NAIC Solvency Flashcards
Solvency Modernization Initiative focuses
Capital requirements Governance and risk management Group supervision SAP financial reporting Reinsurance
US Insurance Regulatory Mission
Protect the interests of the policyholder and those who rely on the insurance coverage provided to the policyholder first and foremost, while also facilitating the financial stability and reliability of insurance institutions for an effective and efficient marketplace for insurance products
Financial regulation stages
1) Mitigate / eliminate risks via restrictions on insurer activities
2) Use financial tools and oversight to work with insurers to implement corrective actions
3) Provide a backstop of financial protection in the event of a receivership
Market regulation focus
Insurer behavior:
1) Treatment of policyholders and claimants
2) Competition
3) Statistical reporting
4) Administration of residual markets
5) Licensing
6) Consumer assistance services
Optimum level of regulation dependencies
Costs and benefits
Fair and equitable treatment of consumers
Financial stability / reliability of insurance institutions
Argument that US regulatory system has been successful
Strong track record of protecting consumers, overseeing solvency
Strong depth and breadth of industry
Capacity of guaranty system
Competition
Requisite authority
Legal basis Independence / Accountability Adequate powers Financial resources Human resources Legal protection Confidentiality
Unique features of US insurance regulation
Peer review, communication, collaboration
Diversity of perspectives results in centrist solutions
US Insurance Financial Solvency Framework core principles (7)
1) Regulatory reporting, disclosure, transparency
2) Offsite monitoring and analysis
3) Onsite risk-focused exams
4) Reserves, capital adequacy, and solvency
5) Regulatory control of significant transactions
6) Preventive and corrective measures
7) Exiting the market and receivership
Principle 1: Regulatory reporting, disclosure, and transparency
Insurers provide standardized financial reports to regulators to help assess risk and financial condition
Principle 2: Offsite monitoring and analysis
Assess financial condition of insurer on an ongoing basis; identify / assess current and prospective risks
Principle 3: Onsite risk-focused exams
Evaluate solvency of insurers (more frequent exams for those of higher level risk)
Develop prospective view of insurer risk and risk management practices
Principle 4: Reserves, Capital adequacy, and solvency
Insurer holds surplus in addition to reserves to ensure resources can cover obligations in most future scenarios; sufficient reserves for regulator to be able to suggest / take corrective action
Principle 6: Preventative and corrective measures
Require updated business plan Prohibition of certain investments Order increase in capital and surplus Require management replacement Court order to place insurer under rehab
Principle 7: Exiting market and receivership
Minimize losses and protect policyholders before/during insolvency
