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Financial Regulation Standards and Accreditation (F) Committee

Mission Statement

The mission of the NAIC accreditation program is to establish and maintain standards to promote sound insurance company financial solvency regulation. The accreditation program provides a process whereby solvency regulation of multi-state insurance companies can be enhanced and adequately monitored with emphasis on the following:

  1. Adequate solvency laws and regulations in each accredited state to protect consumers and guarantee funds.

  2. Effective and efficient financial analysis and examination processes in each accredited state.

  3. Appropriate organizational and personnel practices in each accredited state.

  4. Effective and efficient processes regarding the review of organization, licensing and change of control of domestic insurers in each accredited state.

2018 Charges

  1. Maintain and strengthen the NAIC Financial Regulation Standards and Accreditation Program.
  2. Assist the states, as requested and as appropriate, in implementing laws, practices and procedures, and with obtaining personnel required for compliance with the standards.
  3. Conduct a yearly review of accredited jurisdictions.
  4. Consider new model laws, new practices and procedures, and amendments to existing model laws and practices and procedures required for accreditation and determine timing and appropriateness of addition of such new model laws, new practices and procedures, and amendments.
  5. Render advisory opinions and interpretations of model laws required for accreditation and on substantial similarity of state laws.
  6. Review existing standards for effectiveness and relevancy and make recommendations for change, if appropriate.
  7. Produce, maintain and update the NAIC Accreditation Program Manual to provide guidance to state insurance regulators regarding the official standards, policies and procedures of the program.
  8. Maintain and update the “Financial Regulation Standards and Accreditation Program” pamphlet.
  9. Perform enhanced pre-accreditation review services, including, but not limited to, additional staff support, increased participation, enhanced report recommendations and informal feedback.
  10. As the various work products are adopted by the Principle-Based Reserving Implementation (EX) Task Force, the Executive (EX) Committee and the Plenary, consider them for inclusion in the Part A and Part B Accreditation Standards.

Recent Changes to Accreditation Standards

Effective January 1, 2017

CPA Audits Standard for Risk Retention Groups
In areas where there is clear overlap between the Annual Financial Reporting Model Regulation (#205) and the Model Risk Retention Act (#705), the standard has been updated to allow for the application of either model when assessing compliance.

Modernization of the Accreditation Program—Revisions to the Review Team Guidelines and the Self-Evaluation Guide/Interim Annual Review
The Accreditation Program has been revised to modernize the process. The revisions are an important step to move the program forward and stay in-line with the ever-changing regulatory environment. In working toward the goal of increasing the focus of an accreditation review on substance and quality of work, the accreditation guidelines were categorized into Results-Oriented Guidelines and Process-Oriented Guidelines. These changes directly impacted the Self Evaluation Guide | Interim Annual Review (SEG|IAR), therefore the SEG|IAR was update accordingly.

Model Risk Retention Act (#705)
Model #705 is being added as an additional Part A standard for those states that charter risk retention groups (RRGs). The model will be assessed on a substantially similar basis with Section 3D related to governance standards being the only significant element. If your state does not charter RRGs, the model does not need to be adopted.

2011 Revisions to the Risk-Based Capital (RBC) for Insurers Model Act (#312) related to Life Trend Test
The Part A standard related to RBC has been updated to include the 2011 revision to Model #312 related to the change to the life trend test. The trigger point for the RBC trend test for life insurers has been revised from 2.5 to 3.0, thus making it more conservative and consistent with the number used for P/C insurers.

Additional Significant Element Related to Part A: Corrective Action Standard
The 2008 revisions to the Model Regulation to Define Standards and Commissioner's Authority for Companies Deemed to be in Hazardous Financial Condition (#385) are currently required for accreditation. Currently, Section 3 and Section 4B are the two significant elements related to Model #385. F Committee adopted Section 4B(10) as an additional significant element. In assessing compliance with this standards, the Commissioner should have specific authority to order the insurer to correct corporate governance practice deficiencies or at a minimum demonstrate with examples that the Commissioner's statutory and/or regulatory authority extends to corporate governance practice deficiencies.

Revisions to Part A Preamble (RRG’s Organized as Captives) and Part B Preamble
In 2015 the Committee adopted a new Part A Accreditation Preamble, which discusses the scope of the Part A standards. As a result of the revisions to the Part A Preamble, which were effective Jan 1. 2016, the Committee also considered revisions to the description of risk retention group (RRG) multi-state business and revisions to the Part B: Regulatory Practices and Procedures Preamble in order to be consistent with the Part A Preamble changes made in 2015. The changes primarily focused on the description of the types of activities that represent multi-state business, which was revised to include insurers that reinsure business covering risks residing in at least two states.

Practically speaking, this change means that a state may have insurers that were previously considered single state and therefore not included in the Interim Annual Review/Self-Evaluation Guide reporting, but these insurers will now be considered multi-state and will need to be reported in the IAR/SEG. That is, these companies would need to be included in the listing of companies and when reporting timeliness information for analysis and examinations. Each state should review its current domestic insurers and ensure that they will be properly classified as single state or multi-state when this change becomes effective as of Jan. 1, 2017.

Effective January 1, 2018

Risk Management and Own Risk and Solvency Assessment (#505)
The F Committee has adopted a new Part A Standard that requires the adoption of Model #505 on a substantially similar basis. Attached are the “significant elements” that must be adopted (or something substantially similar) in order for the state to comply with the accreditation requirements.

The F Committee also adopted revisions to the Part B: Financial Analysis and Financial Examination guidelines related to review of the ORSA reports. The guidelines focus on assuring the ORSA report is reviewed by the lead state and pertinent information is incorporated into the analysis or examination work performed. At this time there are no guidelines requiring a specific timeline be met for the review of the reports. The ORSA Implementation (E) Subgroup expects to recommend timing guidelines to the F Committee for consideration during 2018.

Risk-Focused Analysis Revisions - Effective Beginning with the Annual 2017 Analysis

The Committee adopted revisions to the Part B: Financial Analysis and Financial Examination guidelines and related self-evaluation guide/interim annual review to incorporate risk-focused analysis revisions. The revisions to the guidelines and self-evaluation guide/interim annual review align with the recent revisions to the Financial Analysis Handbook to adopt a risk-focused approach to analysis.

Effective January 1, 2019

2011 Revisions to the Credit for Reinsurance Model Law (#785) and Regulation (#786)
The 2011 Revisions related to the certified reinsurer provisions were previously included as an optional standard, but will now be required as an accreditation standard. Therefore, all accredited jurisdictions will need to adopt the 2011 revisions to Model #785 and #786, if they have not already done so.

In conjunction with making the certified reinsurer provisions a required standard, three significant elements were updated which include: 1) Concentration Risk; 2) Catastrophe Recoverables Deferral; and 3) Passporting. Previously, adoption of these specific provisions was optional, even when a state adopted the certified reinsurer provisions. The Committee agreed that these three provisions should be mandatory for all accredited jurisdictions.

Effective January 1, 2020

2014 Revisions to the Annual Financial Reporting Model Regulation (#205)
The 2014 revisions relate to new requirements for an internal audit function, and it is being added as a new significant element in the CPA Audits standard.

2009 Revisions to the Standard Valuation Law (#820)
The 2009 revisions authorize a principle-based reserving (PBR) methodology for life, annuity and accident and health contracts. The significant elements for these revisions will be included in the Part A, Liabilities and Reserves standard. In addition to the life companies already encompassed in the Part A accreditation standards, the PBR elements, as adopted, are designed to apply to fraternal benefit societies. Since fraternals are currently excluded from the scope of Part A, an update to the Preamble to include them in the scope for this standard is expected prior to the effective date of the standard.

Corporate Governance Annual Disclosure Model Act (#305) and the Corporate Governance Annual Disclosure Model Regulation (#306)

These models require an insurer (or group of insurers) to provide a confidential disclosure regarding its corporate governance practices to the lead state and/or domestic regulator annually by June 1.