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BUDGET PROCESS

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 a high level of disclosure for a non-profit budget. Throughout the development of the NAIC's budget, there are numerous and detailed reviews by all levels of management, the NAIC Officers, the NAIC Executive (EX) Committee, and the Internal Administration (EX1) Subcommittee. As stated in Article IV of the NAIC Bylaws, the budget is released to the public for comment before final consideration and adoption.

Current Budget

The National Association of Insurance Commissioners' (NAIC) 2016 budget was approved on November 22, 2015 following months of development by NAIC leadership, the Internal Administration (EX1) Subcommittee, the Executive (EX) Committee, and executive staff.

"The 2016 budget bolsters the NAIC's world class data collection capabilities, strengthens our support systems and continues to modernize our state-based regulatory framework," said John M. Huff, NAIC President-Elect and Director of Missouri Department of Insurance. "It is imperative we focus on cybersecurity enhancements by adding talent, products and services to further reinforce the NAIC's technical and information services infrastructure, security and cyber resilience. This carefully drafted spending plan deploys the resources we need to protect consumers."

The NAIC's 2016 budget includes total revenues (including investment income) of $97.6 million and total expenses of $102.4 million, which represents a 3.54 percent and 4.46 percent increase, respectively, from the 2015 budget, resulting in a budgeted reduction in Net Assets of $4.8 million in 2016.

The 2016 budget includes eleven Business and Fiscal Impact Statements (fiscals):

  1. Cybersecurity & Enhancement/Expansion of Security Infrastructure – Phase II. The provision of data processing services to its members is an important service provided by the NAIC. This fiscal requests funding for six additional full time staff members and one part time staff member plus additional products and services to further strengthen and enhance the NAIC's technical and information services infrastructure and NAIC's security environment.

  2. Principle-Based Reserving (PBR) Implementation (Staffing & Modeling). The date Principle-Based Reserving (PBR) becomes operational is rapidly approaching. To ensure the states are prepared for this new regulatory environment, this fiscal requests the funding to hire two additional actuarial staff members and license modeling software to ensure PBR reserves are calculated in compliance with the principles presented in the Standard Valuation Law and the Valuation Manual.

  3. Securities Valuation Office (SVO) Staffing. This fiscal will increase the SVO staff by two credit analysts to strengthen the NAIC's capability to analyze filed securities and maintain a high quality of analysis.

  4. Market Regulation Staffing. NAIC members increasingly rely on market conduct data collection and market analysis to effectively regulate the marketplace and efficiently allocate resources for the investigation, examination, and enforcement of market conduct issues. This fiscal requests funding for the addition of one full time market analyst.

  5. State Based Systems (SBS) Software Enhancement and Technology Compliance Initiative – Implementation Strategy. This is the final phase of an initiative to redesign and implement the SBS technology platform by updating the SBS architecture and toolset, which will provide enhanced performance, stability, and scalability to the 29 licensed states that rely on this system.

  6. System for Electronic Rate and Form Filing (SERFF) Rewrite Evaluation. This fiscal requests funding for consulting to assist NAIC staff in documenting the current SERFF application and identify areas that require functionality and usability improvements. The information gathered will aid in justification, estimation, planning, and execution of a future rewrite effort.

  7. File Repository Rewrite. This fiscal requests funding to build a redesigned File Repository system to manage confidential or sensitive documents or filings in a centralized repository to facilitate the sharing of this information in a secure manner consistent with defined and approved access.

  8. Specification Generator (SpecGen) Rewrite. This proposal requests funding to rewrite the Specification Generator (SpecGen) application. The primary purpose of SpecGen is to establish and maintain metadata (data that describes other data) for annual and quarterly financial statement data based on the financial blanks and instructions adopted each year by the NAIC membership.

  9. Accreditation Pilot Review. The Accreditation Program has been in existence for over 20 years and it is appropriate to review the program from time to time. Because the revisions are expected to impact how accreditation reviews are performed, funding is requested to perform a pilot accreditation review to determine how well the proposed changes work in practice.

  10. Variable Annuities Change Framework Implementation. The purpose of this fiscal is to examine proposed conceptual changes to Actuarial Guidelines XLIII (AG43, the reserve standard for variable annuities) and C-3 Phase II (the RBC standard for variable annuities).

  11. Enhancement and Expansion of Application Testing Infrastructure. The overarching objective of this initiative is to increase the quality and speed of delivering products and services to all NAIC and NIPR customers. To achieve this objective, the expansion of the environment to test using multiple browsers and operating systems, and the unification of testing tools and methods within the NAIC and NIPR is necessary. Pending approval, NIPR will cover their portion of this initiative.

The NAIC's 2016 budget.
*The budget is over 200 pages and is set up for duplex printing.

2015 Budget

The NAIC adopted its 2015 Budget the Joint Meeting of the Executive and Plenary Committees at the 2014 Fall National Meeting. The budget includes total revenues of $94.3 million and total expenses of $98.1 million.

Periodically the Executive (EX) Committee and the Internal Administration (EX1) Subcommittee receive funding requests for projects after the annual budget is approved. Generally these projects are of an urgent nature to the NAIC's annual agenda or its committee structure that were either not known or not solidified at the time the annual budget was prepared. Their impact is fully described as part of the 2015 projections included within the 2016 budget proposal.

Should you have any questions about the NAIC budget, please feel free to contact Jim Woody, Chief Financial Officer at (816) 783-8015 or Carol Hartley, Senior Controller at (816) 783-8038.