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 NAIC Financial Regulation Standards and Accreditation Program.—Essential
- Assist the states, as requested and as appropriate, in implementing laws, practices and procedures, and with obtaining personnel required for compliance with the standards.—Essential
- Conduct a yearly review of accredited jurisdictions.—Essential
- Consider new model laws, new practices and procedures, and amendments to existing model laws and practices and procedures required for accreditation, and determine the timing and appropriateness of the addition of such new model laws, new practices and procedures, and amendments.—Essential
- Render advisory opinions and interpretations of model laws required for accreditation and on substantial similarity of state laws.—Essential
- Review existing standards for effectiveness and relevancy and make recommendations for change, if appropriate. —Essential
- Produce, maintain and update the “NAIC Administrative Policies Manual of the Financial Regulation Standards and Accreditation Program” to provide guidance to state insurance regulators regarding the official standards, policies and procedures of the program.—Essential
- Maintain and update the NAIC’s “Financial Regulation Standards and Accreditation Program” pamphlet.—Essential
- Perform enhanced pre-accreditation review services, including, but not limited to, additional staff support, increased participation, enhanced report recommendations and informal feedback.—Essential
- As the various work products are adopted by the Principle-Based Reserving (EX) Task Force, Executive Committee, and Plenary, consider them for inclusion in the Part A and Part B Accreditation Standards.—Essential
Recent Changes to Accreditation Standards
Now in Effect
Revisions to Review Team Guidelines for 2014 Revisions to Financial Condition Examiners Handbook Related to Examination Coordination
The Review Team Guidelines have been revised to incorporate updated guidance in the Examiners Handbook related to examination coordination. The attached memo discusses the changes to the Examiners Handbook, includes the revised Review Team Guidelines and includes new guidance to accreditation review teams when selecting examinations.
Revisions to the Review Team Guidelines Related to the Updated Insurer Profile Summary Template and Coordination between Analysts and Examiners
The template for the Insurer Profile Summary (IPS) has been updated in both the Financial Analysis Handbook and Financial Condition Examiners Handbook. As a result, the Review Team Guidelines have been revised related to the IPS and communication/coordination that should occur between the analyst and examiner.
New Part A Accreditation Preamble with Changes Specific to Captives/SPVs that Assume XXX/AXXX Business
The Committee has adopted a new Part A Accreditation Preamble, which discusses the scope of the Part A Standards. The most significant change is related to captives that assume XXX/AXXX business. The new Preamble includes a safe harbor for reinsurance transactions that satisfy the XXX/AXXX Reinsurance Framework (i.e., AG 48, the proposed XXX/AXXX Credit for Reinsurance Model Regulation and certain reporting requirements.). The new Preamble still includes a discussion on captives that assume variable annuities and long-term care insurance, but notes that those provisions are not yet effective. They are primarily a placeholder, while the F Committee monitors the work on variable annuity captives by other NAIC groups. Inclusion of variable annuity and long-term care reinsurance captives will be discussed further at future National Meetings. Included below is a document that will assist in assessing whether a transaction complies with the XXX/AXXX Reinsurance Framework.
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.
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. Preamble Changes - Part A and Part B
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.
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. Reinsurance Ceded to Certified Reinsurers
Note: This decision by F Committee will need to be approved by the Executive Committee/Plenary at the 2016 Summer National Meeting.