efforts in health care efforts, testifying before Congress on numerous issues:
Preventing abuses associated with rescissions of medical coverage •for policyholders
Changes to end Medicare marketing and sales abuses to senior •citizens
Consumer protections for long-term care insurance•
Reform to make small employer coverage more stable•
Throughout the debate, the NAIC held true to principles agreed upon by its members. Congress was urged to approach comprehensive reform via a federal-state partnership, recognizing the substantial experience and expertise of the states and considering these five principles for the successful transformation of the U.S. health care system:
Protect the Rights of Consumers. The states already have patient protections, solvency standards, fraud prevention programs, rate review and other oversight mechanisms in place to protect consumers; these should not be preempted by the federal government.
Address Health Care Spending. Any effort to increase access to and affordability of insurance will not be successful over time unless the overriding issue of rapidly rising health care costs is addressed. Reform efforts will not be effective without accompanying changes in the health
PHOTO: Vice President Joe Biden Addresses Health Care at the NAIC Fall National Meeting, Sept. 23, 2009
When Vice President Joe Biden addressed the NAIC, photographic images, audio and video were made immediately available with the use of digital technology through multiple broadcast and online mediums.
The use of this type of technology was first intro-duced in 1976, by way of the complementary metal oxide semiconductor (CMOS) chip. NASA’s Viking I used this chip to capture and transmit high-resolution digital images of the surface of Mars to earth, forever changing the way the universe would be visualized.
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care delivery system such as ensuring access to primary care, managing chronic diseases and eliminating waste and inefficiency.
Promote State Innovation. The NAIC urges Congress to review ERISA restrictions and other current federal laws and regulations, including CMS rules governing Medicaid and Medicare, that hinder state efforts to reform the health care system. The NAIC encourages the development of broad standards, rather than prescriptive rules, wherever possible to maximize state flexibility to implement reforms in a manner responsive to local and regional market conditions.
Stop Cost-Shifting. Inadequate funding in federal health programs have led to significant shifting of costs to the private sector. This has resulted in higher overall costs and decreased access for many consumers, and hampers the ability of the states to implement reforms. Additional costs cannot be absorbed by already stressed state budgets.
Avoid Adverse Selection. Any program that grants consumers the choice between two pools with different rating, benefit or access requirements will result in adverse selection for one of the pools.
Likewise, setting different rules for different plans within the pool or allowing consumers to wait until they get sick to purchase insurance,
without penalty, can have adverse consequences on the pool. The NAIC can support guaranteed issue and the elimination of preexisting condi-tion exclusions for individuals to the extent these reforms are coupled with an effective and enforceable individual purchase mandate and appropriate income-sensitive subsidies to make coverage affordable.
climate change: A Wide Angle View of RiskThe inextricable impact of climate change on the insurance industry was recognized in 2005. Since then, regulators have worked diligently to address the effects and made several significant strides in 2009.
The Climate Change and Global Warming Task Force undertook several important opportunities to carefully assess a wide range of issues and gather input on what insurers are already doing to address the risk.
The task force adopted a white paper, The Potential Impact of Climate Change on Insurance Regulation, which discusses the effects of climate change on industry investment decisions, disclosures and underwriting practices. The paper stresses the need for improved mitigation and land- use policies that reflect the potential for climate change impact.
Using a forward-looking approach to identify the potential impact of cli-mate change on insurers and their assessment of those risks, the NAIC
also adopted an Insurer Climate Risk Disclosure Survey — a uniform tool developed to help regulators measure impacts to policyholders and insurer operations. Insurance companies with annual premiums of $500 million or more will be asked to complete the survey every year. In addi-tion to reporting on updates to their risk-management and catastrophe-risk modeling, insurers will be asked to report on steps taken to educate policymakers and policyholders on the risks of climate change.
The task force also hosted a Climate Change Risk Summit to explore related topics such as modeling, green products, risk disclosure and investments. Experts provided information and insight into the evolu-tion of climate science and its impact on catastrophe modeling.
system for electronic rate & form filing (serff):Zooming in on Speed to Market The System for Electronic Rate and Form Filing (SERFF) continued to experience tremendous growth, with 527,139 transactions in 2009. Twenty-three states now require the use of SERFF and 12 have mandated their filing fees be paid via electronic funds transfer (EFT).
Designed to improve the efficiency of the rate and form filing and approval process, SERFF offers a decentralized point-to-point, Web-
based electronic filing system. The system also reduces the time and cost involved in making regulatory filings and provides up-to-date filing requirements when they are needed. This uniformity allows filers to use SERFF to submit any product they need to file.
state Based systems (sBs): The Lens of ChoiceIn 2009, Maryland, Nebraska and West Virginia joined SBS, which now holds the distinction of being the solution of choice for more state insurance departments than any other system. SBS is a solid Web-based solution supporting all aspects of insurance regulation via a cohesive user-friendly interface that requires little user training. The goal of SBS is to provide the highest level of efficiency at the lowest possible cost to NAIC members.
SBS is the solution of choice in Alabama, Delaware, Florida, Illinois, Iowa, Kansas, Missouri, New Hampshire, New Jersey, North Carolina, North Dakota, Oklahoma, Puerto Rico, Rhode Island, Tennessee and Washington, D.C.
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Mayer Hoffman McCann P.C.An Independent CPA Firm
1140 Tomahawk Creek ParkwayLeawood, Kansas 66211913-234-1900 ph913-234-1100 fxwww.mhm-pc.com
Honorable Members
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
We have audited the accompanying statements of financial position of the National Association of Insurance Commissioners (the NAIC) as of December 31, 2009 and 2008, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the NAIC’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the NAIC as of December 31, 2009 and 2008, and the changes in its net assets and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Leawood, KansasFebruary 24, 2010
INDEPENDENT AUDITORS’ REPORT
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STATEMENTS OF FINANCIAL POSITIONDecember 31, 2009 and 2008
ASSETS 2009 2008
CURRENT ASSETS
Cash and cash equivalents $ 7,351,708 $ 7,463,232
Accounts receivable, less allowance for doubtful accounts; 2009 - $1,310,625, 2008 - $2,983,978 4,981,896 5,659,702
Current portion of operating note receivable 282,296 185,449
Interest and dividends receivable 162,739 413,569
Prepaid expenses 1,937,989 2,400,783
Inventories 211,301 169,408
Investments 51,773,602 38,888,143
TOTAL CURRENT ASSETS 66,701,531 55,180,286
OPERATING NOTE RECEIVABLE, less current portion 1,476,732 1,187,996
PROPERTY AND EQUIPMENT, NET 7,990,212 10,950,504
TOTAL ASSETS $ 76,168,475 $ 67,318,786
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable $ 686,954 $ 833,957
Accrued expenses and other current liabilities 6,474,636 5,937,696
Deferred revenue 5,445,013 5,302,936
TOTAL CURRENT LIABILITIES 12,606,603 12,074,589
NON-CURRENT LIABILITIES
Deferred pension liability 4,480,444 6,867,529
TOTAL LIABILITIES 17,087,047 18,942,118
UNRESTRICTED NET ASSETS
Allocated 55,900,821 47,614,304
Allocated - RMBS Project 2,254,437 —
Unallocated 926,170 762,364
TOTAL UNRESTRICTED NET ASSETS 59,081,428 48,376,668
TOTAL LIABILITIES AND NET ASSETS $ 76,168,475 $ 67,318,786
See Notes to Financial Statements
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STATEMENTS OF ACTIVITIESDecember 31, 2009 and 2008
REVENUES 2009 2008
Database fees $ 25,539,949 $ 25,389,680
Publications and subscriptions 17,249,469 17,073,141
Services 14,476,893 14,315,068
Administrative services/license fees 7,181,748 6,580,905
National Meeting registration fees 1,814,075 1,958,600
State assessments 2,113,949 2,063,935
Education and training 1,007,009 1,029,508
Other 41,415 174,071
TOTAL REVENUES 69,424,507 68,584,908
EXPENSES
Salaries 32,702,509 31,687,902
Temporary personnel 499,301 468,163
Employee benefits 9,566,561 8,798,573
Professional fees 5,926,214 5,063,693
Travel 2,870,493 2,755,234
Rental and maintenance 7,931,053 7,701,275
Depreciation and amortization 4,677,741 4,767,333
Insurance 421,096 438,130
Office supplies 1,772,510 1,904,617
Printing expense 150,586 379,682
Meetings 1,524,228 1,250,016
Education and training 1,455,580 1,175,721
Other 217,756 498,258
Bad debt (recovery) expense (100,803) 191,057
TOTAL EXPENSES 69,614,825 67,079,654
CHANGES IN NET ASSETS BEFORE RMBS PROJECT, INVESTMENT INCOME (LOSS) AND PENSION ADJUSTMENT (190,318) 1,505,254
DIRECT RMBS PROJECT REVENUE 4,837,891 —
DIRECT RMBS PROJECT EXPENSES (2,583,454) —
INVESTMENT INCOME (LOSS) 6,869,301 (6,287,184)
CHANGES IN NET ASSETS BEFORE PENSION ADJUSTMENT 8,933,420 (4,781,930)
PENSION ADJUSTMENT 1,771,340 (6,448,685)
CHANGES IN NET ASSETS 10,704,760 (11,230,615)
NET ASSETS, BEGINNING OF YEAR 48,376,668 59,607,283
NET ASSETS, END OF YEAR $ 59,081,428 $ 48,376,668
See Notes to Financial Statements
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STATEMENTS OF CASH FLOWSYears Ended December 31, 2009 and 2008
CASH FLOWS FROM OPERATING ACTIVITIES 2009 2008 Changes in net assets $ 10,704,760 $ (11,230,615) Adjustments to reconcile changes in net assets to net cash flows from operating activities Depreciation and amortization 4,677,741 4,767,333 Net realized and unrealized (gains) losses on investments (5,209,994) 8,649,530 Gain on sale of property and equipment (2,849) (58,277) Changes in operating assets and liabilities: Accounts receivable, net 677,806 326,497 Operating note receivable (385,583) (823,445) Interest and dividends receivable 250,830 (196,479) Prepaid expenses 462,794 (549,013) Inventories (41,893) 96,935 Accounts payable (147,003) (723,958) Accrued expenses and other current liabilities 536,940 499,791 Deferred revenue 142,077 964,316 Deferred pension liability (2,387,085) 4,895,561 NET CASH FLOWS FROM OPERATING ACTIVITIES 9,278,541 6,618,176CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,720,174) (2,584,845) Proceeds from disposition of property and equipment 5,574 61,345 Purchase of investments (39,059,727) (53,687,057) Proceeds from disposition of investments 31,384,262 49,744,836 NET CASH FLOWS FROM INVESTING ACTIVITIES (9,390,065) (6,465,721)CHANGE IN CASH AND CASH EQUIVALENTS (111,524) 152,455CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,463,232 7,310,777
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,351,708 $ 7,463,232
See Notes to Financial Statements
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Note 1: Summary of significant accounting policiesNature of operations — The National Association of Insurance Commissioners (the NAIC) is an organization of and for the insur-ance regulatory officials of the 50 states, the District of Columbia and five United States territories (the Members). Created by state insurance regulators in 1871, the NAIC provides a forum for the development of uniform policy when uniformity is appropriate.FASB Accounting Standards Codification — Pursuant to Statement of Financial Accounting Standard No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 16”, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (FASB ASC 105) became the sole source of authoritative U.S. generally accepted accounting principles for annual periods end-ing after September 15, 2009. The NAIC adopted this standard for the year ending December 31, 2009. References to specific accounting stan-dards in the financial statement footnotes have been changed to refer to the appropriate section of the ASC.Cash and cash equivalents — The NAIC considers all liquid invest-ments with original maturities of one year or less to be cash equivalents. At December 31, 2009 and 2008, cash equivalents consisted of money market funds and discount notes.The NAIC maintains deposits in financial institutions in excess of fed-erally insured limits. Management monitors the soundness of these financial institutions and believes the NAIC’s risk is negligible.Accounts receivable — Accounts receivable are stated at the amounts billed to customers. The NAIC provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, his-torical collection information and existing economic conditions. Past-due accounts are periodically reviewed by management. Delinquent and/or uncollectible receivables are written off based on individual credit evaluation and specific circumstances of the customer. Inventory pricing — Inventories are stated at the lower of cost, deter-mined by the first-in, first-out (FIFO) method, or market.Investments and investment income — Investments in equity securi-ties having a readily determinable fair value and investments in all debt securities are carried at fair value. Investment income includes divi-dends, interest and realized and unrealized gains and losses. Property and equipment — Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are depre-ciated over the shorter of the lease term or their respective estimated useful lives.The cost of internally developed software is expensed until the tech-nological feasibility of the software has been established. Thereafter, all software development costs are capitalized until such time as the prod-uct is available for general release to customers. The development costs of enhancements that extend the life or improve the marketability of the original product are capitalized. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by manage-ment with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. The cost of capitalized software is amortized on the straight-line method over the products’ estimated useful lives. Description Estimated Useful LivesFurniture and equipment 5 YearsComputer and related equipment 3 YearsComputer software 3 - 10 YearsLeasehold improvements 12 Years
Use of estimates — The preparation of financial statements in confor-mity with U.S. generally accepted accounting principles requires man-agement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Revenue recognition — Revenue is recognized as follows:• Databasefeerevenueisrecognizeduponthefilingofinsurancecom-
panies’ annual statements.• Publicationsandsubscriptionsrevenueisrecognizedwhentheprod-
uct is shipped to the customer.• Services revenue is recognizeduponbilling,when the servicehas
been completed.• Revenuefromfeesforstateassessmentsapplytoanassessmentfiscal
year ended April 30, and are recorded in the calendar year assessed as receivables and deferred revenue. At December 31 of each year, 1/3 of the assessments are accounted for as deferred revenue.
Income taxes — The NAIC has been granted exemption from income taxes by the Internal Revenue Service under the provisions of Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, the NAIC is subject to federal income tax on any unre-lated business taxable income.Net assets — The NAIC’s target operating reserve is based on a liquid reserve of 80%, as defined as total net assets, less net property and equip-ment, as a percentage of the future year’s budgeted operating expenses. As of December 31, 2009 and 2008, net assets are fully allocated, with the exception of an amount maintained as unallocated equal to 1.5% of the next year’s projected net assets. The unallocated balance will be used to fund priority initiatives that may arise in the next year.As of December 31, 2009, the amount of direct revenues in excess of direct expenses arising from the NAIC’s residential mortgage backed securities (RMBS) project has been allocated for anticipated further work in the area of RMBS and other structured asset classes during the year ended December 31, 2010.Pension plan — The Compensation-Retirement Benefits topic of the FASB ASC requires employers to recognize on their statements of financial position a liability and/or an asset equal to the under-
NOTES TO FINANCIAL STATEMENTS
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Note 2: Investments and investment income 2009 2008 Cost Fair Value Cost Fair Value U.S. Government and agency securities $ 16,168,497 $ 16,603,105 $ 20,934,744 $ 21,014,371 Corporate bonds and fixed income securities 8,573,214 9,097,372 6,600,781 6,496,039 Common stocks and equity mutual funds 16,288,538 18,112,729 14,876,023 11,377,733 Alternative equity and fixed income funds 7,850,000 7,960,396 — — $ 48,880,249 $ 51,773,602 $ 42,411,548 $ 38,888,143
Total investment income is comprised of the following: 2009 2008 Interest and dividend income $ 1,659,308 $ 2,362,346 Net realized gains/(losses) on investments (1,206,765) (1,114,824) Net unrealized gains/(losses) on investments 6,416,758 (7,534,706) $ 6,869,301 $ (6,287,184)
funded or over-funded status of their defined benefit pension and other postretirement benefit plans. The funded status that the NAIC has reported on the statement of financial position under the topic is measured as the difference between the fair value of plan assets and the benefit obligation. The topic also requires that for each under-funded plan, an amount equal to the next 12 months’ expected benefit payments in excess of the plan’s current assets be classified as a current liability. The remainder is classified as a non-current liability.Functional expenses — The Not-for-Profit Entities topic of the FASB ASC requires not-for-profit organizations to disclose expenses by functional
classification. The NAIC presents expenses only by their natural clas-sification on the December 31, 2009 and 2008 statements of activities. Management believes that disclosing expenses by function is immaterial to the financial statements taken as a whole, and therefore does not apply the provision of the topic as it relates to the disclosure of expenses by functional classification. Reclassifications — Certain reclassifications have been made to the 2008 financial statements to conform to the 2009 financial statement presentation.
NOTES TO FINANCIAL STATEMENTS
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NOTES TO FINANCIAL STATEMENTS
The Fair Value Measurements and Disclosures topic of the FASB ASC requires additional disclosures as part of the financial statements. The topic establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transpar-ency of inputs to the valuation of an asset or liability as of the measure-ment date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:Level 1 — Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observ-able for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.The management of NAIC endeavors to utilize the best available infor-mation in measuring fair value. The following table summarizes the valu-ation of financial instruments by the above pricing levels as of December 31, 2009 and 2008:
Quoted Significant prices in other Significant active observable unobservable Total fair markets inputs inputs value Level 1 Level 2 Level 3December 31, 2009 U.S. Government and agency securities $ 16,603,105 $ 16,603,105 $ — $ — Corporate bonds and fixed income securities 9,097,372 9,097,372 — — Common stocks and equity mutual funds 18,112,729 18,112,729 — — Alternative equity and fixed income funds 7,960,396 — — 7,960,396 $ 51,773,602 $ 43,813,206 $ — $ 7,960,396
December 31, 2008 U.S. Government and agency securities $ 21,014,371 $ 21,014,371 $ — $ — Corporate bonds and fixed income securities 6,496,039 6,496,039 — — Common stocks and equity mutual funds 11,377,733 11,377,733 — — $ 38,888,143 $ 38,888,143 $ — $ —
Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:
Alternative Alternative fixed income equity funds funds TotalDecember 31, 2008 $ — $ — $ — Purchases, issuances and settlements (net) 3,885,000 3,965,000 7,850,000 Net realized/unrealized gains (losses) 135,507 (25,111) 110,396 December 31, 2009 $ 4,020,507 $ 3,939,889 $ 7,960,396
Financial assets valued using Level 1 inputs are based on unadjusted quoted market prices within active markets. Fair values for the alternative equity and fixed income funds (Level 3) are determined by aggregating the net asset value provided by each fund manager. The net asset value is determined by taking the fair value of total fund assets less the fair
value of total fund liabilities. Net unrealized gains related to alternative equity and fixed income funds held at December 31, 2009 of $110,396 have been included in investment income on the statement of activities for the year ended December 31, 2009.
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Note 3: Property and equipment Property and equipment at December 31 consisted of the following: 2009 2008Furniture and equipment $ 4,781,927 $ 4,765,056Computer and related equipment 15,657,952 14,845,918Computer software 18,864,822 18,194,624Leasehold improvements 3,908,687 3,818,942 43,213,388 41,624,540Less accumulated depreciation and amortization 35,223,176 30,674,036 $ 7,990,212 $ 10,950,504
Note 4: Operating leasesThe NAIC leases its office space in Kansas City, New York, and Washington D.C. under noncancelable operating leases. Certain parts of the agreements contain escalation clauses providing increased rentals based on maintenance, utility and tax increases. The lease on the Kansas City office expires January 31, 2012. Management is currently pursuing options related to this leasehold. The NAIC also leases certain office equipment under noncancelable operating leases, which expire at vari-ous dates through 2014. The accompanying financial statements reflect rent expense on the straight-line method over the terms of the leases. Total rental expenses under all leases for the years ended December 31, 2009 and 2008 were $4,791,513 and $4,411,021, respectively.
Future minimum lease payments at December 31, 2009, were:
2010 $ 5,019,180
2011 4,987,177
2012 1,364,611
2013 1,062,228
2014 376,497
$ 12,809,693
Note 5: Employee retirement plansThe NAIC has a noncontributory defined benefit plan (Plan A) covering all employees with a hire date prior to January 1, 2000. The benefits are based on years of service and the employee’s compensation for the five consecutive years of the ten latest years of employment that give the highest average.The following table sets forth the plan’s funding status, amount recognized in the NAIC’s financial statements, and other required disclosures. 2009 2008Projected benefit obligation $ (36,059,604) $ (31,183,151)Fair value of plan assets 31,579,160 24,315,622 Funded status of plan $ (4,480,444) $ (6,867,529)Accrued benefit cost recognized in the statement of financial position $ (4,480,444) $ (6,867,529)Accumulated benefit obligation $ 31,918,875 $ 27,501,334Employer contributions $ 3,400,000 $ 3,250,000Benefits paid $ (797,904) $ (533, 890)Service cost $ 1,390,838 $ 1,349,887Interest cost 1,967,283 1,711,082Return on plan assets (1,615,858) (1,716,477)Amortization of net (gain) loss 1,041,897 352,384 Net Pension Cost $ 2,784,160 $ 1,696,876
Weighted average assumptions used to determine benefit obligations are as follows: 2009 2008Discount rate 5.74% 6.51%Salary rate 4.51% 4.51%Measurement date December 31, 2009 December 31, 2008
Weighted average assumptions used to determine net pension costs are as follows: 2009 2008Discount rate 6.51% 6.36%Rate of salary increase 4.51% 4.51%Expected return on plan assets 7.00% 7.50%
NOTES TO FINANCIAL STATEMENTS
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NOTES TO FINANCIAL STATEMENTS
The following is the plan’s weighted average asset allocation by asset category as of December 31, 2009 and 2008 (the measurement date of the plan assets): 2009 2008Equity securities 37.00% 38.00%Debt securities 63.00% 62.00%
Plan assets are held by an insurance company, which invests the plan assets in accordance with the provisions of the plan agreement. The plan agreement permits investment in common stocks, corporate bonds, U.S. Government securities and other specified investments, based on certain target allocation percentages. Asset allocation is pri-marily based on a strategy to provide stable earnings while still permit-ting the plan to recognize potentially higher returns through a limited investment in equity securities. Plan assets are rebalanced as necessary based upon the minimum and maximum restrictions set forth in the plan’s investment policy statement.The benefits expected to be paid to participants over the next 10 years which reflect expected future services as appropriate, as of December 31, 2009 are as follows: 2010 $ 3,005,669 2011 3,010,294 2012 2,730,210 2013 2,912,709 2014 2,295,563 2015 – 2019 14,690,396 TOTAL $ 28,644,841 The NAIC’s best estimate of contributions to be paid during 2010 is $2,600,000.The NAIC provides a defined contribution 401(a) plan (Plan B) that covers substantially all employees with one year or more of service. Each year, the Internal Administration (EX1) Subcommittee deter-mines the contribution for the next year. In 2009, the NAIC matched up to 3.5% of compensation of employees who contributed to Plan B and contributed 2% of all employees’ compensation from January through June. In 2008, the NAIC matched up to 3.5% of compensa-tion of employees who contributed to Plan B and contributed 2% of all employees’ annual compensation. The pension expense related to Plan B for the years ended December 31, 2009 and 2008 was $1,177,306 and $1,393,153, respectively.
Note 6: Related party transactionsEffective January 1, 2006, the NAIC entered into a service agreement with the National Insurance Producer Registry (the NIPR), an affili-ated entity, whereby the NAIC provides certain administrative services to the NIPR. The NAIC receives a fee computed on 30% of certain NIPR revenues, which represents a license fee for NIPR to use the NAIC’s producer data. In addition, the NAIC receives from NIPR, an
administrative fee of $1,000,000 for services, facilities, and equipment provided by the NAIC. The NAIC also receives a per transaction usage fee from the NIPR related to the NAIC’s State Producer Licensing Reengineering (SPLR) Project. The SPLR fee compensates the NAIC for maintenance and expenses related to the hardware and software infrastructure that support both the NAIC and NIPR. Additionally, certain expenses are paid on behalf of, and reimbursed by, the NIPR.During the year ended December 31, 2009, the NAIC paid $53,750 to the NIPR in exchange for property and equipment held by the NIPR with a net book value of $4,391.The total amount charged during the year and amounts owed at year-end for the NIPR are as follows: 2009 2008Administrative services provided by NAIC $ 1,000,000 $ 1,000,000License Fee $ 5,409,686 $ 5,489,473SPLR Fee $ 1,325,462 $ 477,346Amounts payable to NAIC $ 846,204 $ 735,565
Effective June 2007, the NAIC entered into a service agreement with the Interstate Insurance Product Regulation Commission (the IIPRC), whereby the NAIC provides certain administrative services to the IIPRC. The NAIC received an administrative fee of $125,000 for the years ended December 31, 2009 and 2008. IIPRC also pays an annual license and maintenance fee in the amount of $25,000 for the use of SERFF. Additionally, certain expenses are paid on behalf of, and reim-bursed by, the IIPRC.The total amounts charged during the year and amounts owed at year-end for the IIPRC are as follows: 2009 2008Administrative services provided by NAIC $ 125,000 $ 114,583License fee paid to NAIC $ 25,000 $ 25,000Amounts payable to NAIC $ 30,232 $ 51,966Accrued interest on note payable to NAIC $ 13,246 $ 21,155Note payable to NAIC $ 1,759,028 $ 1,373,445 An additional line of credit in the amount of $850,000 was approved by the NAIC in December 2009 to be used by the IIPRC in 2010.
Note 7: Subsequent eventsManagement has performed an evaluation of events that have occurred subsequent to December 31, 2009 through February 24, 2010. There have been no events that occurred during such period that would require disclosure in these financial statements or would be required to be recognized in the financial statements as of or for the year ended December 31, 2009.
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2009 AccreDitAtions
Delaware Insurance Departmentconnecticut Insurance Department louisiana Department of Insurance
maryland Insurance Administration massachusetts Division of Insurance montana Office of the Commissioner of Securities & Insurance
new york State Insurance Department oregon Insurance Division Pennsylvania Insurance Department
rhode island Division of Insurance Washington State Office of the Insurance Commissioner
ROBERT DINEEN AWARD
Dr. raymond spudeckSenior Research Economist, Florida Office of Insurance Regulation
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The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest
and achieving the following fundamental insurance regulatory goalsin a responsive, efficient and cost-effective manner,
consistent with the wishes of its members:Protect the public interest;
Promote competitive markets;Facilitate the fair and equitable treatment of insurance consumers;
Promote the reliability, solvency and financial solidity of insurance institutions;Support and improve state regulation of insurance.
Kay NoonanGeneralCounsel
Eric NordmanDirector
Regulatory Services
Todd SellsDirector
Financial Regulatory Services
Tim MullenDirector
Market Regulation
Kris DeFrainDirector
Statistical & Actuarial Services
2009 NAIC ORGANIZATIONAL CHART
Therese M. (Terri) Vaughan, Ph.D., Chief Executive OfficerAndrew J. Beal, Chief Operating Officer & Chief Legal Officer
Brady Kelley, Chief Financial & Business Strategy Officer
Chris EvangelManaging Director
Securities Valuation Office
Julie FritzDirector
Insurance Products & Services
Trish SchoettgerDirector
Member Services
Denise MatthewsDirector
Information Systems
Frosty MohnDirector
Technical Services
Ethan SonnichsenDirector
Government Relations
Scott HolemanDirector
Communications
Ramon CalderonDirector
Center for InsurancePolicy & Research
Brent RoperDirector
Human Resources & Internal Services
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centrAl office2301 McGee Street, Suite 800Kansas City, MO 64108-2662
816 842 3600
eXecutiVe office444 North Capital St. NW, Suite 701
Washington, D.C. 20001-1509202 471 3990
securities VAluAtion office48 Wall Street, 6th Floor
New York, NY 10005-2906212 398 9000
Cover and interior pages printed on recycled paper.© Copyright 2010 by the National Association of Insurance Commissioners.All rights reserved. Printed in the United States of America.
2009 nAtionAl meetings
www.naic.org www.insureuonline.org
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