NAIC Meeting: Actuarial changes of note

Authored by Mike Dubin

During the recent National Association of Insurance Commissioners (NAIC) Spring Meeting, several working groups and committees discussed items of import for actuaries, including the Big Data (EX) Working Group, Casualty Actuarial and Statistical (C) Task Force, Health Risk-Based Capital (E) Working Group and International Insurance Relations (G) Committee.

Big Data (EX) Working Group: Complex model review

There was debate over a centralized or decentralized mechanism and structure for a mechanism to assist state regulatory review of complex models. Insurance organizations indicated they feel a centralized structure inappropriately delegates state responsibility, and prefer paying higher fees to individual insurance departments for a more complete review versus a centralized NAIC center for review. One state gave an example where it is currently receiving state filings based on predictive models that may be against state law, but they do not have the requisite expertise to approve or disapprove within their staff.

In the best case, the Casualty Actuarial and Statistical Task Force should be asked to draft best practices, state guidance and to facilitate training. However, given the lack of consensus and multiple committees involved, it seems unlikely that a state assistance mechanism will be initiated soon.

Casualty Actuarial and Statistical (C) Task Force: Appointed actuary

There was significant debate about the “Appointed Actuary Project.” This project aims to require actuaries to opine annually (on a company by company basis) on what is needed to be qualified, whether they are qualified and what they have done to be qualified. Significant opposition was expressed from the actuarial community. On the surface, this doesn’t seem extraordinary as examinations usually require that the examining actuary opine whether the appointed actuary is qualified to be the appointed actuary for the specific company. However, the draft “Attestation of the Appointed Actuary” form in the meeting materials had over 100 questions indicating many are concerned with a checklist approach to credentials. Some of the issue may be concern that years of experience will be discounted in favor of standard coursework.

Health Risk-Based Capital (E) Working Group: Stop-loss interrogatories and expanding use of NAIC designations

There was healthy debate over two proposals. The first is regarding stop-loss interrogatories. The American Academy of Actuaries expressed concern that information collected for RBC purposes would be used for other purposes. The other side of the debate is that information on stop loss contracts is needed to appropriately reflect their risk in the RBC calculation.

The second is regarding expanding the use of NAIC designations on Schedule BA from Life Insurers only to Health Insurers. The stated reason for proposing the change is to more accurately reflect investment risk and increase consistency between life and health insurers. One main objection was that it would be an additional cost to carriers without additional risk identification.

International Insurance Relations (G) Committee: Foreign reinsurer approval framework

There was discussion about a common framework for states to approve reinsurers from outside the U.S. The purpose would be to allow reinsurance receivables to be an admitted asset without collateral. One point debated was whether states could require the other jurisdiction to accept the state’s solvency monitoring and regulations.

We will continue to monitor these items as they move through the NAIC process. 

For more information on these topics, or to learn how Baker Tilly's insurance industry specialists can help, contact our team.