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Focus on Areas of Enhancement and Improvement in U.S. Solvency Framework

DENVER (March 28, 2010) — The National Association of Insurance Commissioners (NAIC) has identified the Solvency Modernization Initiative (SMI) as an important focus for 2010. The initiative considers enhancements in areas including modifications to risk-based capital (RBC) calculations and requirements; supervision of insurance companies in groups; and how companies perform statutory accounting and reporting.

The SMI work plan, or “road map,” combines projects already underway with new ideas on the horizon. One of the new ideas was recently formulated by the creation of the Statutory Accounting and Financial Reporting Subgroup, a commissioner-level group developed to make policy decisions regarding the future of statutory accounting.

“It is increasingly important for U.S. regulators to adapt to the changing economic environment and globalization,” said Christina Urias, Chair of the NAIC Solvency Modernization Initiative Task Force and Arizona Director of Insurance. “We remain committed to maintaining a system that assures consumers that companies in our states have the financial means to meet policyholder obligations. This remains the fundamental purpose of our modernization efforts as we continue to develop a highly effective solvency system.”

U.S. regulators also held an interim meeting earlier this month to discuss the future of solvency regulation and solicited feedback on two consultation papers: (1) Consultation Paper on Regulatory Capital Requirements and Overarching Accounting/Valuation Issues, and (2) Consultation Paper on Corporate Governance and Risk Management. Discussion centered on the regulatory purposes supporting RBC requirements, financial analysis and examination, international accounting, group solvency regulation, corporate governance and risk management.

The SMI Task Force is considering refinements to RBC requirements, such as modification to factors, how/which risks are captured in the formula (e.g., catastrophe risk) and calibration of the formula. Group solvency surveillance was also identified as a key area for improvement in the U.S. system. For better policyholder protection, certain risks such as contagion and reputational risk within affiliated groups of companies will warrant appropriate consideration. Expectations are that the legal entity supervisory approach will remain critical, but the identification and assessment of group risk factors will complement that methodology. Regulators emphasized that group capital assessment should be performed, but not necessarily one that requires a separate group capital requirement calculation (such as RBC).

The development of more explicit authority over an insurer‘s governance processes is also under consideration with particular attention to avoid conflict with state law in the development of new statutory tools.

Regulators continue to discuss the potential for a more formal process requiring a risk management policy such as Enterprise Risk Management (ERM) and Own Risk and Solvency Assessment (ORSA), which requires an insurance company to perform a risk and capital assessment and report to the regulator.

“It is evident that there are several areas for enhancement within the U.S. solvency system and we are open to converging solvency systems internationally, where practicable, and consistent with our primary focus on consumer protection,” said Urias.
Regulators also continue to evaluate evolving international developments, such as Europe‘s Solvency II framework, and while acknowledging that achieving “equivalence” under Solvency II may benefit U.S. insurers active in Europe, any process should be measured on an outcomes-based approach rather than a rules-based approach.

Click HERE to listen to a podcast about solvency modernization and group supervision.

Click HERE for additional information about the SMI.


About the NAIC

Formed in 1871, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC has three offices: Executive Office, Washington, D.C.; Central Office, Kansas City, Mo.; and Securities Valuation Office, New York City. The NAIC serves the needs of consumers and the industry, with an overriding objective of supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace. For more information, visit

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