The National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insur-ance regulatory officials of the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands. Formed in 1871, it is the oldest association of state officials.

The NAIC provides its members with national forums for discussing common issues and interests, as well as for working cooperatively on regulatory matters that transcend the boundaries of their own jurisdictions. Collectively, members work to develop model legislation, rules, regulations and white papers to coordinate regulatory policy. The overriding objective is to protect consumers and help maintain the financial stability of the insurance industry.

The NAIC provides a wide range of services to support the work of its committees, the state insurance depart-ments, state and federal officials and the public. The Association maintains three offices: the Executive Office, in Washington, D.C.; the Central Office, in Kansas City, Mo.; and the Securities Valuations Office (SVO) in New York, N.Y.

The NAIC maintains extensive systems linking all insur-ance departments and provides financial, actuarial, legal, research, technology, market conduct and economic exper-tise. Its staff maintains, researches and prepares standard and custom reports, develops uniform statutory financial statements, monitors federal activity, submits legal briefs, tracks alien insurers, creates publications, conducts educa-tional training programs and much more.

The success of the NAIC rests largely on its staff’s exceptional service to its members, regulators, the insurance industry and the public. Snapshots of the NAIC reflect the work/life balance, flexible benefits, diversity and innovative employment practices that support the efforts of the Association’s 433 employees.

In 2009, facing the worst economy since the Great Depression, the NAIC sustained this work/life balance with-out major cuts in staffing or benefits. Employee turnover, excluding unavoidable separations such as retirements, was 3.1% in 2009. The NAIC’s total employee turnover of only 5.1% is well below the national average.

Many of the most popular programs continued in earnest,

including the Infants in the Workplace program. Marking its 11th year, the staff welcomed 14 new babies to the NAIC offices, bringing the total number of children who have accompanied their parents to work to 92.

Employee fundraising events raised more than $8,500 for local charities, of which more than $6,300 was distributed in 2009. NAIC employees also donated personal time as volunteers at local shelters and with Habitat for Humanity, as well as collecting much needed personal items, school supplies and holiday gifts to share with local families.

Unique benefits and work/life programs put the NAIC in competition for top talent, while fostering a friendly and productive workplace.

AssociAtion Profile

WorkPlAce & community

A little silver. A touch of light. The advent of modern photography involved a process of treating silver-plated copper sheets with iodine to make them sensitive to light, exposing them in a camera and then developing the images with warm mercury vapor. This process created a lasting image, one that would not change if exposed to light.

The visual medium of photography has applicable undertones for the NAIC in 2009 — a year that exposed the inherent strength of state-based regulation during a time when challenges to it were more pro-nounced than ever. And like the art of photography, effective insurance regulation requires both techni-cal aptitude and a dis-cerning eye. Indeed, this year provided many indelible images from a momentous and unprecedented period.

We continued to deal with the residual effects of the pre-vious year’s financial turmoil, coordinating our efforts to protect American consumers from insolvencies and help-ing shield the global economy from further uncertainty. However, we also engaged in salient issues that would dominate the national dialogue in 2009 and reflect our col-lective consciousness: health care reform, climate change, modernization of the industry and all things credit — from credit-based scoring to credit rating agencies.

As we step into another year, it is important to continue the significant strides we have made. We remain committed to improving the national system of state-based insurance reg-ulation by advancing the rigor of consumer protection and effective solvency oversight. For 138 years, the NAIC has reflected and responded to the demands and challenges of the times.

There are always multiple points of view — some that obscure our field of vision, some that enhance it — but the diversity of perspectives we saw in 2009 ultimately brought our priorities into focus. We remain dedicated to ensuring that the decisive strength of the industry remains the endur-ing imprint of our commitment to consumers.

officers’ messAge

Jane l. clineNAIC President-ElectCommissioner, West VirginiaOffices of Insurance Commissioner

roger A. sevignyNAIC PresidentCommissioner, New HampshireDepartment of Insurance

susan e. VossNAIC Vice PresidentCommissioner, IowaInsurance Division

kevin m. mccartyNAIC Secretary-TreasurerCommissioner, FloridaOffice of Insurance Regulation

PHOTO: Run on East Side Bank, N.Y. , Feb. 16, 1912 (Library of Congress)

Prior to the Glass-Steagall Act, bank panics such as the one depicted in this 1912 photo were relatively common. Nearly a century later, banking instability and an economic crisis led to more regulatory reform efforts.

Photos like this were most likely taken with a portable camera manufactured by Eastman-Kodak. These cameras were made available to the general public circa 1888. Turn of the century professional photographers relied primarily on hand-crafted, large format plate cameras, such as this English-style example made of mahogany and brass.

Jim l. ridlingCommissioner, AlabamaDepartment of Insurance

linda s. HallDirector, State of Alaska Department of Commerce Community & Economic Development Division of Insurance

fiaigoa A. PaogofieInsurance Commissioner,Office of the GovernorAmerican Samoa Government

christina uriasDirector, ArizonaDepartment of Insurance

Jay BradfordCommissioner, Arkansas Insurance Department

steve PoiznerCommissioner, CaliforniaDepartment of Insurance

marcy morrisonCommissioner, ColoradoDivision of Insurance

thomas r. sullivanCommissioner, ConnecticutInsurance Department

karen Weldin stewartCommissioner, DelawareInsurance Department

gennet PurcellCommissioner, District of ColumbiaDepartment of Insurance,Securities & Banking

Adelaide “Alex” sinkChief Financial Officer, FloridaDepartment of Financial Services

kevin m. mccartyCommissioner, Florida Office of Insurance Regulation

John oxendineCommissioner, GeorgiaOffice of Insurance & Safety Fire Commissioner

John P. camachoCommissioner, Guam Department of Revenue & TaxationRegulatory Division

J.P. schmidtCommissioner, HawaiiDepartment of Commerce & Consumer Affairs, Insurance Division

William W. DealDirector, IdahoDepartment of Insurance

michael t. mcraithDirector, IllinoisDepartment of Insurance

carol cutterCommissioner, IndianaDepartment of Insurance

susan e. VossCommissioner, IowaInsurance Division

sandy PraegerCommissioner, KansasInsurance Department

sharon P. clarkCommissioner, KentuckyDepartment of Insurance

James J. DonelonCommissioner, Louisiana Department of Insurance

mila kofmanSuperintendent, Maine Department of Professional & Financial Regulation, Bureau of Insurance

ralph s. tyler, iiiCommissioner, MarylandInsurance Administration

Joseph g. murphyActing Commissioner, Massachusetts Office of Consumer Affairs & Business Regulation Division of Insurance

ken rossCommissioner, MichiganOffice of Financial& Insurance Regulation

glenn WilsonCommissioner, MinnesotaDepartment of Commerce

mike chaneyCommissioner, MississippiInsurance Department

John m. Huff Director, MissouriDepartment of Insurance, Financial Institutions & Professional Registration

monica J. lindeenCommissioner, Montana Office of the Commissioner of Securities & Insurance Ann m. frohmanDirector, NebraskaDepartment of Insurance

scott J. kipperCommissioner, NevadaDivision of Insurance

roger A. sevignyCommissioner, New HampshireInsurance Department

neil n. JaseyCommissioner, New JerseyDepartment of Banking& Insurance

morris J. chavezSuperintendent, New MexicoPublic Regulation Commission,Division of Insurance

James J. WrynnSuperintendent, New York State Insurance Department

Wayne goodwinCommissioner, North CarolinaDepartment of Insurance

Adam HammCommissioner, North DakotaInsurance Department

michael J. AdaCommissioner, Northern Mariana Islands Department of Commerce, Office of the Insurance Commissioner

mary Jo HudsonDirector, OhioDepartment of Insurance

kim HollandCommissioner, OklahomaInsurance Department

teresa D. millerInsurance Administrator, Oregon Insurance Division

Joel ArioCommissioner, Pennsylvania Insurance Department

ramón l. cruz-colónCommissioner, Puerto RicoOffice of the Commissioner of Insurance

Joseph torti, iiiSuperintendent, Rhode IslandDepartment of Business Regulation, Division of Insurance

scott H. richardsonDirector, South CarolinaDepartment of Insurance

merle D. scheiberDirector, South DakotaDepartment of Revenue & Regulation, Division of Insurance

leslie A. newmanCommissioner, TennesseeDepartment of Commerce & Insurance, Insurance Division

mike geeslinCommissioner, TexasDepartment of Insurance

D. kent michieCommissioner, UtahInsurance Department

Paulette J. thabaultCommissioner, VermontDepartment of Banking, Insurance, Securities & Healthcare Administration

gregory r. francisLieutenant Governor/Commissioner Virgin IslandsDivision of Banking & Insurance,

Alfred W. grossCommissioner, Virginia State Corporation Commission, Bureau of Insurance

mike kreidlerCommissioner, Washington StateOffice of the Insurance Commissioner

Jane l. clineCommissioner, West VirginiaOffices of the Insurance Commissioner

sean DilwegCommissioner, Wisconsin Office of the Commissioner of Insurance

ken VinesCommissioner, WyomingInsurance Department

2009 memBers

PAst memBers (served during 2009)thomas e. HamptonCommissioner, District of Columbia Department of Insurance,Securities & Banking

Jim AtterholtCommissioner, IndianaDepartment of Insurance

nonnie BurnesCommissioner, MassachusettsOffice of Consumer Affairs & Business Regulation Division of Insurance

linda BohrerActing Director, MissouriDepartment of Insurance, Financial Institutions & Professional Registration

steven m. goldmanCommissioner, New JerseyDepartment of Banking& Insurance

eric DinalloSuperintendent, New York State Insurance Department

NORTHEASTERN ZONE

thomas r. sullivan, Chair, Connecticut

Joel Ario, Vice Chair, Pennsylvania

Paulette J. thabault, Secretary, Vermont

SOUTHEASTERN ZONE

scott H. richardson, Chair, South Carolina

leslie A. newman, Vice Chair, Tennessee

James J. Donelon, Secretary, Louisiana

MIDWESTERN ZONE

kim Holland, Chair, Oklahoma

sean Dilweg, Vice Chair, Wisconsin

merle D. scheiber, Secretary, South Dakota

WESTERN ZONE

linda s. Hall, Chair, Alaska

D. kent michie, Vice Chair, Utah

morris J. chavez, Secretary, New Mexico

2009 nAic officersroger A. sevigny, President, New Hampshire Jane l. cline, President-Elect, West Virginiasusan e. Voss, Vice President, Iowakevin m. mccarty, Secretary-Treasurer, Florida

immeDiAte PAst PresiDentsandy Praeger, Kansas

Zone officers

Letter from theChief Executive Officer

centrAl office2301 McGee Street, Suite 800Kansas City, MO 64108-2662

816 842 3600

eXecutiVe office444 North Capital St. NW, Suite 701

Washington, D.C. 20001-1509202 471 3990

securities VAluAtion office48 Wall Street, 6th Floor

New York, NY 10005-2906212 398 9000

Dear Members,

Derived from the Greek words meaning “drawing with light,” photography captures a precise moment in time. As we reflect on 2009, we see the efforts of state insurance regulation were often illuminated, and this past year saw the contours of many compelling images: Congressional testimony about the strength of the insurance industry; the evolving landscape surrounding climate change; developing solvency modernization initiatives; and the creation of the Center for Insurance Policy and Research.

This annual report uses concepts from photography to describe the strengths of state insurance regulation: depth of field, balance, consistency and clarity of focus. My return to the NAIC this year has been an affirmation of my belief in the unique ability of state regulation to protect consumers. I am privileged and pleased to be working for all of you, and supporting your efforts to make our national system of state-based insurance regulation as effective as it can be. There is a distinct energy in this organization that excites me — a synergy and engagement among the mem-bers that makes many things possible. I am excited to be a part of this effort, in what I believe is a historic time.

I look forward to another year of working closely with all of you in support of the important work you do every day to protect insurance consumers across this country.

Sincerely,

Therese M. (Terri) Vaughan, Ph.D. NAIC Chief Executive Officer

2009 DEVELOPMENTS locAtions

4 National Meetings with 6,451 Total Attendees

34 NAIC Interim Meetings

1,711 Conference Calls (Member Toll-Free Access)

oPtics & lenses

16 Funded Consumer Representatives

731 Million Total Media Impressions (TV, Radio PSAs, Consumer Alerts)

1200+ Fulfilled Media Requests

5.5 Million Visits to NAIC Web Site (www.naic.org)

164,008 Visits to Consumer Information Source (CIS) Web Site

339,593 Visits to Insure U Web Site (www.insureUonline.org)

Processing & DeVeloPment

332,606 Visits to NAIC’s Regulator-Only I-SITE Web Site

527,139 Insurance product submissions to the System for ElectronicRate and Form Filing (SERFF)

6,796 Online Fraud Referrals to Members

4,800 Annual and Quarterly Financial Statements

160 NAIC Publications and Data Products

400 Million Data Elements in Financial Data Repository

eXPosures & enlArgements

347 Uniform Certificate of Authority Applications Transmitted to Members

81 Classroom or Online Education Courses

115,889 Fulfilled NAIC Help Desk Inquiries (Phone/E-mail)

13,000 Fulfilled Statutory Accounting & Financial Reporting Inquiries

2,705 Fulfilled Research Library Inquiries

11 Full Accreditation Reviews

11 Pre-Accreditation Reviews

40 Interim Accreditation Reviews

“There are always two people in every picture: the photographer and the viewer.”

—Ansel Adams Quicker. Clearer. Sharper. The immediacy and efficiency of today’s digital photography is an apt metaphor for state insur-ance regulation. Just as photography has evolved from tintype to film to digital, the NAIC has likewise transcended to meet the ever-developing changes and challenges of the regulatory landscape.

Pictures capture the passage of time — from the reminiscent hues of sepia to the contemporary vibrancy of color photo-graphs. This past year has been imbued with the full spectrum of colors, with a nod to the past and with vivid optimism for the future of state-based regulation. While their tools, subjects and situations may change, regulators are charged with seeing the bigger picture and having the ability to adjust and change focus, when necessary. In that vein, 2009 rendered images that left an indelible impression of strong consumer protections and solvency standards.

PORTFOLIO CONTENTS:2009 Review and Discussion . . . . . . . . . . . . . . . . . 06

Independent Auditors’ Report . . . . . . . . . . . . . . . . 11

Financial Statements Statements of Financial Position . . . . . . . . . . 12Statements of Activities . . . . . . . . . . . . . . . . . 13Statements of Cash Flows . . . . . . . . . . . . . . . . 14Notes to Financial Statements . . . . . . . . . 15-19

NAIC Accreditations and Awards . . . . . . . . . . . . . 20

PHOTO: Cars at the Curb in Lincoln, Neb., 1942 (Library of Congress)

U.S. automakers enjoyed a golden era from 1930-1948, when sedan-style cars made by Ford, Buick, Chevrolet and Chrysler became fixtures on American roadways. Those same manufacturers required assistance from Uncle Sam during the financial crisis of 2008-09.

Kodak’s Brownie was first introduced to the public in 1900, costing $1.00. Simple enough for a child to use, it made the hand-held camera and photography a permanent part of American life. Even as technology changes the practice of photography, the basic principles and functions hold firm. Whether on cartridges of film or the most modern silicon chip — the final image remains the product of the focus and timing of the photographer.

capital emphasis: D.C. Becomes Point of Executive PerspectiveIn 2009, the NAIC established a stronger and more visible presence in the nation’s capital — a timely move reflecting the increasingly important role of state insurance regulation.

As Congress and the Administration worked to address health care and financial services reform, NAIC members and leadership testified 18 times before Congressional panels, while NAIC staff conducted more than 300 meetings on Capitol Hill.

In May, more than 35 regulators and staff came to Washington, D.C. to meet with their Congressional delegations and discuss insurance regula-tory reform with Health and Human Services Secretary Kathleen Sebelius and House Financial Services Committee Chairman Barney Frank. During the meetings, state regulators stressed that any reforms must provide consumers with the time-tested protections of the current national system of state insurance regulatory oversight.

Center for Insurance Policy and Research (CIPR)

An increasing emphasis on enhancing research capabilities in insurance regulation and information sharing was the impetus for the creation of the Center for Insurance Policy and Research (CIPR).

The CIPR leverages NAIC resources to support the needs of policy- makers in Washington, D.C. and the states.

Among its accomplishments in its inaugural year, the CIPR co-hosted an Aca demic Symposium on Solvency Regulation in partnership with the American Risk and Insurance Association (ARIA) and the Fox School of Business at Temple University. The event brought together key strategic leaders from government, academia and interested parties to deliberate on lessons learned from the financial crisis and international developments in insurance regulation. The presentations addressed developments with respect to systemic risk and insurance; whether the insurance industry could be considered systemically risky; the role of groups in systemic risk; and proposed legislation regarding systemic risk regulation. Symposium attendees also discussed topics such as capital adequacy standards; state guaranty funds; and the regulation of holding companies.

international update: Panoramic ProgressThe NAIC participated in the Financial Sector Assessment Program (FSAP), a joint International Monetary Fund and World Bank program assessing the U.S. financial regulatory system. Through visits to the NAIC and several states, the FSAP compared U.S. regulatory practices to Insurance Core Principles maintained by the International Association

of Insurance Supervisors (IAIS), an organization co-founded by the NAIC more than 15 years ago. Published in August, this self assessment offers an overview of U.S. insurance regulation juxtaposed with the IAIS standards.

The NAIC continues to hold leadership roles at the IAIS. Members play prominent roles on committees looking outwardly at financial stability concerns and inwardly at the IAIS internal structure and strategic plan-ning. Key among emerging market reforms is the growing involvement of international regulators in supervisory colleges, where regulators gather to share information about internationally active groups. Many of the features of these colleges mirror the coordination exercised among U.S. insurance regulators on company supervision.

The NAIC hosted an International Insurance Forum, bringing together more than 100 participants from the U.S. financial sector to explore recent and continuing developments and progress in international insurance. Also, for the sixth year, member states participated in the International Intern Program, where international regulators were placed in states to learn first-hand about U.S. practices.

financial regulation: Clearing the Way Ahead State regulators entered 2009 experiencing the most challenging financial crisis since the Great Depression. Through it all, conservative solvency principles helped protect the insurance industry from much of the dev-astation felt by the rest of the financial sector. Still, the industry was not fully immune from the challenges of non-insurance holding companies, securities lending practices and the lack of coordination between func-tional, federal and state regulators.

Perhaps no case better illustrated this than AIG. A conglomerate of com-panies ranging from investment services and insurance to aircraft leasing, its holding company nearly collapsed under the weight of credit default swaps (CDS) written by its Financial Products unit, a non-insurance operation. Since these swaps were not subject to regulatory restrictions and were issued by a non-insurance entity, state insurance regulators

To fully appreciate our picture of 2009, it is important to acknowl-edge the impact of significant events in 2008. Many of the important actions taken by the NAIC this year — moving the Executive Office to the nation’s capital, the Solvency Modernization Initiative, the creation of the Center for Insurance Policy and Research and establishment of clear principles for health reform and systemic risk regulation — were in direct response to a struggling economy and forceful challenges to state-based insurance regulation. These critical measures have provided the foundation for our work going forward as we maintain our unwaver-ing commitment to consumer protection.

The full spectrum of the NAIC’s accomplishments in the wake of unprecedented economic challenges is captured in this annual report.

were not able to apply conservative reserve and accounting require-ments along with minimum capital requirements. Although insurance consumers remained relatively safe while the economy began its tenta-tive recovery, regulators found themselves with a list of issues to address. As Congress continues to debate how best to accomplish financial regu-latory reform, the NAIC and its members immediately set themselves to applying lessons learned in 2009 by:

•Strengthening securities lending accounting anddisclosure require-ments, while beginning to propose strict limits for securities lending activities;

•Draftingchanges in theNAICInsuranceHoldingCompanySystemRegulatory (Model) Act to improve knowledge of risks posed by non-insurance entities;

•Pushing forgreatercooperationandcommunicationbetween func-tional regulators — participating in international efforts to establish best practices for supervisory colleges; and

•Developingaregulatorymodelthatavoidsrelianceonratingagenciesfor evaluating residential mortgage-backed securities (RMBS), while looking to extend this approach to additional structured securities in the future.

As the year closed, asset values had clawed back much of 2008’s losses. Though challenges remain, state insurance regulators continue to meet the challenges of solvency supervision and consumer protection.

Residential Mortgage-Backed Securities

The financial crisis exposed many weaknesses in the tools used by the financial industry to evaluate the risks of invested assets. Nationally rec-ognized statistical rating organizations (NRSRO) had underestimated the risks taken by large segments of the market, then added to market strains when they moved to correct their positions. Complex derivatives tied to the failing mortgage industry became toxic — not simply due to the losses related to defaulting mortgage loans, but also because the mar-ket’s view of the amount of expected loss was unclear.

To avoid state insurance regulatory reliance on ratings generated by rat-ing agencies, the NAIC embarked on an innovative effort to model the expected loss of more than 22,000 residential mortgage-backed securities held by U.S. insurers. This effort would link an insurer’s carrying value to the modeled expected loss for each RMBS and assess the appropriate risk-based capital (RBC) charge used to establish the insurers’ regulatory capital levels.

Innovative efforts such as this, in concert with persistent and conserva-tive financial solvency oversight, have helped keep the insurance industry from many of the pains felt by other segments of the financial sector.

solvency modernization: Creating a Deeper Regulatory ViewThe U.S. Solvency Modernization Initiative (SMI) includes a study of international solvency initiatives to ultimately find new ideas to imple-ment in the U.S. financial regulatory system. The initiative encompasses projects already under way at the NAIC and includes the study of finan-cial supervisory modernization initiatives and solvency proposals in place or under development in other jurisdictions, including Australia,

Canada, Switzerland and the European Union.

In 2009, the International Solvency (EX) Working Group met jointly with the International Association of Insurance Supervisors (IAIS) Solvency and Actuarial Issues Subcommittee to discuss the introduction of enterprise risk management (ERM) requirements and the utilization of a company’s Own Risk and Solvency Assessment (ORSA) in financial solvency supervision.

PHOTO: Dr. Therese Vaughan, IIQ Satellite Media Tour, Feb. 1, 2009

Satellite media tours and live TV interviews are a routine part of the NAIC’s consumer media outreach efforts. TV, radio, print and online stories focusing on 2009’s Insurance IQ survey generated more than 36 million media impressions.

The idea to focus a live image through a lens and transmit it through electronic signals was devel-oped by Philo Farnsworth at age 14. Since the end of WWII, television has created the ability to reach large audiences with timely messages.

The International Solvency Working Group also released two consulta-tion papers for comment. One paper highlights numerous ideas being discussed around the world about RBC methodology and calculations, international accounting and valuation, and potential new group capital requirements. The ideas in this paper could result in significant modifi-cation to U.S. RBC requirements. The other paper released for comment explores the possibility of having companies report the significant risks they face and how solvency might be impacted.

The Financial Condition (E) Committee also released a draft of the U.S. Solvency Regulatory Framework and Principles. This document will aid progress on the SMI, as well as share the expertise of state insurance regulators with U.S. federal and international insurance regulators.

The Center for Insurance Policy and Research hosted a panel titled “Perspectives on Systemic Risk” during the NAIC Winter National Meeting in San Francisco. The experts discussed aspects of systemic risk in insurance and its regulation; provided an update on international views about systemic risk; discussed its pros and cons; and addressed the concept of “too big to fail.”

consumer education: Snapshots of Consumer Knowledge (IIQ) The NAIC continued its commitment to helping consumers make informed insurance decisions with the new Insurance IQ Survey, a test for consumers to assess their Insurance Intelligence Quotient (IIQ). The study found many consumers are considering reducing or dropping health insurance altogether in an effort to save money. In response to this alarming information, the NAIC sought to fill in consumers’ knowl-edge gaps about insurance and help them remain protected during chal-lenging economic times. The study’s results also revealed a snapshot of consumer insurance knowledge, including the financial and emotional impact of uninformed decisions. On average, respondents only scored a four out of 10 on the survey, displaying a startling need for greater under-standing about insurance. Using the results of the IIQ Survey, the NAIC distributed consumer alerts addressing commonly missed questions. For example, April’s consumer alert focused on building an “Insurance Safety Net,” stressing the importance of being adequately protected during a faltering economy.

Since its debut on the NAIC Web site in March, more than 8,200 people have taken the IIQ Survey. Following the release of the survey results, Dr. Vaughan’s television and radio interviews generated 785,000 media impressions. Print and online coverage of the IIQ Survey reached an addi-tional audience of approximately 5.4 million readers through national

outlets such as the Associated Press, The Washington Post, Newsweek, MSN Money and Yahoo News, in addition to numerous local outlets.

Communications Outreach Awarded

The NAIC’s Insure U consumer education program was honored for its public relations initiatives for the second consecutive year. The Greater Kansas City Public Relations Society of America (GKC PRSA) recognized the NAIC with three PRISM awards for excellence in communications.

The NAIC received a first place PRISM award for its two nationwide pub-lic service announcements: one helping consumers make informed deci-sions about long-term care insurance and another reminding consumers of the importance of being prepared before a natural disaster strikes.

GKC PRSA judges remarked on the “impressive turnkey PSA approach and noteworthy participation by NAIC membership.”

To date, the 2009 PSAs have been broadcast more than 700 times, generating more than 2.7 million impressions.

The NAIC also received two silver PRISM awards for its 2008 Annual Report and Public Information Officer (PIO) Forum. Using a theme of “Navigating Change,” the annual report summarized how state insurance regulators weathered the financial turmoil of 2008 by applying lessons learned to chart the course ahead. The 2008 PIO Forum brought PIOs from around the country together to focus on writing and communica-tions skills.

market regulation: New Optics for Market Conduct The goal of the Market Conduct Annual Statement (MCAS) initiative is to provide a uniform system of collecting market related information. Until 2009, each state retained the collected data in their own state data-base without any national aggregation of the data. Last year, the 29 juris-dictions participating in the MCAS submitted their data to the NAIC for storage and analysis to create a national database of market regula-tion data. As part of the overall vision, the NAIC also adopted a formal, long-term proposal and allocated the necessary resources to build a new system to provide for the uniform collection of 2010 MCAS data for all jurisdictions and the centralized storage of this data at the NAIC in 2011. Through the centralized collection, tracking, validating, analyzing and reporting of MCAS data, the NAIC will provide its membership with a sophisticated market analysis resource to better assist them in protecting insurance consumers.

Life Insurance Compensation Tool for Military

The NAIC released a new online tool to help military servicemembers research and recover compensation resulting from a 2006 multi-state regulatory settlement agreement over life insurance sales practices to the military.

More than 14,000 servicemembers who purchased life insurance products from American-Amicable Life Insurance Company of Texas or its two affiliates — Pioneer American Insurance Company and Pioneer Security Life Insurance Company — are owed more than $2.3 million from the multi-state settlement. Servicemember policyholders (or a named beneficiary) meeting the agreement’s qualifications may be enti-tled to compensation and/or increased benefits.

With this Web tool, military members can determine their eligibility for compensation by simply entering an individual’s first and last name in the search engine.

The multi-state agreement was signed by 46 states, the District of Columbia and Guam. The settlement was the culmination of a 20-month inves-tigation led by the Texas and Georgia insurance departments, the U.S. Department of Justice and the U.S. Securities and Exchange Commission. The investigation followed allegations the American-Amicable compa-nies violated insurance and consumer protection statutes while market-ing certain life insurance products to U.S. military servicemembers.

As of February 2010, the NAIC search tool has had 16,706 unique users, 30,994 searches and 1,929 hits (first and last name matches). American-

Amicable has reported issuing checks totaling $56,504.86 in restitution to policyholders in the period between April 23 – Nov. 17, 2009.

Health care: Maintaining a Principled Perspective Access to affordable and equitable health care is an issue that resonated with millions of Americans this past year and dominated the national agenda. State insurance regulators were a constant and visible presence on Capitol Hill, meet-ing with leaders of the health reform initiative and providing Congressional testimony. Central to the collective effort in Washington, D.C. was identifying and articulating top line pri-orities for reform: addressing the cost of health care, protecting

consumers and preserving a strong state role.

Underscoring the influence of state insurance regulators at this critical juncture, Vice President Joe Biden delivered an address at the NAIC Fall National Meeting. His address focused on the Administration’s health care proposal and the importance of state regulators’ input in achieving successful reform.

Throughout the year, members made sustained efforts in health care efforts, testifying before Congress on numerous issues:

Preventing abuses associated with rescissions of medical coverage •for policyholders

Changes to end Medicare marketing and sales abuses to senior •citizens

Consumer protections for long-term care insurance•

Reform to make small employer coverage more stable•

Throughout the debate, the NAIC held true to principles agreed upon by its members. Congress was urged to approach comprehensive reform via a federal-state partnership, recognizing the substantial experience and expertise of the states and considering these five principles for the successful transformation of the U.S. health care system:

Protect the Rights of Consumers. The states already have patient protections, solvency standards, fraud prevention programs, rate review and other oversight mechanisms in place to protect consumers; these should not be preempted by the federal government.

Address Health Care Spending. Any effort to increase access to and affordability of insurance will not be successful over time unless the overriding issue of rapidly rising health care costs is addressed. Reform efforts will not be effective without accompanying changes in the health

PHOTO: Vice President Joe Biden Addresses Health Care at the NAIC Fall National Meeting, Sept. 23, 2009

When Vice President Joe Biden addressed the NAIC, photographic images, audio and video were made immediately available with the use of digital technology through multiple broadcast and online mediums.

The use of this type of technology was first intro-duced in 1976, by way of the complementary metal oxide semiconductor (CMOS) chip. NASA’s Viking I used this chip to capture and transmit high-resolution digital images of the surface of Mars to earth, forever changing the way the universe would be visualized.

care delivery system such as ensuring access to primary care, managing chronic diseases and eliminating waste and inefficiency.

Promote State Innovation. The NAIC urges Congress to review ERISA restrictions and other current federal laws and regulations, including CMS rules governing Medicaid and Medicare, that hinder state efforts to reform the health care system. The NAIC encourages the development of broad standards, rather than prescriptive rules, wherever possible to maximize state flexibility to implement reforms in a manner responsive to local and regional market conditions.

Stop Cost-Shifting. Inadequate funding in federal health programs have led to significant shifting of costs to the private sector. This has resulted in higher overall costs and decreased access for many consumers, and hampers the ability of the states to implement reforms. Additional costs cannot be absorbed by already stressed state budgets.

Avoid Adverse Selection. Any program that grants consumers the choice between two pools with different rating, benefit or access requirements will result in adverse selection for one of the pools.

Likewise, setting different rules for different plans within the pool or allowing consumers to wait until they get sick to purchase insurance,

without penalty, can have adverse consequences on the pool. The NAIC can support guaranteed issue and the elimination of preexisting condi-tion exclusions for individuals to the extent these reforms are coupled with an effective and enforceable individual purchase mandate and appropriate income-sensitive subsidies to make coverage affordable.

climate change: A Wide Angle View of RiskThe inextricable impact of climate change on the insurance industry was recognized in 2005. Since then, regulators have worked diligently to address the effects and made several significant strides in 2009.

The Climate Change and Global Warming Task Force undertook several important opportunities to carefully assess a wide range of issues and gather input on what insurers are already doing to address the risk.

The task force adopted a white paper, The Potential Impact of Climate Change on Insurance Regulation, which discusses the effects of climate change on industry investment decisions, disclosures and underwriting practices. The paper stresses the need for improved mitigation and land- use policies that reflect the potential for climate change impact.

Using a forward-looking approach to identify the potential impact of cli-mate change on insurers and their assessment of those risks, the NAIC

also adopted an Insurer Climate Risk Disclosure Survey — a uniform tool developed to help regulators measure impacts to policyholders and insurer operations. Insurance companies with annual premiums of $500 million or more will be asked to complete the survey every year. In addi-tion to reporting on updates to their risk-management and catastrophe-risk modeling, insurers will be asked to report on steps taken to educate policymakers and policyholders on the risks of climate change.

The task force also hosted a Climate Change Risk Summit to explore related topics such as modeling, green products, risk disclosure and investments. Experts provided information and insight into the evolu-tion of climate science and its impact on catastrophe modeling.

system for electronic rate & form filing (serff):Zooming in on Speed to Market The System for Electronic Rate and Form Filing (SERFF) continued to experience tremendous growth, with 527,139 transactions in 2009. Twenty-three states now require the use of SERFF and 12 have mandated their filing fees be paid via electronic funds transfer (EFT).

Designed to improve the efficiency of the rate and form filing and approval process, SERFF offers a decentralized point-to-point, Web-

based electronic filing system. The system also reduces the time and cost involved in making regulatory filings and provides up-to-date filing requirements when they are needed. This uniformity allows filers to use SERFF to submit any product they need to file.

state Based systems (sBs): The Lens of ChoiceIn 2009, Maryland, Nebraska and West Virginia joined SBS, which now holds the distinction of being the solution of choice for more state insurance departments than any other system. SBS is a solid Web-based solution supporting all aspects of insurance regulation via a cohesive user-friendly interface that requires little user training. The goal of SBS is to provide the highest level of efficiency at the lowest possible cost to NAIC members.

SBS is the solution of choice in Alabama, Delaware, Florida, Illinois, Iowa, Kansas, Missouri, New Hampshire, New Jersey, North Carolina, North Dakota, Oklahoma, Puerto Rico, Rhode Island, Tennessee and Washington, D.C.

Mayer Hoffman McCann P.C.An Independent CPA Firm

1140 Tomahawk Creek ParkwayLeawood, Kansas 66211913-234-1900 ph913-234-1100 fxwww.mhm-pc.com

Honorable Members

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

We have audited the accompanying statements of financial position of the National Association of Insurance Commissioners (the NAIC) as of December 31, 2009 and 2008, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the NAIC’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the NAIC as of December 31, 2009 and 2008, and the changes in its net assets and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Leawood, KansasFebruary 24, 2010

INDEPENDENT AUDITORS’ REPORT

STATEMENTS OF FINANCIAL POSITIONDecember 31, 2009 and 2008

ASSETS 2009 2008

CURRENT ASSETS

Cash and cash equivalents $ 7,351,708 $ 7,463,232

Accounts receivable, less allowance for doubtful accounts; 2009 - $1,310,625, 2008 - $2,983,978 4,981,896 5,659,702

Current portion of operating note receivable 282,296 185,449

Interest and dividends receivable 162,739 413,569

Prepaid expenses 1,937,989 2,400,783

Inventories 211,301 169,408

Investments 51,773,602 38,888,143

TOTAL CURRENT ASSETS 66,701,531 55,180,286

OPERATING NOTE RECEIVABLE, less current portion 1,476,732 1,187,996

PROPERTY AND EQUIPMENT, NET 7,990,212 10,950,504

TOTAL ASSETS $ 76,168,475 $ 67,318,786

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES

Accounts payable $ 686,954 $ 833,957

Accrued expenses and other current liabilities 6,474,636 5,937,696

Deferred revenue 5,445,013 5,302,936

TOTAL CURRENT LIABILITIES 12,606,603 12,074,589

NON-CURRENT LIABILITIES

Deferred pension liability 4,480,444 6,867,529

TOTAL LIABILITIES 17,087,047 18,942,118

UNRESTRICTED NET ASSETS

Allocated 55,900,821 47,614,304

Allocated - RMBS Project 2,254,437 —

Unallocated 926,170 762,364

TOTAL UNRESTRICTED NET ASSETS 59,081,428 48,376,668

TOTAL LIABILITIES AND NET ASSETS $ 76,168,475 $ 67,318,786

See Notes to Financial Statements

STATEMENTS OF ACTIVITIESDecember 31, 2009 and 2008

REVENUES 2009 2008

Database fees $ 25,539,949 $ 25,389,680

Publications and subscriptions 17,249,469 17,073,141

Services 14,476,893 14,315,068

Administrative services/license fees 7,181,748 6,580,905

National Meeting registration fees 1,814,075 1,958,600

State assessments 2,113,949 2,063,935

Education and training 1,007,009 1,029,508

Other 41,415 174,071

TOTAL REVENUES 69,424,507 68,584,908

EXPENSES

Salaries 32,702,509 31,687,902

Temporary personnel 499,301 468,163

Employee benefits 9,566,561 8,798,573

Professional fees 5,926,214 5,063,693

Travel 2,870,493 2,755,234

Rental and maintenance 7,931,053 7,701,275

Depreciation and amortization 4,677,741 4,767,333

Insurance 421,096 438,130

Office supplies 1,772,510 1,904,617

Printing expense 150,586 379,682

Meetings 1,524,228 1,250,016

Education and training 1,455,580 1,175,721

Other 217,756 498,258

Bad debt (recovery) expense (100,803) 191,057

TOTAL EXPENSES 69,614,825 67,079,654

CHANGES IN NET ASSETS BEFORE RMBS PROJECT, INVESTMENT INCOME (LOSS) AND PENSION ADJUSTMENT (190,318) 1,505,254

DIRECT RMBS PROJECT REVENUE 4,837,891 —

DIRECT RMBS PROJECT EXPENSES (2,583,454) —

INVESTMENT INCOME (LOSS) 6,869,301 (6,287,184)

CHANGES IN NET ASSETS BEFORE PENSION ADJUSTMENT 8,933,420 (4,781,930)

PENSION ADJUSTMENT 1,771,340 (6,448,685)

CHANGES IN NET ASSETS 10,704,760 (11,230,615)

NET ASSETS, BEGINNING OF YEAR 48,376,668 59,607,283

NET ASSETS, END OF YEAR $ 59,081,428 $ 48,376,668

See Notes to Financial Statements

STATEMENTS OF CASH FLOWSYears Ended December 31, 2009 and 2008

CASH FLOWS FROM OPERATING ACTIVITIES 2009 2008 Changes in net assets $ 10,704,760 $ (11,230,615) Adjustments to reconcile changes in net assets to net cash flows from operating activities Depreciation and amortization 4,677,741 4,767,333 Net realized and unrealized (gains) losses on investments (5,209,994) 8,649,530 Gain on sale of property and equipment (2,849) (58,277) Changes in operating assets and liabilities: Accounts receivable, net 677,806 326,497 Operating note receivable (385,583) (823,445) Interest and dividends receivable 250,830 (196,479) Prepaid expenses 462,794 (549,013) Inventories (41,893) 96,935 Accounts payable (147,003) (723,958) Accrued expenses and other current liabilities 536,940 499,791 Deferred revenue 142,077 964,316 Deferred pension liability (2,387,085) 4,895,561 NET CASH FLOWS FROM OPERATING ACTIVITIES 9,278,541 6,618,176CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,720,174) (2,584,845) Proceeds from disposition of property and equipment 5,574 61,345 Purchase of investments (39,059,727) (53,687,057) Proceeds from disposition of investments 31,384,262 49,744,836 NET CASH FLOWS FROM INVESTING ACTIVITIES (9,390,065) (6,465,721)CHANGE IN CASH AND CASH EQUIVALENTS (111,524) 152,455CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,463,232 7,310,777

CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,351,708 $ 7,463,232

See Notes to Financial Statements

Note 1: Summary of significant accounting policiesNature of operations — The National Association of Insurance Commissioners (the NAIC) is an organization of and for the insur-ance regulatory officials of the 50 states, the District of Columbia and five United States territories (the Members). Created by state insurance regulators in 1871, the NAIC provides a forum for the development of uniform policy when uniformity is appropriate.FASB Accounting Standards Codification — Pursuant to Statement of Financial Accounting Standard No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 16”, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (FASB ASC 105) became the sole source of authoritative U.S. generally accepted accounting principles for annual periods end-ing after September 15, 2009. The NAIC adopted this standard for the year ending December 31, 2009. References to specific accounting stan-dards in the financial statement footnotes have been changed to refer to the appropriate section of the ASC.Cash and cash equivalents — The NAIC considers all liquid invest-ments with original maturities of one year or less to be cash equivalents. At December 31, 2009 and 2008, cash equivalents consisted of money market funds and discount notes.The NAIC maintains deposits in financial institutions in excess of fed-erally insured limits. Management monitors the soundness of these financial institutions and believes the NAIC’s risk is negligible.Accounts receivable — Accounts receivable are stated at the amounts billed to customers. The NAIC provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, his-torical collection information and existing economic conditions. Past-due accounts are periodically reviewed by management. Delinquent and/or uncollectible receivables are written off based on individual credit evaluation and specific circumstances of the customer. Inventory pricing — Inventories are stated at the lower of cost, deter-mined by the first-in, first-out (FIFO) method, or market.Investments and investment income — Investments in equity securi-ties having a readily determinable fair value and investments in all debt securities are carried at fair value. Investment income includes divi-dends, interest and realized and unrealized gains and losses. Property and equipment — Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are depre-ciated over the shorter of the lease term or their respective estimated useful lives.The cost of internally developed software is expensed until the tech-nological feasibility of the software has been established. Thereafter, all software development costs are capitalized until such time as the prod-uct is available for general release to customers. The development costs of enhancements that extend the life or improve the marketability of the original product are capitalized. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized

software development costs require considerable judgment by manage-ment with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. The cost of capitalized software is amortized on the straight-line method over the products’ estimated useful lives. Description Estimated Useful LivesFurniture and equipment 5 YearsComputer and related equipment 3 YearsComputer software 3 - 10 YearsLeasehold improvements 12 Years

Use of estimates — The preparation of financial statements in confor-mity with U.S. generally accepted accounting principles requires man-agement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Revenue recognition — Revenue is recognized as follows:• Databasefeerevenueisrecognizeduponthefilingofinsurancecom-

panies’ annual statements.• Publicationsandsubscriptionsrevenueisrecognizedwhentheprod-

uct is shipped to the customer.• Services revenue is recognizeduponbilling,when the servicehas

been completed.• Revenuefromfeesforstateassessmentsapplytoanassessmentfiscal

year ended April 30, and are recorded in the calendar year assessed as receivables and deferred revenue. At December 31 of each year, 1/3 of the assessments are accounted for as deferred revenue.

Income taxes — The NAIC has been granted exemption from income taxes by the Internal Revenue Service under the provisions of Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, the NAIC is subject to federal income tax on any unre-lated business taxable income.Net assets — The NAIC’s target operating reserve is based on a liquid reserve of 80%, as defined as total net assets, less net property and equip-ment, as a percentage of the future year’s budgeted operating expenses. As of December 31, 2009 and 2008, net assets are fully allocated, with the exception of an amount maintained as unallocated equal to 1.5% of the next year’s projected net assets. The unallocated balance will be used to fund priority initiatives that may arise in the next year.As of December 31, 2009, the amount of direct revenues in excess of direct expenses arising from the NAIC’s residential mortgage backed securities (RMBS) project has been allocated for anticipated further work in the area of RMBS and other structured asset classes during the year ended December 31, 2010.Pension plan — The Compensation-Retirement Benefits topic of the FASB ASC requires employers to recognize on their statements of financial position a liability and/or an asset equal to the under-

NOTES TO FINANCIAL STATEMENTS

Note 2: Investments and investment income 2009 2008 Cost Fair Value Cost Fair Value U.S. Government and agency securities $ 16,168,497 $ 16,603,105 $ 20,934,744 $ 21,014,371 Corporate bonds and fixed income securities 8,573,214 9,097,372 6,600,781 6,496,039 Common stocks and equity mutual funds 16,288,538 18,112,729 14,876,023 11,377,733 Alternative equity and fixed income funds 7,850,000 7,960,396 — — $ 48,880,249 $ 51,773,602 $ 42,411,548 $ 38,888,143

Total investment income is comprised of the following: 2009 2008 Interest and dividend income $ 1,659,308 $ 2,362,346 Net realized gains/(losses) on investments (1,206,765) (1,114,824) Net unrealized gains/(losses) on investments 6,416,758 (7,534,706) $ 6,869,301 $ (6,287,184)

funded or over-funded status of their defined benefit pension and other postretirement benefit plans. The funded status that the NAIC has reported on the statement of financial position under the topic is measured as the difference between the fair value of plan assets and the benefit obligation. The topic also requires that for each under-funded plan, an amount equal to the next 12 months’ expected benefit payments in excess of the plan’s current assets be classified as a current liability. The remainder is classified as a non-current liability.Functional expenses — The Not-for-Profit Entities topic of the FASB ASC requires not-for-profit organizations to disclose expenses by functional

classification. The NAIC presents expenses only by their natural clas-sification on the December 31, 2009 and 2008 statements of activities. Management believes that disclosing expenses by function is immaterial to the financial statements taken as a whole, and therefore does not apply the provision of the topic as it relates to the disclosure of expenses by functional classification. Reclassifications — Certain reclassifications have been made to the 2008 financial statements to conform to the 2009 financial statement presentation.

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS

The Fair Value Measurements and Disclosures topic of the FASB ASC requires additional disclosures as part of the financial statements. The topic establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transpar-ency of inputs to the valuation of an asset or liability as of the measure-ment date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:Level 1 — Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observ-able for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.The management of NAIC endeavors to utilize the best available infor-mation in measuring fair value. The following table summarizes the valu-ation of financial instruments by the above pricing levels as of December 31, 2009 and 2008:

Quoted Significant prices in other Significant active observable unobservable Total fair markets inputs inputs value Level 1 Level 2 Level 3December 31, 2009 U.S. Government and agency securities $ 16,603,105 $ 16,603,105 $ — $ — Corporate bonds and fixed income securities 9,097,372 9,097,372 — — Common stocks and equity mutual funds 18,112,729 18,112,729 — — Alternative equity and fixed income funds 7,960,396 — — 7,960,396 $ 51,773,602 $ 43,813,206 $ — $ 7,960,396

December 31, 2008 U.S. Government and agency securities $ 21,014,371 $ 21,014,371 $ — $ — Corporate bonds and fixed income securities 6,496,039 6,496,039 — — Common stocks and equity mutual funds 11,377,733 11,377,733 — — $ 38,888,143 $ 38,888,143 $ — $ —

Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:

Alternative Alternative fixed income equity funds funds TotalDecember 31, 2008 $ — $ — $ — Purchases, issuances and settlements (net) 3,885,000 3,965,000 7,850,000 Net realized/unrealized gains (losses) 135,507 (25,111) 110,396 December 31, 2009 $ 4,020,507 $ 3,939,889 $ 7,960,396

Financial assets valued using Level 1 inputs are based on unadjusted quoted market prices within active markets. Fair values for the alternative equity and fixed income funds (Level 3) are determined by aggregating the net asset value provided by each fund manager. The net asset value is determined by taking the fair value of total fund assets less the fair

value of total fund liabilities. Net unrealized gains related to alternative equity and fixed income funds held at December 31, 2009 of $110,396 have been included in investment income on the statement of activities for the year ended December 31, 2009.

Note 3: Property and equipment Property and equipment at December 31 consisted of the following: 2009 2008Furniture and equipment $ 4,781,927 $ 4,765,056Computer and related equipment 15,657,952 14,845,918Computer software 18,864,822 18,194,624Leasehold improvements 3,908,687 3,818,942 43,213,388 41,624,540Less accumulated depreciation and amortization 35,223,176 30,674,036 $ 7,990,212 $ 10,950,504

Note 4: Operating leasesThe NAIC leases its office space in Kansas City, New York, and Washington D.C. under noncancelable operating leases. Certain parts of the agreements contain escalation clauses providing increased rentals based on maintenance, utility and tax increases. The lease on the Kansas City office expires January 31, 2012. Management is currently pursuing options related to this leasehold. The NAIC also leases certain office equipment under noncancelable operating leases, which expire at vari-ous dates through 2014. The accompanying financial statements reflect rent expense on the straight-line method over the terms of the leases. Total rental expenses under all leases for the years ended December 31, 2009 and 2008 were $4,791,513 and $4,411,021, respectively.

Future minimum lease payments at December 31, 2009, were:

2010 $ 5,019,180

2011 4,987,177

2012 1,364,611

2013 1,062,228

2014 376,497

$ 12,809,693

Note 5: Employee retirement plansThe NAIC has a noncontributory defined benefit plan (Plan A) covering all employees with a hire date prior to January 1, 2000. The benefits are based on years of service and the employee’s compensation for the five consecutive years of the ten latest years of employment that give the highest average.The following table sets forth the plan’s funding status, amount recognized in the NAIC’s financial statements, and other required disclosures. 2009 2008Projected benefit obligation $ (36,059,604) $ (31,183,151)Fair value of plan assets 31,579,160 24,315,622 Funded status of plan $ (4,480,444) $ (6,867,529)Accrued benefit cost recognized in the statement of financial position $ (4,480,444) $ (6,867,529)Accumulated benefit obligation $ 31,918,875 $ 27,501,334Employer contributions $ 3,400,000 $ 3,250,000Benefits paid $ (797,904) $ (533, 890)Service cost $ 1,390,838 $ 1,349,887Interest cost 1,967,283 1,711,082Return on plan assets (1,615,858) (1,716,477)Amortization of net (gain) loss 1,041,897 352,384 Net Pension Cost $ 2,784,160 $ 1,696,876

Weighted average assumptions used to determine benefit obligations are as follows: 2009 2008Discount rate 5.74% 6.51%Salary rate 4.51% 4.51%Measurement date December 31, 2009 December 31, 2008

Weighted average assumptions used to determine net pension costs are as follows: 2009 2008Discount rate 6.51% 6.36%Rate of salary increase 4.51% 4.51%Expected return on plan assets 7.00% 7.50%

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS

The following is the plan’s weighted average asset allocation by asset category as of December 31, 2009 and 2008 (the measurement date of the plan assets): 2009 2008Equity securities 37.00% 38.00%Debt securities 63.00% 62.00%

Plan assets are held by an insurance company, which invests the plan assets in accordance with the provisions of the plan agreement. The plan agreement permits investment in common stocks, corporate bonds, U.S. Government securities and other specified investments, based on certain target allocation percentages. Asset allocation is pri-marily based on a strategy to provide stable earnings while still permit-ting the plan to recognize potentially higher returns through a limited investment in equity securities. Plan assets are rebalanced as necessary based upon the minimum and maximum restrictions set forth in the plan’s investment policy statement.The benefits expected to be paid to participants over the next 10 years which reflect expected future services as appropriate, as of December 31, 2009 are as follows: 2010 $ 3,005,669 2011 3,010,294 2012 2,730,210 2013 2,912,709 2014 2,295,563 2015 – 2019 14,690,396 TOTAL $ 28,644,841 The NAIC’s best estimate of contributions to be paid during 2010 is $2,600,000.The NAIC provides a defined contribution 401(a) plan (Plan B) that covers substantially all employees with one year or more of service. Each year, the Internal Administration (EX1) Subcommittee deter-mines the contribution for the next year. In 2009, the NAIC matched up to 3.5% of compensation of employees who contributed to Plan B and contributed 2% of all employees’ compensation from January through June. In 2008, the NAIC matched up to 3.5% of compensa-tion of employees who contributed to Plan B and contributed 2% of all employees’ annual compensation. The pension expense related to Plan B for the years ended December 31, 2009 and 2008 was $1,177,306 and $1,393,153, respectively.

Note 6: Related party transactionsEffective January 1, 2006, the NAIC entered into a service agreement with the National Insurance Producer Registry (the NIPR), an affili-ated entity, whereby the NAIC provides certain administrative services to the NIPR. The NAIC receives a fee computed on 30% of certain NIPR revenues, which represents a license fee for NIPR to use the NAIC’s producer data. In addition, the NAIC receives from NIPR, an

administrative fee of $1,000,000 for services, facilities, and equipment provided by the NAIC. The NAIC also receives a per transaction usage fee from the NIPR related to the NAIC’s State Producer Licensing Reengineering (SPLR) Project. The SPLR fee compensates the NAIC for maintenance and expenses related to the hardware and software infrastructure that support both the NAIC and NIPR. Additionally, certain expenses are paid on behalf of, and reimbursed by, the NIPR.During the year ended December 31, 2009, the NAIC paid $53,750 to the NIPR in exchange for property and equipment held by the NIPR with a net book value of $4,391.The total amount charged during the year and amounts owed at year-end for the NIPR are as follows: 2009 2008Administrative services provided by NAIC $ 1,000,000 $ 1,000,000License Fee $ 5,409,686 $ 5,489,473SPLR Fee $ 1,325,462 $ 477,346Amounts payable to NAIC $ 846,204 $ 735,565

Effective June 2007, the NAIC entered into a service agreement with the Interstate Insurance Product Regulation Commission (the IIPRC), whereby the NAIC provides certain administrative services to the IIPRC. The NAIC received an administrative fee of $125,000 for the years ended December 31, 2009 and 2008. IIPRC also pays an annual license and maintenance fee in the amount of $25,000 for the use of SERFF. Additionally, certain expenses are paid on behalf of, and reim-bursed by, the IIPRC.The total amounts charged during the year and amounts owed at year-end for the IIPRC are as follows: 2009 2008Administrative services provided by NAIC $ 125,000 $ 114,583License fee paid to NAIC $ 25,000 $ 25,000Amounts payable to NAIC $ 30,232 $ 51,966Accrued interest on note payable to NAIC $ 13,246 $ 21,155Note payable to NAIC $ 1,759,028 $ 1,373,445 An additional line of credit in the amount of $850,000 was approved by the NAIC in December 2009 to be used by the IIPRC in 2010.

Note 7: Subsequent eventsManagement has performed an evaluation of events that have occurred subsequent to December 31, 2009 through February 24, 2010. There have been no events that occurred during such period that would require disclosure in these financial statements or would be required to be recognized in the financial statements as of or for the year ended December 31, 2009.

2009 AccreDitAtions

Delaware Insurance Departmentconnecticut Insurance Department louisiana Department of Insurance

maryland Insurance Administration massachusetts Division of Insurance montana Office of the Commissioner of Securities & Insurance

new york State Insurance Department oregon Insurance Division Pennsylvania Insurance Department

rhode island Division of Insurance Washington State Office of the Insurance Commissioner

ROBERT DINEEN AWARD

Dr. raymond spudeckSenior Research Economist, Florida Office of Insurance Regulation

The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest

and achieving the following fundamental insurance regulatory goalsin a responsive, efficient and cost-effective manner,

consistent with the wishes of its members:Protect the public interest;

Promote competitive markets;Facilitate the fair and equitable treatment of insurance consumers;

Promote the reliability, solvency and financial solidity of insurance institutions;Support and improve state regulation of insurance.

Kay NoonanGeneralCounsel

Eric NordmanDirector

Regulatory Services

Todd SellsDirector

Financial Regulatory Services

Tim MullenDirector

Market Regulation

Kris DeFrainDirector

Statistical & Actuarial Services

2009 NAIC ORGANIZATIONAL CHART

Therese M. (Terri) Vaughan, Ph.D., Chief Executive OfficerAndrew J. Beal, Chief Operating Officer & Chief Legal Officer

Brady Kelley, Chief Financial & Business Strategy Officer

Chris EvangelManaging Director

Securities Valuation Office

Julie FritzDirector

Insurance Products & Services

Trish SchoettgerDirector

Member Services

Denise MatthewsDirector

Information Systems

Frosty MohnDirector

Technical Services

Ethan SonnichsenDirector

Government Relations

Scott HolemanDirector

Communications

Ramon CalderonDirector

Center for InsurancePolicy & Research

Brent RoperDirector

Human Resources & Internal Services

centrAl office2301 McGee Street, Suite 800Kansas City, MO 64108-2662

816 842 3600

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Washington, D.C. 20001-1509202 471 3990

securities VAluAtion office48 Wall Street, 6th Floor

New York, NY 10005-2906212 398 9000

Cover and interior pages printed on recycled paper.© Copyright 2010 by the National Association of Insurance Commissioners.All rights reserved. Printed in the United States of America.

2009 nAtionAl meetings

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