Julie Garber, NAIC Sr. Manager – Solvency Regulation 2017 Accreditation Update Julie Garber, NAIC Sr. Manager – Solvency Regulation

Overview Changes Effective for 2017 Part A: Laws and Regulations Part B1: Analysis Part B2: Examinations Modernization of the Accreditation Program Upcoming Changes Future effective date Future Considerations

Part A: Laws and Regulations Part B: Preamble Model Risk Retention Act Life RBC Trend Test Update to Corrective Action Standard Part B: Preamble Multi-state reinsurers Part B1: Financial Analysis Enterprise Risk Report (Form F) Group Profile Summary Part B2: Financial Examinations Contractor Oversight Changes Effective for 2017

Part A: Laws and Regulations Model Risk Retention Act (#705) Only required for those states that complete a Part A for RRGs Section 3D on governance standards is the only significant element Board and audit committee independence Requirements for service providers Changes Effective for 2017

Part A: Laws and Regulations Life RBC Trend Test 2011 revisions to the Risk-Based Capital for Insurers Model Act (#312) Updates the life trend test trigger point from 2.5 to 3.0 This is more conservative and consistent with the trigger point for Health and P/C insurers Changes Effective for 2017

Part A: Laws and Regulations Updates to Corrective Action Standard Section 4B(10) of the Hazardous Financial Condition Model (#385) is a new significant element If company is in HFC, commissioner may issue an order requiring company to correct corporate governance deficiencies State can demonstrate compliance through examples Q1Q1: The RBC trend test trigger point was updated for which type of insurer effective in 2017? Life Health Property/Casualty Risk Retention Groups Changes Effective for 2017

Part B: Preamble Reinsurance Assumption Determining “multi-state” for Part B: Licensed/registered/operating in state(s) other than state of domicile Accredited/certified as a reinsurer in state(s) other than state of domicile Reinsuring business covering risks residing in at least two states Accepting business on exported basis in state(s) other than state of domicile NEW! Changes Effective for 2017

Part B: Preamble Reinsurance Assumption Related change for Part A became effective January 1, 2016 States may have companies that were previously single state, but are now multi-state Part B guidelines will apply including: Timeliness of review for analysis Timeliness of examination reports Consideration of General Interrogatory question to assist with identification Note – Blanks proposal for addition of general interrogatory question was exposed by Blanks in June, comments were due July 7 and it will be considered at the Summer NM. If adopted the proposal would be effective beginning with 2018 Q1 filings. Changes Effective for 2017

Part B1: Analysis Enterprise Risk Report (Form F) Should be reviewed and incorporated into holding company analysis Group Profile Summary (GPS) Serves as holding company analysis GPS and supporting documentation should be commensurate with the nature and complexity of the insurance group Make sure GPS contains enough information to encompass full holding company analysis. Changes Effective for 2017

Part B2: Examinations Contractor Oversight Revisions were made to the Examiners Handbook to clarify requirements of the Department Designee responsible for oversight Designee must review certain elements of an exam Designee must sign the exam report Accreditation guideline: Oversight in accordance with Examiners Handbook Designee must be employed by and conducting work solely on behalf of the state insurance department Signature is in addition to the EIC Changes Effective for 2017

Modernization of Accreditation Accreditation reviews initially focused primarily on compliance States are now meeting baseline standards Focus to emphasize substance and quality of work performed Changes effective January 1, 2017

Modernization Overview Impact Parts B, C and D (Not Part A) Review Team Guidelines Results-Oriented Guidelines Process-Oriented Guidelines Workplan for Onsite Review Replace “Scoring” with “Team’s Recommendation” Review Team Report to the Committee

Modernization – Review Team Guidelines Part B1: Financial Analysis and Part B2: Financial Examinations No significant changes to content/topics covered Adds a qualitative element to most standards (results-oriented guidelines) Maintains basic requirements (process-oriented guidelines) Discuss weighting differences Changes Effective for 2017

Modernization – Review Team Guidelines Example: b) Communication of Relevant Information Process-Oriented Guideline 4 “At the beginning of each examination, the examiner should obtain input from the financial analyst regarding areas of concern and specific issues to address during the examination.” Results-Oriented Guideline 1 “…consideration should be given to the examiner’s utilization and incorporation of pertinent information from the financial analysis in planning and conducting examination procedures.”

Modernization – Review Team Guidelines Part B3: Department Procedures and Oversight No significant changes to: a) Information Sharing and b) Procedures for Troubled Companies New standard: c) Department Oversight “Department management should be involved in solvency monitoring activities for its domestic industry to ensure appropriate oversight of staffing, company interactions and key solvency issues with the ability and willingness to take action, as deemed appropriate.” Interviews with senior management and commissioner Changes Effective for 2017

Modernization – Review Team Guidelines Part C: Organizational and Personnel Practices Enhanced current standards by adding specific guidelines Examples include state’s ability to provide training, hire and retain qualified employees, and provide competitive career paths and pay structures Added d) Use of Contract Personnel Ensure those hired as contractors are held to the same standards as state employees Changes Effective for 2017

Modernization – Review Team Guidelines Part D: Organization, Licensing and Change of Control of Domestic Insurers Reorganized standards/guidelines Sufficient Qualified Staff and Resources Primary Applications Form A Filings No significant changes to topics for review Q4 Q4: Which of the following is a brand new standard in 2017? B1(d): Financial Analysis – Priority-Based Analysis B2(c): Financial Examinations – Use of Specialists B2(g): Financial Examinations – Scheduling of Examinations B3(c): Department Procedures and Oversight – Department Oversight Changes Effective for 2017

Modernization – Onsite Workplan Replace “Scoring” with “Review Team Recommendation” Allows team members to consider issues as a whole and give proper weight to those that are most significant Prevents a state from leaning too much on basic compliance when quality is lacking Encourages emphasis on quality and substance Changes Effective for 2017

Modernization – Review Team Report Dashboard Includes basic facts such as team members and number of domestic insurers Executive Summary Review Team’s Recommendation Positive Attributes Key Areas for Improvement Review Team’s Discussion Changes Effective for 2017

Upcoming Changes Part A: Laws and Regulations ORSA Credit for Reinsurance Principle-Based Reserving Corporate Governance (pending adoption) Annual Disclosure Internal Audit Requirements 2014 Revisions to Holding Company (pending adoption) Part B: Financial Analysis (none at this time) Part B: Financial Examinations (none at this time)

Upcoming Changes Part A: Laws and Regulations – Example Timeline Date Action 2014 Model adopted by NAIC Spring 2015 Accred. Cmte exposes for consideration as potential standard (30-days) Summer 2015 Based on comments, Cmte will expose for a 1-year period beginning Jan 1 2016 1-year exposure period (Jan – Dec) Spring 2017 Cmte discusses comments received Summer 2017 Cmte votes on standard Fall 2017 Exec/Plenary votes on standard 2018-2019 2-year period for states to adopt Jan 1, 2020 Effective for accreditation This slide is optional and can be removed or skipped over if time is too tight.

Future Effective Date: 2018 Upcoming Changes Own Risk and Solvency Assessment (ORSA) Requires insurers/groups to Maintain a risk management framework and regularly perform an own risk and solvency assessment (ORSA) Annually file an ORSA Summary Report Exempts: Insurers < $500 million premium Groups < $1 billion premium Part B (Exam/Analysis) Guidelines referred to F Cmte with expected effective date of Jan. 1, 2018 Note – Part B referral will be exposed by F Cmte at Summer meeting and expected to be adopted at Fall with effective date of 1/1/18. Proposed guideline is high-level, expects ORSA review to be completed and applicable risks brought into either analysis or examination process. But team will not be reviewing the ORSAs themselves. Also – the referral does not currently include timeliness expectations as the process is too new to set clear deadlines. We expect another referral on timeliness in the next year. Pending Future Effective Date: 2018

Future Effective Date: 2019 Upcoming Changes Credit for Reinsurance Requires all states to adopt Models #785 and #786 requiring reduced collateral provisions Previous requirement of 100% collateral Changes increase consumer protection: Increased scrutiny to certified reinsurers Review of effective supervision by the Qualified Jurisdiction (E) Working Group Passporting (allowing reliance by other states) requires increased financial analysis by the Reinsurance Financial Analysis (E) Working Group Future Effective Date: 2019

Future Effective Date: 2020 Upcoming Changes Principle-Based Reserving Revisions were made to the Standard Valuation Law (#820) in 2009 Significant elements added to the Liabilities and Reserving standard Impacts reserving for life companies as well as fraternals Future Effective Date: 2020

Expected Effective Date: 2020 Upcoming Changes Corporate Governance Annual Disclosure Model Act (#305) and Model Regulation (#306) Annual collection of information on company governance practices (new filing) Applicable to all U.S. Insurers Disclosure filed annually to domestic or lead state Flexibility in level at which information is to be provided Ultimate parent, holding company or insurer Data collection includes: corporate governance framework and structure, board of directors policies and procedures, management policies and procedures, oversight of critical risk areas Expected Effective Date: 2020

Expected Effective Date: 2020 Upcoming Changes Model Audit Rule (#205) Revised to incorporate internal audit requirement for large insurers Insurer > $500 million in premium Groups > $1 billion in premium Internal audit function must provide independent assurance Areas of assurance Reporting requirements Expected Effective Date: 2020

Expected Effective Date: 2020 Upcoming Changes 2014 Revisions to Holding Company Model Group-wide supervision of Internationally Active Insurance Groups (IAIGs) Authority to act as group-wide supervisor Factors to determine group-wide supervisor Role of group-wide supervisor F Committee will need to determine application of standard Any state that is Lead State of an IAIG Any state that is Lead State of an IAIG + any state that is the domestic regulator for any insurer that is part of an IAIG All states Q6 Q6: When will the ORSA model law become effective for accreditation purposes? January 1, 2017 January 1, 2018 January 1, 2019 January 1, 2020 Expected Effective Date: 2020

Summary of Part A Changes January 1, 2017 Model Risk Retention Act (#705) RBC Life Trend Test (#312) Section 4B(10) of Hazardous Financial Condition Model (#385) January 1, 2018 ORSA (#505) January 1, 2019 Credit for Reinsurance (#785 and #786) January 1, 2020 Principle-Based Reserving (#820) Corporate Governance (#305 and #306) Model Audit Rule (#205) 2014 Holding Company Model (#440)

Future Considerations Term and Universal Life Insurance Reserve Financing Model Regulation (#787) and the 2016 Changes to the Credit for Reinsurance Model Law (#785) Provide authority concerning certain captive transactions (XXX/AXXX, long-term care, VA, etc.) F Committee exposed at 2017 Spring Meeting, discussion of significant elements will continue at the Summer National Meeting Proposed effective date: January 1, 2020

Future Considerations Financial Analysis Risk-Focused Framework Analysis process undergoing significant changes to become more risk-focused Expect referral regarding accreditation guidelines at Summer National Meeting with an effective date of January 1, 2018 The underlying goals of the proposed guidelines do not change significantly and still focus on ensuring appropriate coverage/analysis of key issues facing each insurer.

Contact Information/Questions? Becky Meyer, Senior Accreditation Manager bmeyer@naic.org or 816-783-8434 Sara Franson, Accreditation Program Manager sfranson@naic.org or 816-783-8425 Sherry Shull, Accreditation Program Specialist sshull@naic.org or 816-783-8128 Julie Garber, Senior Manager II – Solvency Regulation jgarber@naic.or or 816-783-8130