Examination Oversight (E) Task Force
September 30, 2007

The Examination Oversight (E) Task Force met on Sunday, September 30, 2007.

During this meeting, the Task Force heard reports from the following groups:

• Report of the Audit Software Working Group : The Audit Software Working Group held an interim meeting on September 18-19, 2007. At the interim meeting, the Working Group received an update on TeamMate usage, the Citrix Server, ACL and TeamMate Training and the Exam Tracking System. During the meeting, the Working Group focused its work on revising the Examination of Computer Based Operations section of the NAIC Financial Condition Examiners Handbook and related tools. In addition, the Working Group held preliminary discussions about integrating the IT examination work with the revised risk-focused examination approach . This report of the Working Group was adopted by the Task Force

• Report of the Analyst Team System Oversight Working Group: The Analyst Team System Oversight Working Group met in executive session via conference call on September 17, 2007 to discuss the status and maintenance of a confidential regulator only financial analysis tool. The report of the Working Group was received by the Task Force.

• Report of the Financial Analysis Handbook Working Group: The Financial Analysis Handbook Working Group met on September 18, 2007 via conference call. During the conference call the Working Group reviewed and discussed interested party comments received regarding the revisions to the 2007 NAIC Financial Analysis Handbook that incorporate concepts of the Risk-focused Surveillance Approach. A few friendly amendments were made and a motion to adopt the revisions was approved. The Working Group also discussed other proposed revisions to the 2007 NAIC Financial Analysis Handbook and voted to expose the proposed revisions for a public comment period. The report of the Working Group was adopted by the Task Force.

• Report of the Financial Analysis Research and Development Working Group: The Financial Analysis Research and Development Working Group met in regulator to regulator sessions via conference calls on July 25 and August 30, 2007. During the conference calls, the Working Group reviewed IRIS ratio results and determined that no changes to the IRIS ratios were necessary . The Working Group also discussed and approved enhancements to existing confidential regulator only financial analysis solvency tools. The report of the Working Group was adopted by the Task Force.

• Report of the Financial Examiners Handbook Technical Group: The Financial Examiners Handbook Technical Group met via conference calls on August 8 and September 6, 2007. On the first call, the Technical Group discussed comment letters received as a result of its exposure of a proposed Exhibit Z – Federal Compliance. The Technical Group agreed to table its work on this exhibit until additional guidance is published by the Office of Foreign Asset Control (OFAC). On the September 6 call, the Technical Group received reports from the Financial Examiners Sampling Revisions Subgroup and the Financial Examiners Report Revisions Subgroup. In addition, the Technical Group voted to publicly expose potential guidance for inclusion in the 2008 NAIC Financial Condition Examiners Handbook related to exam reports, materiality, exam coordination, control testing, compliance testing and reinsurance. Finally, the Technical Group created the Business Continuity Subgroup to address the charge to respond to the Government Accountability Office’s report on business continuity. The report of the Technical Group was adopted by the Task Force.

• Report of the Financial Examiners Qualifications and Compensation Technical Group: The Financial Examiners Qualifications and Compensation Technical Group met via conference call on August 9, 2007. The Technical Group decided to recommend a 3% salary increase to be included in the 2008 NAIC Financial Condition Examiners Handbook (Handbook) to the Task Force. The Technical Group also voted to conduct a survey regarding state’s usage of the suggested compensation rates contained within the Handbook. The report of the Technical Group was adopted by the Task Force.

After hearing reports from its groups, the Task Force discussed each of its 2007 charges. During the discussion on its 2007 charges, the Task Force received a report from the Hazardous Financial Condition Model Revisions Subgroup related to the charge to review and consider proposing revisions to Model Law #385. The Subgroup recommended that the Task Force adopt an Attachment A, which proposes formal revisions to the model law. The report of the Subgroup was received and the Task Force voted to approve the Attachment A and refer it to the Financial Condition (E) Committee for consideration. Also during its discussion on the 2007 charges, the Task Force received the report of the FHLB Custodial Subgroup, which discussed its progress in considering the Federal Home Loan Banks’ request to be included in the Model Regulation on Custodial Agreements as authorized custodians. Finally, the Task Force discussed and adopted 2008 charges for the Task Force and its various groups.

Action Items:

• Adopted the report of the Audit Software Working Group.
• Adopted the report of the Analyst Team System Oversight Working Group.
• Adopted the report of the Financial Analysis Handbook Working Group.
• Adopted the report of the Financial Analysis Research and Development Working Group.
• Adopted the report of the Financial Examiners Handbook Technical Group.
• Adopted the report of the Financial Examiners Qualifications and Compensation Technical Group.
• Received the report of the Hazardous Financial Condition Model Revisions Subgroup.
• Approved the Attachment A recommending a formal revision to Model Law #385.
• Adopted the report of the FHLB Custodial Subgroup.
• Adopted 2008 charges for the Task Force.