Capital Adequacy (E) Task Force
December 3, 2007

The Capital Adequacy (E) Task Force met on Monday, Dec. 3, 2007.

During this meeting, the Task Force:  

• Received the Nov. 14, 2007, joint conference call minutes with the Corporate Governance Subgroup of the Principles-Based Reserving (EX) Working Group.

• Discussed the update of Life Risk-Based Capital (E) Working Group. The American Academy of Actuaries (AAA) continued work on the different C-3 interest-rate risk projects. The ACLI had provided a response to a Working Group question which had been distributed to the Working Group.

• Received the report of the Property Risk-Based Capital (E) Working Group. Minutes  were adopted from a conference call had been held Oct. 9 where an AAA report on revising the underwriting risk factors was released for comment. The report called for a significant increase in the RBC factors for reinsurance lines. One comment letter had been received on the exposure from the Reinsurance Association of America (RAA).  A conference call was held Nov. 27, 2007, to discuss that comment letter. The Working Group will look at a phase-in for updating the factors for year-end 2008 and 2009 RBC with a cap of plus or minus 15% for each year rather than adjusting by the full amount of the recommended changes in one year. An underwriting risk proposal was expected to be finalized next year.    

• Adopted the report of the Health Risk-Based Capital (E) Working Group. A conference call of the Working Group had been held Oct. 11, 2007 where the Working Group had adopted a proposal to move vision business.

• Adopted a proposal from the Securities Lending Subgroup for year-end 2008 Life RBC. P/C and health proposals were released for a 45 day comment period. A conference call to adopt those proposals would be held after the comment period was over. A blanks proposal to change the General Interrogatories will be referred to the Blanks (E) Working Group.

• Referred comments received on the draft governance document to the Corporate Governance Subgroup of the Principles-Based Reserving (EX) Working Group.

• A Subgroup was formed to address whether changes were needed for the RBC treatment of collateral held for authorized reinsurance.

• Discussed C-3 Phase II results. The Life and Health Actuarial Task Force would be reviewing reserve and capital survey results for 14 companies related to C-3 Phase II products. The AAA had created a draft actuarial memorandum for reserves that would be distributed to the Task Force. A joint conference call would be held by the Task Force and the C-3 Phase II Results Subgroup to discuss what further actions needed to be taken regarding the review of documentation and governance behind RBC filings.

• The Task Force adopted editorial changes made to the 2007 RBC instructions regarding the filing of hard copies with the NAIC.

• When considering the Task Force working agenda for the next year, the Task Force was asked to make the health RBC trend test and expanding the life RBC trend test high priority items. The Task force was also asked to add an item to the working agenda to address the P/C risk charge for companies with statutory deposits.

Action Items:

1. Received the Nov. 14, 2007, joint conference call minutes the Corporate Governance Subgroup of the Principles-Based Reserving (EX) Working Group.
2. Received the Property RBC Working Group report including the minutes to the Nov. 27, 2007, conference call.
3. Adopted the Oct. 9, 2007, Property RBC Working Group minutes which included releasing for comment the Sept. 2007 AAA underwriting risk factor report.
4. Adopted the Health RBC Working Group report which included the adoption of a 2008 vision proposal.
5. Adopted the life Securities Lending Subgroup proposal for RBC.
6. Released for a comment period of 45 days the P/C and Health Securities Lending Subgroup proposals.
7. Referred a proposal for the annual statement reporting of securities lending transactions to the Blanks Working Group.
8. Formed a Subgroup to address whether changes were needed for the RBC treatment of collateral for authorized reinsurers.

9. Adopted editorial changes made by NAIC staff for 2007 RBC.