Financial Standards and Accreditation (F) Committee
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The Financial Regulation Standards and Accreditation (F) Committee met June 13, 2009.

During this meeting, the Committee:

• Voted to expose for a one-year period the 2008 revisions to the Model Regulation to Define Standards and Commissioner’s Authority for Companies Deemed to be in a Hazardous Financial Condition. The revisions provide 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.

• Voted to adopt the 2006 revisions to the Risk-Based Capital for Insurers Model Act as an amendment to the current significant element required for accreditation with an effective date of Jan. 1, 2012. The revisions had been released for a one-year comment period that ended Dec. 31, 2008, and no comment letters were received. The revisions incorporate a new trend test for property/casualty companies that, given certain conditions, may trigger a company action level.

• Voted to immediately revise the Receivership standard within the Part A: Laws and Regulations accreditation standards to indicate that state law should set forth a receivership scheme for the administration, by the insurance commissioner, of insurance companies found to be insolvent as set forth in the Insurer Receivership Model Act (IRMA). The standard previously referred to the Insurers Rehabilitation and Liquidation Model Act, which was superseded by IRMA. This issue had been released for a one-year comment period that ended Dec. 31, 2008, and only one comment letter was received. The Receivership standard only requires that state law set forth a receivership scheme. Therefore, a state does not have to have language that is substantially similar to what is included in the model, but rather have a scheme similar to what is contemplated in the model.

• Voted to adopt the 2006 revisions to the Model Regulation Requiring Annual Audited Financial Reports—commonly referred to as the Model Audit Rule—as new significant elements required for accreditation within the CPA Audits Part A standard with an effective date of Jan. 1, 2010. These revisions, which included renaming the model to the Annual Financial Reporting Model Regulation, require that insurers comply with certain best practices related to auditor independence, corporate governance and internal control over financial reporting. The revisions had been released for a one-year comment period that ended Dec. 31, 2008, and no comment letters were received.

• Voted to adopt new accreditation standards related to change in ownership and company licensing. The proposed standards had been released for a 45-day comment period, and two comment letters were received. These new “Part D” accreditation standards will not be scored by accreditation review teams, and a state could not fail an accreditation review based solely on lack of compliance with the company licensing standards. If deficiencies are noted, the review team would provide management comments to the state insurance department similar to what is currently performed with the Part C: Organizational and Personnel Practices standards. Because this is a significant change to the accreditation program, the Committee agreed that a two-year implementation period was reasonable, and the standards will become effective Jan. 1, 2012.

Action Items:

1. Voted to expose for a one-year comment period the 2008 revisions to the Model Regulation to Define Standards and Commissioner’s Authority for Companies Deemed to be in a Hazardous Financial Condition.
2. Voted to adopt the 2006 revisions to the Risk-Based Capital for Insurers Model Act as an amendment to the current significant element required for accreditation with an effective date of Jan. 1, 2012.
3. Voted to immediately revise the Part A Receivership accreditation standard to indicate that state law should set forth a receivership scheme for the administration, by the insurance commissioner, of insurance companies found to be insolvent as set forth in the Insurer Receivership Model Act.
4. Voted to adopt the 2006 revisions to the Annual Financial Reporting Model Regulation as new significant elements required for accreditation within the CPA Audits Part A standard with an effective date of Jan. 1, 2010.
5. Voted to adopt new accreditation standards related to change in ownership and company licensing with an effective date of Jan. 1, 2012.