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SUMMER 20142014
The
2014
Summer
National
Meeting
Louisville, KY
August 16 – 19, 2014
International Insurance
Relations (G) Committee
Excerpt from the Proceedings of the NAIC
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© 2014 National Association of Insurance Commissioners
INTERNATIONAL INSURANCE RELATIONS (G) COMMITTEE International Insurance Relations (G) Committee Aug. 16, 2014, Minutes ............................................................................ 12-2
Draft NAIC Comments on International Association of Insurance Supervisors (IAIS) Consultation Documents (Attachment One-A) ..................................................................................................................... 12-10 American Academy of Actuaries’ Aug. 4, 2014, Letter Regarding Comments on IAIS Consultation Document on the Basic Capital Requirements for Global Systemically Important Insurers (Attachment One-B) ........................................................................................................................................ 12-17 International Insurance Relations (G) Committee July 24, 2014, Minutes (Attachment Two) ..................................... 12-24 Draft NAIC Comments on IAIS Draft Application Paper on Supervisory Colleges (Attachment Two-A) ........... 12-25 International Insurance Relations (G) Committee July 25, 2014, Minutes (Attachment Two-B) .......................... 12-27 International Insurance Relations (G) Committee April 23, 2014, Minutes (Attachment Three).................................. 12-28 Draft NAIC Comments on IAIS Draft Issues Paper on Approaches to Group Corporate Governance – Impact on Control Functions (Attachment Three-A) ............................................................... 12-29 ComFrame Development and Analysis (G) Working Group Aug. 16, 2014, Minutes (Attachment Four) ................... 12-31 ComFrame Development and Analysis (G) Working Group June 5, 2014, Minutes (Attachment Four-A) .......... 12-34
12-1
International Insurance Relations (G) Committee Aug. 7, 2014, Minutes (Attachment One) ......................................... 12-8
NAIC Proceedings – Summer 2014
© 2014 National Association of Insurance Commissioners 1
Draft: 8/29/14
International Insurance Relations (G) Committee Louisville, Kentucky
August 16, 2014
Commissioner Lindeen said she presented during the OECD Roundtable on regulatory factors affecting insurer long-term investing, focusing on outputs from monitoring of investments in the U.S., changes in corporate governance and ensuring board awareness of investment strategies, and the interplay between an open market in investment and how that affects RBC. Updates were provided on various projects that are currently under way, including work on analytical tools and the insurance sector, a preliminary report related to variable annuity products and their guarantees, a draft report on practices in disaster risk financing, and a draft outline for a report on investment strategies of insurers and long-term investment. Commissioner Lindeen said that in mid-June, the OECD organized a seminar on Disaster Risk Financing in the Asia-Pacific Region. The conference was attended by officials and experts from the Asia-Pacific Economic Cooperation and other invited economies, regional and international organizations, and the private sector. Commissioner Donelon represented the NAIC at this meeting and discussed the following topics: the capacity of the insurance sector to cover disaster risks; the objectives, design and operation of key disaster insurance schemes; lessons learned and changes made to these schemes in light of recent disasters; effective approaches in regard to enhancing the availability and affordability of insurance; strengthening the capacities of the insurance sector to cover disaster risks; and how the U.S. has overcome implementation challenges. Commissioner Lindeen noted that the OECD is organizing a seminar on Terrorism Risk Insurance Sept. 10 in Washington, DC, at the Treasury Department. Commissioner Murphy will represent the NAIC at that meeting. 2. Adopted its Aug. 7, July 24 and April 23 Minutes Commissioner Kobylowski made a motion, seconded by Commissioner McCarty to adopt the Committee’s Aug. 7 (Attachment One), July 24 (Attachment Two) and April 23 (Attachment Three) minutes. 3. Discussed the Activities of the IAIS
a. Restructuring and Reorganization
Commissioner McCarty reported on the restructuring and reorganization taking place at the International Association of Insurance Supervisors (IAIS). He noted that in 2013, the IAIS began a review of its strategic goals, financial outlook and resources, with the goal of developing proposals to improve its structures, operations and the allocation of resources, including improving the process for obtaining and enhancing the quality of stakeholder input. He said that earlier this year, the IAIS Executive Committee approved several restructuring changes. In looking at the variety of workstreams taking place at the IAIS and considering its priorities and limited resources, reorganizational decisions resulted in existing groups being combined, refocused, dissolved or left the same. These changes are being rolled out mostly this summer, with some changes taking effect by the end of the year.
The International Insurance Relations (G) Committee met in Louisville, KY, Aug. 16, 2014. The following committee members participated: Michael F. Consedine, Chair (PA); Kevin M. McCarty, Vice Chair (FL); Thomas B. Leonardi, Immediate Past Chair (CT); Karen Weldin Stewart (DE), Gordon I. Ito (HI); James J. Donelon represented by Tom Travis (LA); Joseph G. Murphy represented by John Turchi (MA); John M. Huff (MO); Bruce R. Ramge represented by Christy Neighbors (NE); Kenneth E. Kobylowski (NJ); Benjamin M. Lawsky represented by Robert Easton (NY); Julia Rathgeber (TX); and Susan L. Donegan (VT). Also participating was: Monica J. Lindeen (MT). 1. Heard an Update on the OECD
Commissioner Lindeen reported that the Organisation for Economic Co-operation and Development (OECD) Insurance and Private Pensions Committee met in early June in Paris. She attended as part of the U.S. delegation, which is jointly led by the U.S. Department of Commerce and the Federal Insurance Office (FIO).
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© 2014 National Association of Insurance Commissioners 2
Commissioner McCarty said that while the IAIS Executive Committee recognized that the IAIS has benefited greatly from the contributions of Observers and other interested stakeholders to its work, it was also recognized that the process of obtaining stakeholder input could be more effective and efficient. He said that to maximize the opportunity for timely, substantive and high-quality input from Observers and other stakeholders, the Executive Committee agreed to update relevant procedures. As part of these reforms, Commissioner McCarty said it is being proposed that Observers would no longer generally participate in meetings but rather be invited when necessary to provide targeted, technical input. The Executive Committee also agreed to increase the IAIS’ engagement with Observers and other stakeholders through special Executive Committee sessions, increased Committee-level hearings, greater publication of background documents and the use of conference calls at certain stages of policy development. Commissioner McCarty noted that the IAIS has released for consultation draft procedures for meeting participation and the development of supervisory and supporting material and a draft Policy for Consultation with Stakeholders. He said that comments are due on these procedures and policy by Sept. 2, and he encouraged interested parties to submit their comments to the IAIS on this proposal. He said that the NAIC and state regulators’ ideas of how to make stakeholder input more effective, consistent, transparent and predictable differ from many fellow IAIS members and that NAIC members participating at the IAIS have for years been trying to make the IAIS a more open and transparent organization. Commissioner McCarty said that some of the solutions being proposed are a step in the wrong direction, specifically Observer participation in meetings, and that some proposals need further clarification, which will hopefully come as a result of the current consultation. George Brady (IAIS) invited interested parties to submit their best ideas regarding how the IAIS takes input from stakeholders. He said there would be a change in the approaches to the IAIS’ current “pay to play” structure in addition to changing the automatic attendance policy by stakeholders at IAIS meetings. He said that IAIS field testing was an example of how the IAIS process involved targeted stakeholders. Commissioner Leonardi said that state regulators have been vocal in opposition to this change at the IAIS. He said the NAIC is much more open and transparent by comparison and is trying to be even more so, whereas the IAIS is going in the other direction. Tracey Laws (Reinsurance Association of America—RAA) said the IAIS field testing was not an ideal process as a few get the benefit of participating in something that will end up affecting many. She was not opposed to changes in the IAIS’ “pay to play” structure; however, she hopes to coordinate comments with the NAIC on the IAIS proposal to change stakeholder access to meetings. Robert Neill (American Council of Life Insurers—ACLI) noted that the ACLI has participated in meetings at the IAIS since its inception and that the ACLI wants to work with the NAIC to make changes to the IAIS proposal that make sense and to improve the procedures as currently drafted. David Snyder (Property Casualty Insurers Association of America—PCI) questioned how the IAIS would go about selecting stakeholders for targeted input and suggested that this change would create competition not of ideas, but rather competition for inside influence. Birny Birnbaum (NAIC Funded Consumer Representative and Center for Economic Justice—CEJ) encouraged the IAIS to create a more formal structure for consumer participation. He said the NAIC has been responsive in explaining reasons for closing a meeting, and the criteria for closing meetings or for inviting specific stakeholders need to be specified by the IAIS so that more diverse stakeholders, including consumers’ representatives, can be involved. He said this process should not be totally discretionary and subjective. Amanda Greenwold Wise (American Insurance Association—AIA) said that a change in stakeholder participation at this stage of the ongoing work with ComFrame will be detrimental and that field testing is not a proxy for transparency of process. Jeff Alton (CNA Financial) noted concerns about developing a common capital standard at the IAIS if access to meetings is only available to a select few and wondered whether the IAIS’ practice of holding closed-door meetings with think-tanks would continue. He asked how information would be disseminated to stakeholders during the standards-setting process. Other international standard setting bodies such as the International Accounting Standards Board (IASB) offer up to six months for the industry to comment on their proposed standards.
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© 2014 National Association of Insurance Commissioners 3
Mr. Brady responded that the purpose of the IAIS stakeholder proposals being out for consultation was to seek the best ideas on this topic and identify points that needed clarity, and he encouraged interested parties to submit comments. Sonja Larkin-Thorne (NAIC Funded Consumer Representative) said that the NAIC encourages people to engage in its processes and was critical of the IAIS proposal to close participation, noting that given the impact the IAIS’ work can have on U.S. consumers and stakeholders who have no say in electing the IAIS, it should be more transparent and open. Doug Barnert (Barnert Associates) noted that the IAIS has opened up its process over the past 15 years and that other international bodies had followed its lead, but the proposal to now close its sessions was an unfortunate reversal in direction. Commissioner Stewart said that as the largest delegation at the IAIS, the U.S. state regulators should have a loud voice at the table and be more proactive and assertive on this issue. Commissioner Consedine noted that National Conference of Insurance Legislators (NCOIL) has also expressed concerns about the lack of transparency at the IAIS.
b. Financial Stability Committee
Commissioner Kobylowski reported on the Financial Stability Committee at the IAIS. He explained that the IAIS Financial Stability Committee is in the process of its annual review to identify global systemically important insurers (G-SIIs), and that the assessment methodology involves both quantitative and qualitative elements. This annual review will also consider the systemic importance of some companies that have significant reinsurance operations. He added that it is expected that the Financial Stability Board (FSB) and national authorities, in consultation with the IAIS, will make determinations on the G-SII status of insurers and reinsurers in November. Commissioner Kobylowski said that the IAIS is working on higher loss absorbency (HLA) capital requirements for G-SIIs. The first step in the process has been the development of a basic capital requirements (BCR) that will serve as a base upon which the HLA requirements will build. He noted that in light of the limited time frame for delivering on the BCR, the requirement is intended to be a straightforward calculation and largely a factor-based approach to determining capital, with limited risk granularity. Early last month, the IAIS released its second consultation document on the BCR, which contained significantly greater detail on the calculation of the BCR than the first consultation document, but still left open several issues that require decision before the BCR design is finalized. He commented that the NAIC and several U.S. interested parties provided comments on the consultation document. He said it is expected that the IAIS will refine the proposal in the coming months based on the comments received and will deliver the BCR to the Group of Twenty in time for its November 2014 Summit. He added the IAIS hopes to have a first consultation on the HLA in December and is targeting a final proposal for the end of 2015. Both the BCR and HLA would not to apply to G-SIIs until 2019, so there is time for review and refinement. Commissioner Kobylowski said that last year, the IAIS committed to develop a risk-based global insurance capital standard (ICS) to be included in ComFrame, to be applicable to all internationally active insurance groups (IAIGs). The IAIS has begun initial development on the ICS, also on a tight time frame, with an ICS proposal expected by the end of 2016. He noted that implementation of ComFrame, including the ICS, is also scheduled to begin in 2019, and it is expected that the ICS will eventually replace the BCR as the base to which HLA is applied. Commissioner Kobylowski noted that besides the work on capital, the IAIS is progressing on other policy measures for G-SIIs as well, including guidance on liquidity management and planning for G-SIIs, which will be revised based on comments from a recent consultation period and up for approval by the IAIS this fall.
c. Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame)
Commissioner McCarty said the ComFrame document was finalized in June after final edits were proposed by the ComFrame Draft Review Group and reviewed by the relevant IAIS subcommittees. He stated ComFrame is currently subject to field testing and reported the following: Module 1 has been completed; the quantitative aspect of Module 2 will continue through 2016; the qualitative aspect of Module 2, risk management and corporate governance, will commence field testing in October 2014; and Module 3, supervisory processes, including supervisory colleges, is scheduled for field testing commencing in 2015. As the ComFrame document itself is now revised for field testing purposes, Commissioner McCarty
12-4 NAIC Proceedings – Summer 2014
© 2014 National Association of Insurance Commissioners 4
said he will provide updates on this important workstream through reports of the ComFrame Development and Analysis Working Group.
4. Commissioner McCarty reported that the ComFrame Development and Analysis (G) Working Group met earlier in the day and received an update on the ComFrame field testing process and the various IAIS capital developments (Attachment Four). He noted that the Working Group heard a recap of the International Capital Standards Forum held on Aug. 15, the purpose of which was to have an interactive discussion on the development of the ICS, focusing on potential goals, benefits/consequences, realities and potential approaches for developing a global ICS. The forum had more than 200 participants, and views, comments and questions were heard from state regulators, federal colleagues, state legislators, consumer representatives and the industry. He added the forum highlighted several important issues, noting it was intended to be just the beginning of the discussions and of the work to be done. Commissioner Leonardi said there is a tremendous need for industry to coalesce around a proposal for a capital standard that can be moved forward with the help of the Federal Reserve and that works for the U.S. market and regulatory approach. 5. Heard an Update on International Regulatory Cooperation Activities Commissioner Ito reported on significant ongoing regulatory cooperation work, including various international training programs. Earlier this month, several commissioners, regulators and NAIC staff were in Bangkok for the 5th Annual U.S. Insurance Regulation and Supervision Seminar on Solvency Monitoring and Risk Governance hosted in conjunction with Thailand’s Office of Insurance Commission. Including the host country delegations, the forum welcomed more than 60 participants from Bhutan, Brunei, Cambodia, Indonesia, Japan, Laos, Malaysia, Philippines, Singapore, Sri Lanka and Vietnam. In late July, Commissioner Lindeen, Pam O’Connell (CA) and NAIC staff joined insurance regulators from Latin America at a seminar in Santiago, Chile, focusing on insurance regulation and supervision of market conduct in the U.S. The seminar was jointly organized by the NAIC, the Association of Latin American Insurance Supervisors, and the Chilean Securities and Insurance Supervisor. Commissioner Ito said the International Fellows program is celebrating its 10-year anniversary in 2014. In early October, the NAIC will welcome 13 International Fellows from seven countries, including China, India, Nigeria, Pakistan, Saudi Arabia, Taiwan and Thailand. Fellows will be hosted by California, the District of Columbia, Georgia, Hawaii, Iowa, Louisiana, Missouri, Nevada, New Jersey, Pennsylvania and Texas. He also noted that in September, the NAIC is organizing an invitation-only event in Hawaii, which will bring together insurance supervisors and insurance industry leaders from the Asia-Pacific region. The program will include speaker panels and small group discussions covering current and emerging topics, such as capital standards, group supervision, reinsurance and catastrophe events. 6. Heard an Update on U.S.-EU Insurance Dialogue Project Commissioner Consedine provided some background on the U.S.-EU Insurance Dialogue Project, which is a joint project between the NAIC, FIO, the European Commission, and European Insurance and Occupational Pensions Authority to enhance the mutual understanding of each other’s approach to solvency oversight and to explore ways to increase transatlantic cooperation. In December 2012, a joint report was issued along with a set of common objectives and initiatives, many of which are already under way or under consideration within the NAIC process at one or more committees or working groups. Commissioner Consedine noted that in July, the U.S.-EU Steering Committee agreed to a revised Way Forward document identifying key priority areas, including confidentiality, group supervision, reinsurance collateral and pathways forward. It also reflects recent developments and progress achieved to advance mutual understanding and recognition of the different regulatory tools and approaches used by the U.S. and Europe. Commissioner Consedine said the mechanisms for exchanging confidential information continue to be a major discussion point. While both the U.S. and European Union (EU) support the IAIS Multilateral Memorandum of Understanding (MMoU), some have indicated a preference for another MMoU or bilateral agreement in this area. According to the Way Forward document, it was agreed to “identify by the end of 2014 the merits of an additional trans-Atlantic bilateral
Received the Report of the ComFrame Development and Analysis (E) Working Group
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© 2014 National Association of Insurance Commissioners 5
agreement, including the optimal structure(s) of such an agreement to further facilitate the exchange of confidential information through a covered agreement or other mechanisms identified by the Steering Committee.” He noted that at this stage, such work remains exploratory and is in no way a commitment to one approach or the other. Regarding group supervision, Commissioner Consedine said that while the NAIC has made no commitments in this area, the updated Way Forward document contemplates the potential use of a covered agreement to affirm the U.S. system of group supervision. Commissioner Consedine said the use of a covered agreement to address U.S. reinsurance collateral requirements has been incorporated into the Way Forward document, indicating that the EU, and Treasury/FIO with the consultation of state insurance regulators, will take initial steps toward a covered agreement by the end of 2014, which would be based on the NAIC Credit for Reinsurance Model Law and Regulation. He said it bears repeating, however, that the Way Forward document does not commit the NAIC to any one approach but calls for further exploration of all these issues. He said that in July, the NAIC leadership met with representatives of the United States Trade Representative (USTR) and the Treasury Department to discuss the concept of a covered agreement to address U.S. regulatory objectives with foreign jurisdictions. Although several important U.S. priorities were discussed, many unanswered questions remain, and more details are needed about the timing, scope and degree of state insurance regulator involvement in pursuing such an agreement. He added that the NAIC anticipates further discussions with the Treasury Department and the USTR as this concept develops to determine whether the pursuit of an agreement is in the best interest of U.S. policyholders and insurers. Commissioner Consedine said that while this U.S.-EU Insurance Dialogue Project has been constructive, it remains unclear how U.S. firms will be treated by the EU under Solvency II. Nevertheless, he noted the NAIC was looking forward to continuing this important dialogue and to further discussing the long-term objectives of this project and the potential impact on transatlantic insurance markets. He noted that on Oct. 25, the NAIC—along with FIO, EIOPA and others—is organizing a public event on the evolution of group supervision in Amsterdam at the end of the IAIS annual conference, which should be a useful and informative exchange among key regulatory and industry representatives from the U.S. and Europe. Senator Ben Nelson (NAIC) hoped the mutual recognition process will result in a positive result for the U.S. system from the EU, but he noted concerns that recognition limited to a period of five years would create challenges of needing continual work rather than providing a degree of certainty. He said the Way Forward represents mutual aspirations and that progress will not occur without a continuing dialogue, which he said had been frank and friendly. Mr. Easton asked if the EU had articulated why it is proposing mutual recognition to be limited to five years. Sen. Nelson replied that under Solvency II, there are a series of steps for a jurisdiction to go through and that the EU views the five-year time frame as a way for the U.S. to bypass a more onerous path to mutual recognition. Sen. Nelson said the NAIC would continue to insist that the U.S. insurance regulatory regime warrants permanent, not time-limited, recognition. Ms. Laws said the RAA is pleased with the revised Way Forward, which is important for U.S. companies, and she encouraged state regulators to continue to remain engaged in the process as the prudential regulators. 7. Heard an Update on the Joint Forum Mr. Easton reported that the Joint Forum Plenary met at the end of June and discussed a variety of topics. He said that while the IAIS and the International Organization of Securities Commissions (IOSCO) have already agreed to the continuance of the Joint Forum, the Basel Committee (BCBS) was less supportive and will be making a decision about endorsement in September. A note on the strategic direction of the Joint Forum will be prepared and presented to the BCBS in September; were they not to endorse, the Joint Forum would wind itself down by the end of 2015. Mr. Easton said that as a result of the BCBS failure to endorse prior to Plenary, the Joint Forum did not propose definitive new work pending the outcome of the BCBS meeting in September. A strategic group will write up thoughts on data, bail-in tools and the effects on other sectors, and financial innovation. It will also address internal governance of the Joint Forum, composition, extended membership and communication with parent committees. Mr. Easton said the reports on the pilot exercise on the implementation of the financial conglomerate principles, and on supervisory colleges, were agreed and have been sent to the parent committees for approval. There was much discussion about the current report on asset encumbrance, and it is being restructured this summer. However, there were calls for more data and analysis, which is likely to be challenging given that the report must be evidence-based.
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© 2014 National Association of Insurance Commissioners 6
Mr. Easton said the work on credit risk management is addressing some interesting points, including whether, and if so the degree to which, any failure of a centralized counter party may be systemic. The workstream also has cross-over work with the asset encumbrance workstream, as increased attention to derivatives has led to an increase in initial margin and, therefore, the need for high-quality liquid assets for collateral purposes. 8. Discussed Other Matters Commissioner Consedine reported on the International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP), which is a comprehensive assessment of all sectors of each country’s financial regulatory regimes. For the insurance sector, the IMF will assess U.S. compliance with the IAIS’ 26 Insurance Core Principles (ICPs). In 2010, the IMF assessed the U.S. financial regulatory system, and the insurance system was deemed “observed or largely observed”—the highest levels of evaluation— for 25 of the 28 ICPs. He said past performance on the FSAP demonstrated the overall strength of the U.S.’ state-based insurance regulatory system, especially during the global financial crisis. He added that the next IMF assessment of the U.S. system is currently under way, and state regulators and NAIC staff are working closely with federal counterparts in order to complete the process in 2015. Mr. Brady urged attendance at the upcoming IAIS annual conference in Amsterdam Oct. 22-24. Having no further business, the International Insurance Relations (G) Committee adjourned.
W:\National Meetings\2014\Summer\Cmte\G\08-Gmin.doc
12-7NAIC Proceedings – Summer 2014
Attachment One International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners 1
Draft: 8/12/14
International Insurance Relations (G) Committee Conference Call August 7, 2014
The International Insurance Relations (G) Committee met via conference call Aug. 7, 2014. The following Committee members participated: Kevin M. McCarty, Vice Chair (FL); Karen Weldin Stewart (DE); James J. Donelon (LA); John M. Huff represented by John Rehagen (MO); Bruce R. Ramge (NE); Kenneth E. Kobylowski (NJ); Benjamin M. Lawsky represented by Martha Lees (NY); Julia Rathgeber represented by Doug Slape (TX); and Susan L. Donegan (VT). 1. Adopted NAIC Comments on IAIS Draft Consultation Documents Commissioner McCarty noted that he would chair the meeting in the place of Commissioner Michael F. Consedine (PA), and he introduced the four draft papers from the International Association of Insurance Supervisors (IAIS) out for consultation. He said relevant NAIC groups and NAIC staff had drafted comments on each paper, and these were sent to Committee members and interested parties in advance of the conference call (Attachment One-A).
a. Application Paper on Approaches to Conduct of Business Supervision Commissioner McCarty introduced the application paper on approaches to conduct of business supervision, which the IAIS Market Conduct Subcommittee drafted to identify approaches to conduct of business supervision that insurance supervisors may wish to consider when implementing the related components of Insurance Core Principle (ICP) 9 (Supervisory Review and Reporting) and supervising compliance with the requirements of ICP 19 (Conduct of Business). The paper aims to provide a useful source of ideas, examples and tools to supervisors in supervising conduct of insurance business. He noted that members of the Market Regulation and Consumer Affairs (D) Committee and NAIC staff reviewed and provided draft comments. He commented that the Committee seemed comfortable overall with the paper as the approaches and examples presented were relevant and beneficial to supervisors and added that the comments as drafted provide some minor editorial suggestions. David Snyder (Property Casualty Insurers Association of America—PCI) mentioned several comments PCI planned to submit, including how enforcement penalties should match the severity of the offense and how protections for consumers may vary by product line as appropriate.
b. Issues Paper on Anti-Bribery and Corruption Commissioner McCarty introduced the issues paper on anti-bribery and corruption, which the IAIS Financial Crime Working Group drafted to explore how bribery and corruption affects the insurance market, as well as how insurance supervision can help to ensure that insurers and insurance intermediaries manage such risks effectively. The paper discusses: 1) the relevance of bribery and corruption to the insurance sector; 2) the relationship between measures to combat bribery and corruption and frameworks for anti-money laundering/combating the financing of terrorism; and 3) the insurance supervisor’s role in combating bribery and corruption. He stated that members of the Market Regulation and Consumer Affairs (D) Committee, the Antifraud (D) Task Force and NAIC staff reviewed and provided draft comments. The two main comments were in response to questions included in the consultation: 1) to the extent the ICPs could better address financial crimes more broadly, it would be most appropriate by adding additional guidance to the relevant ICPs rather than expanding an existing ICP or creating a new one; and 2) the paper highlights warning signs and ways to manage risks of bribery and corruption, so deciding on whether more work by the IAIS is necessary should be reassessed later, sometime after the issues paper has been published.
c. Guidance on Liquidity Management and Planning
Commissioner Kobylowski presented the Guidance on liquidity management and planning, which the IAIS Financial Stability Committee prepared. He explained that the policy measures for global systemically important insurers (G-SIIs) that the IAIS released in July 2013 state that group-wide supervisors should require G-SIIs to have adequate arrangements in place to manage liquidity risk for the whole group, and that G-SIIs should develop liquidity risk management plans. The purpose of this document is to provide guidance to group-wide supervisors in the application of these requirements to G-SIIs.
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Attachment One International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners 2
He noted that members of the ComFrame Development and Analysis (G) Working Group and NAIC staff reviewed and provided draft comments highlighting the importance of liquidity plans being tailored to an insurer’s specific business operations and, thus, the appropriateness of the paper providing principles-based guidance on what would be expected from G-SIIs. A second comment identifies a potential contradiction within the paper related to liquidity sources and suggests a potential solution.
d. BCR Consultation Paper Commissioner Kobylowski introduced the basic capital requirements (BCR) consultation paper that the IAIS Technical and Financial Stability Committees jointly prepared to solicit input regarding the development of the BCR, requirements that are expected to apply to G-SIIs from 2015 or shortly thereafter. He noted that feedback was being solicited on this second consultation document to facilitate the design and calibration of the BCR proposal, which will be delivered to the G20 summit in November. Members of the ComFrame Development and Analysis (G) Working Group and NAIC staff reviewed and provided draft comments on the BCR document. He added that the American Academy of Actuaries (AAA) provided its comments on the BCR in advance of the call (Attachment One-B), but otherwise no additional comments were received. Lou Felice (NAIC) described the draft NAIC comments and noted that the level of the BCR is being targeted using two metrics: 1) the ratio of BCR to jurisdictional prescribed capital requirements (PCR), which has a regulatory focus; and 2) the capital held over the BCR, which has a financial strength focus. Rob Esson (NAIC) noted that while market adjusted valuation approach was used during the initial testing of the BCR, there are concerns about the use of this approach extending into the development of the global insurance capital standard (ICS), especially as such an approach is inappropriate for use for insurers with significant long-term business portfolios. Commissioner McCarty suggested the draft comment on valuation be amended to reinforce this concern. Jeff Alton (CNA Financial) noted concern over the timing of development of the BCR and that unlike normal IAIS papers, the BCR is being finalized with several important issues still undecided, such as the alpha ratio scaler and treatment of discount rates. Ryan Workman (NAIC) responded that the NAIC comments include the need for further refinement to the BCR and the potential need for additional consultations in the future. Mr. Snyder commented that Robert Litan (The Brookings Institution) had recently published a paper, “Worrisome Trends in Solvency Regulation of Insurance Groups in a Post-Crisis World,” which was relevant to the discussions taking on the BCR and other international developments. Steve Broadie (PCI) noted his concern with the BCR’s use of tiered capital, a concept that is also included in ComFrame, and asked whether that could be reexamined. Mr. Felice responded that the BCR is a ratio that will be used as a base for the higher loss absorbency (HLA) requirement for G-SIIs and that because a G-SII may pose a systemic risk, it is important that the HLA require the highest quality of capital. Ralph Blanchard (Travelers Companies) commented on the distinction between core and additional capital and expressed concern on how subordinate debt and surplus notes are classified. Ramon Calderon (NAIC) noted that there had been discussion at the IAIS on the need to give consideration to downstream payments within a group. He added that in the United States, there is a strong supervisory approval process, so subordinated debt treated as capital is available for the payment of policyholder and creditor obligations and should be treated accordingly. Commissioner McCarty suggested that the draft comments be amended to elaborate on this point. Commissioner Kobylowski made a motion, seconded by Commissioner Stewart, to submit the NAIC comments, including the two suggested amendments on the BCR comments, to the IAIS on its four papers out for consultation. The motion passed. 2. Discussed Other Matters Commissioner McCarty said there will be an International Capital Standards Forum at the Summer National Meeting to discuss the development of international capital standards in an open dialogue amongst regulators and interested parties. He also said the Committee will meet at the Summer National Meeting to continue work on its goals. Having no further business, the International Insurance Relations (G) Committee adjourned. W:\National Meetings\2014\Summer\Cmte\G\Gmin_Aug 7 2014.docx
12-9NAIC Proceedings – Summer 2014
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ondu
ct o
f Bus
ines
s Su
perv
isio
n - N
AIC
Dra
ft C
omm
ents
Ju
ly 2
5, 2
014
Sect
ion/
Para
grap
h C
omm
ent
Gen
eral
Th
e Ap
plic
atio
n Pa
per d
oes
a ve
ry g
ood
job
of d
escr
ibin
g va
rious
app
roac
hes
to c
ondu
ct o
f bus
ines
s in
the
cont
ext o
f IC
Ps 9
an
d 19
. The
exp
lana
tions
and
exa
mpl
es p
rovi
ded
are
rele
vant
and
ben
efic
ial t
o su
perv
isor
s an
d hi
ghlig
ht th
at th
ere
are
a va
riety
of w
ays
for s
uper
viso
rs to
ach
ieve
sim
ilar o
utco
mes
for s
ound
con
duct
pra
ctic
es a
nd p
olic
yhol
der p
rote
ctio
n.
Para
grap
h 37
A
wor
d an
d a
perio
d se
em to
be
mis
sing
in th
e fir
st s
ente
nce;
sug
gest
: “M
ater
ial a
nd p
ersi
sten
t fai
lure
to m
anag
e C
OB
ris
ks c
an m
ay in
crea
se a
n in
sure
r’s e
xpos
ure
to re
puta
tiona
l, le
gal a
nd re
gula
tory
risk
s an
d ul
timat
ely
thre
aten
an
insu
rer’s
so
undn
ess
and
sust
aina
bilit
y. A
s m
entio
ned
abov
e...”
Pa
ragr
aph
119
To b
e co
nsis
tent
with
IAIS
wor
ding
, the
sur
vey
resp
onse
box
at t
he e
nd o
f par
agra
ph 1
19 s
houl
d re
ad “…
a ra
nge
of
supe
rvis
ory
prac
tices
incl
udin
g of
f-site
mon
itorin
g an
d on
-site
exa
min
atio
ns in
spec
tions
.” Pa
ragr
aph
120
Third
bul
let,
need
a s
pace
in “…
reso
lutio
n.So
met
imes
…”
Nin
th b
ulle
t, IA
IS w
ordi
ng u
ses
off-s
ite m
onito
ring
and
on-s
ite in
spec
tions
so
sugg
est f
or c
onsi
sten
cy, “
Post
-inve
stig
atio
n or
fo
llow
-up
exam
inat
ions
” sho
uld
read
“Pos
t- or
follo
w-u
p in
spec
tions
” Pa
ragr
aph
180
In th
e se
cond
sen
tenc
e, “c
usto
mer
s” s
houl
d be
sin
gula
r: “…
info
rmat
ion
prov
ided
by
a cu
stom
er p
rior t
o th
e co
nclu
sion
…”
Para
grap
h 19
3 “in
sure
res"
sho
uld
be “i
nsur
ers”
1
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-10 NAIC Proceedings – Summer 2014
IAIS
Issu
es p
aper
on
Ant
i-Brib
ery
and
Cor
rupt
ion
- NAI
C D
raft
Com
men
ts
July
25,
201
4 Se
ctio
n/Pa
ragr
aph
Com
men
t G
ener
al
This
Issu
es P
aper
doe
s a
good
job
in il
lust
ratin
g ho
w b
riber
y an
d co
rrup
tion
may
affe
ct in
sure
rs a
nd in
sura
nce
inte
rmed
iarie
s as
wel
l as
high
light
wha
t ins
uran
ce s
uper
visi
on c
an d
o to
hel
p to
ens
ure
that
insu
rers
and
insu
ranc
e in
term
edia
ries
man
age
such
risk
s ef
fect
ivel
y.
Para
grap
h 10
3 C
onsu
ltatio
n qu
estio
n on
whe
ther
the
ICPs
sho
uld
addr
ess
com
batin
g fin
anci
al c
rime
in in
sura
nce
from
a b
road
er p
ersp
ectiv
e:
The
Issu
es P
aper
hig
hlig
hts
that
brib
ery
and
corru
ptio
n is
an
issu
e th
at m
ay a
ffect
insu
rers
and
is s
omet
hing
sup
ervi
sors
sh
ould
be
awar
e of
to e
nsur
e th
at in
sure
rs m
anag
e su
ch ri
sks
effe
ctiv
ely;
how
ever
, we
do n
ot fe
el th
at th
e IA
IS n
eeds
to d
o m
uch
furth
er in
add
ress
ing
finan
cial
crim
e m
ore
broa
dly
in th
e IC
Ps. T
he IC
Ps a
ppro
pria
tely
add
ress
frau
d an
d A
ML/
CFT
be
caus
e, g
iven
thei
r nat
ure,
insu
ranc
e pr
oduc
ts a
re m
ore
susc
eptib
le to
thes
e pa
rticu
lar c
rimes
and
the
risks
they
pre
sent
. As
one
gets
into
fina
ncia
l crim
e m
ore
broa
dly,
the
impl
icat
ions
to in
sura
nce
beco
me
mor
e ge
nera
lized
and
the
dire
ct
role
/aut
horit
ies
of in
sura
nce
supe
rvis
ors
less
ens.
To
the
exte
nt th
e IC
Ps c
ould
bet
ter a
ddre
ss fi
nanc
ial c
rimes
mor
e br
oadl
y, it
w
ould
be
mos
t app
ropr
iate
by
addi
ng a
dditi
onal
gui
danc
e to
the
rele
vant
ICPs
rath
er th
an e
xpan
ding
ICP
21
or c
reat
ing
a ne
w IC
P.
Para
grap
h 10
4 C
onsu
ltatio
n qu
estio
n on
whe
ther
this
pap
er c
ould
be
expa
nded
into
an
Appl
icat
ion
Pape
r: To
som
e de
gree
, thi
s pa
per
alre
ady
high
light
s w
arni
ng s
igns
and
way
s to
man
age
risks
of b
riber
y an
d co
rrup
tion.
The
que
stio
n of
whe
ther
mor
e is
ne
cess
ary
at th
is p
oint
nee
ds to
take
into
con
side
ratio
n ot
her I
AIS
prio
ritie
s an
d th
e lim
ited
reso
urce
s as
wel
l as
the
exte
nt to
w
hich
oth
er re
leva
nt o
rgan
izat
ions
may
alre
ady
be d
oing
sim
ilar w
ork
so a
s to
avo
id d
uplic
atio
n. G
iven
thes
e po
ints
and
the
fact
that
the
IAIS
has
yet
to p
ublis
h th
is p
aper
, we
sugg
est i
t is
too
soon
to d
ecid
e on
whe
ther
mor
e is
nec
essa
ry a
nd s
ugge
st
reas
sess
ing
this
issu
e in
a y
ear o
r tw
o.
2
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-11NAIC Proceedings – Summer 2014
C
omm
ents
tem
plat
e fo
r: “
Gui
danc
e on
Liq
uidi
ty
Man
agem
ent a
nd P
lann
ing,
dra
ft, 2
6 Ju
ne 2
014”
Plea
se e
mai
l you
r res
pons
e to
ber
nhar
d.m
ayr@
bis.
org
no la
ter t
han
8 A
ugus
t 201
4 N
ame
of re
spon
dent
: O
rgan
isat
ion:
N
atio
nal A
ssoc
iatio
n of
Insu
ranc
e C
omm
issi
oner
s D
iscl
osur
e of
com
men
ts:
Yes
Sect
ion
in p
aper
C
omm
ent
Gen
eral
It
is cr
itica
lly im
port
ant t
hat l
iqui
dity
pla
ns b
e ta
ilore
d to
an
insu
rer’s
spec
ific
busin
ess o
pera
tions
and
that
an
insu
rer
‘ow
n’ it
s liq
uidi
ty p
lans
. As s
uch,
we
are
sens
itive
to se
ctio
ns o
f the
pap
er th
at p
rovi
de li
sts o
f spe
cific
item
s to
be
cons
ider
ed o
r sug
gest
ions
that
suc
h pl
ans
be p
rovi
ded
in a
spe
cific
form
to th
e su
perv
isors
. How
ever
, we
reco
gnize
that
th
e st
ated
pur
pose
of t
he d
ocum
ent i
s to
prov
ide
prin
cipl
es b
ased
gui
danc
e on
wha
t wou
ld b
e ex
pect
ed fr
om G
SIIs
, and
th
us w
e ar
e ge
nera
lly su
ppor
tive
of th
e co
nten
t in
that
con
text
. Se
ctio
n 3
Con
cept
s (a
lso
appl
ies
to S
ectio
n 4.
2 Pl
ans
for E
xecu
tion,
Liq
uidi
ty
Anal
ysis
)
Tow
ards
the
bott
om o
f pag
e 4,
a li
st o
f bul
lets
of l
iqui
dity
sour
ces i
nclu
des t
wo
at th
e en
d of
the
list:
“Rec
eipt
of l
iqui
d as
sets
as c
olla
tera
l for
der
ivat
ives
and
oth
er tr
ansa
ctio
ns”
and
“col
late
ral h
eld
unde
r rei
nsur
ance
agr
eem
ents
”. T
he
pape
r cor
rect
ly in
dica
tes t
hat t
he le
vel o
f liq
uidi
ty o
f the
sour
ces l
isted
(inc
ludi
ng th
e tw
o ab
ove)
var
ies a
nd c
an b
e ci
rcum
stan
ce-s
peci
fic. T
he p
aper
then
goe
s on
to sa
y, “A
lso, e
ncum
bere
d as
sets
can
not b
e co
unte
d as
liqu
idity
sour
ces”
. Gi
ven
that
the
last
2 b
ulle
ts u
nder
liqu
idity
sour
ces m
ight
be
cons
ider
ed ty
pes o
f enc
umbe
red
asse
ts, t
his s
tate
men
t may
be
con
trad
icto
ry to
thes
e bu
llets
. To
addr
ess t
his,
we
sugg
est a
ddin
g th
e fo
llow
ing
lang
uage
to th
e se
nten
ce “
Also
, en
cum
bere
d as
sets
cann
ot b
e co
unte
d as
liqu
idity
sour
ces u
nles
s the
ir liq
uidi
ty is
trig
gere
d by
con
trac
tual
term
s in
spec
ific
circ
umst
ance
s or s
tres
s con
ditio
ns b
eing
ass
umed
.”
3
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-12 NAIC Proceedings – Summer 2014
IAIS
Bas
ic C
apita
l Req
uire
men
ts (B
CR
) - N
AIC
Dra
ft C
omm
ents
Ju
ly 2
5, 2
014
Sect
ion/
Para
grap
h C
omm
ent
Gen
eral
1.
Th
e 2n
d BC
R C
onsu
ltatio
n Pa
per c
onta
ins
muc
h m
ore
deta
il on
the
cons
truct
ion
of th
e BC
R th
an th
e fir
st. H
owev
er, a
nu
mbe
r of k
ey a
spec
ts a
nd re
late
d de
cisi
ons
still
need
to b
e ad
dres
sed
in o
rder
to a
llow
sup
ervi
sors
, des
igna
ted
G-S
IIs
and
othe
r obs
erve
rs to
ass
ess
the
impa
ct o
f the
BC
R (a
nd a
BC
R ra
tio).
In p
artic
ular
, the
ave
rage
ratio
s of
BC
R to
PC
R
and
Cap
ital R
esou
rces
to B
CR
requ
ire fu
rther
ana
lysi
s ov
er th
e su
mm
er a
nd p
ossi
ble
revi
sion
. In
orde
r to
prov
ide
info
rmed
com
men
ts o
n a
num
ber o
f rel
ated
dec
isio
n po
ints
rega
rdin
g di
ffere
nt p
arts
of t
he fo
rmul
a it
is s
ugge
sted
that
the
com
pone
nts
of th
e BC
R b
e ad
dres
sed
in th
e fo
llow
ing
orde
r:
a.
BCR
Fac
tors
and
resu
lts m
ust b
e fu
rther
ana
lyze
d to
est
ablis
h a
mea
ning
ful s
tarti
ng p
oint
for m
easu
rem
ent o
f the
BC
R re
quire
men
ts a
gain
st e
xist
ing
PCR
s an
d ag
ains
t qua
lifyi
ng c
apita
l res
ourc
es:
• D
ata
from
all
G-S
IIs s
houl
d be
incl
uded
•
Ref
inem
ents
may
be
requ
ired
to th
e BC
R fa
ctor
s ba
sed
on th
e fu
ll da
ta s
et; r
evie
w o
f vol
unte
er p
roxy
dat
a an
d se
gmen
tatio
n fo
r acc
urac
y an
d co
nsis
tenc
y; a
nd a
bet
ter u
nder
stan
ding
of t
he a
ccou
ntin
g di
ffere
nces
.
b.
Juris
dict
iona
l PC
Rs
mus
t be
norm
aliz
ed to
refle
ct c
onsi
sten
t mea
sure
of l
oss
abso
rben
cy:
• C
onsi
sten
cy in
whe
ther
juris
dict
iona
l PC
R is
pro
vide
d pr
e or
pos
t div
ersi
ficat
ion
bene
fits
mus
t be
esta
blis
hed.
•
In a
dditi
on to
mov
ing
rese
rve
cons
erva
tism
(e.g
. MO
CE)
to c
apita
l res
ourc
es, M
OC
E c
ould
als
o be
reco
gniz
ed
as a
n el
emen
t of j
uris
dict
iona
l PC
R in
ord
er to
ref
lect
the
exce
ss lo
ss a
bsor
benc
y th
at is
lock
ed in
insu
ranc
e lia
bilit
ies
prox
ies
(this
is r
elat
ed to
the
accu
racy
of t
he c
urre
nt e
stim
ate)
pre
sent
ed in
dev
elop
ing
and
appl
ying
th
e BC
R fa
ctor
s.
c.
C
ore
and
qual
ifyin
g ca
pita
l res
ourc
es n
umbe
rs m
ust b
e an
alyz
ed a
nd fu
rther
dev
elop
ed:
• Th
e da
ta a
nd v
alue
s fo
r qu
alify
ing
and
core
cap
ital
mus
t be
rev
iew
ed f
or r
easo
nabl
enes
s an
d co
nsis
tenc
y ac
ross
firm
s.
• Th
e le
vel o
f MO
CE
sho
uld
be v
erifi
ed fo
r fur
ther
dis
cuss
ion
of th
e im
pact
on
capi
tal r
esou
rces
and
any
rem
oval
or
tran
sfer
of M
OC
E fr
om c
apita
l res
ourc
es s
houl
d be
def
erre
d.
d.
Th
e Al
pha
shou
ld b
e de
term
ined
onl
y af
ter t
he o
ther
BC
R c
ompo
nent
s ar
e cl
ose
to b
eing
fina
lized
: •
Focu
sing
on
the
ratio
of c
apita
l res
ourc
es to
BC
R a
t the
beg
inni
ng o
f the
pro
cess
is n
ot a
suf
ficie
nt ra
tiona
le to
ad
just
the
alph
a at
this
poi
nt a
nd it
sho
uld
rem
ain
at 1
. •
The
alph
a sh
ould
be
the
last
com
pone
nt t
hat
is a
ddre
ssed
. C
alib
ratin
g vi
a us
e of
the
alp
ha c
an o
nly
be
inte
lligen
tly d
iscu
ssed
afte
r w
e kn
ow t
he im
pact
of
a re
fined
BC
R;
verif
y ju
risdi
ctio
nal P
CR
s; a
nd h
ave
a fu
ll pi
ctur
e of
wha
t co
mpr
ises
cap
ital r
esou
rces
. Th
at w
ill fo
ster
info
rmed
dis
cuss
ion
and
anal
ysis
by
firm
s an
d su
perv
isor
s as
to w
here
the
BCR
act
ually
sits
rela
tive
to b
oth
juris
dict
iona
l PC
R a
nd c
apita
l res
ourc
es.
Th
e co
nsul
tatio
n pa
per
refe
renc
es r
efin
emen
ts d
urin
g th
e in
itial
rep
ortin
g pe
riods
of 2
015
and
2016
. The
NAI
C s
uppo
rts
the
notio
n of
con
tinui
ng r
efin
emen
ts,
but
stro
ngly
sup
ports
usi
ng t
he m
axim
um o
ppor
tuni
ty f
or in
itial
ref
inem
ent
of t
he
4
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-13NAIC Proceedings – Summer 2014
BCR
and
BC
R r
atio
prio
r to
impl
emen
tatio
n of
sup
ervi
sory
rep
ortin
g. I
t is
impo
rtant
tha
t th
e BC
R g
o liv
e fo
r re
porti
ng
purp
oses
with
a t
horo
ughl
y de
velo
ped
and
unde
rsto
od b
asis
for
its
com
pone
nts.
If
initi
al r
evis
ions
res
ult
in m
ater
ially
di
ffere
nt re
sults
than
thos
e po
rtray
ed in
the
Pape
r, it
may
be
nece
ssar
y to
hav
e an
othe
r rou
nd o
f con
sulta
tion.
G
ener
al
2.
The
NAI
C s
trong
ly s
uppo
rts th
e po
sitio
n in
the
pape
r tha
t the
BC
R in
its
curr
ent f
orm
will
only
app
ly to
G-S
IIs a
nd s
olel
y as
the
base
for a
com
bine
d BC
R +
HLA
cap
ital s
tand
ard.
G
ener
al
3.
The
pape
r’s re
fere
nces
to c
alib
ratio
n ar
e no
t cle
ar a
s to
inte
nt. A
n ex
plic
it ta
rget
cal
ibra
tion
does
not
see
m p
ossi
ble
for t
he
BCR
so
calib
ratio
n se
ems
to b
e us
ed in
refe
renc
e to
a ta
rget
bas
ed o
n ei
ther
exi
stin
g ju
risdi
ctio
nal c
apita
l req
uire
men
ts o
r re
lativ
e to
cap
ital r
esou
rces
. Thu
s th
ese
refe
renc
es a
ll po
int b
ack
to th
e al
pha
(see
com
men
ts #
1d
and
#14
rega
rdin
g th
e al
pha
adju
stm
ent).
Tha
t poi
nt s
houl
d be
mad
e m
ore
expl
icit
in th
e do
cum
ent.
Sect
ion
2.1
Ove
rvie
w
Para
grap
h 12
Se
ctio
n 2.
2.3
Cap
ital R
esou
rces
Pa
ragr
aph
22
Sect
ion
4 Q
ualif
ying
Cap
ital
Res
ourc
es
Para
grap
h 46
Se
ctio
n 2.
2.3
Para
grap
h 23
Se
ctio
n 4.
1 Pa
ragr
aph
48
Sect
ion
4.2
Para
grap
h 49
Se
ctio
n 2.
3 Pa
ragr
aph
26
Sect
ion
3.1
Para
grap
hs 3
2 Se
ctio
n 6.
2 Pa
ragr
aph
66
Sect
ion
3.4
Para
grap
h 36
4.
Con
solid
ated
Cap
ital R
equi
rem
ents
: Th
e re
fere
nces
to
cons
olid
ated
cap
ital r
equi
rem
ents
vs.
gro
up w
ide
capi
tal r
equi
rem
ents
are
unc
lear
. Th
e pa
per
note
s th
at t
here
are
thr
ee c
ompo
nent
s th
at c
ompr
ise
the
BC
R (
insu
ranc
e, b
anki
ng a
nd o
ther
NIN
B).
Furth
er t
here
are
re
fere
nces
to
adju
stm
ents
to
alig
n ca
pita
l res
ourc
es w
ith t
he a
ppro
ach
follo
wed
for
the
con
stru
ctio
n of
the
BC
R c
apita
l re
quire
men
ts. W
hile
the
BCR
ratio
in th
e co
nsul
tatio
n pa
per a
ppea
rs to
mea
sure
con
solid
ated
cap
ital r
esou
rces
num
ber i
n th
e nu
mer
ator
div
ided
by
the
com
bina
tion
of th
e th
ree
BCR
com
pone
nts
in th
e de
nom
inat
or, t
here
are
stil
l que
stio
ns a
bout
w
heth
er c
erta
in n
on-fi
nanc
ial
NBN
I ac
tiviti
es w
ill be
sub
ject
to
spec
ified
cap
ital
requ
irem
ents
in
the
BCR
or
will
be
addr
esse
d th
roug
h a
“fram
ewor
k th
at in
clud
es a
qua
litat
ive
anal
ysis
” (se
e pa
ragr
aph
43).
In th
at v
ein
it m
ay b
e th
at to
the
exte
nt fe
asib
le e
ach
com
pone
nt o
f the
BC
R s
houl
d ha
ve it
s ow
n su
ffici
ency
ratio
to im
prov
e as
sess
men
t of e
ach
indu
stry
se
gmen
t’s c
apita
l ade
quac
y. N
AIC
sup
ports
furth
er d
iscu
ssio
n an
d cl
arity
on
this
poi
nt.
5.
BCR
Rat
io:
Sinc
e th
e BC
R b
y its
elf i
s no
t a c
apita
l sta
ndar
d w
ithou
t HLA
, the
BC
R ra
tio w
ithou
t HLA
is th
eref
ore
less
mea
ning
ful a
nd
poss
ibly
unn
eces
sary
. How
ever
if a
BC
R ra
tio a
lone
is to
be
repo
rted
it sh
ould
be
base
d on
a n
umer
ator
that
incl
udes
all
qual
ifyin
g ca
pita
l re
sour
ces
cons
iste
nt w
ith a
bas
e ca
pita
l re
quire
men
t an
d a
core
cap
ital
thre
shol
d (i.
e. 5
0%)
as
cont
empl
ated
in C
omFr
ame.
If d
esire
d, to
pre
pare
for H
LA a
sec
ond
ratio
bas
ed o
n ju
st c
ore
capi
tal r
atio
cou
ld b
e ad
ded
for i
nfor
mat
iona
l and
com
plia
nce
purp
oses
. W
hen
final
izin
g A
BC
R +
HLA
ratio
, the
NAI
C s
uppo
rts u
sing
a 5
0% th
resh
old
of c
ore
capi
tal f
or th
e BC
R p
ortio
n an
d a
100%
thre
shol
d fo
r the
HLA
por
tion
of th
e co
mbi
ned
capi
tal s
tand
ard
for G
-SIIs
. 6.
BC
R /
ICS
Tim
etab
le:
The
char
t on
page
10
does
not
incl
ude
a re
fere
nce
to fu
rther
con
sulta
tion
on H
LA b
eyon
d D
ecem
ber
2014
. NAI
C w
ould
su
ppor
t inc
ludi
ng th
e po
tent
ial f
or a
2nd
con
sulta
tion
pape
r in
2015
. 7.
R
epor
ting
of th
e BC
R R
atio
: C
onfid
entia
l rep
ortin
g of
the
BCR
ratio
sho
uld
cont
inue
unt
il H
LA is
add
ed. T
here
sho
uld
be s
trong
dis
ince
ntiv
es fo
r use
of
the
BCR
on
its o
wn
by G
-SIIs
as
an in
dica
tor o
f fin
anci
al s
treng
th a
t lea
st u
ntil
HLA
is re
quire
d in
201
9.
8.
Insu
ranc
e Fa
ctor
s:
As s
uppo
rted
in o
ur g
ener
al c
omm
ents
, the
re s
houl
d be
a s
trong
con
nect
ion
betw
een
this
sec
tion
and
the
data
refin
emen
t
5
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-14 NAIC Proceedings – Summer 2014
Sect
ion
3.5
Para
grap
hs 4
0 an
d 41
Se
ctio
n 3.
5 Pa
ragr
aphs
42
and
43
Se
ctio
n 4.
3 Pa
ragr
aph
52
Sect
ion
5.1
Para
grap
h 57
effo
rt de
scrib
ed g
ener
ally
in t
he P
aper
and
tha
t th
ese
fact
ors
are
subj
ect
to r
evis
ion
befo
re a
fin
al r
ecom
men
datio
n is
ad
opte
d by
the
IAIS
. Th
ey a
re n
ot fi
nal a
t thi
s po
int.
9.
Base
l III
Ent
ities
and
Bas
el-L
ike
Activ
ities
of U
nreg
ulat
ed E
ntiti
es:
NAI
C w
ould
sup
port
the
mos
t app
ropr
iate
mea
sure
(e.
g. e
ither
the
Leve
rage
Rat
io o
r Ba
sel R
isk
Wei
ghte
d As
sets
) be
ing
appl
ied
to B
asel
III
subj
ect
activ
ities
. Th
at m
easu
re c
ould
be
diffe
rent
for
reg
ulat
ed B
asel
III
entit
ies
and
unre
gula
ted
entit
ies
cond
uctin
g th
e ac
tiviti
es,
but
shou
ld b
e co
nsis
tent
for
all
regu
late
d en
titie
s an
d co
nsis
tent
for
all
unre
gula
ted
entit
ies
rath
er th
an u
sing
a “g
reat
er o
f Lev
erag
e ra
tio o
f ful
l Bas
el II
I” op
tion.
10
. NIN
B F
inan
cial
and
non
-Fin
anci
al A
ctiv
ities
: R
egar
ding
par
agra
ph 4
2, t
he a
ltern
ativ
e ap
proa
ch o
f 25
bas
is p
oint
s on
off
bala
nce
shee
t as
sets
for
NIN
B f
inan
cial
ac
tiviti
es h
as n
ot b
een
adeq
uate
ly v
ette
d an
d its
rat
iona
l has
not
bee
n m
ade
clea
r. P
arag
raph
43
calls
for
app
lyin
g an
op
erat
iona
l ris
k ch
arge
in t
he B
CR
for
non
-fina
ncia
l act
iviti
es (
as a
n al
tern
ativ
e to
a q
ualit
ativ
e as
sess
men
t). T
his
also
ne
eds
to b
e co
nsid
ered
furth
er, a
s do
the
appr
opria
te p
roxi
es u
pon
whi
ch to
bas
e su
ch a
cha
rge.
N
AIC
sup
ports
furth
er
delib
erat
ion
of o
ptio
ns fo
r thi
s co
mpo
nent
of t
he B
CR
. (Se
e al
so o
ur c
omm
ent #
4 o
n co
nsol
idat
ed c
apita
l req
uire
men
ts)
11. M
argi
n O
ver C
urre
nt E
stim
ate
(MO
CE)
: In
clus
ion
of p
arag
raph
52a
) is
pre
mat
ure
and
NAI
C s
uppo
rts in
clus
ion
of 1
00%
of M
OC
E in
cap
ital r
esou
rces
(al
so n
ote
our c
omm
ent 1
b, a
bove
). W
e in
terp
ret p
arag
raph
60
to m
ean
that
bot
h G
AAP
and
IFR
S a
re p
rodu
cing
mor
e co
nser
vativ
e re
serv
es th
an a
mar
ket a
djus
ted
appr
oach
. The
leve
l of r
elat
ive
cons
erva
tism
bet
wee
n G
AAP
and
IFR
S is
not
cle
ar. T
he
NAI
C s
uppo
rts fu
rther
dis
cuss
ion
of p
oten
tial r
easo
nabl
e st
anda
rds
for
incl
usio
n of
MO
CE
in c
apita
l res
ourc
es, b
ut o
nly
afte
r th
e co
mpo
nent
s of
BC
R r
equi
rem
ents
hav
e be
en fi
naliz
ed a
nd a
rep
ortin
g tra
ck r
ecor
d es
tabl
ishe
d. T
here
are
ver
y fe
w ju
risdi
ctio
ns im
plem
entin
g a
full
MO
CE
at p
rese
nt (a
nd p
oten
tially
no
G-S
II ju
risdi
ctio
ns),
and
it sh
ould
be
reco
gniz
ed
that
the
prov
isio
ns in
ICP1
4 w
ere
pred
ictiv
e of
wha
t at t
hat t
ime
was
bel
ieve
d to
be
imm
inen
t glo
bal i
mpl
emen
tatio
n of
an
acco
untin
g re
gim
e ut
ilizin
g cu
rrent
est
imat
es a
nd M
OC
Es. T
he fa
ilure
of t
he IA
SB a
nd F
ASB
to fi
naliz
e (o
r con
verg
e) th
eir
insu
ranc
e ac
coun
ting
– m
uch
of w
hich
is d
ue to
the
com
plex
ity o
f cal
cula
ting
MO
CEs
– im
plie
s th
at c
are
is re
quire
d in
the
treat
men
t of M
OC
Es.
A
sub
stan
tial p
art o
f MO
CE,
whe
n ba
sed
on re
gula
tory
requ
irem
ents
, can
be
cons
ider
ed a
s ad
ditio
nal j
uris
dict
iona
l cap
ital
that
is
embe
dded
in
rese
rves
rat
her
than
as
expl
icit
capi
tal
requ
irem
ents
. Th
is i
s an
im
porta
nt c
onsi
dera
tion
whe
n co
mpa
ring
BCR
to th
e ju
risdi
ctio
nal P
CR
.
In a
dditi
on, M
OC
E is
in p
art r
efle
ctiv
e of
diff
eren
ces
in v
alua
tion
met
hods
acr
oss
juris
dict
ions
. Tho
se v
alua
tion
diffe
renc
es
are
part
of th
e ov
eral
l sol
venc
y fra
mew
ork
that
yie
lds
a ju
risdi
ctio
nal c
apita
l PC
R. A
s w
e tra
nsiti
on to
the
ICS
dis
cuss
ion,
N
AIC
sup
ports
reco
gniti
on o
f how
thes
e di
ffere
nces
con
tribu
te to
an
outc
ome
that
can
be
com
pare
d to
the
ICS
fram
ewor
k (a
lso
see
com
men
t #1
2, b
elow
) ra
ther
tha
n ne
cess
itatin
g po
tent
ially
cos
tly a
nd c
onfu
sing
cha
nges
to
arriv
e at
a s
ingl
e gl
obal
val
uatio
n ba
sis
unde
rlyin
g a
glob
al c
apita
l sta
ndar
d.
12. P
arag
raph
57
/ Ann
exes
C -
Valu
atio
n:
The
NAI
C u
nder
stan
ds u
sing
the
Mar
ket A
djus
ted
Valu
atio
n Ap
proa
ch fo
r exp
edie
ncy
durin
g th
e in
itial
test
ing
of th
e BC
R.
How
ever
, it
rem
ains
ext
rem
ely
uncl
ear
as t
o w
heth
er t
his
met
ric w
ill in
fac
t be
wid
ely
utiliz
ed g
loba
lly f
or i
nsur
ance
lia
bilit
ies;
at
pres
ent,
ther
e ar
e ve
ry f
ew c
ount
ries
usin
g it,
and
eve
n af
ter
the
impl
emen
tatio
n of
Eur
ope’
s S
olve
ncy
II,
grea
ter t
han
50%
of t
he w
orld
mar
ket (
by p
rem
ium
) is
not c
urre
ntly
sch
edul
ed to
use
it. C
onse
quen
tly, t
his
qual
ified
use
of
6
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-15NAIC Proceedings – Summer 2014
Sect
ion
6.1
Para
grap
h 62
and
64
Se
ctio
n 6.
2 Pa
ragr
aph
67
Anne
x C
Pa
ragr
aph
27
Para
grap
h 32
Pa
ragr
aph
34
Para
grap
hs 4
4-54
the
mar
ket a
djus
ted
appr
oach
sho
uld
not b
e as
sum
ed to
ext
end
to th
e IC
S, o
r in
deed
to a
ny lo
nger
term
impl
emen
tatio
n or
exp
ande
d ap
plic
atio
n of
the
BCR
. (S
ee re
late
d co
mm
ents
on
Anne
x C
bel
ow #
15)
13. B
CR
/ PC
R R
atio
s:
An
nex
F, P
arag
raph
13
incl
udes
the
follo
win
g go
al fo
r rou
gh c
alib
ratio
n of
the
BCR
:
“Cal
ibra
tion
was
then
car
ried
out c
onsi
sten
t with
the
obje
ctiv
e of
the
targ
etin
g th
e BC
R b
etw
een
the
uppe
r and
low
er
thre
shol
ds fo
r sup
ervi
sory
inte
rven
tion
(e.g
. typ
ical
ly b
etw
een
PCR
and
MC
R).”
This
is r
einf
orce
d in
the
ope
ning
to
para
grap
h 62
. G
iven
tha
t th
e go
al w
as a
BC
R th
at is
fre
quen
tly b
elow
juris
dict
iona
l PC
Rs,
it a
ppea
rs th
at th
e ro
ugh
initi
al B
CR
falls
exa
ctly
whe
re it
was
targ
eted
usi
ng a
n al
pha
of 1
. In
addi
tion,
the
aver
age
BCR
/ PC
R ra
tio is
not
indi
cativ
e of
the
rang
e of
resu
lts a
nd it
is s
ugge
sted
that
info
rmat
ion
on th
e ra
nge
be p
rovi
ded
afte
r al
l ini
tial r
efin
emen
ts a
re m
ade.
The
refo
re, N
AIC
rei
tera
tes
its s
uppo
rt fo
r m
aint
aini
ng th
e al
pha
at n
o m
ore
than
1 (
also
se
e ou
r com
men
t 1d,
abo
ve re
gard
ing
the
alph
a).
14. I
mpl
emen
tatio
n of
the
BCR
: It
seem
s un
likel
y th
at th
e BC
R a
lone
wou
ld re
quire
impl
emen
ting
sinc
e th
e N
AIC
doe
s no
t vie
w B
CR
as
a ca
pita
l sta
ndar
d on
its
own.
It
is o
nly
a st
anda
rd fo
r G
-SIIs
in c
ombi
natio
n w
ith H
LA.
This
par
agra
ph w
ill b
e m
ore
appr
opria
te w
hen
the
HLA
Pap
er is
issu
ed.
In a
ny c
ase,
it is
sug
gest
ed th
at th
e w
ord
“legi
slat
ive”
be
rem
oved
from
the
para
grap
h.
15. A
nnex
C (
Para
grap
h re
fere
nces
rela
te to
the
Anne
x C
con
tent
s):
Rec
omm
end
addi
ng “
Idea
lly,”
at t
he b
egin
ning
of
the
sent
ence
. W
hile
ide
ally
one
may
sug
gest
util
izin
g st
ocha
stic
m
etho
ds, t
he p
ract
ical
ity o
f doi
ng s
o is
not
cle
ar e
ven
othe
r tha
n fo
r ini
tial r
epor
ting.
Sugg
est c
hang
ing
“not
pur
ely
finan
cial
sel
f-int
eres
t” to
“not
in a
ccor
danc
e w
ith th
e ef
ficie
nt m
arke
ts h
ypot
hesi
s” (s
ince
this
hy
poth
esis
is d
emon
stra
bly
not v
alid
for p
rote
ctio
n pr
oduc
ts).
R
ecom
men
d ad
ding
“Ide
ally
, “at
the
begi
nnin
g fo
r the
sam
e re
ason
s as
for p
arag
raph
27.
For
expe
dien
cy f
or t
he in
itial
fie
ld t
estin
g, t
he N
AIC
is p
repa
red
to a
ccep
t th
e us
age
of I
AIS
pre
pare
d di
scou
nt c
urve
s.
How
ever
, th
e pr
esum
ptio
ns u
nder
lyin
g th
ese
curv
es,
espe
cial
ly a
ny e
mph
asis
on
risk
free
rate
s, a
re u
nlik
ely
to b
e ac
cept
able
long
er te
rm, a
nd w
ill n
eed
revi
sitin
g.
7
Attachment One-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-16 NAIC Proceedings – Summer 2014
August 4, 2014
Mr. Ryan Workman International Insurance Program Counsel International Insurance Relations (G) Committee National Association of Insurance Commissioners
Re: Comments on the IAIS Public Consultation Document on the Basic Capital Requirements for Global Systemically Important Insurers
On behalf of the American Academy of Actuaries’1 Solvency Committee, I appreciate this opportunity to provide the attached comments on the International Association of Insurance Supervisors’ second public consultation document regarding the proposed Basic Capital Requirements for Global Systemically Important Insurers. The Academy will also be sending a copy of these comments to the International Actuarial Association.
If you have any questions or would like to discuss these comments further, please contact Lauren Sarper, the Academy’s senior policy analyst for risk management and financial reporting, at 202.223.8196 or [email protected].
Sincerely,
Elizabeth K. Brill, MAAA, FSA Chairperson, Solvency Committee American Academy of Actuaries
1 The American Academy of Actuaries is 18,000-member professional association whose mission is to serve the public and the U.S. actuarial profession. The Academy assists public policy-makers on all levels by providing leadership, objective expertise and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice and professionalism standards for actuaries in the United States.
1850 M Street NW Suite 300 Washington, DC 20036 Telephone 202 223 8196 Facsimile 202 872 1948 www.actuary.org
1
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-17NAIC Proceedings – Summer 2014
A
mer
ican
Aca
dem
y of
Act
uari
es’ S
olve
ncy
Com
mitt
ee
Com
men
ts o
n Ju
ly 9
, 201
4 IA
IS C
onsu
ltatio
n D
raft
on
the
Bas
ic C
apita
l Req
uire
men
ts fo
r G
loba
l Sys
tem
ical
ly Im
port
ant I
nsur
ers
Item
Pa
ragr
aph
Ref
eren
ce
Com
men
t A
ltern
ativ
e A
ppro
ach
1 G
ener
al
The
cons
ulta
tion
draf
t in
dica
tes t
hat a
Mar
ket
Adj
uste
d V
alua
tion
App
roac
h w
ill b
e ta
ken
to
deve
lop
the
bala
nce
shee
t.
A m
arke
t-bas
ed a
ppro
ach
wou
ld n
ot b
e ap
prop
riate
for m
any
insu
ranc
e pr
oduc
ts—
su
ch a
s lon
g te
rm li
fe a
nd a
nnui
ty
prod
ucts
—an
d co
uld
have
adv
erse
co
nseq
uenc
es fo
r ins
urer
s in
man
y ju
risdi
ctio
ns, i
nclu
ding
the
U.S
. Fu
ndam
enta
lly, b
oth
mar
ket v
alue
and
am
ortiz
ed c
ost a
ppro
ache
s are
wel
l sui
ted
to
certa
in p
rodu
cts a
nd e
nviro
nmen
ts, b
ut n
ot
in o
ther
s. F
or lo
ng-d
urat
ion,
illiq
uid
insu
ranc
e, a
mar
ket v
alue
app
roac
h do
es n
ot
wor
k. E
vide
nce
of th
is c
an b
e se
en in
the
hist
ory
of U
.S. i
nsur
ance
acc
ount
ing.
Prio
r to
the
grea
t dep
ress
ion,
the
U.S
. use
d a
mar
ket-b
ased
app
roac
h to
val
uing
life
in
sura
nce.
How
ever
, dur
ing
the
Gre
at
Dep
ress
ion
regu
lato
rs d
ecid
ed m
arke
t-bas
ed
valu
atio
n re
quire
men
ts sh
ould
not
app
ly to
in
sure
rs w
ith il
liqui
d lia
bilit
ies,
whi
ch
allo
wed
insu
rers
to c
ontin
ue to
inve
st in
the
econ
omy
and
stab
ilize
mar
kets
.
An
appr
oach
that
eith
er a
llow
s lon
g-du
ratio
n,
illiq
uid
prod
ucts
to b
e va
lued
on
an a
mor
tized
co
st b
asis
or a
n ap
proa
ch th
at d
oes n
ot re
ly o
n a
bala
nce
shee
t val
uatio
n is
nec
essa
ry fo
r an
effe
ctiv
e ca
pita
l req
uire
men
t.
2 G
ener
al
The
draf
t doe
s not
refle
ct a
ll m
ajor
risk
fact
ors.
Ther
e do
es n
ot a
ppea
r to
be a
ny c
harg
e fo
r ca
tast
roph
ic ri
sk.
Add
a c
harg
e fo
r cat
astro
phic
risk
.
2
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-18 NAIC Proceedings – Summer 2014
Item
Pa
ragr
aph
Ref
eren
ce
Com
men
t A
ltern
ativ
e A
ppro
ach
3 G
ener
al
Fiel
d te
stin
g ca
ptur
es a
po
int-i
n-tim
e st
ate.
Vol
atili
ty is
not
cap
ture
d w
hen
exam
inin
g a
stat
ic st
ate
and
can
only
be
capt
ured
whe
n ex
amin
ing
seve
ral p
oint
s in
time,
with
pa
rticu
lar n
eed
for s
tress
ed p
erio
ds.
Fiel
d te
stin
g sh
ould
look
at m
ultip
le p
oint
s in
time
and
real
stre
sses
—su
ch a
s the
200
8 fin
anci
al c
risis
—w
ith re
gard
to a
sset
risk
, sev
eral
un
derw
ritin
g cy
cles
with
rega
rd to
pr
oper
ty/c
asua
lty p
ricin
g ris
k, a
nd y
ears
with
la
rge
natu
ral d
isast
ers—
like
Hur
rican
e Sa
ndy
in
2012
—w
ith re
gard
to c
atas
troph
e ris
k.
4 1.
1, p
ar
2
Ann
ex
C, p
ar
44
The
deve
lopm
ent o
f the
in
tern
atio
nal c
apita
l st
anda
rds (
ICS)
will
be
info
rmed
by
the
wor
k on
the
basi
c ca
pita
l req
uire
men
ts
(BC
R).
The
initi
al a
ppro
ach
for B
CR
does
not
pre
-em
pt fu
ture
de
velo
pmen
t of a
ltern
ativ
e ap
proa
ches
to d
iscou
ntin
g.
The
cons
ulta
tion
docu
men
t cle
arly
stat
es
that
the
deve
lopm
ent o
f the
ICS
will
be
info
rmed
by
the
BC
R a
nd im
plie
s (vi
a th
e re
fere
nce
in A
nnex
C to
alte
rnat
ive
disc
ount
ing
appr
oach
es) t
hat f
utur
e w
ork
also
will
use
a c
urre
nt e
stim
ate
appr
oach
. Th
e cu
rren
t est
imat
e/fa
ctor
-bas
ed a
ppro
ach
to th
e B
CR
shou
ld n
ot fo
rm th
e ba
sis o
f the
IC
S. F
or th
e re
ason
s des
crib
ed in
Item
1
abov
e, th
e cu
rren
t fac
tor-b
ased
app
roac
h is
no
t eff
ectiv
e an
d do
es n
ot a
ppro
pria
tely
re
flect
loca
l diff
eren
ces.
In a
dditi
on, t
he
focu
s on
Glo
bal S
yste
mic
ally
Impo
rtant
In
sure
rs (G
-SIIs
) has
not
allo
wed
for
suff
icie
nt in
vest
igat
ion
of ri
sks i
n ar
eas
othe
r tha
n lif
e in
sura
nce,
incl
udin
g he
alth
an
d pr
oper
ty a
nd c
asua
lty (P
&C
). Su
ch
risks
gen
eral
ly a
re n
ot a
con
cern
for t
he G
- SI
Is, w
hich
are
the
focu
s of t
he B
CR
.
In c
onne
ctio
n w
ith th
e IC
S, th
e In
tern
atio
nal
Ass
ocia
tion
of In
sura
nce
Supe
rvis
ors (
IAIS
) sh
ould
eva
luat
e m
etho
ds o
f ass
essi
ng c
apita
l ad
equa
cy th
at d
o no
t rel
y on
a b
alan
ce sh
eet
valu
atio
n. T
here
are
two
appr
oach
es th
at h
ave
been
dis
cuss
ed—
usin
g in
tern
al m
odel
s and
le
vera
ging
loca
l req
uire
men
ts. S
tress
test
ing
is a
pr
ime
exam
ple
of a
n ap
proa
ch th
at u
ses i
nter
nal
mod
els r
athe
r tha
n re
lyin
g on
a b
alan
ce sh
eet
valu
atio
n. S
uch
an a
ppro
ach
can
be c
onst
ruct
ed
in a
way
that
doe
s not
requ
ire a
sing
le
inte
rnat
iona
l val
uatio
n ba
sis,
yet a
llow
s the
re
gula
tor t
o un
ders
tand
und
er w
hat
circ
umst
ance
s eac
h gr
oup
mig
ht c
ome
unde
r st
ress
and
pot
entia
lly b
e un
able
to m
eet i
ts
oblig
atio
ns.
We
susp
ect t
hat s
ome
com
bina
tion
of lo
cal
requ
irem
ents
and
mod
els u
sing
inte
rnal
risk
ex
posu
re d
ata
will
be
requ
ired
to su
ffic
ient
ly
refle
ct lo
cal d
iffer
ence
s in
risk.
3
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-19NAIC Proceedings – Summer 2014
It
em
Para
grap
h R
efer
ence
C
omm
ent
Alte
rnat
ive
App
roac
h
5
2.2.
2,
par 2
0
The
calc
ulat
ion
of c
urre
nt
estim
ates
requ
ires t
akin
g th
e pr
esen
t val
ue o
f all
rele
vant
fu
ture
cas
h flo
ws.
Sinc
e ca
sh fl
ows m
ust b
e ca
lcul
ated
an
yway
, we
ques
tion
why
it is
nec
essa
ry to
th
en o
verla
y an
acc
ount
ing
basi
s in
dete
rmin
ing
the
BC
R.
Take
a m
ore
stre
amlin
ed, s
traig
htfo
rwar
d, a
nd
com
para
ble
appr
oach
by
stre
ss te
stin
g th
e ca
sh
flow
s dire
ctly
rath
er th
an c
reat
ing
a m
arke
t- ad
just
ed b
alan
ce sh
eet a
nd th
en st
ress
test
ing.
(N
ote
that
sim
pler
app
roac
hes m
ay b
e su
ffic
ient
fo
r sho
rter t
ail l
ines
for w
hich
the
timin
g of
the
flow
s has
less
of a
n ec
onom
ic im
pact
. In
such
ca
ses,
stre
ss te
stin
g th
e no
min
al a
mou
nts m
ay b
e su
ffic
ient
.)
6
2.2.
4,
The
calib
ratio
n le
velo
fthe
This
impl
icit
refle
ctio
n of
div
ersif
icat
ion
byIf
the
desi
reis
to k
eep
the
over
allf
orm
ula
pa
r 24
BC
Rw
illac
coun
tim
plic
itly
adju
sting
the
fact
orsc
reat
es a
n un
leve
lsi
mpl
e, th
en u
se a
sim
ple
form
ulai
cw
ayof
fors
ome
degr
eeof
play
ing
field
. It
redu
ces t
he o
ther
wis
ere
flect
ing
dive
rsifi
catio
n,su
ch a
sthr
ough
a
di
vers
ifica
tion.
calc
ulat
edfa
ctor
sfor
all c
ompa
nies
rath
ersi
mpl
esq
uare
root
ofth
esu
mof
the
squa
res
th
an d
irect
ing
the
cred
itto
thos
e th
atco
varia
nce
form
ula.
ac
hiev
ed th
edi
vers
ifica
tion.
Hen
ce,t
hose
co
mpa
nies
with
no
orle
ss d
iver
sific
atio
n
gain
abe
nefit
atth
eex
pens
e of
thos
ew
ith
high
erle
vels
ofdi
vers
ifica
tion.
7
2.2.
5,
The
calib
ratio
n le
velo
fthe
Sim
ilart
o th
edi
vers
ifica
tion
argu
men
tfor
Inve
stig
ate
sim
ple
way
sto
refle
ctA
LMris
k, a
ta
par 2
5 B
CR
will
acco
unti
mpl
icitl
ypa
ragr
aph
24,t
hisi
mpl
icit
appr
oach
cre
ates
min
imum
, in
orde
rto
crea
teap
prop
riate
fort
heab
senc
eof
anas
sets
an u
nlev
elpl
ayin
gfie
ld b
y re
duci
ngth
ein
cent
ives
.
an
d lia
bilit
ym
anag
emen
tch
arge
fort
hose
with
ALM
risk
and
(ALM
)fac
tor.
over
stat
ing
the
char
gefo
r tho
se w
ithou
tthi
s
risk.
8
3.4,
par
BC
Rse
gmen
t: “A
nnui
ties”
Are
thes
ede
ferr
ed o
rinc
ome-
payi
ng?
Add
cla
rific
atio
n.
36
D
efer
red
and
inco
me-
payi
ng a
nnui
tiesh
ave
en
tirel
ydi
ffer
entr
isk
prof
iles.
4
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-20 NAIC Proceedings – Summer 2014
Item
Pa
ragr
aph
Ref
eren
ce
Com
men
t A
ltern
ativ
e A
ppro
ach
9 3.
4, p
ar
36
10
3.4,
par
36
Prox
y m
easu
re fo
r ris
k ex
posu
re: c
urre
nt e
stim
ate
for n
on-li
fe n
on-p
rope
rty
The
risk
fact
or a
pplie
d to
“o
ther
non
-trad
ition
al”
curr
ent e
stim
ates
is 1
.29
perc
ent.
This
com
pare
s to
the
low
est r
isk
fact
or a
pplie
d to
tra
ditio
nal n
on-li
fe c
urre
nt
estim
ates
of 6
.25
perc
ent.
It is
not
cle
ar if
this
is m
eant
to b
e a
valu
e ne
t or g
ross
of r
eins
uran
ce. S
ubse
quen
t di
scus
sion
of “
curr
ent e
stim
ate”
ver
sus
rein
sura
nce
reco
vera
ble
impl
ies t
hat
“cur
rent
esti
mat
e” is
gro
ss o
f rei
nsur
ance
, ye
t the
cha
rges
in th
e sa
me
para
grap
h fo
r re
insu
ranc
e re
cove
rabl
es im
ply
low
co
llect
ion
risk,
and
the
prox
y fo
r pro
perty
ris
k is
a v
alue
net
of r
eins
uran
ce.
The
use
of a
low
er ri
sk fa
ctor
for “
othe
r no
n-tra
ditio
nal”
P&
C li
nes t
han
for
“tra
ditio
nal”
P&
C li
nes i
mpl
ies t
hat n
on-
tradi
tiona
l risk
s are
not
a ri
sk is
sue
for t
he
BC
R. A
dditi
onal
ly, t
his c
reat
es a
n in
cent
ive
to c
all e
very
thin
g “n
on-tr
aditi
onal
” fo
r a
P&C
com
pany
.
Cla
rify
that
the
prox
y m
easu
re fo
r non
-pro
perty
, no
n-lif
e is
cur
rent
est
imat
es n
et o
f rei
nsur
ance
. If
the
“oth
er”
non-
tradi
tiona
l lin
es fo
r non
-life
re
ceiv
e a
low
er ri
sk c
harg
e th
an tr
aditi
onal
line
s, th
en th
e no
n-tra
ditio
nal/t
radi
tiona
l dis
tinct
ion
shou
ld b
e el
imin
ated
for n
on-li
fe.
11
4, p
ar
46
Cap
ital r
esou
rces
are
de
term
ined
on
a co
nsol
idat
ed
basi
s.
Ther
e is
no
disc
ussi
on re
gard
ing
trans
ferr
ing
need
ed c
apita
l acr
oss
juris
dict
ions
.
Add
a se
nten
ce th
at st
ates
fung
ibili
ty is
not
ad
dres
sed
by th
is do
cum
ent.
12
5.1,
par
60
K
ey d
iffer
ence
bet
wee
n th
e In
tern
atio
nal F
inan
cial
R
epor
ting
Stan
dard
s (IF
RS)
an
d th
e G
ener
ally
Acc
epte
d A
ccou
ntin
g Pr
inci
ples
(G
AA
P) is
mar
gin
over
cu
rren
t est
imat
e (M
OC
E).
This
stat
emen
t ign
ores
that
the
diff
eren
ces
in d
isco
unt r
ates
are
sign
ifica
nt fo
r U.S
. G
AA
P re
porte
rs.
Add
a se
nten
ce n
otin
g th
e im
porta
nce
of d
isco
unt
rate
s for
life
/ann
uity
insu
ranc
e.
5
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-21NAIC Proceedings – Summer 2014
It
em
Para
grap
h R
efer
ence
C
omm
ent
Alte
rnat
ive
App
roac
h
13
Ann
ex
C
Leng
th a
nd p
resc
riptiv
e le
vel
of th
e gu
idan
ce.
The
leng
th a
nd p
resc
riptiv
e na
ture
of t
his
Ann
ex a
ppea
rs to
cre
ate
both
a se
para
te
acco
untin
g st
anda
rd a
nd n
ew a
ctua
rial
guid
ance
. We
have
sign
ifica
nt c
once
rns
with
cre
atin
g a
new
acc
ount
ing
stan
dard
and
cr
eatin
g su
ch d
etai
led
actu
aria
l gui
danc
e in
a
“prin
cipl
e-ba
sed”
fram
ewor
k. In
pa
rticu
lar,
the
exte
nt to
whi
ch th
is w
ould
be
appl
ied
(giv
en th
e lo
w n
umbe
r and
ge
ogra
phic
spre
ad o
f G-S
IIs) i
s unl
ikel
y to
re
sult
in a
leve
l of “
gene
rally
acc
epta
ble”
an
d co
mm
on p
ract
ice
in a
pplic
atio
n.
It is
bet
ter t
o le
vera
ge e
xist
ing
acco
untin
g fr
amew
orks
or u
se a
n ap
proa
ch th
at d
oes n
ot re
ly
on a
bal
ance
shee
t val
uatio
n, a
nd p
rovi
de th
e ge
nera
l obj
ectiv
es fo
r the
act
uaria
l est
imat
es,
rath
er th
an p
rovi
ding
pre
scrip
tive
stat
emen
ts o
n es
timat
ion
met
hodo
logy
.
14
Ann
ex
C, p
ar
25
Dis
coun
ting…
occ
urs w
ith a
yi
eld
curv
e re
leva
nt to
the
parti
cula
r cur
renc
y.
Bot
h G
reec
e an
d G
erm
any
use
the
sam
e cu
rren
cy, b
ut it
doe
s no
t mak
e se
nse
that
th
ey w
ould
use
the
sam
e di
scou
nt ra
tes.
Add
“an
d ju
risdi
ctio
n” to
the
sent
ence
in
ques
tion.
15
Ann
ex
C, p
ar
49
Onl
y 40
per
cent
of t
he a
ctua
l co
rpor
ate
bond
spre
ad is
us
ed fo
r the
adj
ustm
ent.
This
seem
s lik
e it
is a
ddin
g a
MO
CE
to th
e cu
rren
t est
imat
e. If
the
inve
stm
ents
are
at
mar
ket,
they
will
alre
ady
refle
ct c
redi
t- w
orth
ines
s.
6
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-22 NAIC Proceedings – Summer 2014
It
em
Para
grap
h R
efer
ence
C
omm
ent
Alte
rnat
ive
App
roac
h
16
Ann
ex
D, p
ar 3
Fina
ncia
l ins
trum
ents
will
be
clas
sifie
d as
Cor
e Ca
pita
l on
ly if
they
do
not h
ave
a fix
ed m
atur
ity a
nd h
ave
dist
ribut
ions
that
can
be
canc
elle
d.
Will
surp
lus n
otes
be
clas
sifie
d as
Cor
e C
apita
l pur
suan
t to
Ann
ex D
, par
6?
Will
se
nior
deb
t hel
d at
the
insu
ranc
e ho
ldin
g co
mpa
ny b
e cl
assi
fied
as C
ore
Cap
ital,
if ca
sh c
anno
t be
upst
ream
ed fr
om th
e op
erat
ing
com
pany
to th
e ho
ldin
g co
mpa
ny
to p
ay su
ch d
ebt w
ithou
t sup
ervi
sory
ap
prov
al?
Spec
ify th
at su
rplu
s not
es (a
s wel
l as d
ebt a
t the
ho
ldin
g co
mpa
ny le
vel)
will
be
clas
sifie
d as
Cor
e C
apita
l whe
neve
r reg
ulat
ory
appr
oval
is re
quire
d to
rem
ove
fund
s fro
m in
sura
nce
entit
ies t
o pa
y su
ch d
ebt i
n a
dist
ress
ed si
tuat
ion.
A
nnex
D
, par
6
Cor
eC
apita
linc
lude
ssur
plus
fund
s and
con
tribu
ted
surp
lus.
We
belie
ve th
at su
rplu
s not
es (a
nd p
roce
eds
from
hol
ding
com
pany
deb
t con
tribu
ted
to
the
oper
atin
g in
sure
r) a
re c
ateg
oriz
ed
appr
opria
tely
as s
urpl
us u
nder
the
U.S
. st
atut
ory
acco
untin
g fr
amew
ork
and
belie
ve
they
shou
ld b
e si
mila
rly c
lass
ified
as C
ore
Cap
ital f
or p
urpo
ses o
f the
BC
R (a
nd u
nder
C
omFr
ame
gene
rally
).
17
Ann
ex
F, p
ar
26
Net
Am
ount
at R
isk
(NA
AR
) is
equ
al to
sum
of t
he in
sure
d m
inus
cur
rent
est
imat
e, n
et
of re
insu
ranc
e re
cove
rabl
es.
All
the
curr
ent e
stim
ates
are
gro
ss o
f re
insu
ranc
e (p
age
25, p
ar 1
0).
Rei
nsur
ance
re
cove
rabl
es a
re c
alcu
late
d an
d re
cogn
ized
se
para
tely
. So,
the
prep
arer
will
hav
e to
pul
l ou
t any
pro
tect
ion
rein
sura
nce
reco
vera
bles
fr
om th
is c
alcu
latio
n. T
hat m
ay n
ot b
e ea
sily
don
e.
Hav
e N
AA
R b
e gr
oss o
f rei
nsur
ance
.
7
Attachment One-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-23NAIC Proceedings – Summer 2014
Attachment Two International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners 1
Draft: 10/7/14
International Insurance Relations (G) Committee Conference Call
July 24, 2014 The International Insurance Relations (G) Committee met via conference call July 24, 2014. The following Committee members participated: Kevin M. McCarty, Vice Chair (FL); John M. Huff represented by John Rehagen (MO); Bruce R. Ramge (NE); Kenneth E. Kobylowski (NJ); and Benjamin M. Lawsky represented by Martha Lees (NY). 1. Discussed Draft NAIC Comments on IAIS Draft Application Paper on Supervisory Colleges Commissioner McCarty noted that he would chair the meeting in the place of Commissioner Michael F. Consedine (PA), and he introduced the International Association of Insurance Supervisors (IAIS) draft Application Paper on Supervisory Colleges. He mentioned that the paper recognizes that insurance supervisors have different perspectives on and roles within supervisory colleges. He said that an effective college acknowledges these differences and tries to achieve the optimal form of cooperation considering the different perspectives. Commissioner McCarty stated that this will help supervisors learn from each other by explaining relevant experiences in and with colleges and presents good practices and examples that will help promote a common understanding for participants of supervisory colleges. Commissioner McCarty commented that the Group Solvency Issues (E) Working Group and NAIC staff reviewed the paper and provided draft comments (Attachment Two-A). He expressed a general comfort with the paper, which will be helpful to supervisors in the college context as it recognizes different approaches can result in similar outcomes. These draft comments were sent to Committee members and interested parties the previous week, but no additional comments were received. Ryan Workman (NAIC) stated the NAIC comments provide general support for the paper and include some specific editorial suggestions, in particular on the use of terms and descriptions in the paper to ensure they are accurate and reflect what is intended. Director Ramge suggested that the paper should emphasize the importance of receiving regulator feedback after each supervisory college meeting, which can then help improve relevant processes. Commissioner McCarty agreed and suggested this be added to the comments. Having no quorum, Commissioner McCarty noted that the revised comments would be circulated to Committee members for consideration of approval via e-vote so that the comments may be submitted to the IAIS by its July 25 deadline (Attachment Two-B). 2. Discussed Other Matters Commissioner McCarty noted that the Committee will meet Aug. 7 to discuss and review comments on four other IAIS draft papers out for consultation. Additionally, Commissioner McCarty commented that there would be an International Capital Standards Forum at the Summer National Meeting to discuss the development of international capital standards in an open dialogue amongst regulators and interested parties. Having no further business, the International Insurance Relations (G) Committee adjourned. W:\National Meetings\2014\Summer\Cmte\G\Gmin_July 24 2014.docx
12-24 NAIC Proceedings – Summer 2014
IAIS
App
licat
ion
pape
r on
Supe
rvis
ory
Col
lege
s - N
AIC
Dra
ft C
omm
ents
J
uly
24, 2
014
Sect
ion/
Para
grap
h C
omm
ent
Gen
eral
Th
e ge
nera
l tho
ught
s an
d ex
ampl
es p
rese
nted
in th
e pa
per a
re re
leva
nt a
nd b
enef
icia
l to
supe
rvis
ors
and
parti
cula
rly h
elpf
ul
in il
lust
ratin
g ho
w th
ere
can
be c
omm
on e
xpec
tatio
ns fo
r sup
ervi
sory
col
lege
s bu
t diff
eren
t per
spec
tives
and
app
roac
hes
whi
ch c
an b
e eq
ually
effe
ctiv
e.
Ther
e ar
e so
me
cons
iste
ncy
and
min
or e
dito
rial c
hang
es th
roug
hout
the
pape
r tha
t sho
uld
be m
ade
as p
art o
f the
fina
l rev
iew
pr
oces
s (s
ee ty
pos
in p
arag
raph
20
for e
xam
ple)
and
cap
italiz
atio
n is
sues
. A
dditi
onal
ly, s
ugge
st re
view
ing
that
the
term
s in
the
defin
ition
sec
tions
are
use
d in
the
docu
men
t as
defin
ed a
nd th
at th
e re
fere
nces
to th
e IC
Ps
and
the
Com
Fram
e dr
aft s
peci
ficat
ions
are
up-
to-d
ate.
Sec
tion
1 Th
is s
ectio
n is
ver
y w
ell d
one,
put
ting
supe
rvis
ory
colle
ges,
as
wel
l as
the
appl
icat
ion
guid
ance
into
per
spec
tive.
Par
ticul
arly
he
lpfu
l is
para
grap
h 7
whi
ch re
cogn
izes
that
bes
t pra
ctic
es w
ill ev
olve
, and
that
is p
art o
f why
the
appl
icab
le g
uida
nce
as
poin
ted
out i
n pa
ragr
aph
1 sh
ould
not
be
cons
trued
as
prov
idin
g fo
rmal
gui
danc
e or
exp
ecta
tions
.
Par
agra
ph 2
Ther
e is
a re
fere
nce
to M
MoU
s bu
t thi
s sh
ould
be
chan
ged
to M
oUs
as th
is is
refe
rring
to M
emor
anda
of U
nder
stan
ding
and
no
t Mul
tilat
eral
Mem
oran
dum
of U
nder
stan
ding
.
Par
agra
ph 5
Sug
gest
cha
ngin
g th
e fo
llow
ing
sent
ence
from
“In
real
ity m
any
of c
olle
ge p
artic
ipan
ts –
but
rare
ly a
ll of
them
- ar
e al
so
sign
ator
ies
to th
e IA
IS M
MoU
for i
nfor
mat
ion
Exc
hang
e” to
“but
rare
ly a
ll of
them
pre
sent
ly”
Par
agra
ph 1
2 C
hang
e “th
e cr
eatio
n of
any
add
ition
al b
urde
n” to
“the
cre
atio
n of
any
unn
eces
sary
add
ition
al b
urde
n”
Sec
tion
2 Te
rms
and
Des
crip
tions
U
nder
the
expl
anat
ion
of “C
olle
ge p
artic
ipan
t” su
gges
t add
ing:
“Col
lege
par
ticip
ants
may
sig
n th
e co
ordi
natio
n ag
reem
ent/c
oope
ratio
n ar
rang
emen
t as
deem
ed a
ppro
pria
te”.
Und
er th
e ex
plan
atio
n of
“Coo
rdin
atio
n ag
reem
ent/c
oope
ratio
n ag
reem
ent”
repl
ace
“Lik
e a
MoU
/MM
oU, i
t is
lega
lly n
on-
bind
ing”
with
“Gen
eral
ly it
is le
gally
non
-bin
ding
in th
e se
nse
that
it d
oes
not c
reat
e en
forc
eabl
e ob
ligat
ions
from
one
su
perv
isor
to a
noth
er”
Par
agra
ph 4
5 In
ligh
t of t
he In
trodu
ctio
n se
ctio
n la
ngua
ge, i
t wou
ld b
e m
ore
appr
opria
te fo
r thi
s fir
st s
ente
nce
to n
ot b
e so
pre
scrip
tive
– su
gges
t cha
ngin
g, “…
the
GW
S w
ill ne
ed to
par
ticip
ate
in e
very
mem
bers
hip
stru
ctur
e of
the
grou
p…” t
o “…
the
GW
S m
ay
wan
t to
parti
cipa
te in
eve
ry m
embe
rshi
p st
ruct
ure
of th
e gr
oup…
”
Par
agra
ph 4
8
Sug
gest
add
ing
the
wor
ds “o
r vol
unte
ers”
to th
e fir
st s
ente
nce
to re
ad: “
if a
colle
ge m
embe
r, as
hos
t sup
ervi
sor i
s ta
sked
, or
volu
ntee
rs, t
o or
gani
ze…
”
1
Attachment Two-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-25NAIC Proceedings – Summer 2014
Sect
ion/
Para
grap
h C
omm
ent
Par
agra
phs
113
and
114
We
have
som
e co
ncer
n w
ith th
is s
ectio
n be
caus
e ev
en a
s ex
ampl
es, i
t may
est
ablis
h a
perc
eive
d st
anda
rd th
at m
ay b
e co
unte
rpro
duct
ive
to th
e co
llege
sin
ce it
may
ove
rem
phas
ize
solo
ent
ity in
form
atio
n an
d m
ay s
ugge
st a
ll of
thes
e ite
ms
shou
ld b
e pr
ovid
ed, w
hich
cou
ld d
iver
t atte
ntio
n aw
ay fr
om g
roup
info
rmat
ion.
It m
ay b
e ap
prop
riate
if a
spe
cific
sol
o en
tity
is
the
prim
ary
sour
ce o
f ris
k, b
ut w
e ha
ve s
ome
conc
ern
this
cou
ld b
e m
isin
terp
rete
d w
ithou
t som
e ad
ditio
nal l
angu
age
to
prov
ide
bette
r con
text
. Sug
gest
add
ing
a ne
w in
trodu
ctor
y se
nten
ce u
nder
this
sec
tion
befo
re p
arag
raph
113
to a
void
suc
h co
nfus
ion:
“Ris
k ca
n co
me
from
var
ious
asp
ect o
f the
org
aniz
atio
n an
d th
eref
ore
it m
ay b
e he
lpfu
l to
shar
e qu
antit
ativ
e an
d/or
qu
alita
tive
data
whi
ch m
ay b
e he
lpfu
l in
pinp
oint
ing
the
risks
of t
he g
roup
.” A
dditi
onal
ly, p
arag
raph
s 11
3 an
d 11
4 sh
ould
be
amen
ded
to re
info
rce
that
thes
e ar
e ex
ampl
es a
nd re
ad re
spec
tivel
y: “1
13. Q
uant
itativ
e da
ta m
ay in
clud
e on
e or
mor
e of
the
follo
win
g:” a
nd “1
14. Q
ualit
ativ
e da
ta m
ay in
clud
e on
e or
mor
e of
the
follo
win
g:”
Par
agra
phs
133
Sug
gest
add
ing
to th
e en
d of
this
par
agra
ph, “
Follo
win
g fa
ce-to
-face
col
lege
mee
tings
, sup
ervi
sors
sho
uld
cons
ider
ask
ing
parti
cipa
nts
to c
ompl
ete
an e
valu
atio
n/fe
edba
ck s
heet
. Thi
s w
ould
allo
w fo
cus
on w
hat p
artic
ular
nee
ds e
ach
colle
ge m
embe
r ex
pect
s to
take
aw
ay fr
om th
e m
eetin
gs a
nd fa
cilit
ate
impr
ovem
ents
to th
e co
llege
pro
cess
.”
Par
agra
ph 1
68
As
not a
ll re
ader
s m
ay b
e fa
mili
ar w
ith T
akaf
ul, i
t may
be
help
ful t
o pr
ovid
e a
very
brie
f foo
tnot
e ex
plan
atio
n or
def
initi
on.
2
Attachment Two-A International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-26 NAIC Proceedings – Summer 2014
Attachment Two-B International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners 1
Draft: 10/7/14
International Insurance Relations (G) Committee E-Vote
July 25, 2014 The International Insurance Relations (G) Committee conducted an e-vote that concluded July 25, 2014. The following Committee members participated: Michael F. Consedine, Chair (PA); Kevin M. McCarty, Vice Chair (FL); Thomas B. Leonardi, Immediate Past Chair (CT); Karen Weldin Stewart (DE); James J. Donelon (LA); Joseph G. Murphy (MA); John M. Huff (MO); Bruce R. Ramge (NE); Kenneth E. Kobylowski (NJ); Benjamin M. Lawsky (NY); Julia Rathgeber (TX); and Susan L. Donegan (VT). 1. Adopted NAIC Comments on IAIS Draft Application Paper on Supervisory Colleges The Committee conducted an e-vote to approve submission of NAIC comments to the International Association of Insurance Supervisors’ on its draft application paper on supervisory colleges (Attachment Two-A). A majority of the Committee members voted to approve submission of the comments. The motion passed. Having no further business, the International Insurance Relations (G) Committee adjourned. W:\National Meetings\2014\Summer\Cmte\G\Gmin_July 25 2014 e-vote.docx
12-27NAIC Proceedings – Summer 2014
Attachment Three International Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners 1
Draft: 4/30/14 International Insurance Relations (G) Committee
Conference Call April 23, 2014
The International Insurance Relations (G) Committee met via conference call April 23, 2014. The following Committee members participated: Michael F. Consedine, Chair (PA); Kevin M. McCarty, Vice Chair (FL); Joseph G. Murphy (MA); John M. Huff represented by John Rehagen (MO); Bruce R. Ramge (NE); Kenneth E. Kobylowski (NJ); Benjamin M. Lawsky represented by Michael Sheiowitz (NY); Julia Rathgeber represented by Danny Saenz (TX); and Susan L. Donegan (VT). 1. Adopted NAIC Comments on the IAIS Draft Issues Paper on Approaches to Group Corporate Governance – Impact on
Control Functions Commissioner Donegan reported that the International Association of Insurance Supervisors (IAIS) released its draft Issues Paper on Approaches to Group Corporate Governance – Impact on Control Functions for consultation on March 21. The paper was drafted by the IAIS Governance and Compliance Subcommittee (GCS) with the purpose of providing insights into the implications that arise for insurance groups and their approaches to governance, including in the context of the IAIS Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). She said the paper illustrates that there is not a “one-size-fits-all” approach to group-wide corporate governance and that insurers within groups may perform corporate governance differently, depending on how the group is structured, along a continuum of centralized versus decentralized approaches. Commissioner Donegan stated that the paper is intended to be useful to the IAIS as it continues work on ComFrame and informative for supervisors when reviewing insurance groups in their jurisdiction. Additionally, it is intended to create awareness and illustrate practices for good governance to insurance groups on issues they need to consider and address when setting up and assessing the effectiveness of the corporate governance framework of their group. Commissioner Donegan noted that, per the usual process, members of the relevant NAIC working group, in this case the Corporate Governance (E) Working Group, and NAIC staff reviewed and provided draft comments (Attachment Three-A), which were sent to the Committee members and interested parties. She stated that one Committee member sent a comment supporting the draft NAIC comments, but no other comments were received. Commissioner Donegan explained that while a number of the comments on the paper were editorial in nature, the NAIC had some general and a few more specific comments about the tone of the paper, which sometimes suggests a level of prescriptiveness that should not be used in an IAIS issues paper. She noted that this was not the intent of the GCS and instead likely a result of drafting style and word choice that should be resolvable as the paper is finalized. Commissioner Consedine asked whether the IAIS issues paper provides help and whether it relates to the current work at the state level on supervisory aspects of corporate governance. Commissioner Donegan responded that both recognize the need to not be overly prescriptive and that supervisors need certain information in order to better understand the corporate governance of insurers, but it is not the role of supervisors to tell companies how to run and organize their business because there is no one-size-fits-all approach. Commissioner Murphy made a motion, seconded by Commissioner Kobylowski, to submit the NAIC comments to the IAIS on its draft issues paper. The motion passed. 2. Discussed Other Matters Commissioner Consedine noted that there are a number of other international activities, with updates to be provided at future Committee meetings. He said the issues of mutual recognition and equivalence would be discussed at upcoming U.S./European Union (EU) events in Washington, DC. He also noted that the NAIC International Insurance Forum would take place May 13–14 in Washington, DC, and would feature panels and speakers on a variety of topics. Having no further business, the International Insurance Relations (G) Committee adjourned. W:\National Meetings\2014\Summer\Cmte\G\Gmin_April 23 2014.docx
12-28 NAIC Proceedings – Summer 2014
Issu
es P
aper
on
App
roac
hes
to G
roup
Cor
pora
te G
over
nanc
e: Im
pact
on
Con
trol
Fun
ctio
ns –
Dra
ft N
AIC
Com
men
ts
0
4/15
/201
4 Se
ctio
n / p
arag
raph
C
omm
ent
Gen
eral
com
men
ts
The
gene
ral
thou
ghts
and
iss
ues
pres
ente
d in
the
pap
er a
re r
elev
ant
and
bene
ficia
l to
ins
urer
s an
d su
perv
isor
s an
d pa
rticu
larly
hel
pful
in il
lust
ratin
g ho
w a
one
-siz
e-fit
s-al
l app
roac
h do
es n
ot w
ork
with
in C
omFr
ame.
In
som
e pa
rts o
f the
pap
er, t
here
is a
tone
of d
efin
itive
ness
or c
erta
inty
(for
exa
mpl
e: to
ens
ure
x do
y; t
o ac
hiev
e x
do y
) w
hich
in s
ome
case
s ru
ns c
ontra
ry to
the
purp
oses
of t
he p
aper
to h
ighl
ight
issu
es a
nd il
lust
rate
diff
eren
t app
roac
hes.
As
the
pape
r con
tain
s a
num
ber o
f gro
up g
over
nanc
e ch
alle
nges
and
sub
sequ
ent p
ract
ices
, it i
s im
porta
nt th
at th
ese
are
seen
as
sug
gest
ive
or a
s ex
ampl
es; o
ther
wis
e on
e co
uld
com
e aw
ay w
ith th
e im
pres
sion
that
thes
e ar
e th
e on
ly c
halle
nges
and
th
e on
ly s
olut
ions
. As
the
pape
r was
not
writ
ten
with
this
inte
nt, t
his
is m
ostly
a d
rafti
ng s
tyle
issu
e th
at c
ould
be
reso
lved
in
the
final
edi
toria
l rev
isio
n of
the
pape
r. A
dditi
onal
ly, t
here
are
som
e co
nsis
tenc
y an
d m
inor
edi
toria
l cha
nges
that
sho
uld
be m
ade
as p
art o
f fin
aliz
ing
the
pape
r.
Sec
tion
1.1,
par
agra
ph
3 c
The
prac
tices
pro
vide
d in
the
pap
er m
ay b
e in
sigh
tful
to i
nsur
ers
and
supe
rvis
ors
but
they
can
not
ensu
re t
hat
good
go
vern
ance
is
achi
eved
thr
ough
fol
low
ing
them
. In
stea
d, t
he o
bjec
tives
of
high
light
ing
certa
in p
ract
ices
sho
uld
be t
o pr
ovid
e su
gges
tions
and
tho
ught
s re
gard
ing
how
cer
tain
ris
ks a
ssoc
iate
d w
ith v
ario
us g
over
nanc
e st
ruct
ures
mig
ht b
e re
duce
d. T
he u
se o
f “en
sure
” thr
ough
out t
he p
aper
sho
uld
be c
heck
ed s
o th
at a
ppro
pria
te e
xpec
tatio
ns a
re b
eing
set
. S
ectio
n 1.
2, p
arag
raph
7
As
the
expl
anat
ion
of th
e ce
ntra
lized
app
roac
h an
d th
e de
cent
raliz
ed a
ppro
ach
are
key
to th
is p
aper
, sug
gest
thes
e be
set
of
f in
sepa
rate
bul
lets
so
they
hav
e m
ore
prom
inen
ce. A
dditi
onal
ly, s
ome
of th
e m
ater
ial i
n th
is p
arag
raph
is r
epea
ted
in
para
grap
hs 3
6 an
d 39
. To
avoi
d du
plic
atio
n, s
ugge
st d
elet
ing
para
grap
hs 3
6 an
d 39
but
mov
e th
e no
n-re
petit
ive
text
in
thos
e pa
ragr
aphs
to th
e re
leva
nt p
arts
of p
arag
raph
7.
Sec
tion
3.1,
gen
eral
A
s th
is s
ectio
n hi
ghlig
hts
rele
vant
mat
eria
l fro
m th
e IC
Ps,
the
pres
enta
tion
of IC
P m
ater
ial s
houl
d be
don
e in
a c
onsi
sten
t m
anne
r – s
uch
as p
rovi
ding
dire
ct q
uote
s an
d/or
hig
h-le
vel s
umm
arie
s w
ith re
leva
nt fo
otno
tes
citin
g th
e or
igin
. Oth
erw
ise,
pa
raph
rasi
ng c
ould
uni
nten
tiona
lly l
ead
to m
isin
terp
reta
tion.
Pro
per
cita
tions
inf
orm
the
rea
der
as t
o w
heth
er t
he I
CP
mat
eria
l bei
ng m
entio
ned
is a
t the
prin
cipl
e, s
tand
ard
or g
uida
nce
leve
l, w
hich
mak
es a
diff
eren
ce.
Sec
tion
3.1,
pa
ragr
aphs
19
and
20
Sug
gest
del
etin
g th
ese
para
grap
hs.
ICP
23 i
s cu
rrent
ly u
nder
rev
iew
and
it
is u
ncle
ar w
heth
er t
he I
CP
23
mat
eria
l re
fere
nced
in
para
grap
h 19
will
be
incl
uded
in
the
revi
sed
vers
ion;
add
ition
ally
the
las
t se
nten
ce r
epea
ts w
hat
is i
n pa
ragr
aph
18 a
nd e
lsew
here
. The
mat
eria
l on
ICP
25 in
par
agra
ph 2
0 is
not
spe
cific
to g
roup
gov
erna
nce
and
the
need
for
supe
rvis
ory
coop
erat
ion
as re
quire
d by
ICP
25
is m
entio
ned
late
r in
para
grap
h 71
. S
ectio
n 4.
1, g
ener
al
Whi
le th
is s
ectio
n ap
pear
s ge
nera
lly c
onsi
sten
t with
ICP
7, t
he e
xpec
ted
role
s an
d re
spon
sibi
litie
s of
the
Boa
rd m
ay s
eem
ov
erly
asp
iratio
nal,
whe
reas
the
exp
ecte
d ro
les
and
resp
onsi
bilit
ies
of S
enio
r M
anag
emen
t m
ay s
eem
ove
rly s
impl
ified
. Fo
r exa
mpl
e, w
hile
U.S
. sta
te in
sura
nce
supe
rvis
ors
typi
cally
exp
ect t
he B
oard
to re
view
and
app
rove
the
over
all s
trate
gy
of th
e or
gani
zatio
n, s
trate
gy fo
rmul
atio
n an
d de
velo
pmen
t is
typi
cally
the
resp
onsi
bilit
y of
the
CE
O a
nd o
ther
mem
bers
of
Sen
ior
Man
agem
ent.
Ther
efor
e, e
xpec
tatio
ns l
imiti
ng S
enio
r M
anag
emen
t’s r
ole
to d
ay-to
-day
man
agem
ent
with
no
resp
onsi
bilit
ies
for s
trate
gic
plan
ning
and
vis
ion
may
be
som
ewha
t mis
lead
ing.
The
refo
re, w
e su
gges
t tha
t thi
s se
ctio
n an
d th
e di
agra
m b
e m
odifi
ed to
refle
ct a
mor
e pr
actic
al e
xpec
tatio
n re
gard
ing
the
role
s of
the
Boa
rd a
nd S
enio
r Man
agem
ent.
1
Attachment Three-AInternational Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-29NAIC Proceedings – Summer 2014
Sect
ion
/ par
agra
ph
Com
men
t S
ectio
n 4.
2,
para
grap
hs 3
0 an
d 31
S
ome
of th
e m
ater
ial i
n th
ese
para
grap
hs r
epea
ts w
hat w
as a
lread
y st
ated
in p
arag
raph
6. S
ugge
st c
ombi
ning
thes
e tw
o pa
ragr
aphs
but
del
ete
the
last
sen
tenc
e in
30
and
the
first
sen
tenc
e in
31.
S
ectio
n 4.
3, p
arag
raph
23
S
ugge
st m
akin
g th
e lis
t of
key
cha
ract
eris
tics
mor
e co
nsis
tent
with
how
the
y ar
e de
scrib
ed l
ater
in
the
pape
r in
su
bsec
tions
of S
ectio
n 5
and
para
grap
h 76
. In
the
form
er, r
isk
man
agem
ent a
nd c
ompl
ianc
e ar
e lis
ted
sepa
rate
ly (d
and
e)
and
in t
he l
atte
r th
ese
have
bee
n co
mbi
ned.
Add
ition
ally
, th
e la
st k
ey c
hara
cter
istic
on
cont
rol
func
tions
inc
lude
s co
mpl
ianc
e so
it is
som
ewha
t con
fusi
ng to
hav
e co
mpl
ianc
e as
a s
epar
ate
key
char
acte
ristic
.
Sec
tion
4.3,
par
agra
ph
33
Sug
gest
this
par
agra
ph m
ove
unde
r the
Sec
tion
4.4
head
ing
as it
intro
duce
s th
e in
dust
ry e
xam
ples
.
Sec
tion
4.4,
gen
eral
W
hile
the
var
ious
exa
mpl
es/m
odel
s pr
esen
ted
in t
his
sect
ion
are
illust
rativ
e, t
he g
over
nanc
e in
form
atio
n ea
ch e
xam
ple
cont
ains
var
ies,
whi
ch m
ay li
mit
the
ultim
ate
valu
e th
ey p
rovi
de.
For
exam
ple,
the
firs
t m
odel
dis
cuss
es h
ow a
ctua
rial
prac
tices
are
con
duct
ed th
roug
hout
the
orga
niza
tion,
whi
ch is
not
dis
cuss
ed fo
r an
y of
the
othe
r m
odel
s. A
s th
e m
odel
s ar
e in
tend
ed to
pre
sent
exa
mpl
es o
f the
var
ious
type
s of
gov
erna
nce
appr
oach
es th
at e
xist
, the
diff
eren
ces
betw
een
the
vario
us a
ppro
ache
s m
ay b
e ea
sier
to
unde
rsta
nd if
con
sist
ent
elem
ents
of
gove
rnan
ce in
form
atio
n w
ere
disc
usse
d fo
r ea
ch m
odel
. S
ectio
n 4.
4, E
xam
ple
1 E
xam
ple
1 st
ates
that
“the
re is
no
grou
p-w
ide
unde
rwrit
ing
polic
y, a
s th
e di
vers
ity o
f pro
duct
s th
e gr
oup
offe
rs m
akes
suc
h a
polic
y un
war
rant
ed a
nd im
prac
tical
. How
ever
, und
erw
ritin
g po
licie
s ar
e se
t by
busi
ness
uni
ts.”
Whi
le th
e N
AIC
agr
ees
that
a g
roup
-wid
e un
derw
ritin
g po
licy
may
not
alw
ays
be a
ppro
pria
te, p
artic
ular
ly u
nder
thes
e ci
rcum
stan
ces,
suc
h a
polic
y ap
pear
s to
be
requ
ired
unde
r M
2E4-
4 in
the
curr
ent d
raft
of C
omFr
ame.
Is th
is e
xam
ple
a si
tuat
ion
whe
reby
the
“gro
up-
wid
e un
derw
ritin
g po
licy”
is th
at th
e in
divi
dual
bus
ines
s un
its w
ithin
the
grou
p se
t the
ir ow
n un
derw
ritin
g po
licie
s? If
so,
the
text
in th
is e
xam
ple
shou
ld b
e re
vise
d ac
cord
ingl
y. O
ther
wis
e, th
is s
ugge
sts
that
wha
t may
qua
lify
as a
gro
up-w
ide
polic
y un
der C
omFr
ame
is m
uch
mor
e pr
escr
iptiv
e, w
hich
is c
ontra
ry to
the
findi
ngs
of th
is Is
sues
pap
er.
Sec
tion
5 –
gene
ral
Var
ious
par
agra
phs
with
in S
ectio
n 5
sugg
est
prac
tices
to
addr
ess
the
chal
leng
es li
kely
to
aris
e in
est
ablis
hing
a m
ore
cent
raliz
ed o
r dec
entra
lized
app
roac
h to
cor
pora
te g
over
nanc
e. W
hile
a n
umbe
r of t
he s
ugge
sted
pra
ctic
es a
ppea
r hel
pful
to
insu
rers
and
sup
ervi
sors
, oth
er p
ract
ices
app
ear
to b
e so
mew
hat p
resc
riptiv
e in
nat
ure
and
pote
ntia
lly li
mite
d in
thei
r ap
plic
abili
ty t
o va
rious
org
aniz
atio
ns.
Thus
it s
houl
d be
cle
ar t
hat
thes
e ar
e su
gges
tions
and
just
a f
ew o
f th
e po
ssib
le
solu
tions
giv
en th
e va
riety
of a
ppro
ache
s to
gov
erna
nce
IAIG
s m
ay ta
ke a
nd th
e re
sulti
ng c
halle
nges
. S
econ
dly,
the
pape
r m
akes
it c
lear
that
reg
ardl
ess
of w
heth
er a
gro
up fo
llow
s a
mor
e ce
ntra
lized
or
mor
e de
cent
raliz
ed
appr
oach
to c
orpo
rate
gov
erna
nce
ther
e w
ill b
e ch
alle
nges
in e
ffect
ivel
y ov
erse
eing
its
oper
atio
ns a
nd s
olve
ncy
posi
tion.
H
owev
er,
som
e pa
rts o
f th
is s
ectio
n se
em t
o ov
ersi
mpl
ify is
sues
by
reco
mm
endi
ng t
hat
grou
ps f
ollo
win
g a
cent
raliz
ed
gove
rnan
ce a
ppro
ach
inco
rpor
ate
certa
in d
ecen
traliz
ed p
ract
ices
and
vic
e-ve
rsa.
Add
ition
ally
, so
me
of t
he s
ugge
sted
pr
actic
es id
entif
ied
may
be
help
ful r
egar
dles
s of
whi
ch a
ppro
ach
is ta
ken.
Thu
s a
revi
ew o
f the
sug
gest
ed p
ract
ices
may
he
lp im
prov
e th
is s
ectio
n.
Sec
tion
6, p
arag
raph
71
S
ugge
st d
elet
ing
a) a
nd b
) as
the
mat
eria
l con
tain
ed th
erei
n is
not
gro
up-g
over
nanc
e sp
ecifi
c, n
or n
eces
sary
to m
ake
the
poin
t of t
he o
vera
ll pa
ragr
aph.
2
Attachment Three-AInternational Insurance Relations (G) Committee
8/16/14
© 2014 National Association of Insurance Commissioners
12-30 NAIC Proceedings – Summer 2014
Attachment Four
International Insurance Relations (G) Committee 8/16/14
© 2014 National Association of Insurance Commissioners 1
Draft: 8/29/14
ComFrame Development and Analysis (G) Working Group Louisville, Kentucky
August 16, 2014 The ComFrame Development and Analysis (G) Working Group of the International Insurance Relations (G) Committee met in Louisville, KY, Aug. 16, 2014. The following Working Group members participated: Kevin M. McCarty, Chair (FL); John Loughran (CT); Cindy Donovan (IN); John Turchi (MA); John Rehagen (MO); Bruce R. Ramge (NE); Kenneth E. Kobylowski (NJ); Benjamin M. Lawsky (NY); Steve Johnson (PA); Julie Mix McPeak (TN); Doug Slape (TX); and David Smith (VA). Also participating was: Susan Donegan (VT). 1. Adopted its June 5 Minutes Commissioner Kobylowski made a motion, seconded by Commissioner McPeak, to adopt the Working Group’s June 5 minutes (Attachment Four-A). The motion passed. The ComFrame Development and Analysis (G) Working met in regulator-to-regulator session July 23, June 26, June 10 and May 19 pursuant to paragraph 8 (consideration of strategic planning issues relating to federal legislative and regulatory matters or international regulatory matters) of the NAIC Policy Statement on Open Meetings. 2. Heard an Update on the Field Testing Process of the IAIS ComFrame
Ramon Calderon (NAIC) said the International Association of Insurance Supervisors’ (IAIS) Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) document was finalized earlier this year and is now subject to field testing over a period of three years. He commented that Module 1 of ComFrame was field tested earlier in the year, which included a review of the criteria for defining an IAIS and a survey of member jurisdictions’ authority over holding companies. Most recently, field testing has focused on quantitative testing of 33 volunteers, which includes the submission of a quantitative questionnaire and a related data template, largely to assist in the development of a basic capital requirements (BCR) for global systemically important insurers (G-SIIs) and to understand the impact of capital resources based on the definitions in ComFrame. He added the quantitative testing will continue over the three-year field testing period and that the next data submission will include an evaluation of how simple stresses affect the balance sheet under specified valuation bases. Mr. Calderon stated that as the development of the IAIS global insurance capital standard (ICS) begins, the next iteration of quantitative testing will be tailored to obtain information to support the development of the ICS. He added that field testing also includes qualitative aspects, with testing of those aspects of Module 2 beginning in October, and that testing of the supervisory processes in Module 3 will begin in 2015. Commissioner McCarty asked whether field testing of Module 2 had resulted in any changes as to how capital resources are currently defined in ComFrame. Mr. Calderon replied that initial field testing results do not indicate any adverse findings related to the definitions of capital resources but that further analysis continues by the IAIS Field Testing Task Force. 3. Discussed IAIS Capital Developments Commissioner McCarty noted that in addition to ComFrame, the IAIS is also working on development of global group-wide capital standards on two separate but related fronts: 1) the BCR and higher loss absorbency (HLA) for G-SIIs; and 2) the ICS for all internationally active insurance groups. Commissioner Kobylowski reported that the BCR is the main priority of the IAIS at the moment and that several NAIC staff members are directly involved in this work, which is expected to deliver a comparable base capital upon which to add HLA capital requirements for G-SIIs. On July 9, the IAIS released its second consultation document on BCR, which sought input on a specific proposal to facilitate the final design and calibration of the BCR and a proposal that BCR required capital will be calculated on a consolidated group-wide basis, with all holding companies, insurance legal entities, banking legal entities and any other service companies included in the consolidation. The proposal is for the BCR to be constructed in three basic
12-31NAIC Proceedings – Summer 2014
Attachment Four
International Insurance Relations (G) Committee 8/16/14
© 2014 National Association of Insurance Commissioners 2
components: 1) an insurance component; 2) a banking component; and 3) a component for other non-insurance, non-banking activities not currently subject to regulatory capital requirements. The initial factors and general level of the BCR for the insurance component were established using data provided by 33 volunteers from various jurisdictions, including eight from the U.S., and through use of supervisory judgment. Commissioner Kobylowski said members of the Working Group and NAIC staff developed comments on this consultation paper, which were discussed and approved for submission by the International Insurance Relations (G) Committee. The proposed BCR, with any modifications made as a result of comments received during the consultation process, is expected to be approved by the IAIS and go to the Financial Stability Board (FSB) this fall for its review before going to G20 Leaders Summit for endorsement in November. He noted that it is expected that data coverage and quality will be improved over time, and the BCR will be refined over the next few years. In addition, given the potential for future refinement, one of the NAIC comments in the consultation highlighted that if initial revisions result in materially different results than those portrayed in the consultation paper, it may be necessary for the IAIS to have another round of consultation. Commissioner Kobylowski said the BCR is a capital standard only in combination with HLA and that the combined BCR + HLA is scheduled to start applying to G-SIIs in 2019. He noted initial drafting discussions have begun on the HLA, and a preliminary consultation paper is expected to be released in December 2014, with a final HLA proposal expected in the fall of 2015. Discussion so far at the IAIS has centered on whether HLA uplift will be broad-based on the entire BCR or focused on nontraditional, non-insurance activities measured in the BCR that generate systemic risk. He added it is yet to be determined whether the IAIS will target an overall calibration level for the combined BCR + HLA or have separate targets for each component. The suggestion that the BCR will be refined over time while a final proposal on HLA will be completed next year leaves open some questions of timing and coordination of these two elements. He said HLA also continues to be a topic of discussion in terms of how it will transition from using the BCR as its base to using the ICS as its base. Commissioner McPeak reported that the IAIS has started developing initial thoughts on the ICS earlier this year, with the IAIS holding an observer hearing on the ICS at its June meetings in Québec. She noted the ICS is on a tight timeline, with testing of the proposed ICS construct scheduled from 2015 to 2016 and the development of the ICS to be completed by the end of 2016. The IAIS is drafting an initial public ICS consultation document to be released by the end of 2014. She added that following further testing and refinement, a final ICS is expected by the end of 2018, and implementation of ComFrame, which includes the ICS, by the various IAIS members is expected to start thereafter. Commissioner McCarty commented that the NAIC had held an International Capital Standards Forum the previous day, with the purpose of having an interactive discussion on the development of an ICS, focusing on three main topics: 1) the goals and the benefits, costs and consequences of an ICS; 2) the realities of developing a global ICS, including the hurdles that need addressing in order to develop a global ICS and whether these can be overcome; and 3) approaches for developing a global ICS, looking at feasible and practical versions of a global ICS that would complement the national system of state-based insurance regulation in the U.S. He noted there were more than 200 attendees, including state insurance regulators, federal colleagues, state legislators, consumer representatives and industry representatives. Commissioner McCarty said the forum was just the beginning of these important discussions and summarized the comments and issues raised, including: 1) there is a need for greater clarity on the objectives of a global ICS; 2) views on resolution and fungibility of capital will be important in considering where group capital should be located; 3) valuation is a key consideration, and forcing one approach over another could affect the ability to offer certain products and contribute to systemic risk; 4) the use of internal models has its place, but a one-size-fits-all approach would not allow insurers to reflect their own unique risks; 5) an ICS is just part of a capital adequacy assessment tool that could be particularly helpful in the supervisory college context; 6) U.S. regulators and interested parties need to look at potential approaches for developing a group capital standard that is appropriate for the U.S. market and regulatory system. Steve Broadie (Property Casualty Insurers Association of America—PCI) asked how revisions to ComFrame would be handled as field testing and the development of the ICS moves forward and whether there would be the same level of transparency as was provided in the document development phase. Mr. Calderon explained that there would be draft revisions made to ComFrame as a result of the field testing process, but two additional consultations were already planned before the final draft would be adopted in 2018. Thus, there would be opportunity for interested party review and input.
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Wally Givler (Northwestern Mutual) commented that during the International Capital Standards Forum, several different suggested approaches were referenced, and he asked what the next steps would be in moving proposals forward. Commissioner McCarty responded that the process had begun to assess where this project would fit within the NAIC structure and what the related charge would be. He added that the NAIC needs to move quickly on this project and asked interested parties to submit any proposals to NAIC staff for review. Michelle Rogers (National Association of Mutual Insurance Companies—NAMIC) noted concerns on proposed changes to the IAIS policies and procedures on stakeholder input, which would affect interested parties’ abilities to follow and contribute to these developments. She also questioned whether the timing of the development of the ICS was appropriate given the challenges it presents. Commissioner McCarty noted that the IAIS stakeholder procedures would be discussed at the International Insurance Relations (G) Committee and that the IAIS had committed to a deadline on the ICS. Having no further business, the ComFrame Development and Analysis (G) Working Group adjourned. W:\National Meetings\2014\Summer\Cmte\G\CDAWG\08-CFDAWGmin.docx
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Draft: 8/12/14
ComFrame Development and Analysis (G) Working Group Conference Call
June 5, 2014 The ComFrame Development and Analysis (G) Working Group of the International Insurance Relations (G) Committee met via conference call June 5, 2014. The following Working Group members participated: Kevin M. McCarty, Chair (FL); John Loughran (CT); Pam Walters (IN); John Turchi (MA); John Rehagen (MO); Christy Neighbors (NE); Kenneth E. Kobylowski (NJ); Michael Sheiowitz (NY); Teresa Saldana (TX); and David Smith (VA). 1. Discussed the IAIS Memorandum to Observers on Global Insurance Capital Standard Commissioner McCarty said the purpose of the call was to discuss and hear comments from interested parties on the development of the International Association of Insurance Supervisors’ (IAIS) global international capital standard (ICS), in particular focusing on the memorandum to IAIS observers that will the basis for a hearing at the IAIS meeting later in June. He noted that the memo was a prelude to further IAIS discussions that will culminate in a full consultation paper that is expected to be released in December. Commissioner McCarty said the overall approach to developing and implementing the ICS currently includes group scope, underlying financial data and the components of an ICS ratio, and it will be part of the IAIS Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). In the discussions at the IAIS, the NAIC has favored an approach that has minimum impact on current group-wide financial reporting for internationally active insurance groups (IAIGs) and has supported narrowing the scope of the group from the full consolidated level used for the basic capital requirements (BCR) to as low as the insurance holding company level for the ICS. He noted that continued support for maximum use of supervisory colleges has also been expressed. Steve Broadie (Property Casualty Insurers Association of America—PCI) expressed several concerns on the overall approach such as how qualified capital resources are being defined, including subordinated debt, and that definitions are not clear, the aims seem contradictory and more focus should be on policyholder protection. Jeff Alton (CNA Financial) commented that the memo raises several questions and suggested that a benchmark would be helpful for jurisdictions that need to develop a group-wide capital assessment. He questioned whether the U.S. could develop such a group-wide assessment while maintaining existing supervisory structures. Pooja Rahman (New York Life) commented that with the overall approach to an ICS, valuation and the lack of fungibility of capital are still issues that need to be addressed. Michelle Rogers (National Association of Mutual Insurance Companies—NAMIC) asked whether the ICS is intended to be a baseline standard, and, if so, the IAIS should be looking at it as a minimum capital requirement (MCR), not a prescribed capital requirement (PCR). She questioned whether the ICS was intended to be on top of existing jurisdictional capital requirements or intended to be part of them. Commissioner McCarty said the memo generally describes the aims of the ICS by itself, which include establishment of a globally comparable risk-based measure of capital adequacy, support of financial stability and policyholder protection, and replacing the BCR as a base for higher loss absorbency (HLA). Mr. Broadie commented that the stated aims are laudable but questioned whether they were practical, noting that the overriding aim of policyholder protection seems to get lost. Mr. Alton questioned the need for a separate balance sheet and suggested that the IAIS should start with consolidated balance sheets to develop the ICS. Ralph Blanchard (Travelers Companies) commented that valuation has not been an issue for the property/casualty industry worldwide and that one valuation approach for one product does not work for all insurance products; thus, the ICS should not use a broad brush approach to valuation.
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Commissioner McCarty said the memo relates to the issue of balance sheet valuation for the exposure proxies that will be used to establish the ICS requirement and the capital resources that will be used to meet the requirement. He added that the NAIC has not supported a single accounting or valuation basis that disproportionately requires U.S. groups to maintain an additional set of books besides the company-based statutory accounting principles (SAP) valuations and group-based U.S. generally accepted accounting principles (GAAP). Mr. Alton raised concerns about the treatment of senior debt due to the amount held by the typical U.S. stock company and of deferred taxes, which may make up a large portion of a company’s balance sheet. Commissioner McCarty said the memo addresses qualifying capital resources and the tiering approach taken in ComFrame. He noted that a core capital component of 50% appears reasonable in line with the definitions the IAIS Solvency Subcommittee developed as part of ComFrame; however, the importance of core capital in displaying a ratio that applies to systemically important groups, along with how that ratio would evolve when HLA is added to the equation, are topics of current discussion at the HLA Drafting Group. Mr. Broadie commented that the tiering approach is a banking concept that did not necessarily make sense or seem appropriate for an ICS. Commissioner McCarty said there are several questions in the memo relating to the issue of whether full or partial group internal models should be allowed in the ICS calculation. There is concern that use of group-specific internal capital models can actually work against comparability across jurisdictions, which would be contrary to the ICS’ main objective. He noted that the NAIC believes that discussion of internal models at this juncture is an unnecessary distraction to the other tasks of developing the BCR and HLA, and that the NAIC would generally favor concentrating on a standard approach before any discussion of potential use of internal models. Mr. Broadie saw the use of partial models but had concerns about using full models; in order to reach the goal of comparability, models would have to be dictated to insurers, which would not be appropriate. Mr. Blanchard commented that is was important to distinguish between the use of internal models versus external models, which are used for catastrophe risk. Joseph Sieverling (Reinsurance Association of America—RAA) added that, for reinsurers, there are several risks for which there are no third-party models, so reinsurers cannot rely only on such third-party models. Commissioner McCarty said the memo sets out a brief rationale for two target criteria that will be tested for the ICS. From the NAIC perspective, it is not clear that any single target criteria will produce rational capital requirements across jurisdictions and that it does not recognize other compensating features such as those used within the U.S. insurance solvency framework. He added that the memo addresses the calibration of the PCR, which is the level above which no regulatory action is required, similar to the company action level and trend test in the RBC formula. Mr. Alton noted that, while it could make sense for the ICS to be linked to a PCR, there needs to be more explanation about what this would mean for companies and for supervisors, as well as potential expense in adding a new layer of capital requirements. Commissioner McCarty said the memo touches on other aspects of the supervisory capital adequacy assessment process that would work in tandem with an ICS. There is a question about whether the framework should result in clearly defined and enforceable actions for breach of the ICS requirement or a more flexible approach. He added that the U.S. solvency framework has always focused on the importance of other regulatory elements in addition to capital requirements; however, state insurance supervisors do have clearly defined enforceable actions for breach of RBC action levels, which would seem appropriate for an ICS calibrated to recognize the other elements of a supervisory framework. So the level of the ICS and flexibility to recognize other solvency protections both above and below action level triggers areas is where the NAIC will be interested in monitoring and in shaping developments. Mr. Broadie supported using a flexible approach and added that using flexibility would be consistent with the NAIC’s approach to ComFrame. He added that an insurer’s supervisory colleges would be an appropriate place to determine what the action should be.
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Commissioner McCarty thanked the interested parties for their input and noted that discussions on the development of the ICS would continue. He noted that the other major IAIS capital development currently being discussed is the BCR, which would be out for consultation over the summer. Having no further business, the ComFrame Development and Analysis (G) Working Group adjourned. W:\National Meetings\2014\Summer\Cmte\G\CDAWG\G_CDAWGmin_June 5 2014.docx
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