2017 Fall National Meeting Honolulu, Hawaii

Transcription

1 Date: 11/30/ Fall National Meeting Honolulu, Hawaii FINANCIAL CONDITION (E) COMMITTEE Monday, December 4, :30 11:30 a.m. Hilton Hawaiian Village and Hawaii Convention Center 312 Convention Center Level 3 ROLL CALL Eric A. Cioppa, Chair Maine Richard J. Badolato New Jersey Ken Selzer, Vice Chair Kansas Jillian Froment Ohio Dave Jones California Kent Sullivan Texas Artemio B. Ilagan Guam Michael S. Pieciak Vermont Nancy G. Atkins Kentucky Jacqueline K. Cunningham Virginia Chlora Lindley-Myers Missouri Allan L. McVey West Virginia Matthew Rosendale Montana Tom Glause Wyoming Barbara D. Richardson Nevada NAIC Support Staff: Dan Daveline /Julie Gann/Bruce Jenson AGENDA 1. Consider Adoption of its Nov. 9 and Summer National Meeting Minutes Attachment One Superintendent Eric A. Cioppa (ME) 2. Consider Adoption of its Task Force and Working Group Reports Superintendent Eric A. Cioppa (ME) Accounting Practices and Procedures (E) Task Force Attachment Two Capital Adequacy (E) Task Force Attachment Three Examination Oversight (E) Task Force Attachment Four Long-Term Care Insurance (B/E) Task Force Attachment Five Receivership and Insolvency (E) Task Force Attachment Six Reinsurance (E) Task Force Attachment Seven Risk Retention Group (E) Task Force Attachment Eight Valuation of Securities (E) Task Force Attachment Nine Group Capital Calculation (E) Working Group Attachment Ten Group Solvency Issues (E) Working Group Attachment Eleven Mortgage Guaranty Insurance (E) Working Group Attachment Twelve National Treatment and Coordination (E) Working Group Attachment Thirteen Risk-Focused Surveillance (E) Working Group Attachment Fourteen Variable Annuities Issues (E) Working Group Attachment Fifteen 3. Technical Project of the Valuation of Securities (E) Task Force Attachment Sixteen 4. Consider Adoption of Examiner Salary Recommendations Superintendent Eric A. Cioppa (ME) Attachment Seventeen 5. Consider Adoption of Proposed Changes to the Life and Health Insurance Guaranty Attachment Eighteen Association Model Act (#520) Superintendent Eric A. Cioppa (ME) 6. Discuss Any Other Matters Brought Before the Committee Superintendent Eric A. Cioppa (ME) 7. Adjournment 2017 National Association of Insurance Commissioners 1 1

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3 Attachment One Financial Condition (E) Committee 12/4/17 Draft: 11/14/17 Financial Condition (E) Committee Conference Call November 9, 2017 The Financial Condition (E) Committee met via conference call Nov 9, The following Committee members participated: Eric A. Cioppa, Chair, and Vanessa Leon (ME); Ken Selzer, Vice Chair, represented by Richard Ramos (KS); Dave Jones represented by Kim Hudson (CA); Artemio B. Ilagan represented by Alice Cruz (GU); Chlora Lindley-Myers represented by John Rehagen (MO); Richard J. Badolato (NJ); Barbara D. Richardson represented by Omar Akel (NV); Jillian Froment, Dwight Radel and Dale Bruggeman (OH); Kent Sullivan represented by Doug Slape (TX); Jacqueline K. Cunningham represented by Doug Stolte (VA); and Tom Glause (WY). 1. Adopted a Request for Extension from the Mortgage Guaranty Insurance (E) Working Group Superintendent Cioppa stated the Committee had received a request for extension on a model law development from the Mortgage Guaranty Insurance (E) Working Group. He stated that as he read the request, it seemed the real issue wasn t the changes to the model law, but rather that this particular Working Group is proposing a new risk-based capital (RBC)-type capital requirement, which is still being developed, or at least now is being tested by a consultant hired by the NAIC. He said the work seemed to be deliberate, and given the importance of validating this data, he does not see a reason not to accept the request. Mr. Hudson, Commissioner Badolato and Mr. Rehagen agreed. Commissioner Glause made a motion, seconded by Commissioner Badolato, to adopt the request for extension from the Mortgage Guaranty Insurance (E) Working Group (Attachment One-A). The motion passed unanimously. 2. Adopted its 2018 Proposed Charges Superintendent Cioppa stated that during this past year, the commissioners have been discussing the need to make some small changes to the NAIC Committee process as a means to try to keep the organization running as efficiently and effectively as possible. As a result, it was decided that the NAIC needed to instill some discipline in the management of the regulatory issues introduced in committees and task forces, including streamlining the number of groups and adding a requirement for timely deliverables for work that goes beyond the normal maintenance that is a part of so many of the Committee s work streams. Superintendent Cioppa stated that he and Commissioner Selzer drafted proposed changes to the charges that attempted to meet this objective. He noted that with respect to timely deliverables, they asked NAIC staff to draft proposed dates when the work was non-maintenance related. Superintendent Cioppa indicated they did so with the understanding that the dates that were developed may not be final. He stated they were both very much open to finding different deliverable dates to the extent the chair of such a group could come back to the Committee and describe the status of the work and why a different deliverable would be more appropriate. He noted that as long as the Committee could drive the discipline that the collective commissioners were looking for, all suggestions would be considered. Director Froment made a motion, seconded by Commissioner Glause, to adopt the Committee s and task forces 2018 proposed charges (Attachment One-B). The motion passed unanimously. 3. Continue Discussions on the Interim Investment Detail Project Superintendent Cioppa stated the Committee first began its discussion on interim investment detail during a conference call in May, but at that time the discussion was focused on an actual proposed disclosure for mid-year investment reporting that the Accounting Practices and Procedures (E) Task Force approved. He noted that when that proposal was received, the discussion seemed to be focused on the costs for the industry to produce such investment reporting compared to the benefits it provides state insurance regulators. As a result, the discussions turned to determine if there was another way the NAIC could meet the same objective that was less costly. Superintendent Cioppa stated that at the Summer National Meeting, the discussion was focused on the services that A.M. Best could provide the NAIC where it reviews and corrects the data it receives through a manual process and how this could be applied against existing quarterly data produced by insurers National Association of Insurance Commissioners 1 3

4 Attachment One Financial Condition (E) Committee 12/4/17 Superintendent Cioppa noted that at the Summer National Meeting, the Committee requested Ed Toy, director of the NAIC Capital Markets Bureau, to put together summary information following the meeting, and asked Mr. Toy to summarize some of the key points in the material produced for the Committee (Attachment One-C). Superintendent Cioppa asked for clarification on the A.M. Best proposal, noting it seems to provide Committee on Uniform Security Identification Procedures (CUSIP) and par value information only, and questioned the value of paying another company to review and modify the data for accuracy something that NAIC staff could do. Mr. Toy stated Superintendent Cioppa s understanding of the A.M. Best proposal was accurate. He agreed that the NAIC receives the transactional information and that it would be possible for NAIC staff to review and modify the data through a scrubbing process and develop the schedules using the CUSIP and par value information. Mr. Toy noted it is time-consuming to review and modify this data because it requires a line-by-line review of the data. To the extent it was done in-house, it would be the NAIC s data and could be used in a way that could not be used with the A.M. Best data, which would have to be stored and analyzed in a separate database. Superintendent Cioppa asked the Committee if it should approach the Internal Administration (EX1) Subcommittee about obtaining additional resources for the NAIC to be able to perform this operation instead of A.M. Best. He noted that using A.M. Best does not seem logical given the NAIC would still have to spend about $200,000 just to make the A.M. Best data usable. Mr. Hudson agreed, noting that it would be better if the NAIC and the state insurance regulators could control the data. Superintendent Cioppa stated his appreciation to the American Council of Life Insurers (ACLI) (Attachment One-D) for its estimated quantification of the industry to complete all four columns of original blanks proposal. John Bauer (Prudential) reminded the Committee that A.M. Best was willing to relook at the fair value information. He noted that it did not see any downfall to using the A.M. Best data in Mike Monahan (ACLI) noted that the estimated costs for the full industry providing this information was very material. Superintendent Cioppa reiterated that he appreciates the point, but he noted that is why he was only considering the A.M. Best proposal at this time. Andrea Keenan (A.M. Best) indicated the data it would provide was a labor-intensive clean-up process and was only CUSIP and Par Value but was quarterly. However, it could develop an alternative that would include fair value. Ms. Froment asked Superintendent Cioppa if the NAIC would still have to use resources to put the existing data into a usable format and asked if this cost had been estimated. He responded that was correct; there are costs that the Committee has not yet been provided. Mr. Toy responded that he has not yet developed such cost estimates, but that it would likely require one full-time fairly senior analyst who could review security descriptions and make judgments where the transactions data was not accurate. Mr. Rehagen responded it would be helpful to see such cost information. Superintendent Cioppa requested Mr. Toy pull together such cost information for the Committee to consider the matter more fully in the future. Having no further business, the Financial Condition (E) Committee adjourned. W:\National Meetings\2017\Fall\Cmte\E\Attachment One E Minutes.docx 2017 National Association of Insurance Commissioners 2 4

5 Draft Pending Adoption Attachment One Date: 8/15/17 Financial Condition (E) Committee Philadelphia, Pennsylvania August 8, 2017 The Financial Condition (E) Committee met in Philadelphia, PA, Aug. 8, The following Committee members participated: Eric A. Cioppa, Chair, and Vanessa Leon (ME); Ken Selzer, Vice Chair (KS); Dave Jones, Kim Hudson and Susan Bernard (CA); Nancy G. Atkins represented by Sandy Batts (KY); Chlora Lindley-Myers and John Rehagen (MO); Matthew Rosendale represented by Steve Matthews (MT); Richard J. Badolato represented by Peter Hartt and Kristine Maurer (NJ); Jillian E. Froment represented by Dwight Radel and Dale Bruggeman (OH); TBD represented by Doug Slape (TX); Jacqueline K. Cunningham represented by Doug Stolte (VA); Michael Pieciak represented by Karen Murphy (VT); Allan L. McVey represented by Andrew Pauley (WV); and Tom Glause and Linda Johnson (WY). 1. Adopted its July 17, May 12 and Spring National Meeting Minutes Superintendent Cioppa stated the Committee met July 17, May 12 and April 10. During its July 17 meeting, the Committee adopted a model law development request to consider amendments to the Life and Health Insurance Guaranty Association Model Act (#520). During its May 12 meeting, the Committee, discussed proposed new investment disclosures. Mr. Radel made a motion, seconded by Ms. Bernard, to adopt the Committee s July 17 (Attachment One), May 12 (Attachment Two) and April 10 (see NAIC Proceedings Spring 2017, Financial Condition (E) Committee) minutes. The motion passed unanimously. 2. Received a Report from the Long-Term Care Insurance (B/E) Task Force and Adopted its Charges Superintendent Cioppa provided a summary of the work conducted by the Long-Term Care Insurance (B/E) Task Force during the last quarter, which included two meetings via conference call and a meeting on Aug. 7. He stated that the Task Force held its first meeting via conference call on July 14, during which it adopted its proposed charges. Superintendent Cioppa reported that during its July 19 meeting, the Task Force heard a presentation from two individuals who are suggesting the development of a regulatory structure that would allow for a long-term care (LTC) run-off facility. During its Aug. 7 meeting, the Task Force received status reports on NAIC long-term care insurance (LTCI) activities from various NAIC groups. Superintendent Cioppa stated that there was a great deal of work on LTCI occurring at the NAIC and that the Task Force is focused on being the one single NAIC body that is coordinating all of that work to make sure the various work fits together in a cohesive effort to address LTCI issues. Superintendent Cioppa made a motion, seconded by Commissioner Selzer, to adopt the Task Force s charges (Attachment Three). The motion passed unanimously. 3. Adopted the Reports of its Task Forces and Working Groups Superintendent Cioppa noted that items adopted within the Committee s task force and working group reports that are considered technical, noncontroversial and not significant by NAIC standards (i.e., they do not include model laws, model regulations, model guidelines or items considered to be controversial) will be considered for adoption by the Executive (EX) Committee and Plenary through the Financial Condition (E) Committee s technical changes report process. Pursuant to this process, which was adopted by the NAIC in 2009, a listing of the various technical changes will be sent to the NAIC members shortly after completion of the Fall National Meeting, and the members will have 10 days to comment with respect to those items. If no objections are received with respect to a particular item, the technical changes will be considered adopted by the NAIC membership and effective immediately. Commissioner Glause made a motion, seconded by Director Lindley-Myers, to adopt the following task force and working group reports: Accounting Practices and Procedures (E) Task Force; Capital Adequacy (E) Task Force; Examination Oversight (E) Task Force; Receivership and Insolvency (E) Task Force; Reinsurance (E) Task Force; Valuation of Securities (E) Task Force; Group Capital Calculation (E) Working Group (Attachment Four); Group Solvency Issues (E) Working Group (Attachment Five); Mortgage Guaranty Insurance (E) Working Group (Attachment Six); NAIC/AICPA (E) Working Group (Attachment Seven); National Treatment and Coordination (E) Working Group (Attachment Eight); Risk-Focused Surveillance (E) Working Group (Attachment Nine); and Variable Annuities Issues (E) Working Group (Attachment Ten). The motion passed unanimously National Association of Insurance Commissioners 1 5

6 Draft Pending Adoption Attachment One The Financial Analysis (E) Working Group met in regulator-to-regulator session Aug. 5, July 19, June 21, June 7, May 18, May 17, April 26 and April 25 pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings. 4. Adopted Technical Changes to Model #280 Superintendent Cioppa described that an editorial changes needs to Investments of Insurers Model Act (#280) to remove a reference to the Class One bond list since the concept of a Class One bond list no longer exists and to correct the definitions for repurchase and reverse repurchase transactions. Mr. Bruggeman made a motion, seconded by Mr. Matthews, to adopt the proposed changes to the model (see NAIC Proceedings Summer 2017, Joint Executive (EX) Committee/Plenary). The motion passed unanimously. 5. Discussed a Preliminary Financial Condition Examiners Handbook Salary Update Recommendation Superintendent Cioppa summarized a memorandum from NAIC staff that provides an average recommended increase to the examiner salary recommendations in the Financial Condition Examiners Handbook based on the Consumer Price Index (CPI) for the year ending July 31. He noted that because the July CPI will not be finalized for a month, the memorandum is only a preliminary indicator. He stated that the number is not expected to change significantly once the figures are finalized and asked that state insurance regulators review the memorandum and let NAIC staff know if they have any concerns. Superintendent Cioppa indicated that a final version will be distributed for consideration at the Fall National Meeting. Superintendent Cioppa also reminded the Committee that as a result of discussions by the Committee in 2016, the Risk- Focused Surveillance (E) Working Group was tasked with considering if examination and analysis salaries are consistent with the skills required for state insurance regulators tasked with solvency monitoring responsibilities and that while such work is underway, the NAIC would continue to update the salary recommendations until the Working Group develops an alternative. 6. Consider Mid-Year Investment Reporting Proposal and Comment Letters Superintendent Cioppa summarized a proposal the Committee had received from the Accounting Practices and Procedures (E) Task Force, which was discussed on its May 12 conference call. He noted that during that call, the proposal was presented to the Committee, which includes a requirement to add four new electronic-only columns to the second-quarter financial statement: 1) Committee on Uniform Security Identification Procedures (CUSIP); 2) par value; 3) book/adjusted carrying value (BACV); and 4) fair value. Superintendent Cioppa reminded the Committee that the primary issue raised with the proposal was one of costs versus benefits, where the cost includes the time and effort for the companies to add the data into the filings and the benefits include, among other things, that the information would assist the NAIC Capital Markets Bureau in performing more macro prudential surveillance of the industry. During its May 12 meeting, the Committee decided to defer action and expose the proposal for a public comment period. Comment letters were received from Interested Parties (Attachment Eleven); Vermont Department of Financial Regulation (DFR) (Attachment Twelve); Joint Captive Insurance Companies Association (CICA) and National Risk Retention Association (NRRA) (Attachment Thirteen); and A.M. Best (Attachment Fourteen). John Bauer (Prudential), on behalf of interested parties, reiterated the suggestion that the best approach to addressing the need from state insurance regulators is to use additional data programming to more fully use the existing quarterly information submitted by insurers to the NAIC. Mr Bauer noted that they had recently been made aware of the comments from A.M. Best, and strongly encouraged the Committee to further study the process being suggested by A.M. Best in its comment letter as opposed to the previously exposed policy change. Ms. Murphy stated that their comments were focused on the additional costs to smaller insurers. Ed Toy (NAIC) stated that since the NAIC had received the comment letter from A.M. Best, he and other NAIC staff had held some conversations with A.M. Best. Mr. Toy first recapped some of the previous points made regarding the rational for the proposed reporting change for the Committee to be clear on the purpose of the proposal. He stated that in addition to the idea of increasing macro prudential supervision, recent volatility in the market has increased the need for more periodic reporting for solvency monitoring. Specifically, the ongoing increase in outside investment advisors, particularly for the smallest insurers, has created more actively managed and traded portfolios National Association of Insurance Commissioners 2 6

7 Draft Pending Adoption Attachment One Mr. Toy described more fully how the NAIC had a number of conference calls with both technical and business individuals from A.M. Best since receiving the comment letter, and that A.M. Best would like to see if there was a way to expand on the existing relationship with the NAIC as it would like to assist the regulatory process. He noted that during their conversations, A.M. Best did confirm some of the things he had noted to the Committee in the past, which suggests that addressing the underlying needs of the proposal is not as simple as having additional programming to accumulate data as suggested by interested parties. Rather, it requires a great deal of manual work to clean up the transaction data. Mr. Toy said that A.M. Best came out with similar metrics regarding the quality of the data they receive, where they note 10% to15% of the transaction data is poor quality, mostly from bad CUSIP numbers. As a result, A.M. Best has relatively senior employees review the details to correct for bad CUSIPs and other problems. He stated that A.M. Best takes a reasonable estimate of BACVs, but they do not have the other-than-temporary-impairment (OTTI) data, as is the case for the NAIC staff. He stated A.M. Best also has problems with the fair value data in that it does not have pricing data on approximately 20% to 25% of the exposures. However, he stated that A.M. Best is very interested in working with the NAIC with what it has. Mr. Toy stated he has had conversations with internal NAIC information technology (IT) staff, who have received a small sample file from A.M. Best, and who noted no issues with the way it was structured. The only issue identified by internal NAIC IT staff was that there would still be a need to consider how to store and service the data different from annual and quarterly statement data received by the NAIC from insurers. He stated the conversations with A.M. Best also suggested they may need to have some limitations on access to this data, but that A.M. Best wants to be as helpful to state insurance regulators as possible. Mr. Toy stated that A.M. Best receives data directly from most of the industry. For the rest of the companies, they acquire the data from the NAIC. The result is that they have data from all of the insurers that file with the NAIC. Once they have the data, it would take them approximately six weeks to process it and provide it to the NAIC. Mr. Toy stated there would be a fairly substantial cost for A.M. Best to provide the data to the NAIC as contemplated within its comment letter, and it would be an annual cost since it is an ongoing cost to analyze and process the data each period. He also noted that to the extent the NAIC obtains this data from A.M. Best, one consideration is if state insurance regulators decide there is a need to take regulatory action based on the data. Since this would be outside data, there may be a desire to confirm the data that comes to the same conclusions. Superintendent Cioppa summarized that while it shows promise, the costs and how those would be funded would need to be addressed by the Executive (EX) Committee and Internal Administration (EX1) Subcommittee. Diane Bullock Heine (A.M. Best) stated A.M. Best has had a long relationship with the NAIC and that it is interested in making the potential relationship specific to this project as beneficial to both parties where possible. Commissioner Selzer asked how the additional data not collected by A.M. Best would be obtained. Mr. Toy responded that for anything missing, A.M. Best obtains data from the NAIC and then begins to clean up all of it together. Mr. Bruggeman noted that BACV sounds like it must be estimated and asked if this would be sufficient. Mr. Toy stated that the impairment data would be missing, but that since the NAIC does receive aggregated BACV by company, that could be used to investigate in those situations where the differences were material. Mr. Hudson asked if fair value could be obtained. Mr. Toy stated there would be holes on the fair value data, and while they may have slightly more pricing data than the NAIC, there would be missing data. Mr. Slape asked how much would be missing on the fair value. Mr. Toy responded that the biggest issue is with structured securities and to a lesser extent municipal bonds, but other areas are better covered and in total it was probably about a 15% gap. Mr. Slape noted that given the focus on macro prudential surveillance, and given the last crisis, this lack of complete fair value data could be an issue. Mr. Slape asked about the timing of data coming in after quarterly filing deadlines. Ms. Heine stated it would likely take A.M. Best about six to eight weeks to provide data to the NAIC. Commissioner Selzer asked the cost of the A.M. Best approach and the funding for such. Mr. Toy stated that it was likely between $250,000 and $300,000 on an annual basis. Ms. Heine stated A.M. Best had discussed a number a bit less than this. Mr. Toy said that while sizeable, it may not be considered large on an individual company basis. He said the question regarding funding was not something that had been addressed. Superintendent Cioppa asked Mr. Toy to develop more information to answer some of the state insurance regulators questions regarding whether it would meet the NAIC needs, as well as the cost and funding question. Mr. Slape asked about the cost for the NAIC to perform the same work, including the cost per company. Mr. Toy said it would be hard to determine a cost per company, since that would depend in part on whether the company uses a software vendor that already has the data. From the perspective of the NAIC, there would be costs associated with either alternative since there would be some NAIC programming costs for either approach. Mr. Toy noted that if the NAIC did not use A.M. Best, it would likely require the NAIC to employ two new fairly senior level people 2017 National Association of Insurance Commissioners 3 7

8 Draft Pending Adoption Attachment One to analyze the data similar to what A.M. Best does. Mr. Slape noted that he thinks all companies have the data and so the cost per company would involve putting it into the correct format. Mr. Toy stated he could reach out to the software vendors to see if he could get some information to assist in putting together a cost estimate. Commissioner Jones stated he is not opposed to further analysis and consideration of the A.M. Best approach, but he is concerned about data gaps. Therefore, his state would reserve judgment until it sees further analysis. Commissioner Selzer asked about how the A.M. Best proposal would address the concerns of Vermont. Mr. Toy stated he believes the A.M. Best approach does generally address that issue, but the complete answer may depend upon the funding of the approach. He stated that the funding approach would need to be determined by the Executive (EX) Committee and Internal Administration (EX1) Subcommittee. Commissioner Selzer asked what the impact would be with a size threshold as proposed. Mr. Toy stated that he does not have the figures but that there would be a number of property/casualty (P/C) companies that information would not be obtained, and the aggregate number would likely be a decent size figure. Mr. Toy also noted that while he is not disagreeing that smaller companies tended to be more conservative in their investment practices generally, this was changing with the increase use of external investment managers; lacking this data on these companies would diminish the NAIC s ability to perform some of the solvency analysis on individual companies that may be using external investment managers that might be trading their portfolio more significantly. Commissioner Selzer asked about total assets for companies with a $250 million or $500 million investment portfolio level. Mr. Toy said he does not have the data with him, but he does have industry data by asset size at his office, and he could include that in the follow-up analysis. Commissioner Selzer asked Ms. Murphy if the A.M. Best approach would address their concerns. Ms. Murphy said it would be helpful to have the additional information being discussed. Superintendent Cioppa suggested that once Mr. Toy accumulated the additional information and made it available, a conference call could be scheduled, not for purposes of making a decision but for discussion only. Having no further business, the Financial Condition (E) Committee adjourned. W:\National Meetings\2017\Spring\Cmte\E\ E Minutes.docx 2017 National Association of Insurance Commissioners 4 8

9 Attachment Two Draft: 11/27/17 Conference Call (In lieu of meeting at the 2017 Fall National Meeting) Accounting Practices and Procedures (E) Task Force November 14, 2017 The Accounting Practices and Procedures (E) Task Force met in via conference call Nov. 14, The following Task Force members participated: Dave Jones, Chair, represented by Kim Hudson (CA); Kent Sullivan, Vice Chair, represented by Jamie Walker (TX); Jim L. Ridling represented by Richard Ford (AL); Allen W. Kerr represented by Mel Anderson (AR); Katharine L. Wade represented by Kathy Belfi and William Arfanis (CT); Stephen C. Taylor represented by N. Kevin Brown (DC); Trinidad Navarro represented by Rylynn Brown (DE); David Altmaier represented by Joel Meyer (FL); Doug Ommen represented by Daniel Mathis (IA); Jennifer Hammer represented by Mindy Lucht (IL); Stephen W. Robertson represented by Roy Eft (IN); Ken Selzer represented by Richard Ramos (KS); Nancy G. Atkins represented by Sandy Batts (KY); James J. Donelon represented by Stewart Guerin (LA); Gary Anderson represented by Robert Macullar (MA); Eric A. Cioppa represented by Vanessa Leon (ME); Patrick M. McPharlin represented by Judy Weaver (MI); Chlora Lindley-Myers represented by Leslie Nehring (MO); Mike Chaney represented Chad Bridges (MS); Bruce R. Ramge represented by Lindsay Crawford (NE); Roger A. Sevigny represented by Douglas Bartlett and Patricia Gosselin (NH); Richard J. Badolato represented by Steve Kerner (NJ); Barbara D. Richardson represented by Omar Akel (NV); Maria T. Vullo represented by Stephen Wiest (NY); Jessica Altman represented by Dale Bruggeman (OH); John D. Doak and representative Diane Carter (OK); Teresa D. Miller represented by Joseph DiMemmo (PA); Elizabeth Kelleher Dwyer represented by Jack Broccoli (RI); Larry Deiter represented by Johanna Nickelson (SD); Julie Mix McPeak represented by Mark Jaquish (TN); Todd E. Kiser represented by Jake Garn (UT); Jacqueline K. Cunningham represented by Doug Stolte and David Smith (VA); Michael S. Pieciak represented by Karen Murphy (VT); Mike Kreidler represented by Patrick McNaughton (WA); Allan L. McVey represented by Jamie Taylor (WV); and Tom Glause represented by Linda Johnson (WY). 1. Adopted its Summer National Meeting Minutes Mr. Hudson directed the Task Force to its Summer National Meeting minutes, which were previously distributed. Ms. Walker made a motion, seconded by Mr. Guerin, to adopt the Task Force s Aug. 7 minutes (see NAIC Proceedings Summer 2017, Accounting Practices and Procedures (E) Task Force). The motion passed unanimously. 2. Adopted the Report of the Statutory Accounting Principles (E) Working Group Mr. Bruggeman provided the Nov. 6 report of the Statutory Accounting Principles (E) Working Group, which met via conference call. The Working Group adopted its Oct. 12 minutes, which included adoption of agenda items, exposure of five agenda items, and adoption of its Sept. 13 and Sept. 7 minutes. He stated that on the Oct. 12 call, the following revisions to statutory accounting guidance were adopted: 1) Issue Paper No. 143R Guaranty Fund Assessments, which documents for the historical record previous substantive changes adopted to Statement of Statutory Accounting Principles (SSAP) No. 35R Guaranty Fund and Other Assessments related to assessments for insolvencies of entities that wrote long-term care insurance; 2) a temporary 60-day extension of the existing 90-day rule for policies affected by Hurricane Harvey, Hurricane Irma or Hurricane Maria; 3) adopted, with modification, Accounting Standards Update (ASU) , Improvements to Share- Based Payment Accounting; 4) adopted, with modification, ASU , Determining the Customer of the Operation Services; 5) captured directly issued bank loans in the scope of Statement of Statutory Accounting Principles (SSAP) No. 26R Bonds for 2017; 6) removed 2009 transition and outdated guidance from SSAP No. 43R Loan-Backed and Structured Securities; 7) rejected five ASUs and included goodwill impairment guidance together in the same section; 8) rejected ASU , Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost; 9) consistency clarification that limited statutory adjustments should apply to all foreign insurance subsidiary, controlled and affiliated (SCA) entities; 10) excluded money market mutual funds (MMMFs) from the wash sale disclosure; 11) adopted ASU , Stock Compensation Scope of Modification Accounting; 12) rejected ASU , Financial Services Investment Companies Amendments to the Scope, Measurement and Disclosure Requirements; and 13) editorial revisions. Mr. Bruggeman stated that the Working Group also adopted its Summer National Meeting minutes. Mr. Bruggeman noted that the Working Group adopted substantive revisions to statutory accounting guidance in SSAP No. 100R Fair Value and Issue Paper No. 157 Use of Net Asset Value. He noted that these revisions allow the use of net asset value (NAV) per share as a practical expedient to fair value when either specifically identified in an SSAP or when specific conditions exist. He stated that these revisions adopt ASU : Investments in Certain Entities that Calculate Net Asset 2017 National Association of Insurance Commissioners 1 9

10 Attachment Two Value per Share (or Its Equivalent) and ASU : Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). Mr. Bruggeman stated that the Working Group adopted the following nonsubstantive revisions to statutory accounting guidance: 1) aggregate disclosures for derivatives with financing premiums for year-end 2017; 2) clarification effective Jan. 1, 2018, that variation margin changes shall not be considered settlements until the derivative contract has matured, been terminated and/or expired; 3) new SCA filing deadlines for 2018; 4) federal Affordable Care Act (ACA) risk adjustment program high-cost risk pool guidance effective for 2018, which reports the risk pool claim reimbursements as adjustments to premium with new disclosures; and 5) incorporated a new NAIC Policy Statement on Coordination of the Accounting Practices and Procedures Manual and the Purposes and Procedures Manual of the NAIC Investment Analysis Office along with a corresponding referral to the Valuation of Securities (E) Task Force. Mr. Bruggeman stated that the Working Group adopted a memorandum to the Blanks (E) Working Group to provide additional instructions on the previously adopted high-deductible disclosures. Mr. Bruggeman stated that the Working Group exposed a substantive item, which requested comments on proposals under the Investment Classification Project. Mr. Bruggeman stated that the Working Group exposed the following nonsubstantive revisions to statutory accounting guidance: 1) clarifications that an SCA s direct or indirect acquisition of a surplus note issued by the parent shall always be eliminated in the SCA s value reported by the parent insurance company; 2) rejected ASU , Revenue from Contracts with Customers, ASU , Revenue from contracts with Customers: Deferral of the Effective Date, ASU , Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, ASU , Revenue From Contracts with Customers Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and ASU , Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; 3) requested comments on key concepts identified pertaining to policy loans; 4) revisions collect additional disclosures related to goodwill; 5) individual contract disclosures for derivatives with financing premiums; 6) remove the Level 3 reconciliation disclosure for plan assets; 7) exclude all cash equivalents, all derivative instruments and short-term investments with credit assessments equivalent to an NAIC 1 or NAIC 2 designation from the wash sale disclosure; 8) updated INT Accounting for the U.S. Terrorism Risk Insurance Program INT to remove the expiration date effective date; 9) nullified INT Accounting for Loans Received under the Federal TALF Program; and 10) request for comments on a proposed project to review each SSAP that adopts U.S. generally accepted accounting principles (GAAP) guidance and identify the related Financial Accounting Standards Board (FASB) codification references. Mr. Bruggeman noted that the Working Group directed NAIC staff on the following projects: 1) to review the proposed guidance for leases in and recommend further revisions; 2) to prepare and send referrals to the Valuation of Securities (E) Task Force, the Capital Adequacy (E) Task Force and the Blanks (E) Working Group to inquire whether all entities should have the ability to report NAIC designations on Schedule BA Other Long-Term Invested Assets, as permitted by life and fraternal insurance companies, to obtain improved risk-based capital (RBC) for certain investments; 3) to work with Working Group and industry representatives, with informal drafting calls, to refine the proposed reinsurance credit guidance for future Working Group consideration; 4) to review the derivative guidance in accordance with current U.S. GAAP requirements, including the guidance in ASU , Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities; 5) directed NAIC staff to work with Working Group members and industry to review industry comments when drafting proposed revisions and illustrations on Amortization and Accretion of Surplus Notes; and 6) to draft substantive revisions to adopt, with modification, ASU , Financial Instruments Credit Losses and replace the incurred loss model with an expected credit loss concept in statutory accounting. It was identified that the guidance would likely incorporate U.S. GAAP concepts for recognizing expected credit losses, but that specific exclusions and modifications will need to be considered in developing an approach that is appropriate under statutory accounting. Mr. Bruggeman noted that the Working Group received an update on the following projects and referrals: 1) NAIC staff are working with representatives of the American Council of Life Insurers (ACLI) to get additional information on prior comments and suggested language for the Special Accounting Treatment for Limited Derivatives; and 2) was informed of an editorial correction in a previously adopted item on intangibles, which did not change the conclusion of the adopted guidance. Mr. Bruggeman noted that the Working Group reviewed U.S. GAAP exposures, noting that no comments by the Working Group are planned. Mr. Bruggeman noted that the comment deadline for new and exposed items is Jan. 19, National Association of Insurance Commissioners 2 10

11 Attachment Two Mr. Bruggeman made a motion, seconded by Ms. Brown, to adopt the report of the Statutory Accounting Principles (E) Working Group (Attachment One). The motion passed unanimously. 3. Adopted the Report of the Blanks (E) Working Group Mr. Garn provided the Nov. 9 report of the Blanks (E) Working Group, which met via conference call and which adopted its Sept. 14 minutes, during which it took the following action: 1) adopted proposal BWG to add a question to the General Interrogatories Part 1 to determine if the reporting entity is part of a publicly traded group; 2) added clarifying instructions to Schedule Y, Part 1A as to when a Central Index Key (CIK) is provided; and 3) added a crosscheck between Column 6 and Column 7 of Schedule Y, Part 1A to ensure consistent reporting. Mr. Garn noted that the Working Group also adopted its Summer National Meeting minutes. Mr. Garn stated that the Working Group adopted the report of the Investment Reporting (E) Subgroup, including its Sept. 12 minutes, during which it took the following action: 1) exposed updates to the Summary Investment Schedule; 2) exposed a proposal to add a definition of supranational ; and 3) reviewed its issues list. Mr. Garn stated that the Working Group agreed to withdraw Valuation of Securities (E) Task Force proposal BWG, which was previously deferred. He noted that this withdrawal was at the request of the sponsor. He noted that a new proposal is planned for later submission. Mr. Garn noted that the Working Group adopted the guidance document for health companies for annual 2017 filing, and approved posting of the document to the Working Group s web page. Mr. Garn stated that the Working Group exposed six blanks proposals for a public comment period ending Feb. 26, Mr. Garn noted that the Working Group received three memorandums from the Statutory Accounting Principles (E) Working Group on the following topics: 1) high-deductible disclosures instructional clarification; 2) year-end 2017 disclosures instructional revisions; and 3) NAIC designation for Schedule BA investments. Mr. Garn stated that the Working Group adopted the editorial listing, which included updating the designation matrices in the investment schedules instructions and correcting the filing due date of the confidential Regulatory Asset Adequacy Issues Summary (RAAIS), as required by the Valuation Manual, from March 15 to April 1. Mr. Garn stated the Working Group discussed the state filing checklists Mr. Garn noted that the Working Group received an update on combining the life and fraternal annual financial statement blanks with no significant concerns noted by interested parties. Mr. Garn noted that the Working Group directed NAIC staff to begin to develop a comprehensive proposal for combining the two blanks and instructions for future discussion. Mr. Garn made a motion, seconded by Ms. Nickelson, to adopt the report of the Blanks (E) Working Group (Attachment Two). The motion passed unanimously. 4. Discussed Other Matters Mr. Hudson noted that the Task Force and its working groups do not plan to meet at the Fall National Meeting in Hawaii and that this call was in lieu of meeting at the Fall National Meeting. Having no further business, the Accounting Practices and Procedures (E) Task Force adjourned. w:\national meetings\2017\fall\tf\app\minutes\apptf minutes.docx 2017 National Association of Insurance Commissioners 3 11

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13 Attachment Three Draft: 11/17/17 Capital Adequacy (E) Task Force Conference Call November 14, 2017 The Capital Adequacy (E) Task Force met via conference call Nov. 14, The following Task Force members participated: David Altmaier, Chair, and Joel Meyer (FL); Todd E. Kiser, Vice Chair, represented by Jake Garn (UT); Dave Jones represented by Ron Dahlquist (CA); Katharine L. Wade represented by Wanchin Chou (CT); Doug Ommen represented by Mike Yanacheak (IA); Jennifer Hammer and Kevin Fry (IL); Mike Rothman represented by Frederick Anderson (MN); Chlora Lindley-Myers represented by William Leung (MO); Richard J. Badolato represented by Steve Kerner (NJ); John G. Franchini represented by Alan Seeley (NM); Maria T. Vullo represented by Stephen Wiest and Sak-man Luk (NY); Jillian Froment represented by Tom Botsko and Dale Bruggeman (OH); John D. Doak represented by Joel Sander (OK); Elizabeth Kelleher Dwyer represented by Jack Broccoli (RI); Kent Sullivan represented by Mike Boerner (TX); Mike Kreidler represented by Patrick McNaughton and Ronald Pastuch (WA); and Ted Nickel represented by Randy Milquet (WI). 1. Adopted its Summer National Meeting Minutes Mr. Seeley made a motion, seconded by Ms. Kerner, to adopt the Task Force s Aug. 7 minutes (see NAIC Proceedings Summer 2017, Capital Adequacy (E) Task Force). The motion passed unanimously. 2. Adopted its Working Group and Subgroup Reports Mr. Seeley made a motion, seconded by Mr. McNaughton, to adopt the reports of the following groups: the Health Risk- Based Capital (E) Working Group, including its Sept. 28 minutes (Attachment One); the Investment Risk-Based Capital (E) Working Group, including its Oct 23 minutes (Attachment Two); the Life Risk-Based Capital (E) Working Group, including its Oct. 31 minutes (Attachment Three); the Operational Risk (E) Subgroup, including its Oct. 12 minutes (Attachment Four); and the Property and Casualty Risk-Based Capital (E) Working Group, including its Oct. 30 minutes (Attachment Five). The motion passed unanimously. 3. Adopted the 2017 Catastrophe Event Lists Mr. Botsko said the U.S. and non-u.s. catastrophe event lists were updated with 2017 events the Catastrophe Risk (E) Subgroup received from Swiss Re and Aon Benfield. The additions for the 2017 U.S. events include Hurricane Harvey, Hurricane Irma, Hurricane Jose, Hurricane Maria and Hurricane Nate. The non-u.s. event list includes earthquakes, cyclones, typhoons and hurricanes. Mr. Botsko made a motion, seconded by Mr. Chou, to adopt the 2017 U.S. and non-u.s. catastrophe event lists (Attachment Six). The motion passed unanimously. 4. Received a Status Update on the Affiliated Investment Ad Hoc Group Mr. Botsko said the affiliate investment ad hoc group has tried to meet on a monthly basis. The Property and Casualty Risk- Based Capital (E) Working Group exposed recommendations from the ad hoc group to: 1) remove affiliated investments from PR003; 2) regroup affiliated investments with the unaffiliated bonds in PR006; and 3) subject affiliated investments to the same risk-based capital (RBC) charge as unaffiliated bonds to make them consistent with the life and health RBC formulas and their treatment of bonds. Mr. Botsko said the ad hoc group will continue their discussions in December. 5. Exposed Proposals for the RBC Blanks and Instructions a. Proposal CA Mr. McNaughton summarized proposal CA, the purpose of which is to standardized Medicaid pass-through payments and treat them similarly across all states by creating a separate line item for them in the RBC formula for all business types. The Health Risk-Based Capital (E) Working Group exposed and adopted the changes for the health RBC formula and recommends that those changes be exposed and considered for the property/casualty (P/C) and life RBC formulas. James Braue (UnitedHealth Group) asked for confirmation that this proposal is for all business types. Jane Barr 2017 National Association of Insurance Commissioners 1 13

14 Attachment Three (NAIC) confirmed that the proposal cover page will be updated to reflect that this proposal is being considered for all business types. b. Proposal CA Mr. McNaughton summarized proposal CA, which recommends that the risk corridor be removed from the sensitivity test because its purpose was only a temporary program. The risk corridor sensitivity test is in all RBC formulas and should be removed from all RBC formulas. Mr. Bruggeman asked if the risk adjustment would include the addition for 2018 of the high-cost risk adjustment. Mr. McNaughton confirmed that it would. Crystal Brown (NAIC) said the health RBC formula will follow any additions to the statutory accounting principles. She also added that this change is for all business types and inadvertently did not include the draft changes for the P/C and life RBC formulas. Mr. McNaughton made a motion, seconded by Mr. Milquet to expose proposal H (Attachment Seven) and proposal CA (Attachment Eight) for a 60-day public comment period ending Jan. 15, The motion passed. 6. Received Referral Regarding XXX/AXXX Captive Reinsurance RBC Shortfall Jake Stultz (NAIC) said the Reinsurance Security Investment (E) Subgroup was appointed to discuss and consider the need to clarify whether a security linked to a surplus note meets the criteria of a listed security or a regulatory transaction could have an RBC impact. Surplus notes are reported as surplus and not as debt and are part of the Total Adjusted Capital reflected in the XXX/AXXX Captive Reinsurance Consolidated Exhibit that determines if there is an RBC shortfall. Due to the sensitivity of these investments, details are not provided in the referral (Attachment Nine) and the RBC groups should request that information from the Reinsurance Security Investment (E) Subgroup. Commissioner Altmaier said this referral will be sent to the appropriate RBC working group for review and consideration. 7. Received Referral Regarding NAIC Designation for Schedule BA Investments All Entities Mr. Bruggeman said the purpose of the referral from the Statutory Accounting Principles (E) Working Group (Attachment Ten) is to determine if all entities should have the ability to report NAIC designations on Schedule BA. Life and fraternal companies are able to obtain NAIC designations for certain Schedule BA assets, but health and P/C companies do not. The scope of the request lies within RBC for P/C and health, which have a fixed charge for all Schedule BA assets instead of correlating those assets based on NAIC designations, as with the life and fraternal RBC formulas. The Working Group does not support or oppose whether all entities should be permitted to report based on NAIC designation and does not expect a response for this referral, because no statutory accounting principle is impacted based on the decision by the Task Force or any of its RBC working groups. Commissioner Altmaier said this referral will be sent to the appropriate RBC working group(s) for review and consideration. Having no further business, the Capital Adequacy (E) Task Force adjourned. W:\National Meetings\2017\Fall\TF\CapAdequacy\11-_CapitalAdequacyTFmin_final.docx 2017 National Association of Insurance Commissioners 2 14

15 Draft Pending Adoption Attachment Four Draft: 11/27/17 Examination Oversight (E) Task Force Conference Call (in lieu of meeting at the 2017 Fall National Meeting) November 20, 2017 The Examination Oversight (E) Task Force met via conference call Nov. 20, The following Task Force members participated: Jillian Froment, Chair, represented by Dwight Radel (OH); Allen W. Kerr, Vice Chair, represented by Mel Anderson (AR); Lori K. Wing-Heier represented by David Phifer (AK); Dave Jones represented by Susan Bernard (CA); Marguerite Salazar represented by Rolf Kaumann (CO); Katharine L. Wade represented by William Arfanis (CT); Stephen C. Taylor represented by N. Kevin Brown (DC); Trinidad Navarro represented by Rylynn Brown (DE); Stephen W. Robertson represented by Roy Eft (IN); Ken Selzer represented by Richard Ramos (KS); Nancy G. Atkins represented by Sandy Batts (KY); James J. Donelon represented by Caroline Brock (LA); Gary Anderson represented by John Turchi (MA); Mike Rothman represented by Kathleen Orth (MN); Chlora Lindley-Myers represented by Leslie Nehring (MO); Mike Chaney represented by Mark Cooley (MS); Roger A. Sevigny represented by Douglas Bartlett (NH); Richard J. Badolato represented by Steve Kerner (NJ); Barbara D. Richardson represented by Omar Akel (NV); John D. Doak represented by Eli Snowbarger and Joel Sander (OK); Elizabeth Kelleher Dwyer represented by Jack Broccoli (RI); Kent Sullivan represented by Ignatius Wheeler (TX); Todd E. Kiser represented by Jake Garn (UT); Jacqueline K. Cunningham represented by Doug Stolte (VA); Michael S. Pieciak represented by Karen Murphy (VT); Mike Kreidler represented by Patrick McNaughton (WA); Ted Nickel represented by Amy Malm (WI); and Tom Glause represented by Linda Johnson (WY). 1. Adopted its Aug. 25 and Summer National Meeting Minutes Mr. Kerner made a motion, seconded by Ms. Bernard, to adopt the Task Force s Aug. 25 (Attachment One) and Aug. 7 (see NAIC Proceedings Summer 2017, Examination Oversight (E) Task Force) minutes. The motion passed. 2. Adopted the Reports of its Working Groups a. Analyst Team System Oversight (E) Working Group The Analyst Team System Oversight (E) Working Group met Sept. 14 in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings. b. Exam Coordination (E) Working Group The Exam Coordination Working group met Nov. 16 in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings. c. Electronic Workpaper (E) Working Group The Electronic Workpaper (E) Working Group met Nov. 2 in regulator-to-regulator session pursuant to paragraph 4 (internal or administrative matters) of the NAIC Policy Statement on Open Meetings. d. Financial Analysis Handbook (E) Working Group Miguel Romero (NAIC) provided an update on the Financial Analysis Handbook (E) Working Group, which met Nov. 2 (Attachment Two) and Sept. 18 (Attachment Two-A). During these meetings, the Working Group adopted final revisions to the risk-focused analysis approach, including a revised risk assessment worksheet and guidance, introductory chapters, analyst reference guides and other analytical guidance. The Working Group also adopted procedures for amending the Financial Analysis Handbook, revisions to holding company analysis for Form A and Form D transactions, and non-lead state analysis procedures. e. Financial Analysis Research and Development Working Group Mr. Romero also provided an update on the Financial Analysis Research and Development Working Group, which met Oct. 4 (Attachment Three) and Aug. 17 (Attachment Three-A) National Association of Insurance Commissioners 1 15

16 Draft Pending Adoption Attachment Four During these meetings, the Working Group adopted procedures for maintaining the Insurance Regulatory Information System (IRIS) Ratios Manual. The Working Group also met Aug. 17 in regulator-to-regulator session, pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings, to adopt revisions to regulator-only tools. f. Financial Examiners Handbook (E) Technical Group Ms. Bernard provided an update on the Financial Examiners Handbook (E) Technical Group, which met Nov. 13 (Attachment Four) and Sept. 27 (Attachment Four-A). The Technical Group adopted revisions related to the interaction between the examiner and analyst; revisions to incorporate principle-based reserving into Financial Condition Examiners Handbook guidance; revisions to assist examiners in reviewing affiliated service agreements; revisions to the reinsurance, related party, capital and surplus, and investments repositories; revisions to address insurers in runoff; and revisions to address insurance company redomestications. g. IT Examination (E) Working Group Mr. McNaughton provided an update on the IT Examination (E) Working Group, which met Sept. 28 (Attachment Five). The Working Group adopted revisions to Section 1-3 and Exhibit C of the Financial Condition Examiners Handbook. These revisions provide new narrative guidance, new procedures and new requests for companies under exam to continue to help regulators improve their ability to address cybersecurity concerns. Ms. Bernard made a motion, seconded by Mr. McNaughton, to adopt the reports of the working groups. The motion passed. Having no further business, the Examination Oversight (E) Task Force adjourned into regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings, to receive reports on exams open past 22 months. w:\national meetings\2017\fall\tf\examo\eotf minutes - tpr.docx 2017 National Association of Insurance Commissioners 2 16

17 Attachment Five Attachment Long-Term Care Insurance (B/E) Task Force 12/3/17 Draft: 11/13/17 Long-Term Care Insurance (B/E) Task Force Conference Call November 8, 2017 The Long-Term Care Insurance (B/E) Task Force met via conference call Nov. 8, The following Task Force members participated: Eric A. Cioppa, Co-Chair, and Marti Hooper (ME); Al Redmer Jr., Co-Chair, and Catherine Grason (MD); Mike Kreidler, Vice Chair, represented by Jim Odiorne (WA); Dave Jones represented by Perry Kupferman (CA); Marguerite Salazar represented by Michael Conway (CO); Katharine L. Wade represented by Mary Ellen Breault and Paul Lombardo (CT); David Altmaier represented by Chris Struk (FL); Mike Rothman represented by Fred Andersen (MN); Chlora Lindley-Myers represented by Angela Nelson (MO); Bruce R. Ramge represented by Rhonda Ahrens (NE); John G. Franchini represented by Terry Seaton (NM); Jean Straight represented by Gayle Woods (OR); Elizabeth Kelleher Dwyer (RI); Kent Sullivan represented by Doug Slape and James Kennedy (TX); Todd E. Kiser represented by Tanji Northrup (UT); and Jacqueline K. Cunningham represented by Doug Stolte (VA). Also participating was: Greg Campbell (AK). 1. Adopted its Oct. 2, Sept. 6 and Summer National Meeting Minutes Commissioner Redmer stated the Task Force met Oct. 2, Sept. 6 and Aug. 7. During its Oct. 2 conference call, it heard a presentation from the chair of the Long-Term Pricing (B) Subgroup, which included a summary of three general methodologies used by the states when considering rate increases. During its Sept. 6 conference call, it heard a presentation from the chair of the Financial Analysis (E) Working Group on the current financial solvency position of the long-term care (LTC) industry. During its Aug. 7 meeting, it received a status report from various NAIC groups that have work streams related to LTC insurance. Mr. Odiorne made a motion, seconded by Superintendent Dwyer, to adopt the Task Force s Oct. 2 (Attachment?), Sept. 6 (Attachment?) and Summer National Meeting (see NAIC Proceedings Summer 2017, Long-Term Care Insurance (B/E) Task Force) minutes. The motion passed unanimously. 2. Heard a Presentation from the IIPRC Superintendent Cioppa indicated he requested a discussion of the work of the Interstate Insurance Product Regulation Commission (IIPRC), as he thought it might help the Task Force to think about whether any practices used by the IIPRC could be useful to the Task Force. Karen Schutter (IIPRC) stated her appreciation for the opportunity to speak about the IIPRC, as she believes an understanding of the IIPRC s process of developing uniform standards and approving compliant product filings for individual LTC insurance, as well as its process for handling initial LTC rate schedules and in-force long-term rate increases, might be helpful to the Task Force. Ms. Schutter summarized the IIPRC processes (Attachment?) and focused her comments on key aspects of the IIPRC. This includes how the IIPRC creates a legal mechanism through legislation enacted into state law for collectively and collaboratively achieving national product standards and speed-to-market for those insurance products that directly compete with other financial protection products that is, banking and securities regulated at the federal level. She also discussed how the IIPRC allows the compacting states to develop and adopt uniform standards that have the force and effect of their respective state laws and are the exclusive product content provisions with respect to products submitted to the IIPRC, provided the compacting states have not opted out of the uniform standard. She described how one member the insurance commissioner from each compacting state sits is part of the IIPRC membership, and the IIPRC has a 14-member Management Committee that manages the affairs of the IIPRC. Six committees and a working group undertake the technical work of the IIPRC, whereby recommendations make their way through the rulemaking and other processes for final action by the Management Committee and/or the IIPRC. Ms. Schutter indicated that, to date, 44 states and Puerto Rico have enacted the Interstate Insurance Product Regulation Compact (#692) and only six states and the District of Columbia have not yet joined the IIPRC National Association of Insurance Commissioners 1 17

18 Attachment Five Attachment Long-Term Care Insurance (B/E) Task Force 12/3/17 Ms. Schutter indicated the IIPRC has adopted 100 uniform standards since the adoption of its first uniform standard in December These uniform standards cross all individual product lines and two employer group product lines. She described how some states have opted out in the LTC and disability income product lines. The process to get a uniform standard adopted has several steps and touch points. There is an opportunity for written comment and a public hearing is held. Notice of the intent to consider the uniform standards is sent to state legislative committees of jurisdiction, as well leadership in both houses in the compacting states. A supermajority vote in favor by the entire body of the IIPRC Management Committee and the IIPRC membership is required before a uniform standard is considered adopted. Ms. Schutter stated the specific authority to adopt uniform standards for LTC insurance products, rates and advertising is found in Model #692, Article IV Powers of the Commission. The drafters of Model #692 included a specific mandate with respect to LTC uniform standards; i.e., they must provide the same or greater protections for consumers, but not less than, those protections set forth in the Long-Term Care Insurance Model Act (#640) and the Long-Term Care Insurance Model Regulation (#641), including subsequent amendments to both models. The IIPRC s individual LTC Uniform standards were adopted in August 2010 and implemented in December that same year. The filer must submit all components of an individual LTC product for approval, including the policy, riders, application, outline of coverage, forms to be used with the app, rate schedules and advertising. The uniform standard for forms to be used with the LTC application is the only one among the 100 adopted that allow the forms to be filed for self-certification. The IIPRC has a rule governing self-certification. These forms include the suitability forms, the Potential Rate Increase Disclosure Form, the Replacement Notice and the federal Health Insurance Portability and Accountability Act (HIPAA) Medical Authorization, which are all highly prescribed by state or federal law. The uniform standards make it clear that only the states can approve an IIPRC-approved product for partnership. The uniform standards accommodate both issue age and modified rate schedules. The process of mix-and-match filing is not allowed for a traditional LTC insurance product, as the whole package must be filed with the IIPRC. What this means is that the IIPRC only sees new business filings as a company cannot file an application or updated rate schedule for use with a previous state-approved LTC product. An LTC rider that is used with an individual life or annuity product can be filed with the IIPRC and is reviewed under the LTC standards. In these cases, because the LTC rider is looked at as a standalone component, it is available for mix-and-match. Ms. Schutter indicated that the IIPRC has never received an attained age rate filing where the rates change based on the person s reaching certain ages. If so, the IIPRC would allow a state to indicate it has a state law that does not permit these schedules and, if that is the case, then they are not permitted to be filed for those states. She noted that the IIPRC publishes a sample assumptions spreadsheet to help actuaries understand the level of drill-down required to support initial rate schedules. Five-year review amendments were adopted in June of this year and become effective Oct. 10. A couple of key changes are that for riders that deduct a dollar of the death benefit to pay a dollar of LTC services, it is now subject to the rate filing standards and actuarial review. Model #640, and likely several state laws, exempt these riders from rate review, but additional requirements were added at the request of the member states. The IIPRC also made updates to reflect the changes made to Model #641, the LTC bulletin and the NAIC Guidance Manual for Rating Aspects of the Long-Term Care Insurance Mode Regulation since Ms. Schutter stated the IIPRC does a prior review on all product filings, including a review of the self-certified filings that include forms to be used with the LTC application. The IIPRC rules require that the Compact Office review a filing in 60 days or less, which does not include industry response time and assumes the product filing is substantially in compliance with the uniform standards. IIPRC staff work to get a filer to compliance, and LTC filings generally take longer to review because of all the components. All LTC product filings require a full comprehensive form with actuarial review by two qualified actuaries on staff and a secondary review, both form and actuarial, of the LTC filings. Ms. Schutter stated IIPRC-approved products can be submitted for partnership approval in the participating compacting states. The uniform standards apply to the content of the product, but the company must certify it is complying with the partnership requirements of a state. The variability provision of the uniform standards is flexible to permit a company to include state-specific partnership language. Companies wanting to use an IIPRC-approved product for partnership must take the extra step for certification or approval by the state. Ms. Schutter stated, with respect to rate requirements in the LTC uniform standards, the rate filings requirements are detailed both for initial rates and in-force rate increase, with two uniform standards, one for issue age rate schedules and one for 2017 National Association of Insurance Commissioners 2 18

19 Attachment Five Attachment Long-Term Care Insurance (B/E) Task Force 12/3/17 modified rate schedules. The review drills down on all the assumptions to make certain they are well documented and reasonable. One of the key reasons for this is if an in-force rate increase is submitted, it will be measured against the original assumptions. The company is also required to demonstrate that margins do not deviate materially across issue ages. The requirements differ between if the form is currently marketed and if it is a closed block. Ms. Schutter indicated that the uniform standards require that the actuarial information and assumptions be updated on an annual basis and requires that this information an updated actuarial memorandum be filed every three years, which is referred to as the triennial certification. Ms. Schutter explained that, for in-force rate increases, the uniform standards prohibit the introduction of a rating characteristic that was not included in the initial rate filing. For example, if the initial rate schedule was unisex and the inforce rate increase schedule was gender-distinct, this would not be allowed. One of the key compromises in the uniform standards was that in-force rate increase requests on IIPRC-approved product filings that exceed 15% are no longer subject to approval by the IIPRC but, rather, must be approved by each state. If the in-force rate increase request is 15% or less, the IIPRC can review and approve, provided it is compliant with the rate filing uniform standards. The uniform standards explicitly state that the advisory finding is not binding on the compacting states and that state law applies to the review of the in-force rate increase filing. However, the IIPRC s approval of the initial rates and forms under the LTC uniform standards is still applicable, as it is as binding as each compacting state s law with respect to the original approval. Mr. Campbell asked for clarification regarding whether the IIPRC only looks at new business. Ms. Schutter responded that a company is not allowed to file a state-approved product with the IIPRC. 3. Received an Update from the Receivership Model Law (E) Working Group Mr. Kennedy described that, in December 2016, the Receivership Model Law (E) Working Group was given two new charges related to LTC. One of those charges was to consider changes to the Life and Health Insurance Guaranty Association Model Act (#520) to determine if any changes were needed. In the first half of 2017, the Working Group held eight conference calls and two meetings, during which it determined changes should be made to the model. At that point, the Working Group developed a Request for NAIC Model Law Development, which was approved by the Executive (EX) Committee at the Summer National Meeting. Shortly thereafter, the Working Group formed a drafting group composed of 12 insurance departments and 35 interested parties, including trade groups, insurers, guaranty funds, consumer groups, health care provider groups and academics. One of the first decisions made was that the work should be completed by the end of 2017, and that even though this was aggressive, a number of legislatures were considering changes in 2018, so they wanted the revisions to Model #520 to be in place. To do so, they held 12 conference calls and one interim meeting and the Working Group has now exposed proposed changes to the model until Nov. 27. Among other things, the exposed draft includes: 1) health maintenance organizations (HMOs) as members of the guaranty fund; 2) assessments split between health insurers and life insurers; 3) benefits, including the conclusion that the Moody s adjustment is not applicable to LTC or health insurance; 4) the guaranty associations have the ability to request rate increases if they are actuarially justified. Mr. Kennedy stated that if the proposed changes to Model #520 are approved on a Nov. 29 joint conference call between the Working Group and the Receivership and Insolvency (E) Task Force, the Financial Condition (E) Committee could consider adoption of the proposed changes to the model at the Fall National Meeting. Superintendent Cioppa expressed his appreciation to Mr. Kennedy and the Working Group for their hard work in drafting the proposed changes to Model # Discussed Next Steps Commissioner Redmer described the Task Force s future plans, noting that its next meeting likely will not occur until January At that point, the Task Force would like to receive a presentation from members of the industry on the solvency of the industry National Association of Insurance Commissioners 3 19

20 Attachment Five Attachment Long-Term Care Insurance (B/E) Task Force 12/3/17 Commissioner Redmer stated that he and Superintendent Cioppa were both approached by members of the industry, who suggested the Sept. 6 presentation on the solvency of the industry may have left people with the wrong impression. To that end, he indicated they would like to give the industry an opportunity to show the Task Force different data that displays their view of the solvency of the LTC industry. This will occur in January Commissioner Redmer stated he and Superintendent Cioppa would like the regulatory actuaries to provide the Task Force with their analysis of the new Actuarial Guideline LI The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves (AG 51) disclosure to see if that provides the Task Force some additional views of the snapshot of the reserve adequacy. However, the due date of that filing will prevent such analysis to begin until after the 2018 Spring National Meeting. Commissioner Redmer suggested the 2018 Spring National Meeting be used to give the industry an opportunity to speak to Task Force about their ideas on how to address some of the LTC issues the Task Force has been discussing. He suggested that between January 2018 and the 2018 Spring National Meeting, the Task Force could receive some information from the regulatory actuaries related to information requested when it comes to rate increase questionnaires, checklists and follow-up questions. He suggested the information be gathered in a way that allows uniformity in the processes used by the states to consider rate increases. Having no further business, the Long-Term Care Insurance (B/E) Task Force adjourned. W:\National Meetings\2017\Fall\TF\Joint LTCI (BE)\09-6_Joint LTCI minutes.docx 2017 National Association of Insurance Commissioners 4 20

21 Attachment Six Conference Call (In lieu of meeting at the 2017 Fall National Meeting) RECEIVERSHIP AND INSOLVENCY (E) TASK FORCE RECEIVERSHIP MODEL LAW (E) WORKING GROUP November 29, 2017 Summary Report The Receivership Model Law (E) Working Group and the Receivership and Insolvency (E) Task Force met via a joint conference call on November 29, During the conference call, the Working Group: 1. Adopted the Working Group s amendments to the Life and Health Insurance Guaranty Association Model Act (#520). The amendments address issues identified in the Working Group s charges, and the Request for Model Law Development. The significant changes to Model #520 involve: (1) broadening the assessment base for long-term care insurance (LTCI) insolvencies: (2) clarifying the guaranty associations coverage of LTCI; and (3) including health maintenance organizations (HMOs) as members of the guaranty association to provide coverage for HMO insolvencies, similar to the coverage provided for all other health insurers. On the Working Group s October 27 conference call, the Model #520 amendments were exposed for a 30-day comment period ending November 27. Comment letters were received from Alliance for Community Health Plans (ACHP), American Hospital Association (AHA), joint comment letter from American Council of Life Insurers (ACLI) and Arbor Strategies LLC, Blue Cross Blue Shield Association (BCBSA), Cantilo & Bennett LLP, Health Partners, and Kaiser Permanente. Non-substantive technical edits were submitted by members of the Working Group and the National Organization of Life and Health Guaranty Associations (NOLHGA) and NAIC staff. The amendments adopted by the Working Group included the technical edits. 2. Adopted a referral to the Receivership and Insolvency (E) Task Force for a draft memorandum to state insurance departments intended to highlight the necessity for states to consider a complete review of its laws and regulations related to adding HMOs as members of the guaranty association to avoid conflicting laws and regulations. During the conference call, the Task Force: 1. Adopted the Working Group s amendments to Model #520. The Task Force summarized the significant amendments to Model #520 and the reasoning therefore, and heard discussion of the amendments from interested parties and interested regulators. The amendments address the Working Group s charges, and are in accordance with the approved Model Law Development Request Form. The revisions and clarifications include the following: a. Expanding the assessment base for LTCI insolvencies by adding the life and annuity accounts to the health account as a source of funding for LTIC insolvencies. b. More equitably allocating the assessments for LTCI insolvencies, which currently fall solely upon member guaranty association insurers that write lines, including LTCI, that are considered health insurance coverages in an insolvency. The revised allocation provides for a 50%/50% split of any future assessment between the life and annuity accounts and the health account. c. Adding HMOs as members of the guaranty association to provide coverage for HMO insolvencies similar to all other health insurers and ensure regulators primary mission of protecting policyholders and providers because the distinctions between HMO products and health insurer products have diminished or are nonexistent in many markets, contractual hold harmless provisions have been ineffective in protecting consumers from balance billing in HMO insolvencies, and without guaranty association membership HMO insolvencies expose consumers to access-to-care issues and often result in providers non-payment for rendered medical services and therefore result in harm. This also results in an additional expansion of the assessment base for LTCI insolvencies. d. Clarifying that the interest limitation in Section 3B(2)(c) is not applicable to the guaranty associations coverage of LTCI or other health policies National Association of Insurance Commissioners 1 21

22 Attachment Six 2. Exposed a draft memorandum for state insurance departments for a 30-day public comment period ending Dec. 29. The memorandum is intended to highlight the necessity for states to consider a complete review of its laws and regulations related to adding HMOs as members of the guaranty association to avoid conflicting laws and regulations. The memorandum, as approved by the Task Force, would be distributed upon adoption of Model #520 amendments by the Executive (EX) Committee and Plenary. 3. Adopted its Nov. 15 minutes which included: a. Adopted its Summer National Meeting minutes which included: i. Adopted June 28 and Spring National Meeting minutes, ii. Adopted its 2018 proposed charges, iii. Adopted reports of the Receivership Financial Analysis (E) Working Group, the Receivership Model Law (E) Working Group, and the Receivership Technology and Administration (E) Working Group, iv. Heard an international resolution update, and v. Heard a Federal regulatory update. b. Adopted the report of the Receivership Model Law (E) Working Group, which met via conference call on Oct. 27 and Aug. 25. During these conference calls, the Working Group: i. Adopted its Aug. 25 and Summer National Meeting minutes, ii. Heard a report of the drafting group that developed Model #520 amendments, and iii. Exposed Model #520 amendments for a 30-day public comment period ending Nov. 27. c. Adopted the report of the Receivership Technology and Administration (E) Working Group, which met via conference call on Oct. 19 to expose draft guidance for the Receivers Handbook for Insurance Company Insolvencies regarding communication and coordination with reinsurers related to challenges some reinsurers face with the proof-of-claims forms and processes. d. Heard an international resolution update from Texas and New Jersey that highlighted activities of the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB). The IAIS Insurance Core Principle 12 Exit from the Market and Resolution was adopted by both the IAIS Financial Stability Technical Committee (FSTC) and the IAIS Executive Committee in November 2017 and it is scheduled to become effective in The IAIS Resolution Working Group is still finalizing its resolution of the related portions of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). The FSB revisions to the Key Attributes Assessment Methodology for the Insurance Sector continue. New Jersey and Texas have been working with NAIC staff and federal agencies to coordinate input in the FSB s drafting process. e. Heard a federal regulatory update from NAIC staff. The Federal Reserve issued its final rule Sept. 12 on Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions. The final rule does not include recognition of state-based stays on termination of netting agreements similar to federal and international laws. Without the recognition of state-based stays by the final rules, insurance companies are left without clarity on how such a stay on the counterparties of insurers would function along with the stays found in federal law. The Task Force will consider this issue further at a future time. Additionally, the U.S. Department of the Treasury is expected in the near future to publish its report on orderly liquidation authority (OLA) and the decision-making processes of the Financial Stability Oversight Council (FSOC). W:\National Meetings\2017\Summer\Summaries\Final Summaries\RITF docx 2017 National Association of Insurance Commissioners 2 22

23 Attachment Seven 2017 Fall National Meeting Honolulu, Hawaii REINSURANCE (E) TASK FORCE Sunday, December 3, :30 2:30 p.m. Meeting Summary Report The Reinsurance (E) Task Force met Dec. 3, During this meeting, the Task Force: 1. Adopted its Nov. 1 minutes, which included the following action: a. Adopted its Summer National Meeting minutes. b. Adopted its Oct. 3 minutes, which included the following action: 1. Adopted its 2018 proposed charges. c. Heard an update on the Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance (Covered Agreement). d. Adopted the final memorandum of the Reinsurance Investment Security (E) Subgroup, which included majority positions and recommendations related to the concepts of investment security and primary security. The Task Force agreed to send the Subgroup s recommendations to the appropriate NAIC groups for consideration. e. Adopted the report of the Reinsurance Financial Analysis (E) Working Group. The Working Group met Sept. 12 and June 29 in regulator-to-regulator session, pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings, to hear a presentation from Kroll Bond Rating Agency and to discuss proposed revisions to modify the Uniform Application Checklist for Certified Reinsurers and to integrate Kroll Bond Rating Agency into the matrix of ratings and collateral levels for certified reinsurers. f. Exposed a memorandum from the Reinsurance Financial Analysis (E) Working Group proposing revisions to modify the Uniform Application Checklist for Certified Reinsurers and to integrate Kroll Bond Agency into the matrix of ratings and collateral levels for certified reinsurers. g. Received a report regarding the definition of covered policies. h. Adopted a memorandum in response to a referral from the Blanks (E) Working Group proposing that the life financial statement blank and the fraternal financial statement blank be combined into one single reporting blank for both quarterly and annual reporting. 2. Adopted the report of the Qualified Jurisdiction (E) Working Group. The Task Force directed the Working Group to continue to postpone further work on its report on European Union (EU) member state implementation of Solvency II and the potential impact on the qualified jurisdiction status of France, Germany, Ireland and the United Kingdom (UK). 3. Adopted the report of the Reinsurance Financial Analysis (E) Working Group. The Working Group met Oct. 26 in regulator-to-regulator session, pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings, to discuss actions taken with respect to the passporting of certified reinsurers by the states. 4. Adopted a recommendation that the states may consider Kroll Bond Rating Agency as a Nationally Recognized Statistical Rating Organization (NRSRO) for certified reinsurer purposes, including: a) proposed revisions to the Uniform Application Checklist for Certified Reinsurers, with a clarification that the NRSRO must be recognized by the U.S. Securities and Exchange Commission (SEC) to provide financial strength ratings on insurance companies; and b) the matrix of ratings and collateral levels for Kroll Bond Rating Agency. 5. Discussed the NAIC process regarding the Covered Agreement and heard comments from regulators and interested parties. The Covered Agreement will eliminate reinsurance collateral requirements for EU reinsurers that maintain a minimum amount of own funds equivalent to $250 million and a solvency capital ratio (SCR) of 100% under Solvency II. W:\National Meetings\2017\Fall\Summaries\Draft Summaries\ReinsuranceTF.docx 2017 National Association of Insurance Commissioners 1 23

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25 Attachment Eight Attachment XXX Financial Condition (E) Committee 12/4/17 Draft: 10/16/17 Risk Retention Group (E) Task Force Conference Call October 10, 2017 The Risk Retention Group (E) Task Force met via conference call Oct. 10, The following Task Force members participated: Michael S. Pieciak, Chair, represented by Sandra Bigglestone (VT); Dave Jones, Vice Chair, represented by Jill Jacobi (CA); Stephen C. Taylor represented by Sean O Donnell (DC); James J. Donelon represented by Bill Werner (LA); Mike Causey represented by Ke Xu (NC); Barbara D. Richardson represented by Omar Akel (NV); John D. Doak represented by Joel Sander (OK); and Raymond G. Farmer represented by Lee Hill and Michael Shull (SC). 1. Adopted its 2018 Proposed Charges Ms. Bigglestone discussed a memorandum that includes the Task Force s 2018 proposed charges, noting the proposed charges are unchanged from the Task Force s 2017 charges. Ms. Jacobi made a motion, seconded by Mr. Akel, to adopt the Task Force s 2018 proposed charges (Attachment XXX-A). The motion passed unanimously. Having no further business, the Risk Retention Group (E) Task Force adjourned. W:\National Meetings\2017\Fall\TF\RiskRetGrp\ RiskTFmin.docx 2017 National Association of Insurance Commissioners 1 25

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27 Draft Pending Adoption Attachment Nine Draft: 11/27/17 Valuation of Securities (E) Task Force Conference Call (in lieu of meeting at the 2017 Fall National Meeting) November 13, 2017 The Valuation of Securities (E) Task Force met via conference call Nov. 13, The following Task Force members participated: James J. Donelon, Chair, represented by Stewart Guerin (LA); Jennifer Hammer, Vice Chair, represented by Kevin Fry (IL); Lori K. Wing-Heier represented Wallace Thomas (AK); Dave Jones represented by Kim Hudson (CA); Katharine L. Wade represented by Kathy Belfi and Elaine Wieche (CT); Trinidad Navarro represented by Rylynn Brown (DE); David Altmaier represented by Joe Erhart (FL); Gordon I. Ito represented by Tian Xiao (HI); Dean L. Cameron represented by Honalee Thomas (ID); Doug Ommen represented by Alan Harder (IA); Ken Selzer represented by Richard Ramos (KS); Al Redmer Jr. represented by Matt Kozak (MD); Bruce R. Ramge represented by Bruce Bornman (NE); Richard J. Badolato represented by John Sirovetz (NJ); Barbara D. Richardson represented by Omar Akel (NV); Maria T. Vullo represented by Jim Everett (NY); John D. Doak represented by Joel Sander (OK); Kent Sullivan represented by Jamie Walker (TX); Todd E. Kiser represented by Jake Garn (UT); Jacqueline K. Cunningham represented by Doug Stolte (VA); Mike Kreidler represented by Timothy Hays (WA); and Ted Nickel represented by Randy Milquet (WI). Also participating were: Vincent Gosz (AZ); Sandra Batts (KY); and Joshua Ammerman (MS). 1. Adopted its Oct. 10, Sept. 27 and Summer National Meeting Minutes Mr. Milquet made a motion, seconded by Mr. Sirovetz, to adopt the Task Force s Oct. 10 (Attachment One), Sept. 27 (Attachment Two) and Aug. 7 (see NAIC Proceedings Summer 2017, Valuation of Securities (E) Task Force) minutes. The motion passed. 2. Adopted a Proposed P&P Manual Amendment to Transfer FE/PL Processes to the SVO On Oct. 10, the Task Force exposed for a 30-day comment period a proposed amendment to the P&P Manual to transfer the FE/PL processes to the Securities Valuation Office (SVO). The amendment reflected flowcharts developed by a staffindustry team. Mike Reis (Northwestern Mutual), representing the American Council of Life Insurers (ACLI), said the ACLI, the North American Securities Valuation Association (NASVA) and the Private Placement Investors Association (PPiA) submitted a joint comment letter agreeing with the amendment and offering minor edits to this amendment and to other amendments mentioned in later items. Robert Carcano (NAIC) outlined where the minor edits fell in the proposed amendment. He also explained the original amendment included text that was later deleted because the Task Force adopted deletions to the text over the course of the exposure period. Mr. Reis said the joint letter originally objected to the now deleted language; the changes discussed by Mr. Carcano achieve the objective of the language in the joint letter. Because implementation will likely require the commitment of additional NAIC resources, Mr. Guerin asked Charles Therriault (NAIC) to describe the next steps in the NAIC process for this effort. Mr. Therriault explained that, following approval by the Task Force, staff would be submitting a report to the Financial Condition (E) Committee on behalf of the Task Force that describes the technical impacts of the policy change so the Committee can consider that aspect of the request. If the Committee approves the proposed changes, staff will then work with the NAIC s Enterprise Project Management Office (EPMO) on getting the project prioritized. If additional resources are required, a request would eventually need to go the Executive (EX) Committee for approval of any needed funding. The final timeline for this proposal would be dependent upon these other approvals. Mr. Everett asked for clarification of the process about whether items still go directly to the Financial Condition (E) Committee from the Task Force, to which Mr. Therriault confirmed they do. Mr. Everett then asked if the Executive (EX) Committee and the Internal Administration (EX1) Subcommittee had approved this new project process, and Mr. Carcano clarified that the process Mr. Therriault described is a new internal NAIC procedure, not one invented by the SVO, and is consistent with the existing approval processes of the Executive (EX) Committee and the Internal Administration (EX1) Subcommittee. Lastly, Mr. Guerin thanked everyone who worked on the FE/PL project National Association of Insurance Commissioners 1 27

28 Draft Pending Adoption Attachment Nine Mr. Fry made a motion, seconded by Mr. Hudson, to adopt a proposed amendment, including the ACLI/NASVA/PPiA friendly amendments, to transfer FE/PL processes to the SVO (Attachment Three). The motion passed. 3. Adopted a Proposed P&P Manual Amendment to Delete IAO Authority to Ignore the Credit Rating of NAIC CRPs On Sept. 27, the Task Force exposed for a 30-day public comment period the proposed P&P Manual amendment to delete the Investment Analysis Office s (IAO) authority to ignore the credit rating of NAIC credit rating providers (CRPs). The ACLI sent one comment letter in favor of adopting the amendment, which had universal support. Ms. Walker made a motion, seconded by Mr. Milquet, to adopt the proposed amendment to delete the IAO s authority to ignore the credit rating of NAIC CRPs (Attachment Four). The motion passed. 4. Adopted a Proposed P&P Manual Amendment to Delete SVO Authority to Require an Insurer to File a Security Rated by an NAIC CRP for Evaluation On Oct. 10, the Task Force exposed for a 30-day public comment period the proposed P&P Manual amendment to delete the SVO s authority to require an insurer to file a security rated by an NAIC CRP for evaluation. No comment letters were received, and staff and the industry universally supported the amendment. Mr. Sirovetz made a motion, seconded by Mr. Milquet, to adopt the proposed P&P Manual amendment to delete the SVO s authority to require an insurer to file a security rated by an NAIC CRP for evaluation (Attachment Five). The motion passed. 5. Adopted a Proposed P&P Manual Amendment to Retain and Modernize the Z Rule and Create a Carryover Procedure On Oct. 10, the Task Force exposed for a 30-day public comment period a P&P Manual amendment proposed by staff and the industry to retain and modernize the Z rule and to create an alternative year-end carryover procedure. At or near year-end, the SVO would identify properly filed securities that staff would be unable to designate by year-end due to the workload. Staff would mark these properly filed securities by assigning them the new symbol YE to annual updates and new symbol IF to initial filings. The SVO would extend the existing designations for these annual update securities in this carryover population into the next year. The insurer would report the initial filings securities with the IF symbol and selfassign an NAIC designation. This new procedure would thus identify securities awaiting analysis by the SVO or have undergone a recognized transition, thus serving the purpose of the Z rule. The SVO would then compile a list of the entire carryover population for use in its discussions with the Task Force to evaluate whether additional resources are needed. Tracey Lindsey (Nationwide), representing NASVA, said the joint ACLI/NASVA/PPiA joint comment letter previously discussed (Attachment Three) also supported the need to modernize the Z rule, noting that the new proposed suffixes will achieve greater clarity for everyone, especially regulators. Mr. Kozak made a motion, seconded by Mr. Garn, to adopt the proposed P&P Manual amendment to retain and modernize the Z rule and to create a carryover procedure effective year-end 2018, subject to the aforementioned resource issue Mr. Therriault mentioned in item #2 above (Attachment Six). The motion passed. 6. Received a Staff Report on the Project to Amend the P&P Manual for SCA (Related Party) Transactions and Directed Staff to Work with the Industry to Draft the Amendment In 2016, the Task Force transferred oversight of subsidiary, controlled and affiliated (SCA) transactions to the Statutory Accounting Principles (E) Working Group and deleted SCA instructions from the P&P Manual. In turn, the Working Group recommended revisions to the P&P Manual to clarify that the NAIC designations derived from NAIC CRP credit ratings can only consider credit risk and that the SVO only review affiliated transactions that resemble unaffiliated investments. On Oct. 10, the Task Force voted to allow insurers to continue using previously assigned NAIC designations for 2017 on related party transactions until a new process was devised. The Task Force also exposed the amendment for a 30-day public comment period National Association of Insurance Commissioners 2 28

29 Draft Pending Adoption Attachment Nine John Iwanicki (MetLife), representing the ACLI, said suggestions made in the ACLI s Sept. 27 comment letter were substantially incorporated into the new amendment and said the ACLI s Nov. 9 comment letter was generally supportive of the amendment except for the procedure for evaluating filed SCA transactions, which relates to the more complicated transactions. Mr. Iwanicki emphasized that the ACLI does not object to the language in that section; he opined the text could be further refined and made more robust if it were more descriptive of procedures for assigning NAIC designations for those complex transactions. Mr. Carcano said SVO staff hope to work further with the ACLI to devise new procedures for these complex transactions. He added that staff do not believe it is worth rushing to develop this new procedure for customized or complex SCA transactions. Mr. Carcano added staff may need input from subject-matter experts in order to devise an appropriate methodology for these custom SCA transactions. He requested more time for this project and said staff would report back to the Task Force in The Task Force directed staff to work with industry representatives to further enhance the proposed amendment and to report back on the Task Force s next call in early Adopted a Proposed P&P Manual Amendment for Schedule BA Private Funds On Sept. 27, the Task Force exposed for a public comment period an ACLI-proposed P&P Manual amendment on certain fund investments with fixed-income characteristics reported on Schedule BA. These private funds could be designated by the SVO, and thus receive a less punitive risk-based capital (RBC) charge, and would still fall under Statement of Statutory Accounting Principles (SSAP) No. 48 Joint Ventures, Partnerships and Limited Liability Companies. The ACLI recommended a P&P Manual amendment to add a weighted average rating factor methodology, thus enabling the SVO to produce the designations for Schedule BA funds. The Task Force also directed staff to draft a second amendment for Schedule BA funds with fixed-income characteristics currently reported on other schedules across all financial statement blanks, along with a referral to the Capital Adequacy (E) Task Force, the Blanks (E) Working Group and any other group affected. Mr. Guerin highlighted the latter was a 2018 project. Mr. Iwanicki briefly said the ACLI s comment letter was supportive of its work with SVO staff. Mr. Hudson asked if the proposal had been reviewed by the Capital Adequacy (E) Task Force. Mr. Guerin said neither of the two proposals had. Mr. Carcano answered staff did not think it was needed because private Schedule BA assets are already recognized in the reporting framework and in the annual financial statement instructions. Mr. Therriault added that the text in bold in the ACLI comment letter further clarified the existing instructions but does not change the treatment permitted; rather, it helps to better define the SVO s role in this space. Mr. Iwanicki said the ACLI comment letter supported the amendment and the ACLI was pleased to work with staff on the matter. Mr. Fry made a motion, seconded by Mr. Sirovetz, to adopt the ACLI-recommended P&P Manual amendment for Schedule BA private funds (Attachment Seven). The motion passed. 8. Exposed for a 30-Day Public Comment Period a Proposed P&P Manual Amendment to the U.S. Full Faith and Direct Obligations List The Task Force exposed the original proposed P&P Manual amendment in 2016, but never considered it for adoption. Originally, the issue arose because the SVO added about 40 funds to the U.S. Full Faith and Direct Obligations List (the List) that did not qualify. The List is currently limited to funds that invest 100% of total assets in direct and full faith in credit obligations of the U.S. government or collateral as repurchase agreements by such obligations. The SVO has established that investments in these funds total $6 billion. Although the SVO can reverse errors by not renewing non-compliant funds, staff recommended expanding the List to include securities and issuers identified in Part Two, Section Four of the P&P Manual for government-sponsored enterprises. Mr. Carcano explained the reason for the proposal is the P&P Manual already recognizes that other category of government activity, government-sponsored organization (GSOs), such as entities that issue guarantees or insurance, U.S.-related entities. The Task Force has already recognized them as exempt NAIC 1 securities in the P&P Manual. Mr. Carcano suggested reexposing the proposed amendment for an additional 30-day public comment period, because the original exposure did not have marked changes due to an error when converting the amendment into a PDF file National Association of Insurance Commissioners 3 29

30 Draft Pending Adoption Attachment Nine Mr. Everett asked if the expanded List takes into account congressional approval of a new framework for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Mr. Carcano said no congressional action has taken place to change the current status of Fannie Mae and Freddie Mac. Mr. Guerin said, in the event anything arises at a federal level, the Task Force would take up the matter again. Mr. Everett suggested the Task Force consider adding a methodology or analytical criteria to address the concern. Mr. Guerin said currently such a step is unnecessary, noting that the Task Force can consider it in the future. Mr. Milquet made a motion, seconded by Mr. Hudson, to re-expose the proposed P&P Manual amendment to expand the U.S. Full Faith and Direct Obligations List for a 30-day public comment period ending Dec. 12. The motion passed. 9. Received a Staff Report on Working with the Industry to Develop a Comprehensive Blanks Proposal to Encompass Reporting Symbols and the PL General Interrogatory The Task Force previously sponsored a blanks amendment that included the PL and RE symbols, which was deferred several times. The proposal was withdrawn during the Blanks (E) Working Group s Nov. 9 conference call, at which time the Working Group was informed the Task Force would submit a new comprehensive blanks proposal. Mr. Therriault added the project would also be subject to the project prioritization process discussed earlier, because it would entail system changes potentially requiring additional technology resources. The Task Force said the proposal would be picked up in Heard a Status Report on Projects Before the Statutory Accounting Principles (E) Working Group Related to Task Force Activities Mr. Carcano updated the Task Force on behalf of Julie Gann (NAIC) regarding the projects before the Statutory Accounting Principles (E) Working Group related to Task Force activities. a. Bank Loans The Working Group considered the Task Force s referral response and adopted revisions to SSAP No. 26R Bonds to include directly issued bank loans within the definition of bank loan. The Working Group also agreed to sponsor a blanks proposal to incorporate separate reporting lines on the investment schedule (Schedule D-1 Long-Term Bonds) for bank loans directly issued and acquired. The revisions to SSAP No. 26R are effective immediately, but the reporting lines will not be in effect until year-end The Working Group considered the Task Force s referral response and adopted the NAIC Policy Statement on Coordination of the Accounting Practices and Procedures Manual (APPM) and the P&P Manual. This policy statement will be included in the as of March 2018 APPM. b. Use of NAV The Working Group adopted revisions, resulting in a substantively revised SSAP No. 100R Fair Value, to allow net asset value (NAV) per share as a practical expedient to fair value either when specifically named in a SSAP or when specific conditions exist as adopted from Accounting Standards Update (ASU) : Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) and ASU : Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The revisions were adopted with a Jan. 1, 2018, effective date, with early adoption permitted for year-end For early adopters, corresponding blanks changes will not be in place until c. Wash Sale Disclosures The Working Group adopted revisions to exclude all money market mutual funds (MMFs) from the statutory accounting wash sale disclosure. Furthermore, the Working Group exposed proposed revisions to exclude all cash equivalents, all derivatives and short-term investments with a credit assessment of NAIC 1 or NAIC 2 from the wash sale disclosure. With the exposure, comments were specifically requested on whether investments reported on Schedule D-2-2 (common stock/mutual funds) should be excluded. Investments on Schedule D-2-2 are not reported with an NAIC designation; therefore, they are considered non-rated and subject to the current disclosure. d. NAIC Designations on Schedule BA The Working Group agreed to send referrals to the Capital Adequacy (E) Task Force, the Valuation of Securities (E) Task Force and the Blanks (E) Working Group to inquire whether all entities should have the ability to report NAIC designations 2017 National Association of Insurance Commissioners 4 30

31 Draft Pending Adoption Attachment Nine on Schedule BA Other Long-Term Invested Assets similar to what is permitted for life and fraternal companies. The referral does not communicate support or opposition, and identifies that there is no statutory accounting impact. e. Derivative Transactions The Working Group addressed various projects involving derivative transactions with the following key actions: Derivatives with Financing Premiums: The Working Group adopted aggregate disclosures for year-end 2017 to capture information on derivatives with financing premiums, future financing premiums due, as well as derivative fair value excluding the impact of discounted future financing premiums. The Working Group also exposed disclosures, and a proposed Schedule DB, to capture information on an individual derivative contract basis. Changes in Variation Margin: The Working Group adopted revisions to clarify that changes in variation margin shall not be considered settlements (as realized gains/losses or adjustments to the basis of the hedged item) until the derivative contract has been sold, matured, expired or has another closing transaction. SSAP No. 86 Review: The Working Group directed NAIC staff to review the guidance in SSAP No. 86 Derivatives in accordance with current U.S. generally accepted accounting principles (GAAP) requirements, including the recently released ASU : Derivatives and Hedging. This review is intended to improve the statutory accounting and reporting guidance for derivatives. f. SCA Filing Deadlines The Working Group adopted revised filing deadlines for SCA entities effective for 2018 filings. Under the revised deadlines, a Sub 1 (initial filing) is required within 90 days of the acquisition or formation of the SCA. A Sub 2 (annual update) is required by Aug. 31, with provision to allow a company a one-month deadline after the audit date for an SCA entity that regularly receives its audit report after Aug. 31. g. Investment Classification Project The Working Group exposed a new agenda item requesting comments on suggested proposals to update SSAP No. 30 Unaffiliated Common Stock under the Investment Classification Project. The proposals address the common stock definition, the inclusion of closed-end funds and unit investment trusts, and Task Force referrals on whether NAIC designations could be reported for certain investments to allow risk assessments based on the underlying holdings. h. Expected Credit Losses The Working Group directed NAIC staff to draft substantive revisions to replace the incurred loss model (e.g., probability concept for recognizing impairment), with an expected credit loss concept for statutory accounting. Although the guidance is anticipated to reflect concepts from ASU : Financial Instruments Credit Losses, it is anticipated that various modifications will need to be considered to reflect an approach that works under statutory accounting principles. As the expected credit loss concepts results with more timely recognition of expected credit losses, it is anticipated that secondary revisions perhaps to RBC or the asset valuation reserve (AVR) will also need to be considered. i. Double-Counting of Surplus Notes The Working Group exposed proposed revisions to clarify that SSAP No. 97 Subsidiary, Controlled and Affiliated Entities prohibits the double-counting of surplus notes between a parent and SCA, regardless of which party (parent or SCA) issued the surplus note and which party holds the surplus note. Furthermore, these revisions clarify that this concept applies regardless if the surplus note was acquired directly from the issuer, via the market or a third-party broker. 11. Heard a Report on Potential Projects Related to SSAP No. 43R Mr. Fry said the Task Force may need to review these securities because it has been 10 years since the financial crisis, specifically as it pertains to the carrying value concept and modified FE. He said the Task Force has discussed the matter for the past few years, due to past staff reports on the population of securities left that apply to SSAP No. 43R Loan-Backed and Structured Securities. Task Force policy regarding SSAP No. 43R securities is to model all residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) and to produce NAIC designations based on the results, coupled with 2017 National Association of Insurance Commissioners 5 31

32 Draft Pending Adoption Attachment Nine carrying value. Ratings are used for other asset-backed securities not modeled and carrying value, as well. The rationale for reviewing how these securities are handled is that the crisis is past, noting that the Task Force put the rules into place during a stressful time. Reports and proposals would need to be drafted framing the issues and offering alternatives, which is something to consider for Sasha Kamper (PPiA) added a number of PPiA members find the SSAP No. 43R process to be onerous, noting that the PPiA is open to working with staff on the matter. The Task Force directed staff to include the PPiA and any other relevant industry group when the matter is taken up in Staff agreed. 12. Received the SSG Staff Report on the 2017 Year-End Financial Modeling of RMBS and CMBS Eric Kolchinsky (NAIC) provided the Structured Securities Group s (SSG) report on the year-end financial modeling process of RMBS and CMBS. Overall, everything is going smoothly, and the final data will be published as usual and as scheduled. Lastly, Mr. Therriault said staff would keep the Task Force updated regarding project resources. Having no further business, the Valuation of Securities (E) Task Force adjourned. W:\National Meetings\2017\Fall\TF\VOS\_Final Minutes\VOSTF 13 Nov Minutes FINAL.docx 2017 National Association of Insurance Commissioners 6 32

33 Attachment Ten Attachment XXX-X Financial Condition (E) Committee 12/4/17 Draft: 11/14/17 Group Capital Calculation (E) Working Group Conference Call October 30 31, 2017 The Group Capital Calculation (E) Working Group of the Financial Condition (E) Committee met via conference call Oct , The following Working Group members participated: David Altmaier, Chair (FL); Ron Dahlquist (CA); Kathy Belfi and John Loughran (CT); Philip Barlow (DC); Kevin Fry (IL); John Turchi (MA); Leslie Nehring and John Rehagen (MO); Justin Schrader (NE); Peter Hartt and Kristine Maurer (NJ); Sak-man Luk and James Matheson (NY); Dale Bruggeman (OH); Mike Arendall and Doug Slape (TX); and David Smith and Doug Stolte (VA). 1. Adopted its Sept. 25 and Summer National Meeting Minutes The Working Group met Sept. 25 and took the following action: 1) discussed comments received related to the NAIC staff memorandum on captives; and 2) heard an update on the baseline exercise. Mr. Boerner made a motion, seconded by Ms. Belfi, to adopt the Working Group s Sept. 25 (Attachment XXX) and Aug. 6 (see NAIC Proceedings Summer 2017, Financial Condition (E) Committee, Attachment Four) minutes. The motion passed unanimously. Commissioner Altmaier also stated that the Working Group met Oct. 16 in regulator-to-regulator session, pursuant to paragraph 6 (consultations with NAIC staff members related to NAIC technical guidance) of the NAIC Policy Statement on Open Meetings. No action was taken during the meeting. 2. Exposed an Updated Approach on the Treatment of Captives Commissioner Altmaier reminded the Working Group that the purpose of the group capital calculation is to develop a tool that assists state insurance regulators in analyzing the financial condition of the group. During the Working Group s Sept. 25 conference call, comment letters were discussed related to an NAIC staff memorandum regarding the treatment of XXX/AXXX captives in the group capital calculation. The comment letters demonstrated that there are a wide range of opinions on this topic. Some of the commenters said that the use of VM-20, Requirements for Principle-Based Reserves of Life Products, was preferred as it would provide better analytical information because it is a better measure of liabilities. However, others indicated there are issues with that approach since requiring such a valuation could be costly. If the use of VM-20 were allowed as opposed to required that would create an inconsistency in valuation among companies. There were also strong views against allowing any assets in the calculation that are not allowed under statutory accounting. Commissioner Altmaier said it has been difficult to overcome these differences of opinion and find consensus on the topic of XXX/AXXX captives unless we require the assets to be consistent with statutory accounting, but let the liabilities represent the economic valuation. This would only affect the group capital calculation and not what is reported in the statutory financial statements, although there could potentially be some risk-based capital (RBC) adjustments as well. This is a new approach that attempts to achieve what the Working Group has discussed with other types of captives, which is developing a group figure that essentially looks through the captive transaction. For the non-xxx/axxx captives, the Working Group has tentatively agreed that the captive is to report liabilities consistent with what would have been reported by the direct writer and requiring them to make certain statutory accounting adjustments. For the XXX/AXXX captives, the suggestion is following the same approach or employ some other method of on-top adjustment that puts the statutory allowed assets and statutory required reserves somewhere into the calculation, but consider some type of other on-top adjustment to mimic the result that should show up for the group. Commissioner Altmaier asked NAIC staff to draft a memorandum that documents this conceptual approach as a proposal and expose it for a 45-day public comment period. After further discussion, it was agreed that the memorandum would be exposed for a 60-day public comment period ending Dec. 29. Ms. Belfi said that she submitted a comment letter that was discussed during the Working Group s Sept. 25 conference call. Since that time, she has had further conversations and has reconsidered Connecticut s position on an aspect related to captives. She said she would like to update her position related to the valuation basis of the direct writer to indicate that the direct writer may be allowed to use principle-based reserving (PBR) for both new and inforce business. Further, related to grandfathered policies, she indicated they believe that the valuation used should be VM National Association of Insurance Commissioners 1 33

34 Attachment Ten Attachment XXX-X Financial Condition (E) Committee 12/4/17 3. Discussed Permitted and Prescribed Accounting Practices Commissioner Altmaier said that the Working Group has discussed the treatment of permitted and prescribed accounting practices on a couple of occasions. Although there is a general consensus that the group capital calculation should include an inventory of the permitted and prescribed practices, there are differing opinions on how these should be treated in the group capital calculation. Some believe that including these as an on-top adjustment promotes comparability between insurance groups and would provide state insurance regulators with a more consistent basis in which to analyze the group capital calculation. However, others believe that these permitted and prescribed practices have been approved by the domestic regulator and should be retained in the spirit of an RBC aggregation approach that respects the accounting policies followed by the insurer. Commissioner Altmaier said that the Working Group may decide to take one approach to permitted practices, but then take a differing approach to prescribed practices. At the Summer National Meeting, the Working Group directed NAIC staff to analyze data from Note 1 of the annual statement related to permitted and prescribed practices and to also consider the effect on the baseline exercise. Julie Garber (NAIC) discussed a spreadsheet that includes aggregate industry from Note 1 of the 2016 annual statements (Attachment XXX), and the purpose of this analysis was to better understand the materiality of permitted and prescribed practices. She said that this information demonstrates that although permitted and prescribed accounting practices are generally immaterial to the industry as a whole, there may be some individual insurers that have material permitted or prescribed accounting practices. Mr. Barlow noted that some of the columns related to the net financial impact of the practice were negative, while others were positive, indicating that some practices increase net income or surplus (as applicable), while others decreases these amounts. Ms. Garber said that is correct, but that within each type of practice, the particular practices may cause an increase for some insurers, while it causes a decrease for other insurers, and that is why the net impact is shown on the spreadsheet. Mr. Barlow said it would be helpful to have further information on the range of fluctuations within each of the practices, and Ms. Garber said she would provide that data. Lou Felice (NAIC) said that round one of the baseline exercise considered entity-level permitted practices but did not collect data on prescribed practices. He said round two of the exercise will include an inventory of prescribed practices. Based on the initial review, Mr. Felice said that it does not appear to make much difference in the overall ratio when the practice is adjusted on-top versus at the entity level. Using an on-top adjustment would highlight the impact on the overall group capital ratio. Mr. Barlow said that the data related to the aggregated Note 1 information seems to indicate that permitted and prescribed practices are so minor that companies should be allowed to continue to report them in the group capital calculation. He did note that this initial impression could change based on NAIC staff research related to the range of the fluctuation in the net impact amounts. Ms. Maurer agreed that based on the aggregated data, the overall impact to the industry as a whole appears to be immaterial, although she said she is concerned that some groups or insurers could have material practices. Commissioner Altmaier asked NAIC staff to review that data further to identify the relative materiality of these practices on individual insurers or groups. James Braue (UnitedHealth Group) said that since there is agreement that the calculation will at least include an inventory of permitted and prescribed practices, he suggested that the field testing phase could calculate group capital ratios that both include and exclude the practices, thereby allowing for greater analytical capabilities. Commissioner Altmaier said he was not opposed to this suggestion. 4. Exposed NAIC Staff Memorandum on Non-Regulated Entities Commissioner Altmaier said the Working Group discussed the topic of non-regulated entities in 2016, and it tentatively agreed to use of a 22.5% charge against the book/adjusted carrying value (BACV), consistent with the treatment of these types of entities in the RBC formulas. Although this is a simple approach rooted in RBC, it is not necessarily risk-sensitive. At the Spring National Meeting, the American Council of Life Insurers (ACLI) presented its proposal related to these types of entities. Commissioner Altmaier suggested that the Working Group consider another option as described in a NAIC staff memorandum (Attachment XXX) that attempts to find some middle ground between the ACLI proposal and feedback from other interested stakeholders. He said he would like to plan on testing this approach, but before doing so, it could be exposed for a 75-day public comment period. Dan Daveline (NAIC) summarized the proposed approach, which is an attempt at a compromise that is driven from the fact that there seems to be a threshold issue with state insurance regulators related to prior proposals that exclude certain entities from the calculation. He said that for many large groups, much of the value of the calculation comes from the information that would be obtained. He said that state insurance regulators have indicated that they do want the legal entity separately 2017 National Association of Insurance Commissioners 2 34

35 Attachment Ten Attachment XXX-X Financial Condition (E) Committee 12/4/17 identified if it is a financially-regulated entity. There may be a willingness to only individually identify the other entities in the group if they pose some sort of material risks to the group, as described in the memorandum. Non-regulated entities meeting some requirements to be determined could potentially be grouped together in the calculation, as opposed to being individually identified. The parameters in the memorandum are intended to be examples, and the Working Group welcomes feedback on specific measures that could indicate whether an individual entity poses risk to the group. Jeffrey C. Alton (CNA Insurance Companies) asked whether the NAIC staff memorandum is a beginning point for the Working Group to discuss the scope of the group. Commissioner Altmaier said there are two aspects related to the scope of the group. The first is whether certain groups should be required to complete the calculation, and this discussion will take place once the calculation itself is further developed. The second aspect is related to the reporting of individual entities within a group, and the NAIC staff memorandum does touch upon this topic. Mr. Alton expressed concern about releasing a document that included a topic that the Working Group has not yet discussed, and asked if the memorandum could be limited to insurer investments in non-insurance affiliates. A suggestion was made that perhaps Section II of the memorandum could be removed, but Director Hartt said he is not comfortable with that approach. He said that many of the topics the Working Group is discussing naturally overlap, and in order to continue to make progress, it needs to address the issues fully as included in the memorandum. He said any concerns with the information provided in the memorandum could be discussed in a comment letter submitted during the exposure period. After some discussion, Commissioner Altmaier indicated that Section II should not be removed, and the memorandum discusses non-regulated entities, although it tends to overlap some with the scope issue. Commissioner Altmaier said the memorandum will be exposed for a 75-day public comment period ending Jan. 15, Exposed an NAIC Staff Memorandum on Surplus Notes and Senior Debt Commissioner Altmaier said the topic of surplus notes has garnered a fair amount of discussion at the international level, and the NAIC staff memorandum is an attempt to be supportive of the positions that state insurance regulators and the U.S. industry have taken at those international meetings. Mr. Felice summarized the NAIC staff memorandum (Attachment XX), stating that the memorandum covers four topics: 1) surplus notes; 2) senior debt; 3) quality of capital; and 4) whether limitations should exist. At the end of the memorandum, recommendations related to these topics are included related to an aggregation approach to the group capital calculation. Commissioner Altmaier said the memorandum will be exposed for a 75-day public comment period ending Jan. 15, Heard an Update on the Baseline Exercise Mr. Felice provided an update on the baseline exercise, and they are currently moving forward with round two of the exercise, which will collect data on recent discussion topics of the Working Group. He said round two will be the last round of the baseline exercise, as the hope is that the Working Group would then be able to field test a beta version of the calculation. Having no further business, the Group Capital Calculation (E) Working Group adjourned. W:\National Meetings\2017\Fall\Cmte\E\GCCWG\10-30 and CC\GCC WG CC minutes.docx 2017 National Association of Insurance Commissioners 3 35

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37 Attachment Eleven Attachment XXX Financial Condition (E) Committee 12/4/17 Draft: 11/20/17 Group Solvency Issues (E) Working Group Conference Call November 16, 2017 The Group Solvency Issues (E) Working Group of the Financial Condition (E) Committee met via conference call Nov. 16, The following Working Group members participated: Justin Schrader, Chair (NE); Doug Slape, Vice Chair (TX); Kim Hudson (CA); Liz Baranauckas (CT); Charles Santana (DE); Robert Ballard (FL); Jim Armstrong and Mike Yanacheak (IA); Cindy Andersen (IL); Roy Eft (IN); John Turchi (MA); Judy Weaver (MI); Leslie Nehring (MO); Kristine Maurer (NJ); Margot Small (NY); Dale Bruggeman (OH); Joe DiMemmo (PA); Doug Stolte (VA); and Steve Junior (WI). 1. Adopted the Report of the ORSA Implementation (E) Subgroup Mr. Schrader introduced himself as the new chair of the Working Group and recognized Christy Neighbors (NE) for her efforts leading the Working Group over the past two years. Mr. Schrader stated that the first agenda item is to receive a report from the ORSA Implementation (E) Subgroup. The Subgroup met Oct. 27 and Aug. 23 via conference call to develop a written process for adopting revisions to the NAIC Own Risk and Solvency Assessment (ORSA) Guidance Manual (ORSA Guidance Manual) and to discuss the status of enterprise risk management-related projects of various actuarial groups. After drafting, exposing and revising proposed language for the ORSA Guidance Manual, the Subgroup concluded its work referred the proposed draft to the Working Group for its consideration. Mr. Armstrong made a motion, seconded by Mr. Hudson, to adopt the report of the ORSA Implementation (E) Subgroup, including its Oct. 27 (Attachment XXX-A) and Aug. 23 (Attachment XXX-B) minutes. The motion passed. 2. Adopted Revisions to the ORSA Guidance Manual Bruce Jenson (NAIC) provided an overview of the proposed changes to the ORSA Guidance Manual to incorporate a formal process for adopting future revisions to the document. Mr. Jenson stated that the Subgroup drafted, exposed and updated revisions to the ORSA Guidance Manual based on comments received during the exposure period. The process includes language requiring all revisions to be subject to a public exposure period prior to adoption. In addition, the process requires the Working Group to adopt revisions by the Summer National Meeting in order to ensure that they become effective the following Jan. 1. Jigar Gandhi (American Council of Life Insurers ACLI) suggested a change to the proposed language in the ORSA Guidance Manual to clarify that all revisions must be adopted through the full NAIC approval process by the Fall National Meeting before becoming effective the following Jan. 1. After some discussion, the Working Group members agreed to edits clarifying this intent. Ms. Maurer made a motion, seconded by Mr. Bruggeman, to adopt the proposed revisions to the ORSA Guidance Manual (Attachment XXX-C). The motion passed. 3. Exposed the Form F/ORSA Comparison Chart and Proposed Revisions to the Form F Implementation Guide Mr. Schrader stated that regulators from Connecticut, Illinois, Nebraska and Texas volunteered to form a drafting group for purposes of reviewing and comparing Form F and ORSA Summary Reports received from various insurance groups to get an understanding of their similarities and differences. In addition, as part of this review, drafting group members were asked to consider the regulatory purpose and benefits associated with each report to determine whether they are both necessary and, if so, how they should be utilized. The results of these efforts were summarized and presented in an updated Form F/ORSA comparison chart. Mr. Schrader provided an overview of the takeaways highlighted in the updated comparison chart. Mr. Schrader stated that the results of the comparison indicated that although there are similarities in the purpose of both reports related to providing information on risk exposures, regulators have found the information in ORSA Summary Reports to be much more effective 2017 National Association of Insurance Commissioners 1 37

38 Attachment Eleven Attachment XXX Financial Condition (E) Committee 12/4/17 and useful, primarily due to the level of detail provided in the report. However, one clear limitation noted in the ORSA Summary Reports is that the scope of entities covered within the report is often limited. Mr. Schrader stated that Form F reporting is generally being provided at the ultimate controlling person, or full group level, albeit with limited detail on non-insurance entity exposures. Alternately, ORSA Summary Reports are more commonly filed at an intermediate insurance group level, with limited to no discussion of exposures outside of the defined insurance group. This shows a clear distinction between the two reports in terms of providing coverage to non-insurance operations within the full group. Mr. Schrader also highlighted findings related to differences in the information being reported within the two filings. The information being reported in Form F is generally limited to brief, high-level descriptions of potential risk factors that relate to the list of specific topics included in the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (#450). Often, registrants appear to interpret the report as only requiring discussion of exposures that are currently material and unmitigated, which results in limited to no discussion of risks. This is contrasted with information generally provided within ORSA Summary Reports, which generally describes the risk management framework and practices in place at the insurer, as well as provides more detailed information regarding the insurer s most significant risk exposures. However, Mr. Schrader stated that regulators have seen a wide range of practices in ORSA Summary Reports, particularly relating to the quantification of risk exposures, the stressing of those exposures and the allocation of capital to the risks being accepted by the insurer. Regardless of the variations in ORSA Summary Reports and opportunities for potential improvement, the information on risk exposures being provided in ORSA Summary Reports is generally determined to be much more valuable to that being provided in the Form F filings. Mr. Schrader asked if there were any questions or comments related to the updated Form F/ORSA comparison chart. Mr. Gandhi asked if it was the intent of the Working Group to consider adoption of the comparison chart on the call today. Mr. Schrader stated that the comparison chart would be considered for exposure, along with an updated draft of the Form F Implementation Guide. Mr. Schrader stated that, after completing their work comparing Form F and ORSA filings, drafting group members believe that improvements to the Form F process encouraging additional information to be provided on risk exposures would be beneficial to regulators. In addition, drafting group members believe that more information on the insurers risk management framework would be beneficial within the Form F filings, at least for non-orsa filers. However, drafting group members realize that Form F filings are not intended to be as detailed as ORSA Summary Reports and should not create duplicative or redundant reporting requirements for insurers subject to both requirements. In considering options for improving the quality of information provided in Form F filings, drafting group members believe that a uniform approach to providing best practice recommendations for insurers in developing Form F filings is the best option for dealing with the issues identified. Therefore, drafting group members went back to the most recent draft of the Form F Implementation Guide to propose extensive revisions with the following goals in mind: Reduce redundancy in the reporting requirements for ORSA filers, particularly in relation to insurance risk exposures. Clarify that the purpose of the Form F Implementation Guide is to outline best practice recommendations for reducing potential follow-up questions and the scope of additional analysis and exam activities if followed. Provide more guidance regarding the regulator s interest in information on risk management practices for those insurance groups not subject to ORSA reporting requirements. Mr. Jenson provided an overview of the updated Form F Implementation Guide, which included a number of revisions to soften the language within the guide to clarify its role in outlining best practices, without prescribing additional reporting requirements. In addition, the revisions included recommendations for limited situations where it may be appropriate for certain insurance groups to request a waiver from providing a Form F filing. Finally, other revisions included edits to a table providing examples of the type of information that would be beneficial for regulators to receive through the Form F filing. Ms. Baranauckas expressed her support for the proposed revisions to the Form F Implementation Guide as a uniform solution to addressing regulatory concerns in this area. Mr. Schrader stated that drafting group members considered other options to address these issues, but agreed that the other options, including single-state solutions, would not address the issues 2017 National Association of Insurance Commissioners 2 38

39 Attachment Eleven Attachment XXX Financial Condition (E) Committee 12/4/17 consistently and uniformly. Ms. Small indicated that New York would like time to review the revisions in more detail before providing any comments. Ms. Baranauckas made a motion, seconded by Ms. Small, to expose the Form F/ORSA Comparison Chart and the proposed revisions to the Form F Implementation Guide for a public comment period ending Jan. 12, The motion passed. 4. Discussed Other Matters Mr. Schrader stated that with his assumption of the role of chair of the Working Group, he was also asked to take on the role of NAIC representative to the International Association of Insurance Supervisors (IAIS) Insurance Groups Working Group (IGWG), as well as the role of vice chair of that group. Mr. Schrader stated that he is still getting up to speed, but his understanding is that the IGWG met Sept in London to finalize updates to ICP 3, Information Exchange and Confidentiality Requirements, and ICP 25, Supervisory Cooperation and Coordination, which were subsequently adopted by the IAIS. In addition, Mr. Schrader stated that the IGWG plans to meet Dec in Basel, Switzerland, to continue its discussions and work on questions related to scope of group issues and defining the head of an internationally active insurance group (IAIG). Having no further business, the Group Solvency Issues (E) Working Group adjourned. W:\National Meetings\2017\Fall\Cmte\E\GSIWG\GSIWG Call Minutes.docx 2017 National Association of Insurance Commissioners 3 39

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41 Attachment Twelve Draft Pending Adoption Attachment Financial Condition (E) Committee 08/--/17 Date: 8/10/17 Mortgage Guaranty Insurance (E) Working Group Philadelphia, Pennsylvania August 7, 2017 The Mortgage Guaranty Insurance (E) Working Group of the Financial Condition (E) Committee met in Philadelphia, PA, Aug. 7, The following Working Group members participated: Ted Nickel, Chair, represented by Steve Junior (WI); Kurt Regner (AZ); Ron Dahlquist (CA); Virginia Christy (FL); John Rehagen (MO); Jackie Obusek (NC); Joe DiMemmo (PA); and Doug Slape (TX). 1. Adopted its 2017 Spring National Meeting Minutes Mr. Rehagen made a motion, seconded by Mr. Regner, to adopt the Working Group s April 9, 2017, minutes (see NAIC Proceedings Spring 2017, Financial Condition (E) Committee, Attachment Seven). The motion passed unanimously. 2. Heard an Update on the Progress of the Mortgage Guaranty Capital Model Mr. Junior indicated that there has been progress in the completion of a contract with Milliman with respect to assisting the working group with reviewing the capital model, but that some details are still being finalized. He stated once the contract is completed, a predetermined detailed work plan would provide the state insurance regulators the opportunity to work with Milliman in those select areas of interest. He stated that once work begins at Milliman, the project would be completed within five months. Mr. Junior indicated that he will be providing Milliman with a summary of observations regarding the previous work completed on the capital model so they are aware of some of the issues. 3. Heard an Update on the Progress of Model #630 Mr. Junior indicated that because of the amount of work in getting the Milliman contract finalized, little additional work has been completed on the draft Mortgage Guaranty Insurance Model Act (#630) since the NAIC Spring National Meeting. Mr. Junior summarized that work needs to be completed on the dividend section, capital model descriptions, reinsurance section, and a few other matters. He stated that over the next couple of months he would be scheduling conference calls of the Working Group. Having no further business, the Mortgage Guaranty Insurance (E) Working Group adjourned. W:\National Meetings\2017\Summer\cmte\E\MGIWG.docx 2017 National Association of Insurance Commissioners 1 41

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43 Attachment Thirteen Attachment Financial Condition (E) Committee 12/--/17 Draft: 11/15/17 National Treatment and Coordination (E) Working Group Conference Call November 8, 2017 The National Treatment and Coordination (E) Working Group of the Financial Condition (E) Committee met via conference call Nov. 8, The following Working Group members participated: Jill Jacobi, Co-Chair (CA); Jeff Hunt, Co-Chair (TX); Cindy Hathaway (CO); Maura Welch (CT); Alison Sterett (FL); Stewart Guerin (LA); Debbie Doggett (MO); Matt Fischer (ND); Cameron Piatt (OH); Joel Sander (OK); Greg Lathrop (OR); Cressinda Bybee (PA); Eric Showgren and Jay Sueoka (UT); Ron Pastuch (WA); and Linda Johnson (WY). Also participating were: Anne Morgan (NC); and Kathy Lamb (NV). 1. Adopted its Sept. 13 Minutes Ms. Jacobi summarized the action taken on the Working Group s Sept. 13 call. During this meeting, the Working Group: 1) adopted the Biographical Third-Party Review (E) Subgroup s Aug. 29 minutes; 2) discussed the seasoning requirements; 3) adopted definitions for state charts and state-specific information ; 4) exposed the revised definition of key persons in control functions to include a cybersecurity contact; and 5) adopted updates to the biographical affidavit to include additional instruction and clarification regarding international education. Mr. Showgren made a motion, seconded by Ms. Johnson to adopt the Working Group s Sept. 13 minutes (Attachment). The motion passed. The Working Group also met Oct. 11 via conference call in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings 2. Adopted the Biographical Third-Party Review (E) Subgroup s Sept. 26 and Oct. 11 Minutes Mr. Piatt summarized the Biographical Third-Party Review (E) Subgroup s Sept. 26 conference call, during which the Subgroup discussed the accreditation Part D requirements for appointed actuaries and appointed accountants, and determined that a biographical affidavit is not required for a non-employee of the applicant company. The Subgroup has referred changes to the definition of key persons in control functions (proposal ), which is on the agenda for the Working Group s consideration. Ms. Johnson made a motion, seconded by Mr. Showgren to adopt the Subgroup s Sept. 26 minutes (Attachment). The motion passed. Mr. Piatt said the Subgroup also met Oct. 11 and adopted changes to the best practices for third-party vendors and referred two proposals regarding the primary application review checklist (proposal ) and the application checklists, instructions and frequently asked questions (FAQs) (proposal ), which are on the agenda for the Working Group s consideration. He added that discussions will continue on the reconfirmation of background reports that are less than 12 months old and discuss how vendors should communicate when verifications take more than four weeks to complete so as not to impede the state s review. Ms. Jacobi encouraged other states to participate in the Subgroup s discussions. Ms. Johnson made a motion, seconded by Ms. Doggett to adopt the Subgroup s Oct. 11 minutes (Attachment). The motion passed. 3. Adopted Proposal Ms. Jacobi said that with the NAIC membership s adoption of the Insurance Data Security Model Law (#668), which the Working Group has been monitoring, the Uniform Certificate of Authority Application (UCAA) definition for key persons in control functions should be updated to include a cybersecurity contact (proposal ). The requirement to provide an affidavit would be limited to employees and would not require an employee be hired for this function. This proposal was exposed for a 30-day public comment period ending Oct. 13 and no comments were received. Mr. Showgren made a motion, seconded by Mr. Lathrop to adopt proposal to add cybersecurity to the definition of key persons in control functions (Attachment). The motion passed National Association of Insurance Commissioners 1 43

44 Attachment Thirteen Attachment Financial Condition (E) Committee 12/--/17 4. Adopted Proposal Mr. Piatt said the purpose of proposal is to add clarifying language to the Best Practices for Background Investigations that background investigation reports should be transmitted in a secure manner to the state insurance department and/or the applicant company. Ms. Doggett asked if the language was intentionally open-ended and whether it should instead define what the secure manner should be. Mr. Piatt said it was intentionally left open-ended, as the method would vary based on the department s ability to accept encrypted s or preference for certified mail. He noted that the vendors should be complying with the standard already, but by placing it in the best practices and asking the vendors to reconfirm their ability to comply makes sure they understand that this will be monitored by the Subgroup. Mr. Piatt and Mr. Hunt both reiterated that vendors that are approved and those that request approval to supply background investigation reports should be aware of this requirement. Jane Barr (NAIC) reiterated that because the states are on the receiving end, this language was not included in the Company Licensing Best Practices Handbook. Mr. Showgren made a motion, seconded by Ms. Sterett to adopt proposal to revise the Best Practices for Background Investigation Reports regarding the transmission of reports (Attachment). The motion passed. 5. Adopted Proposal Ms. Hunt summarized proposal to amend the Primary Application Review Checklist, item #2 heading and subsections f and g, which clarify that an opining actuary and accountant not employed by the applicant company do not need to provide a biographical affidavit. The clarifying language provides guidance for opining actuaries and accountants inside and outside the applicant company s employ. Mr. Showgren made a motion, seconded by Mr. Lathrop to adopt proposal to amend Appendix A, the Primary Application Review Checklist of the Company Licensing Best Practices Handbook (Attachment). The motion passed. 6. Exposed Proposal Mr. Hunt summarized proposal to mirror the primary and expansion applications checklist to the corporate amendment checklist s description of the biographical affidavit items to be included in an application. Also included in this proposal is additional verbiage on the submission of Disclaimer of Control approval from the domiciliary state. Mr. Hunt provided additional language to include additional key individuals who have a binding authority over the applicant company. Ms. Jacobi asked the Working Group if the proposal should be exposed with the current wording, which removed the language who will control the operations from the Corporate Amendment Application Checklist and who will exercise control over the Applicant Company from the Expansion Application Checklist. Mr. Showgren said he preferred the exposure include the Texas language. Ms. Barr suggested exposing this proposal for a 30-day public comment period ending Dec. 8, with all comments forwarded to the Biographical Third-Party Review (E) Subgroup to discuss. Ms. Sterett said Florida will not accept a Disclaimer of Control from any state, noting that the applicant company would need to request a disclaimer from Florida. Mr. Hunt suggested amending the wording to may be acceptable. Ms. Jacobi reminded the Working Group that the FAQ for the biographical affidavit addresses disclaimers permits reviewing states to request the affidavits. Ms. Barr said that state specific language could be added for Florida s requirements. Mr. Showgren made a motion, seconded by Ms. Sterett to expose proposal with amended wording for the biographical affidavit submission (Attachment). The motion passed National Association of Insurance Commissioners 2 44

45 Attachment Thirteen Attachment Financial Condition (E) Committee 12/--/17 7. Exposed the Proposed Language for Seasoning Requirements Ms. Jacobi said the proposed expansion and corporate amendment instructions were amended to direct the applicant company to review the seasoning requirements for the applying state. Ms. Sterett asked if the instructions would provide a hyperlink to the Seasoning Requirements for Authority to Transact Business chart. Ms. Barr confirmed that the hyperlink would direct the applicant to the appropriate referenced chart. Ms. Sterett made a motion, seconded by Ms. Johnson to expose the seasoning requirements language for a 30-day public comment period ending Dec. 8 (Attachment). The motion passed. 8. Discussed Other Matters Ms. Barr said that Guam has expressed an interest in utilizing the UCAA for its licensing, noting that NAIC staff will be working with Guam throughout 2018 to ensure that the UCAA will meet its statutory requirements by year-end Ms. Jacobi said that once the wording for the biographical affidavit disclaimer is finalized, notification should be sent to the state chief examiners and the company licensing contacts. Mr. Hunt said the proforma ad hoc group continues to move forward with the modifications to the financial statements which consist of the balance sheet, profit and loss statement, and cash flow which will be uniform across all statement types. He asked for interested party volunteers to beta test the life proforma and provide feedback as the ad hoc group moves forward to the other business type proformas. The Working Group does not plan to meet at the Fall National Meeting. It plans to meet Dec. 13 via conference call. Having no further business, the National Treatment and Coordination (E) Working Group adjourned. W:\National Meetings\2017\Fall\Cmte\E\NTCWG\11_8_ntcwgmin.docx 2017 National Association of Insurance Commissioners 3 45

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47 Attachment Fourteen Draft: 8/8/17 Risk-Focused Surveillance (E) Working Group Philadelphia, Pennsylvania August 6, 2017 The Risk-Focused Surveillance (E) Working Group of the Financial Condition (E) Committee met in Philadelphia, PA, Aug. 6, The following Working Group members participated: Leslie Nehring, Co-Chair (MO); Justin Schrader, Co-Chair (NE); Blase Abreo (AL); Susan Bernard (CA); Kathy Belfi (CT); Daniel Mathis (IA); Kevin Fry (IL); Roy Eft (IN); Stewart Guerin (LA); Lynn Beckner (MD); Vanessa Leon (ME); Judy Weaver (MI); Tony Riddick (NC); Patricia Gosselin (NH); Steve Kerner (NJ); Mark McLeod (NY); Dwight Radel and Tracy Snow (OH); Diane Carter (OK); Greg Lathrop (OR); Joe DiMemmo (PA); Jack Broccoli (RI); Doug Slape (TX); David Smith (VA); Karen Murphy (VT); Patrick McNaughton (WA); and Rebecca Easland (WI). 1. Discussed Recommendations on Addressing Redundancies in Financial Surveillance Mr. Schrader stated that the Working Group first received a charge aimed at reducing redundancies in financial surveillance in 2013 and has taken on a number of different projects to address issues identified in this area. For example, revisions were made to the NAIC s Financial Analysis Handbook and Financial Condition Examiners Handbook, as well as to the NAIC accreditation guidelines, to encourage more consistency, collaboration and communication between the two surveillance functions. Significant changes included the incorporation of branded risk classifications as a common language for communication between the two functions, as well as an ongoing project to develop and implement a risk-focused approach to financial analysis. In working to develop the new risk-focused analysis process, a joint group of interested parties suggested a project to identify efficiency recommendations for state insurance regulators to consider. The Working Group was receptive to the project, and the interested parties were asked to present their ideas at this meeting. Jeff Martin (UnitedHealthcare UHC), Max McGee (America s Health Insurance Plans AHIP) and Joe Zolecki (Blue Cross and Blue Shield Association BCBSA) presented the recommendations of a joint group of interested parties on reducing regulatory redundancy. Mr. McGee stated that a broad group of industry participants with experience in property/casualty (P/C), life and health insurance expertise participated in the project by reviewing and comparing guidance in the NAIC s Financial Analysis Handbook and Financial Condition Examiners Handbook. Mr. Martin provided several examples of areas within the handbooks where revisions could be made to avoid redundancies and gain efficiencies. Mr. Martin stated that the interested party focused its proposed revisions on the Financial Condition Examiners Handbook as state insurance regulators are still finalizing the risk-focused analysis guidance. Mr. Zolecki provided several examples of other enhancements that could be made to reduce regulatory redundancy, including the collaborative use of software tools, continued reliance on the lead state approach to solvency monitoring, and ongoing training and monitoring through the Peer Review Program and other similar efforts. Mr. Zolecki recommended that the Working Group form a subgroup made up of state insurance regulators and interested parties to work through the identified recommendations. Mr. Schrader thanked the interested parties for their work in identifying potential areas for enhancement and for their support of the development of risk-focused analysis guidance. Ms. Nehring asked why a separate subgroup would be needed to address the recommendations. Mr. Zolecki stated that the recommendations will require in-depth discussion of handbook guidance in a number of areas that may be inefficient to conduct at the full Working Group level. Mr. Schrader asked if an informal drafting group, similar to what was used to develop risk-focused analysis guidance, might be more appropriate than a formal subgroup. Mr. Zolecki stated his agreement with such an approach. Ms. Weaver stated her disagreement with a couple of the recommendations, including a recommendation to combine the Financial Analysis Handbook and Financial Condition Examiners Handbook into one publication. Ms. Weaver stated that while it may be appropriate to cross-train staff on both the analysis and examination processes, physically combining the two handbooks is not likely to result in increased collaboration between the processes. Ms. Weaver also expressed concerns over a recommendation to require both the analysis and examination functions to use the same software tools. Mr. Schrader stated his agreement with Ms. Weaver s comments and recommended that the focus be on cross-training and cross-referencing between the two handbooks, as opposed to combining them. 47

48 Attachment Fourteen Mr. Slape stated that it could be a good idea to encourage both functions to use consistent software tools, but that he was not in favor of requiring it. Mr. Slape also said that state insurane regulators might want to consider combining the handbooks in the future, but agreed that such a step was not likely to increase understanding and collaboration across analysis and examinations in and of itself. Mr. Zolecki stated that enhanced training is critical to reducing redundancy and indicated that revisions to the handbooks could start with cross-referencing and adding an overview of the risk-focused analysis process into the Financial Condition Examiners Handbook. Mr. Schrader asked about the number of total recommendations identified by the interested parties. Mr. McGee stated that there are approximately 35 different recommendations to be considered. Mr. Zolecki stated that interested parties would also encourage state insurance regulators and NAIC staff to develop additional recommendations to be considered by a drafting group. Mr. Schrader asked Working Group members if there is interest in forming a drafting group. Ms. Bernard asked if Working Group members could review the listing of recommendations. Ms. Bernard also stated that there are some logistical limitations that make it difficult to address recommendations provided by interested parties. Ms. Belfi, Ms. Bernard and Ms. Weaver expressed interest in having their states participate in a drafting group. Mr. Schrader asked NAIC staff to reach out to other states to identify those interested in participating in a drafting group. Mr. Schrader also asked NAIC staff to coordinate with the joint group of interested parties to identify industry participants and work on scheduling. 2. Heard an Update on 2017 Peer Review Sessions Ms. Nehring provided an update on the 2017 Peer Review sessions overseen by the Working Group. In February, the Working Group held a session focused on holding company analysis. A total of eight states participated in this session, which resulted in the development of a Holding Company Sound Practices document that has been posted to StateNet as a regulator-only tool. A second analysis peer review session will be held in October, with a focus on legal entity analysis. Twelve states are scheduled to participate in the session, including three states that will bring risk-focused analysis files that were created as part of the risk-focused analysis pilot project completed earlier this year. Ms. Nehring stated that a coordination-themed peer review session was completed in April with nine states in attendance. The session resulted in the development of enhancements to an existing coordination best practices document, as well as the development of a uniform participating state audit program. Another exam peer review session is scheduled for September, with nine states planning to attend. 3. Discussed Other Matters Mr. Schrader gave an update on the Working Group s efforts to fulfill its charges related to department staffing and compensation. Mr. Schrader stated that a volunteer drafting group was formed to develop, oversee and administer a state insurance regulator survey on analyst and examiner compensation. The drafting group developed a survey that was sent to all states in July to help assess the adequacy of analyst/examiner staffing, compensation and retention on a national basis. After the survey results are received and analyzed, a summary of the results may be shared with the Working Group to support the ongoing work on these charges. Having no further business, the Risk-Focused Surveillance (E) Working Group adjourned. W:\Summer\Cmte\E\SurveillanceWG\SurveillanceWG Minutes.docx 48

49 Attachment Fifteen 2017 Fall National Meeting Honolulu, Hawaii VARIABLE ANNUITIES ISSUES (E) WORKING GROUP Friday, December 1, :00 a.m. 1:00 p.m Meeting Summary Report The Variable Annuities Issues (E) Working Group met Dec. 1, During this meeting, the Working Group: 1. Adopted its Oct. 10 minutes, which included receipt of an update on the Quantitative Impact Study from the NAICs consultant. 2. Heard a presentation from the NAICs consultant and exposed until March 2, 2018: a) proposed recommendations from the NAICs consultant as shown in a PowerPoint; b) proposed changes to Actuarial Guideline XLIII CARVM for Variable Annuities (AG43); and c) proposed changes to life risk-based capital (RBC). W:\National Meetings\2017\Fall\Summaries\Final Summaries\VAIWG.docxx 2017 National Association of Insurance Commissioners 1 49

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51 Attachment Sixteen MEMORANDUM To: From: Cc: Re: Eric A. Cioppa, Chair Financial Condition (E) Committee Members of the Financial Condition (E) Committee Charles A. Therriault, Director, NAIC, Securities Valuation Office Stewart, Guerin, Chair, Valuation of Securities Task Force Dan Daveline, Director, NIAC, Financial Regulatory Services Division Robert Carcano, Senior Counsel, NAIC, Investment Analysis Office SVO Report - Technology Content of Policy Adoptions made by the Valuation of Securities (E) Task Force Date: November 15, Issue On Nov. 13, 2017, the Valuation of Securities (E) Task Force adopted three policy initiatives that will require changes to NAIC technology systems and they directed the SVO to begin work to implement these changes, as described below. a. The Task Force transferred the production of NAIC Designations for filing exempt securities from insurance companies to the SVO and required that insurance companies submit evidence that securities subject to private letter ratings have been assigned credit ratings and that the SVO produce NAIC Designations for such securities. These initiatives are effective July 1, 2018 for securities issued on or after January 1, This policy will help ensure uniform assessments for a securities population in excess of $3 trillion of insurer owned assets. Implementation requires immediate enhancements to: 1) activate the VISION functionality developed earlier this year to receive and process PDF copies of the private rating letter ratings as FE, 2) incorporate the new NAIC Designation suffix PL in VISION, AVS+ and insurer financial statements, and 3) update the processing of rating agency data feeds that are required to specifically identify privately rated securities. Longer term enhancements will be required to improve the NAIC s processing and validation of the CRP data feeds for all FE securities b. The Task Force repurposed the Z-rule, which previously permitted an insurer to self-designate a security in the period before the security is filed with the SVO, to identifying securities whose reporting status is in transition. Under a new procedure to replace an aspect of the former Z-rule the SVO will identify securities that cannot be analytically evaluated in time for year-end; assign the symbol YE to properly filed annual update securities and extend the existing NAIC Designation into the new-year and assign the symbol IF to properly filed initial filing securities to permit insurers to self-designate these securities. The SVO will prioritize the evaluation of these securities in the new-year and the Task Force can use this carryover information to monitor SVO resource needs. To be effective by the date requested by the Task Force, year-end 2018, enhancements are required to: 1) modify the year-end processing functionality within VISION to assign the YE and IF suffixes to those filings, 2) remove, modify or deactivate year-end processes that would be inconsistent with the YE and IF policies, 3) incorporate the new NAIC Designation suffixes YE and IF into VISION, AVS+ and insurer financial statements. The Task Force has also directed the SVO to work with American Council of Life Insurers (ACLI), Private Placement investors Association (PPiA) and North American Securities Valuation Association (NASVA) representatives in 2018 to develop a comprehensive blanks proposal to provide for the reporting symbols needed as part of the initiatives discussed above for year-end 2018 reporting by insurers. The Task Force supports the commitment of resources to enable the SVO to implement these directives within the requested timelines. 51