Internal Administration (EX1) Subcommittee
Executive (EX) Committee Task Forces and Working Groups Summary Report
Summer 2009 Meeting Summaries Index

The Internal Administration (EX1) Subcommittee met on Saturday, June 13, 2009.

During the meeting, the Subcommittee:

• Adopted the minutes of its March 15th meeting and May 25th electronic vote. The May 25th electronic vote adopted a proposal for the NAIC to hold its 2009 Winter National Meeting at the San Francisco Hilton December 4 – 8, 2009, which represents a change from the Hilton Hawaii.

• Adopted the report from the Audit Committee, which included a report on the financial results through April 30, 2009 and financial projections for fiscal year 2009. The Audit Committee reviewed investment results through April 30, 2009 and adopted recommendations from the NAIC’s investment adviser, Prairie Capital Management, including the implementation of a target 15% investment policy allocation to alternative asset classes. The Audit Committee also approved a $3.4 million contribution to the NAIC’s defined benefit pension plan to be made in late June.

• Adopted the report of the Information Systems Task Force, which included (1) a report on its review of member-approved information technology projects and (2) recommended changes to the review process for new business and fiscal impact proposals, specifically involving NAIC technology requirements.

• Received a report from NAIC Chief Executive Officer, Terri Vaughan, regarding constituent meetings, media outreach, and progress on the D.C. Office transition and implementation of the Center for Insurance Policy and Research (CIPR). The CIPR is anticipated to be launched in July 2009, which will include the introduction of the CIPR web content as part of the new NAIC website design and the release of an enhanced NAIC search tool powered by Google. Additionally, the CIPR will include the addition of certain NAIC staff subject matter experts, as outlined in the business plan approved and published in March 2009. The first of these resource enhancements includes the addition of Mary A. Weiss, Ph.D., as the NAIC Distinguished Scholar in Insurance Regulation.

• Received a report from NAIC Chief Operating Officer, Andy Beal, regarding the annual renewal of commercial insurance coverages, noting the Association was able to maintain or increase our level of coverages in all policies and still achieve a 3% decline in premiums. The Association has also renewed its medical, dental, life, accidental death and dismemberment, long-term disability, vision, voluntary life insurance and employee assistance program benefits for employees of the NAIC, NIPR and IIPRC.

• Received a report from Mike Moriarty, as Chair of the Valuation of Securities Task Force, regarding a proposal to consider modifications to current NAIC Designations for residential mortgage backed securities (RMBS). Recent rating agency downgrades of RMBS are driven, in large part, by models requiring an automatic downgrade if a principal loss is projected to occur at any time during the life of the security, regardless of loss severity. The Valuation of Securities Task Force will be evaluating options for evaluating the severity of projected principal losses in RMBS and their resulting impact on NAIC Designations.

• The Subcommittee met in executive session. During the executive session, the Subcommittee:

• Received a report from NAIC staff regarding 2009 financial projections. While financial results through April 30, 2009 are strong, NAIC staff are beginning to see and project declines in some key NAIC revenue streams. At the same time, NAIC staff are managing a few unanticipated expense increases in 2009. As a result, staff have commenced in preparing operating margin projections very early in 2009, compared to prior years when projections were generally prepared as part of the annual budget process late each summer. As a result, the NAIC staff have identified and will be implementing cost-saving measures for the balance of 2009, with the objective of achieving or exceeding our budgeted operating margin in 2009 while minimizing the impact to membership services.
   
• Received a report from NAIC staff regarding the Association’s 2301 McGee, Kansas City, MO office space lease. The Subcommittee noted the lease will expire in January 2012 and staff are moving forward to engage a commercial real estate broker to evaluate options for the Kansas City office space, including consideration of lease renewal, search for new office space for lease, or purchase of office space