Financial Regulation Standards and Accreditation
The mission of the 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:
- Adequate solvency laws and regulations in each accredited state to protect consumers and guaranty funds.
- Effective and efficient financial analysis and examination processes in each accredited state.
- Appropriate organizational and personnel practices in each accredited state.
- Effective and efficient processes regarding the review of organization, licensing and change of control of domestic insurers in each accredited state.
The accreditation program will accomplish its mission by continually evaluating the adequacy and appropriateness of accreditation standards in accordance with the changing regulatory environment and through continued monitoring of accredited states by conducting the following accreditation reviews:
- Pre-Accreditation Reviews to occur approximately one year prior to a state's full accreditation review. This review will entail a high-level review of the financial analysis and financial examination functions to identify areas of improvement.
- Full Accreditation Reviews to occur once every five years subject to interim annual reviews. This review will entail a full review of laws and regulations, the financial analysis and financial examination functions, and organizational and personnel practices to assist in determining a state's compliance with the accreditation standards.
- Interim Annual Reviews to occur annually to maintain accredited status between full accreditation reviews. This review will entail a review of any law and regulation changes, the financial analysis and financial examination functions, and organizational and personnel practices to ensure continued compliance with the accreditation standards and to identify areas of improvement.
- Maintain and strengthen the Financial Regulation Standards and Accreditation Program.
- Assist states, as requested and as appropriate, in implementing laws, practices and procedures, and obtaining personnel required for compliance with the standards.
- Conduct a yearly review of accredited jurisdictions.
- 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 the addition of such new model laws, new practices and procedures, and amendments.
- Render advisory opinions and interpretations of model laws required for accreditation and on substantial similarity of state laws.
- Review existing standards for effectiveness and relevancy and make recommendations for change, if appropriate.
- Produce, maintain and update the “NAIC Accreditation Program Manual" of the Financial Regulations Standards and Accreditation Program” to provide guidance to state regulators regarding the official standards, policies and procedures of the program.
- Maintain and update the NAIC’s “Financial Regulation Standards and Accreditation Program” pamphlet.
- Perform enhanced pre-accreditation review services, including but not limited to, additional staff support, increased participation, enhanced report recommendations and informal feedback.
Recent Changes to Accreditation Standards
Now in Effect
Business Transacted with Producer Controlled Property/Casualty Insurers (#325) for RRGs
Part A: Laws and Regulations Standards for risk retention groups (RRGs) went into effect in 2011, and one of the Part A standards includes the Business Transacted with Producer Controlled Property/Casualty Insurer Act (#325). The Part A requirement is that the states have a regulatory framework similar to Model #325. It was later noted, however, that the model specifically exempts RRGs from its definition of “licensed insurer.” This issue was referred to the Property and Casualty Insurance (C) Committee, and it removed the exemption for RRGs from the definition of “licensed insurer” in Model #325. Therefore, those states with multi-domestic RRG that are controlled by a producer should have a regulatory framework similar to that included in Model #325 by Jan. 1, 2014.
2008 Revisions to the Model Regulation to Define Standards and Commissioners Authority for Companies Deemed to be in Hazardous Financial Condition (#385)
Amendments to the Model Regulation to Define Standards and Commissioners Authority for Companies Deemed to be in Hazardous Financial Condition (#385) were adopted in 2008. The model provides additional standards for consideration by the commissioner to determine whether the continued operation of any insurer might be deemed to be hazardous to its policyholders, creditors or the general public. In addition, the revisions give the commissioner additional authority to issue an order requiring companies deemed to be in a hazardous financial condition to take corrective action. The revisions to model #385 impact the first two significant elements under the “Corrective Action” standard currently required for accreditation.
Risk Based Capital (RBC) for Insurers Model Act (#312) Required for RRGs
Part A standards became effective for risk retention groups on January 1, 2011. However, the Capital and Surplus standard did not require that a state adopt the RBC Model Regulation for use with RRGs. On a December 14, 2011, conference call, the FRSAC adopted the proposed revisions to the “Capital and Surplus” Part A standard that makes RBC applicable to RRGs.
Revisions to the Review Team Guidelines for Significant Changes Included in the 2013 Financial Condition Examiners Handbook
At the 2013 Fall National Meeting, the F Committee adopted various revisions to the Review Team Guidelines related to significant changes that are included in the 2013 edition of the Examiners Handbook.
Revisions to the Review Team Guidelines for Group Holding Company Analysis
At the 2013 Fall National Meeting, the F Committee adopted various revisions to the Review Team Guidelines related to the group holding company analysis that relate to significant changes made to the Financial Analysis Handbook.
Revisions to the Review Team Guidelines for Uploading Examination Reports to FEETS
At the 2013 Fall National Meeting, the F Committee adopted revisions to the Review Team Guidelines related to the new requirement that examination reports be uploaded to the NAIC Financial Exam Electronic Tracking System.
Removal of Note 1 Surplus Reconciliation Requirement in CPA Report for RRGs Using a Basis of Accounting other than Statutory Accounting Principles
At the 2013 Fall National Meeting, the F Committee adopted a referral from the Risk Retention Group (E) Task Force that recommended removal of the requirement that RRGs using a basis of accounting other than statutory accounting principles (SAP) include a reconciliation back to SAP surplus in Note 1 of the annual audited financial report. The unaudited reconciliation will still need to be included in Note 1 o the NAIC Annual Statement Blank.
Part A: Regulatory Authority Standard
The Part A Standard regarding Regulatory Authority became effective on January 1, 2012, but there was some initial confusion during the implementation period. To resolve the issue, clarifying instructions were adopted and will be included in the Accreditation Interlineations.
Effective January 1, 2015
Revisions to Review Team Guidelines for 2013 Revisions to Financial Condition Examiners
The Review Team Guidelines have been revised to incorporate two significant changes made to the Examiners Handbook during 2013. The attached memo discusses the changes to the Examiners Handbook related to critical risk categories and IT reviews, as well as the related revisions to the Review Team Guidelines.
Revisions to Reinsurance Guidelines for RRGs
The Reinsurance Guidelines for RRGs have been revised to clearly indicate that the grandfathering provisions are intended to apply to the individual reinsurer, as opposed to reinsurance contracts. Attached is the memo from the Risk Retention Group (E) Task Force that discusses this issue further.
Risk-Based Capital for Health Organizations Model Act (#315)
At the 2010 Spring National Meeting, the Financial Condition (E) Committee adopted a recommendation to make the Risk-Based Capital for Health Organizations Model Act (#315) an accreditation standard. There have been no revisions made to Model #315 since 2009. Model #315 will be included in the Part A standards under the Capital and Surplus Requirement standard currently required for accreditation.
Effective January 1, 2016
2010 Revisions to the Insurance Holding Company System Regulatory Act (#440) and the Insurance Holding Company System Model Regulation (#450)
Revisions to the Insurance Holding Company System Regulatory Act (#440) and the Insurance Holding Company System Model Regulation (#450) were adopted by the NAIC membership in December 2010. The revisions to Model #440 and Model #450 primarily relate to supervisory colleges and the Form F (Enterprise Risk Report) filing. States should have the revisions enacted no later than Jan. 1, 2016. Please note: The Form F filing requirement in the model and adopted by the Committee does not have a premium threshold. All insurers that are in a holding company should be required to file a Form F. Attached are tracked changes versions of the models and the significant elements.
Effective January 1, 2017
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.