1

Committee Updates: Financial Examiners Handbook Technical Group

The group’s primary responsibility is to review and revise the Financial Condition Examiners Hand-

book. Recent projects include:

Branded Risk Definitions (adopted)

Based on a referral from the Risk-Focused Surveillance Working Group (RFSWG), the

group adopted revisions to the Credit and Operational risk definitions for use in risk-

focused surveillance. Definitions were updated as follows (changes in red):

Credit Risk – Amounts actually collected or collectible are less than those contractu-

ally due or payments are not remitted on a timely basis.

Operational Risk – Operational problems such as inadequate information systems,

breaches in internal controls, fraud or unforeseen catastrophes resulting in unex-

pected losses. The risk of financial loss resulting from inadequate or failed internal

processes, personnel and systems, as well as unforeseen external events.

ORSA Information Sharing Best Practices (exposed)

The group exposed a set of revisions that would add a reference to the newly developed

ORSA best practices document which provides insight for sharing the both the ORSA

Summary Report and the results of a regulator’s review.

2017 Project Listing (in process)

The group discussed the upcoming and ongoing projects for 2017 and beyond. The

group plans to work on PBR guidance, annual repository maintenance, and maintaining

consistency with the new Analysis approach.

Spring 2017

The Monitor

Financial Analysis Handbook Working Group

Its purpose is to review and revise guidance in the Financial Analysis Handbook. Recent projects include:

Risk-Focused Framework and Risk Repositories (adopted)

The group adopted a new Risk-Focused Framework and accompanying Risk Repositories. The guidance will be ef-

fective beginning with filings for Annual 2017 and Quarterly 2018. See page 3 for more insight on the updated pro-

cess.

Accreditation Review Team Guidelines (adopted)

The group reviewed proposed revisions to the Accreditation Review Team Guidelines which align the Accreditation

process with the new Financial Analysis Handbook guidance.

Inside this issue:

Topic Page

Committee

Updates 1-2

Get to

Know Staff 2

Analysis

Current

Events 3

Analysis

Toolbox 3

Additional

Analysis

Information 4

Process

Memos 5

TeamMate

Update 5

TeamMate

Tips &

Tricks

6

2

Electronic Workpaper Working Group

The group’s primary responsibility is to monitor and support state insurance departments in utilizing electronic work-

paper software tools. Recent projects include:

TeamMate + (in process)

The group discussed the functionality in the next version of TeamMate (i.e. TeamMate +). A group of regula-

tors and NAIC staff have begun testing the software to gain familiarity with the software and identify issues

or enhancements to be requested for inclusion in future versions of the software. A conversion timeline has

not yet been set, but would likely not occur until 2019 or after.

TeamMate Team Talk (in process)

The group received several complaints about the functionality of the Team Talk feature in TeamMate. Upon

further investigation, the group identified this as the source of some other TeamMate issues. Users are en-

couraged to consider the insights shared on Page 6 - Issue #2 to assist in addressing this software issue.

continued

COMMITTEE UPDATES

Risk-Focused Surveillance Working Group

Its purpose is to provide oversight on the implementation of the risk-focused surveillance process. Recent projects

include:

Company Prioritization Guidance (sent referral to FAHWG)

The group discussed the structure and wording of a uniform company prioritization scale. The revised guid-

ance will standardize the company prioritization ratings being used across the states to facilitate more effective

communication and coordination and will be considered further before adoption by FAHWG.

Training & Education (in process)

Surveys of regulators indicated a desire for increased educational options regarding supervisory review, coach-

ing, and feedback. In response to this, NAIC staff has begun developing an online, instructor-lead course on

the topic of supervisory review and coaching. The course is expected to be completed by Fall 2016.

Erika Cosey is a Financial

Analyst at the NAIC and

specializes in Property &

Casualty companies. In

addition to this, Erika is a

member of the NAIC vol-

unteer team and will have

an increasing role writing

about Analysis topics for

this and future editions

of The Monitor.

Erika has been with the

NAIC since 2014. Prior

to joining the NAIC, Eri-

ka received a B.S. in

English Education & an

M.S. in Finance and she

worked in the industry as

a Life, Dental, and Disa-

bility underwriter.

Outside of work, Erika

enjoys cooking, travel-

ing, spending time with

friends & family, and is

an active leader of her

graduate alumni chapter.

3

ANALYSIS CURRENT EVENTS

NAIC Spring 2017

Financial Analysis Handbook Updates

In the current issue of the Financial Analysis

Handbook (Handbook), a new section was added to

the Level 1 Analyst Reference Guide titled,

“Understanding the Insurer in Risk-Focused Financial

Analysis.” This section was added to encourage

analysts to use existing information (i.e., filings with

NAIC and/or with the Insurance Department) before

making additional requests from the company, and to

coordinate with the lead state for requests regarding

groups. In addition, a few updates to existing

procedures and guidance were made to assist the

analyst in the lead state analysis process, and new

procedures were added on topics covering other long-

term invested assets, reinsurance commutations, and

human capital and succession planning. An overview

of these changes can be found in the Memo at the

front of the Handbook.

In regard to the anticipated 2017/2018 Handbook,

members of the Financial Analysis Handbook (E)

Working Group (FAHWG) have been working

diligently on the risk-focused redesign. The project is

still underway, but the Working Group has made great

strides toward completion. Risk Repositories for each

of the nine branded risk categories for all business

types have been created and are currently housed on

the new Risk-Focused Financial Analysis Tools

webpage. Nine states have volunteered to test the risk-

focused template for 2016 Annual and to offer specific

feedback from the supervisor and the analyst

perspectives. The NAIC analysis team will utilize the

feedback to clarify the guidance and for the webinar

training sessions beginning in July 2017.

The FAHWG finalized proposed revisions to the

Accreditation Review Team Guidelines and will be

submit a referral to the Financial Regulation Standards

and Accreditation (F) Committee for implementation.

The proposed changes will better align accreditation

standards and guidelines with the new risk-focused

analysis process.

New Risk-Focused Financial Analysis

Tools Webpage

A new Risk-Focused Financial Tools webpage was created on StateNet to

provide regulators with access to tools and guidance developed for risk-

focused analysis. Some of the webpage content includes: adopted risk

assessment repositories, a mapping spreadsheet of the current

procedures to the new risk repositories, proposed accreditation

guidelines, links to previously recorded webinars and a calendar of

related webinars. (Click the Toolbox to the left for a hyperlink.)

For a link to access

the Analysis Tools

Webpage.

CLICK HERE

4

IPS Sound Practices (Click title for Link)

Following the Analysis Peer Review sessions in 2016, the Sound Practices in Utilizing the Insurer Profile Summary (IPS Sound Practices) document was created from common issues identified in the files. The IPS Sound Practices document provides regulators guidance on effective strategies to complete the IPS. For example, a sound practice was created related to the Business Summary section of the IPS. The purpose of this section is to provide a summary of the insurer and its business operations. The summary is recommended to be concise, yet include necessary details for understanding the insurers operations for solvency monitoring purposes. Recommendations regarding the content within the Business Summary are as follows: Provide an overview of the lines of business the insurer writes,

including key licensed states Provide geographic concentration, including any foreign business Identify the insurer’s ownership and any subsidiaries or key

affiliates Address recent material transactions The Sound Practice also includes insights on the regulatory action, financial snapshot, branded risk assessments, impact of the holding company, and overall conclusions sections of the IPS.

Regulator File Sharing System (Click title for Link)

A new tool for regulators, the Regulator File Sharing System, was discussed on a recent Financial Analysis Research & Development (E) Working Group (FARD) call. The FARD Group provides on-going maintenance and enhancements to the computer-based analytical techniques previously developed to assist in effectively monitoring the financial condition of insurance companies and prioritizing examination needs. The Regulator File Sharing System is a centralized application in which the states can upload confidential documents such as GPS files, ORSA analyses, or Form F analyses that would be accessible to other regulators with a domestic entity in the group. States can utilize the tool to share HC analysis files as required by accreditation. The tool is located in iSITE+ under the Tools drop down under Utilities. For more information, including a confidentiality agreement to begin uploading holding company analysis through the tool, please contact Bruce Jensen (bjenson@naic.org).

Webinar Title Date

Property/Casualty & Title Industry Webinar

June 7, 2017

Life & Health Industry Webinar

June 13, 2017

Risk-Focused Analysis Process

July 11, 2017

Assessment of Credit, Mar-ket and Liquidity Risks

July 18, 2017

Assessment of Operations, Pricing & Underwriting and Reserve Risks

Aug. 22, 2017

Assessment of Strategic, Reputation and Legal Risks

Sept. 19, 2017

Risk-Focused Supervisory Review

Oct. 17, 2017

Risk-Focused Analysis Process Recap

Nov. 17, 2017

Upcoming 2017 Webinars The Financial Analysis unit provides a variety of webinars throughout the year. Most recent trainings have covered updates to the FAST tools, the Mid-year Industry Results, and the IPS/Risk-Focused Framework. Upcoming webinars include the 2016 Annual Industry Results and additional risk-focused topics, including a more in-depth webinar series that will begin in July on the new risk-focused analysis process and branded risk assessment. The series will include practical examples of each risk and explain the process of identification, investigation, and documentation, as well as include a session on supervisory review. For additional information on these webinars, please contact, Jane Koenigsman (jkoenigsman@naic.org) or Andy Daleo (adaleo@naic.org).

Analys is Current Events cont inued. . .

Miguel Romero

Examination Manager

816-783-8479

maromero@naic.org

Jacob Steilen

Examination & Accreditation Specialist

816-783-8421

jsteilen@naic.org

Bailey Henning

Examination Coordinator

816-783-8129

bhen-ning@naic.org

James Portuguez

Electronic Work-paper Manager

816-783-8534

jportu-guez@naic.org

Erika Cosey

P/C Financial Analyst _

816-783-8125

ecosey@naic.org

Rodney Good

P/C Financial Analysis Manager

816-783-8430

rgood@naic.org

5

Exam efficiency has become a primary discussion point across the regulatory community. Through the NAIC Peer Review Program, regulators have iden-tified that one of the remaining areas for efficiency gains is in the planning stages of an exam. One of the main drivers of these inefficiencies is the performance of a full walkthrough and the creation of a Process Memo to document the company processes ob-served during the walkthrough. This article will offer advice to give a regu-lator comfort in cutting back on the process of crafting process memos.

During planning, examiners are con-suming information from a variety of sources (the analyst, interviews, meet-ing minutes, etc.). The examiner is charged with transforming this infor-mation into risk statements that can be tested through the remainder of the exam. Through Peer Review, it was noted that a large portion of the plan-ning budget was being spent on per-forming walkthroughs and creating detailed process memos which explain the company’s core business processes end-to-end. Furthermore, it was noted that the risks being identified from

these walkthroughs and process mem-os were transactional in nature and therefore not often directly solvency related. In other words, these risks are less and less commonly reviewed in an exam as we increase our leverage of the audit work to reduce our review of financial reporting risks and focus re-maining resources on solvency risks.

If you don’t use process memos for risk identi-fication, how about for control identification?

In the exam process, examiners first identify risks, then assess them, and then identify and test controls. There-fore, while the examiner needs to un-derstand the controls in place to miti-gate risks, they do not necessarily need to understand the specific flow of transactions as is traditionally the focus of a process memo. While this may require a walkthrough procedure and may also require documentation, the regulator’s understanding of controls can usually be reflected best on a ma-trix.

Do process memo’s still play a role in an ex-am?

To the extent an examiner wishes to

continue including process memo’s in their planning portion of the exam, we recommend they be cutback in two ways.

1. Regulators should leverage process memos already prepared by the inter-nal or external auditors as much as possible. This will save time while still providing the examiner with an over-view of the company operations.

2. Any original documentation that is prepared should focus on understand-ing strategic company processes. For example, how does the company set, update, and review its reinsurance or investment strategy?

The hope behind this idea of efficiency gain is that the time saved can be used to increase investigation of other than financial reporting risks. Testing a company’s investment strategy can be a complex and tedious process. There-fore, as efficiencies are realized in one area of the exam (i.e., planning) the examiner may be able to increase the level of resources devoted to the test-ing portion of the exam.

How to Process Process Memos

NAIC Spr ing 2017

The NAIC upgrade to TeamMate v12.0.1 on its Citrix Server has been delayed due to persistent issues with

the TeamTalk. NAIC staff will monitor updates to TeamMate to determine when the next upgrade should take

place.

Moreover, regulators using TeamMate on the NAIC Citrix server have reported cases of slowness, crashing,

and lost work while using TeamMate. Three topics have emerged thus far that seem to have the strongest

correlation to the issues identified: TeamTalk Large Volume Projects Citrix connectivity interruptions

A team of NAIC staff, TeamMate customer service personnel, and regulators who normally use TeamMate

has been assembled with the goal of resolving these issues. As part of this process, the NAIC is also

investigating a possible conversion to the Centralized version of TeamMate as this may help in alleviating

these issues. Testing of the centralized model is scheduled to begin in the next few weeks.

6

Issue #1: Opening a previously

opened workpaper

While working in a project, a common error

was noted when users would open a workpa-

per, close it, and then try to open it again a

2nd time. When the user would try to open a

workpaper that had been previously viewed

and exited, the following error message would

appear:

Depending on the version of TeamMate, other

error messages were also seen which told the

user that the document they were trying to

view was already open (even though it wasn’t).

To resolve this issue, open the main menu us-

ing the EWP button in the upper-left of the

screen. This will open a drop-down menu, se-

lect “Close All” from this drop-down menu. Af-

ter that, you should be able to open the work-

paper.

Issue #2: Fully closing TeamTalk

TeamTalk has been linked to several Team-

Mate issues. While these issues are being vet-

ted, it is suggested that users limit their usage

of the TeamTalk feature in TeamMate. Regu-

lators have found that hitting the red “X” in the

upper-right corner of the TeamTalk window

does not fully close TeamTalk (it continues to

run background operations after being closed).

To completely exit TeamTalk, users must se-

lect “File” then “Exit” from the TeamTalk win-

dow. To double check the program closed, us-

ers can launch their Task Manager by press-

ing Ctrl+Alt+Delete simultaneously.

If “TeamTalk - //Remote” is still showing up on

the ‘Applications’ tab, select the TeamTalk ap-

plication and click “End Task”.

TeamMate Tips & Tricks