NAIC Budget

The NAIC's annual budget process is an open and deliberative process among the NAIC members and members of the insurance industry. NAIC budgets have historically offered more disclosure than any nonprofit budget. Throughout the development of the NAIC's budget there are numerous and rigorous reviews by all levels of management, the NAIC Officers, the Internal Administration (EX1) Subcommittee, and the NAIC Executive Committee. As stated in Article IV of the NAIC Bylaws, the budget is released to the public for comment before final consideration and adoption at the NAIC Winter National Meeting.

NAIC 2009 Budget
The NAIC's proposed 2009 budget began the approval process at the Fall National Meeting, following months of development by NAIC leadership, the Internal Administration (EX1) Subcommittee and executive staff. It was approved at the Winter National Meeting by the Executive Committee.

“We have prepared a strong and transparent budget for 2009, one demonstrating our focus to serve members in their protection of consumers and ensuring strict solvency of the insurance industry. The proposal includes significant investment in membership participation in NAIC meetings and education and training programs,” said NAIC President-Elect and New Hampshire Insurance Commissioner Roger Sevigny. “Once again, the proposed budget will be published in great detail, allowing all interested persons to understand the allocation of NAIC financial resources.”

The 2009 approved budget includes revenues and expenses of $73.1 million and $70.7 million, respectively, forecasting revenue growth of 7.1%. The NAIC's expense budget is projected to grow by 6.3%, largely indicative of the NAIC's continued investment in membership services and proposal supporting the membership's strategic initiatives.

New Initiatives include:

• Continued investment in the state producer Licensing Reengineering project, representing consulting resources and one full-time employee.

• Allocation of NAIC resources to the Market Conduct Annual Statement proposal to (1) prepare and support the existing MCAS process (updating it to collect 2008 data filed in 2009), (2) enable the collection of data submitted by states to the NAIC and (3) automate the aggregation of data for limited analysis and the creation of national ratios and averages by the NAIC, which is still subject to discussion by the NAIC membership in the coming months.

• A proof of concept proposal to evaluate the scope, timeline and potential costs of leveraging the Florida Office of Insurance Regulation's Public Hurricane Risk and Loss Model in order to build a national multi-peril model administered by the NAIC for use by states potentially affected by natural catastrophes.

• The addition of one full-time employee to support the NAIC's goals and priorities in the work of the International Association of Insurance Supervisors (IAIS).

A public hearing was held November 5, 2008, with minutes and comments available for review.

2009 Program Budget
The purpose of NAIC program budgeting is to enable the membership to establish long-range financial performance goals based on their stated mission, goals and objectives. It is essentially a planning device, which allows the continual evaluation of program objectives, costs and accomplishments by tying conventional budgeting to NAIC member decision-making. Specifically, the program budget allocates the NAIC's budgeted revenues and expenses across three broad categories, including Solvency Regulatory Support, Market Regulatory Support and General Regulatory Support.

At the direction of the membership, NAIC staff prepared the first program budget in early 1996, using a crosswalk methodology to convert the 1995 conventional budget to a program-reporting format based upon program categories established by the Strategic Framework (EX1) Working Group. Since that time, continual refinements have been made to the program budget process to accommodate changes in NAIC programs and initiatives. These improvements have allowed for a more precise crosswalk and thus a more valuable management tool. The method of allocation used in preparing the 2009 program budget is consistent with previous years.

The NAIC has dedicated a great deal of time and resources to the program budget process. However, the allocation of certain revenues and expenses not directly related to individual programs requires significant judgment and estimation. NAIC management has analyzed these allocation methods and believes they represent reasonable estimates of the NAIC resources dedicated to each NAIC program.

The program budget is now included as a component of the full budget proposal beginning on page 217.

Reconciliation of Changes to the 2009 Budget
From time to time, the Internal Administration (EX1) Subcommittee receives proposed amendments to the NAIC budget, generally for projects that arise, of an urgent nature to the NAIC's annual agenda or its committee structure, that may not have been known at the time the annual budget was prepared. These budget proposals and amendments are fully documented in the minutes of Subcommittee meetings. They are also summarized in the Reconciliation of Changes to the 2009 Budget.

Should you have any questions about the NAIC budget, please feel free to contact Brady Kelley, NAIC Chief Financial and Business Strategy Officer at (816) 783-8011 or Carol Hartley, NAIC Sr. Controller at (816) 783-8038.