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© 2019 National Association of Insurance Commissioners 1

Date: 8/4/19 2019 Summer National Meeting

New York, New York

FINANCIAL CONDITION (E) COMMITTEE Monday, August 5, 2019

1:00 – 1:30 p.m. Hilton New York Midtown—Gramercy

ROLL CALL David Altmaier, Chair Florida Chlora Lindley-Myers Missouri Kent Sullivan, Vice Chair Texas Matthew Rosendale Montana Ricardo Lara California Marlene Caride New Jersey Michael Conway Colorado Glen Mulready Oklahoma Robert H. Muriel Illinois Raymond G. Farmer South Carolina Eric A. Cioppa Maine James A. Dodrill West Virginia Steve Kelley Minnesota Jeff Rude Wyoming Mike Chaney Mississippi NAIC Support Staff: Dan Daveline/Julie Gann/Bruce Jenson

AGENDA

1. Consider Adoption of its May 28 and Spring National Meeting Minutes Attachment One —Commissioner David Altmaier (FL)

2. Consider Adoption of its Task Force and Working Group Reports —Commissioner David Altmaier (FL)

a. Accounting Practices and Procedures (E) Task Force Attachment Two b. Capital Adequacy (E) Task Force Attachment Three c. Examination Oversight (E) Task Force Attachment Four d. Long-Term Care Insurance (B/E) Task Force Attachment Five e. Receivership and Insolvency (E) Task Force Attachment Six f. Reinsurance (E) Task Force Attachment Seven g. Risk Retention Group (E) Task Force Attachment Eight h. Valuation of Securities (E) Task Force Attachment Nine i. Group Capital Calculation (E) Working Group Attachment Ten j. National Treatment and Coordination (E) Working Group Attachment Eleven k. NAIC/AICPA (E) Working Group Attachment Twelve l. Restructuring Mechanisms (E) Working Group Attachment Thirteen m. Group Solvency Issues (E) Working Group Attachment Fourteen

3. Discuss Preliminary Financial Condition Examiners Handbook Salary Update Recommendation Attachment Fifteen —Commissioner David Altmaier (FL)

4. Discuss Proposed Changes to Restructuring Mechanisms (E) Working Group Charges Attachment Sixteen —Commissioner David Altmaier (FL)

5. Consider Request for Extension from the Mortgage Guaranty Insurance (E) Working Group Attachment Seventeen —Commissioner David Altmaier (FL)

6. Consider Guideline for Stay on Termination of Netting Agreements and Qualified Financial Contracts —Commissioner David Altmaier (FL) Attachment Eighteen

7. Discuss Any Other Matters Brought Before the Committee—Commissioner David Altmaier (FL)

8. Adjournment

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Date: 6/6/19

Financial Condition (E) Committee Conference Call May 28, 2019

The Financial Condition (E) Committee met via conference call May 28, 2019. The following Committee members participated: David Altmaier, Chair (FL); Kent Sullivan, Vice Chair, represented by Doug Slape and Jamie Walker (TX); Ricardo Lara represented by Susan Bernard and Kim Hudson (CA); Michael Conway represented by Rolf Kaumann (CO); Robert H. Muriel represented by Kevin Fry (IL); Eric A. Cioppa (ME); Steve Kelley represented by Kathleen Orth (MN); Chlora Lindley-Myers represented by John Rehagen (MO); Matthew Rosendale represented by Steve Matthews (MT); Marlene Caride (NJ); Glen Mulready (OK); Raymond G. Farmer and Daniel Morris (SC); James A. Dodrill represented by Jamie Taylor (WV); and Tom Glause represented by Jeff Rude (WY).

1. Adopted Revisions to Model #785 and Model #786

Commissioner Altmaier stated that the only item was to consider adoption of proposed changes to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) for the “Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance” (Covered Agreement) and the same for the United Kingdom. He asked Mr. Rehagen to summarize the proposed action.

Mr. Rehagen stated that the Reinsurance (E) Task Force adopted revisions to Model #785 and Model #786 during its May 15 conference call to implement the reinsurance collateral provisions of the Bilateral Agreements with the European Commission and the United Kingdom, which both become operative 60 months after Sept. 22, 2017. He stated that the Task Force and its drafting group worked hard to accommodate the concerns of state, federal and international regulators and interested parties, and noted that he believes the final drafts achieve the goals as state insurance regulators.

Mr. Rehagen directed Committee members to the May 16 memorandum he submitted to the Committee (Attachment One-A). He described how during the Task Force’s May 15 conference call, the International Underwriting Association of London (IUA) raised an issue and suggested a specific change to Section 2F(7) of Model #785. He noted that the Task Force did not have adequate opportunity to review this language before it was proposed shortly before its May 15 conference call and, therefore, did not include the language in its adoption. However, the Task Force agreed to study this language further prior to today’s conference call and make a recommendation to the Committee. Mr. Rehagen stated that he polled the members of the Task Force, and there was unanimous agreement that the proposed change was clearer language of the Task Force’s original intent and, therefore, recommended that the Committee consider this friendly amendment to Section 2F(7) of Model #785 as it considers taking action on the model. He clarified that that the amendment is nonsubstantive in nature and, therefore, would not require any further exposure before adoption by the Committee.

Mr. Rehagen stated that the European Commission has continued to express concern with the language of Section 2F(7) of Model #785 and has concerns with Section 9C(2) of Model #786 because the $250 million capital and surplus requirement for European reinsurers does not address what it considers to be an applicable conversion rate to 226 million euros. He noted that the Task Force discussed these concerns on its May 15 conference call, but the Task Force decided against making these revisions. Mr. Rehagen stated the Task Force believes that the current drafts of Model #785 and Model #786 are consistent with the terms of the Covered Agreement.

Mr. Rehagen stated that a comment letter was received from the European Commission (Attachment One-B), noting that he and others discussed these comments with the Federal Insurance Office (FIO) April 25 and May 23. He stated that while the FIO cannot give the NAIC public assurances with respect to any potential federal preemption analysis, FIO staff did not express any concerns regarding the current language of these two provisions. He stated that the recommendation of the Task Force is that the current draft revisions to Model #785 and Model #786 are consistent with the provisions of the Covered Agreement, and it is not necessary to make the changes discussed by the European Commission in its comment letter.

Antoine Begasse (European Commission) expressed appreciation for the engagement with the NAIC on the proposed models. He reiterated the two previous concerns included in the European Commission’s comment letter. Mr. Rehagen responded that the Task Force previously considered these comments and believes the proposed models are consistent with the Covered Agreement.

Attachment One


Mr. Rehagen made a motion, seconded by Director Farmer, to adopt the May 15 draft revisions to Model #785 and Model #786, including the friendly amendment to Section 2F(7) of Model #785 as outlined in Mr. Rehagen’s May 16 memorandum (See NAIC Proceedings – Summer 2019 Executive (EX) Committee and Plenary (Attachment ? and Attachment ?). The motion passed unanimously.

Having no further business, the Financial Condition (E) Committee adjourned.

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Attachment One


Draft: 4/8/19

Financial Condition (E) Committee Orlando, Florida

April 8, 2019

The Financial Condition (E) Committee met in Orlando, FL, April 8, 2019. The following Committee members participated: David Altmaier, Chair (FL); Tom Glause, Vice Chair, and Linda Johnson (WY); Ricardo Lara, Kim Hudson and Susan Bernard (CA); Michael Conway represented by Rolf Kaumann (CO); Robert H. Muriel and Patrick Hyde (IL); Eric A. Cioppa and Robert Wake (ME); Steve Kelley represented by Kathleen Orth (MN); Chlora Lindley-Myers represented by John Rehagen (MO); Mike Chaney represented by David Browning (MS); Matthew Rosendale represented by Steve Matthews (MT); Marlene Caride and Kristine Maurer (NJ); Glen Mulready represented by Buddy Combs and Eli Snowbarger (OK); Raymond G. Farmer (SC); Kent Sullivan represented by Doug Slape and Jamie Walker (TX); and James A. Dodrill represented by Jamie Taylor (WV).

1. Adopted its Feb. 19, 2019, and 2018 Fall National Meeting Minutes

Mr. Slape made a motion, seconded by Director Farmer, to adopt the Committee’s Feb. 19, 2019 (Attachment One) and Nov. 17, 2018 (see NAIC Proceedings – Fall 2018, Financial Condition (E) Committee) minutes. The motion passed unanimously.

2. Adopted the Reports of its Task Forces and Working Groups

Commissioner Altmaier discussed some of the more significant work currently in process within the Committee’s task forces, working group and subgroups. This included: 1) the significant work near completion by the Reinsurance (E) Task Force to revise the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786); 2) the commencement of testing of the group capital calculation (GCC) beginning within the next month; 3) the new Restructuring Mechanisms (E) Working Group and Restructuring Mechanisms (E) Subgroup; and 4) the important work on long-term care insurance (LTCI), including the appointment of a new Executive (EX) Committee-level task force, as well as how it will interact with the Long-Term Care Insurance (B/E) Task Force.

Commissioner Altmaier stated that, in addition, items adopted within the Committee’s task force and working group reports that are considered technical, noncontroversial and not significant by NAIC standards—i.e., they do not include model laws, model regulations, model guidelines, or items considered to be controversial—will be considered for adoption by the Executive (EX) Committee and Plenary through the Financial Condition (E) Committee’s technical changes report process. Pursuant to this process, which was adopted by the NAIC in 2009, a listing of the various technical changes will be sent to NAIC members shortly after completion of the Spring National Meeting, and the members will have 10 days to comment with respect to those items. If no objections are received with respect to a particular item, the technical changes will be considered adopted by the NAIC membership and effective immediately.

Director Farmer made a motion, seconded by Commissioner Caride, to adopt the following task force and working group reports: Accounting Practices and Procedures (E) Task Force; Capital Adequacy (E) Task Force; Examination Oversight (E) Task Force; Long-Term Care Insurance (B/E) Task Force; Receivership and Insolvency (E) Task Force; Reinsurance (E) Task Force; Risk Retention (E) Task Force; Valuation of Securities (E) Task Force; Group Capital Calculation (E) Working Group (Attachment Two); National Treatment and Coordination (E) Working Group (Attachment Three); Restructuring Mechanisms (E) Working Group (Attachment Four); Risk-Focused Surveillance (E) Working Group (Attachment Five); and VariableAnnuities Issues (E) Working Group (Attachment Six). The motion passed unanimously.

The Financial Analysis (E) Working Group met Feb. 27 and Jan. 30 in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings.

Having no further business, the Financial Condition (E) Committee adjourned.

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Attachment One



2019 Summer National Meeting New York, New York

ACCOUNTING PRACTICES AND PROCEDURES (E) TASK FORCE Sunday, August 4, 2019

10:00 – 11:00 a.m.

Meeting Summary Report

The Accounting Practices and Procedures (E) Task Force met Aug. 4, 2019. During this meeting, the Task Force:

1. Adopted its 2019 Spring National Meeting minutes.

2. Exposed its 2020 proposed charges, which includes deletion of two completed charges and deletion of one charge proposedto be disposed as unnecessary with a comment deadline of Aug. 19, 2019 at noon CST. The 2020 proposed charges areplanned for discussion on its Aug. 22 conference call.

3. Adopted the report of the Statutory Accounting Principles (E) Working Group, which met Aug. 3, and took the followingaction:a. Adopted its May 29 minutes, which included adoption of three nonsubstantive agenda items and exposure of one

nonsubstantive agenda item, as well as its Spring National Meeting minutes. Nonsubstantive items adopted:

1. Revisions provide guidance for determining prepayment penalties when bonds are called for less than par.2. Revisions direct the initial reported value for a bond received as a property dividend or as a capital contribution.3. Revisions reduce the disclosure requirements for repurchase and reverse repurchase transactions.

b. Adopted the following substantive revisions to statutory accounting guidance:1. SSAP No. 22—Leases and corresponding Issue Paper No. 161—Leases to incorporate guidance from ASU 2016-

02, Leases, but maintain the operating lease concept, with an effective date of Jan. 1, 2020.2. Issue Paper 162—Property and Casualty Reinsurance Credit to document for historical purposes the revisions

related to SSAP No. 62R—Property and Casualty Reinsurance.

c. Adopted the following nonsubstantive revisions to statutory accounting guidance:1. Revisions to reject ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts.2. Revisions clarify that an investment captured in scope of another SSAP does not automatically become a collateral

loan because it is also secured with collateral.3. Revisions clarify the application of an “affiliated” classification, when a transaction is in substance a related party

transaction, even if the transaction is conducted through a non-related intermediary.4. Revisions clarify the scope of mortgage loans and clarify the requirements for participation agreements5. Revisions require securities with differing NAIC designations by lot to be reported in aggregate at the worst NAIC

designation or separately by lot.6. Revisions clarify that Nov. 2018 updates to SSAP No. 62R—Property and Casualty Reinsurance apply to

contracts in effect as of Jan. 1, 2019.7. Revisions to the SSAP No. 101—Income Taxes Implementation Q&A provide updates in response to the federal

Tax Cuts and Jobs Act of 2017 (TCJA).8. Revisions to the SSAP No. 101 Implementation Q&A clarify the application of the deferred tax admittance

calculation regarding offsetting deferred tax liabilities.9. Revisions reject as not applicable ASU 2015-08, Pushdown Accounting – Amendments to SEC Paragraphs

Pursuant to Staff Accounting Bulletin No. 115.10. Revisions reject as not applicable ASU 2019-02, Entertainment, Improvements to Accounting for Costs of Films

and License Agreements for Program Materials (a consensus of the FASB Emerging Issues Task Force)11. Adopted editorial revisions to:

i. SSAP No. 62R: Updated Exhibit D – Illustration of Asbestos and Pollution Counterparty ReportingException to match the current format of Property and Casualty Annual Statement Schedule F.

ii. Updated paragraph references to Schedule F, Part 8 to reference the current section of Property and CasualtyAnnual Statement Schedule F, Part 3.

Attachment Two


iii. Deleted the paragraph in SSAP No. 84—Health Care and Government Insured Plan Receivables duplicatingSSAP No. 4—Assets and Nonadmitted Assets.

iv. Updated language in weather derivative exhibit to eliminate “proposed” wording.v. Updated the footnote regarding investments that are excluded from the wash sale disclosure.

d. Exposed an Issue Paper to revise the definitions, measurement guidance and impairment guidance for preferred stock.

e. Exposed the following nonsubstantive revisions to statutory accounting guidance:1. Revisions incorporate additional principle concepts in classifying investments as cash equivalents or short-term

investments to prevent the “rolling” of certain investments.2. Revisions require a financial commitment or guarantee for a subsidiary, controlled or affiliated (SCA) entity to

be recognized as a noncontingent guarantee liability.3. Revisions exclude collateralized fund obligations, and similar structures that reflect underlying equity interests,

from the scope loan backed and structured securities. The revisions also prevent existing equity assets from beingrepackaged as securitizations and reported as long-term bonds.

4. Exposure requests additional comments, with referrals to the Financial Stability (EX) Task force and the LifeActuarial (A) Task Force on the reporting of insurance contracts that do not have mortality or morbidity risk.

5. Revisions provide guidance clarifying reporting of prepayments to providers of claims and adjusting servicesnoting that the liabilities are not recognized as paid until the losses are paid to claimants or claims are adjusted.

6. Revisions to SSAP No. 61R—Life, Deposit-Type and Accident and Health Reinsurance disclosure and revisionswhich expand Appendix A-791,Life and Health Reinsurance (Appendix A-791) question and answer sectionregarding the applicability of Appendix A-791, treatment of contracts subject to the medical loss ratio (MLR)and, question and answer regarding the treatment of group term life yearly renewable term (YRT) agreement.

7. Revisions assess ASU 2014-17, Business Combinations – Pushdown Accounting for statutory accounting with arequest for comments on whether pushdown shall be rejected, permitted for noninsurance entities, or permittedonly for U.S. Securities and Exchange Commission (SEC) registrants. Revisions that goodwill from a reportingentity’s acquisition of an SCA when pushdown is applied is subject to the goodwill admittance limitation.

8. Revisions reject ASU 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and CertainIdentifiable Intangible Assets to Not-for-Profit Entities

9. Revisions clarify levelized commissions guidance and provide clarifications on commissions that are based onpolicy persistency. The revisions note commission expense is accrued based on experience to date.

10. Re-exposed revisions clarifying that “other” derivatives not used in hedging, income generation or replicationshall be reported at fair value, and do not qualify as admitted assets.

11. Revisions require assignment of purchase price and goodwill to entities within downstream holding companieswith disclosure of the allocation of goodwill.

12. Revisions clarify that if an unalleviated going concern is noted in the audited financial statements or audit opinion,the SCA shall be nonadmitted.

13. Revisions reject ASU 2019-05, Targeted Transition Relief for statutory accounting.14. Revisions clarify that only wash sales that cross reporting period-end dates are subject to the wash sale disclosure.15. Revisions clarify what should be captured in Supplemental Investment Risk Interrogatory Line 13: 10 Largest

Equity Interests noting that a look-through should only occur for non-diversified funds. The revisions also excludeSecurities Valuation Office (SVO)-Identified Bond Exchange-Traded Funds (ETFs) and SVO-Identifiedinvestments with underlying characteristics of fixed-income investments from this equity listing.

16. Revisions to Appendix A-785, Credit for Reinsurance adopted to the Credit for Reinsurance Model Law (#785)and the Credit for Reinsurance Model Regulation (#786) related to the “Bilateral Agreement Between the UnitedStates of American and the European Union on Prudential Measures Regarding Insurance and Reinsurance.

17. Revisions reject ASU 2019-03, Updating the Definition of Collections.18. Revisions reject ASU 2019-31, Clarifying the Scope and Accounting Guidance for Contributions Received and

Contributions Made.19. Exposed editorial revisions to statutory accounting.

f. Disposed Agenda item 2019-13, Clarification of a Look-Through Approach without revisions. Directed an agendaitem as a more-than-one downstream holding company look-through is permitted if all entities meet the criteria.

g. Received an update on the following projects and referrals:1. Received a referral from the Valuation of Securities (E) Task Force on SSAP No. 105—Working Capital Finance

Investments and directed staff to proceed with drafting revisions for subsequent exposure.

Attachment Two


2. Received an update on Surplus Note Accounting, noting that the Working Group will sponsor a data call to receive additional information on the use of linked surplus notes. NAIC staff was directed to work to finalize the components for the data call and was directed to prepare proposed disclosures for data-capture in 2020.

3. Received an update that the Financial Accounting Standards Board (FASB) is considering an extension of the effective date of ASU 2016-13: Credit Losses and directed NAIC staff to continue monitoring the discussions.

4. Received a comment letter from the Committee on Property and Liability Financial Reporting (COPLFR) of the American Academy of Actuaries (Academy) regarding potential ambiguity in SSAP No. 62R regarding transfers of portfolio retroactive reinsurance that is accounted for as affiliated prospective reinsurance and directed NAIC staff to work on developing examples.

5. Received an update on the Accounting Practices and Procedures Manual (AP&P Manual) reserve process, noting that the deadline to reserve a printed version of the “As of 2020” AP&P Manual is Dec. 13, 2019.

6. Received a request from the Life Actuarial (A) Task Force to coordinate the AP&P Manual and Valuation Manual guidance regarding modeling of YRT reinsurance cashflows and directed NAIC staff to assist in the coordination process in developing recommendations for Working Group review.

7. Reviewed the Working Group’s charges, noting that the Working Group would recommend to the Accounting Practices and Procedures (E) Task Force to delete the charge for 2020 to develop a model guideline to exceed state investment limitations for hedges. Per a review of annual statement information on the extent of derivative investments, the Working Group does not believe this model guideline is necessary.

8. No comments on current U.S. GAAP exposures are planned by the Working Group.

h. Comment deadline is for new and exposed items is Oct. 11. 4. Adopted the report of the Blanks (E) Working Group, which met via e-vote July 2 and conference call June 24 and included

the following action: a. During its July 2 e-vote, the Working Group exposed proposal 2019-20BWG, which includes changes to the Property

and Casualty Actuarial Opinion sponsored by the Casualty Actuarial (C) Task Force. The e-vote received a 2/3s majority as referenced in the Blanks (E) Working Group procedures.

b. During its June 24 conference call, the Working Group adopted its Spring National Meeting minutes and adopted 16

proposals previously exposed:

1. 2019-02BWG – For the VM-20 Reserves Supplement, Part 1, match the title under Part 1 to the title used in the blank. Add instructions to clarify the line reporting. Add clarifying column instructions to indicate that the due and deferred premium asset should be reported in accordance with VM-20.

2. 2019-03BWG – Add NAIC Designation column for use with mutual funds to the annual Schedule D, Part 2, Section 2 and modify the instructions to reflect the addition. Modify the instructions for the NAIC Designation and Administrative Symbol column for the quarterly Schedule D, Part 3 and Part 4 to reflect capturing designations for mutual funds.

3. 2019-04BWG – Remove the reference to “life and fraternal only” for Schedule BA General Instructions regarding investments that have the underlying characteristics of bonds or fixed instruments. Also remove the instructions reference for Schedule BA regarding the CUSIP Identification column and the NAIC Designation column. Add additional lines to the “Fixed or Variable Interest Rate Investments that Have the Underlying Characteristics of a Bond, Mortgage Loan or Other Fixed Income Instrument” and “Joint Ventures or Partnership Interests for Which the Primary Underlying Investments are Considered to Be Fixed Income Instruments” categories to distinguish between those reviewed and approved by the Securities Valuation Office (SVO) and those that have not.

4. 2019-05BWG – Add new instructions and illustration (to be data-captured) to Note 21, Other Items for life policies where the reporting entity is owner and beneficiary or has otherwise obtained rights to control the policy. The new disclosure will be Note 21I for life/fraternal and health and Note 21H for property and title.

5. 2019-06BWG – Add a reference for structured settlements acquired by a reporting entity as an investment (where the company has acquired the legal right to receive payments) to the Schedule BA General Instructions in the “any other class of assets” definition.

6. 2019-07BWG – Modify the instructions for Note 20, Fair Value to reflect changes adopted for Statement of Statutory Accounting Principles (SSAP) No. 100R—Fair Value. These changes reflect disclosure modifications adopted from U.S. generally accepted accounting principles (GAAP) (ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement). The revisions do not change any of the disclosure templates.

7. 2019-08BWG – Modify the instructions for Note 12, Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans to reflect changes adopted for SSAP No. 92—Postretirement Benefits Other Than Pensions and SSAP No. 102— Pensions.

Attachment Two


8. 2019-09BWG – Add a reference to include mortgage-referenced securities in the “U.S. Special Revenue andSpecial Assessment Obligations and All Non-Guaranteed Obligations of Agencies and Authorities ofGovernments and Their Political Subdivisions” category in the Investment Schedules General Instructions. Alsodelete Note 5O, Structured Notes and modify the bond characteristics definition for Schedule D, Part 1.

9. 2019-10BWG – Add instructions for determining the gain (loss) reported in column 18 and the prepaymentpenalty and/or acceleration fee amount in column 20 on Schedule D, Parts 4 and 5 for called bonds whereconsideration received is less than par.

10. 2019-11BWG – Modify the instructions and table illustrations for Note 5F, Note 5G, Note 5H and Note 5I toreflect changes to SSAP No. 103R—Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities. In addition, the formatting of some tables in the illustrations were changed to fit on the page.

11. 2019-12BWG – Add a code for foreign mutual funds to Schedule D, Part 2, Section 2, Column 3. Add instructionfor foreign open-end investment funds to be included as mutual funds in the Investment Schedules GeneralInstructions.

12. 2019-13BWG – Modify the instructions for question 2 of the Supplemental Investment Risks Interrogatories toexclude diversified foreign mutual funds. Add disclosure of top 10 fund managers.

13. 2019-14BWG – Modify the instructions and illustration for Note 8, Derivatives for disclosures adopted by SSAPNo. 108—Derivatives Hedging Variable Annuity Guarantees. Add categories for variable annuity guarantees tothe instructions for Schedule DB, Part A and Part B. Add instruction and blank page for Schedule DB, Part E.Modify the instructions for the details of write-in for Line 25 of the asset page, as well as Line 25 and Line 34 ofthe life/fraternal liability page.

14. 2019-15BWG – Modify the instructions for the Actual Cost column for Schedule D (Part 1, Part 3, Part 4 andPart 5) and Schedule DA to provide guidance for bonds are received as a property dividend or capital contribution.

15. 2019-16BWG – Add new column “YRT Mortality Risk Only” to the Analysis of Operations by Lines of Business(Summary, Individual Life and Group Life) and Analysis of Increase in Reserves During Year (Individual Lifeand Group Life) blank pages and instructions for yearly-renewable-term reinsurance business where the only riskincluded is mortality.

16. 2019-17BWG – Add two new lines for affiliated bank loans to the parent, subsidiaries and affiliates category andmodify the existing lines for bank loans to reference unaffiliated for Schedule D, Part 1; Schedule DA; ScheduleDL, Parts 1 and 2; and Schedule E, Part 2. The subtotal line for bank loans under the total bond category will bethe sum of the affiliated and unaffiliated lines.

c. Proposal 2019-01BWG died for lack of motion – Add interrogatory question (28.0599 – annual and 17.5099 –quarterly) to General Interrogatories, Part 1 regarding total percent of assets reported on Lines 1, 2 and 5 of the Assetpage managed by unaffiliated individuals/firms. In addition, the word “invested” is added to annual lines 28.0597 and28.0598 and quarterly lines 17.5097 and 17.5098 description to clarify the intent was invested assets.

d. During its June 24 conference call, the Working Group also exposed two new proposals and the revised WorkingGroup procedures for a public comment period ending July 24, and adopted the Working Group editorial listing.

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Attachment Two



CAPITAL ADEQUACY (E) TASK FORCE Sunday, August 4, 2019

4:00 – 5:00 p.m.


The Capital Adequacy (E) Task Force met Aug. 4, 2019. During this meeting, the Task Force:

1. Adopted its June 28 minutes, which included the following action:a. Adopted its Spring National Meeting minutes.b. Disbanded the Operational Risk (E) Subgroup.c. Adopted its Working Group’s proposals.

1. Proposal 2018-17-CA (Electronic Capitation Tables).2. Proposal 2019-05-P (Underwriting Risk Line 1 Factors).3. Proposal 2019-08-P (Affiliated Investment Instructions).4. Proposal 2018-18-L (Life and Fraternal Combination Blank).5. Proposal 2019-10-L (Interest Rate Risk and Market Risk, LR027).

2. Adopted the Health Risk-Based Capital (E) Working Group’s July 17 minutes, which included the following action:a. Adopted its June 24 and May 13 minutes, which included the following action:

1. Adopted its Spring National Meeting minutes.2. Discussed comments received on proposal 2019-4-H and 2018-17-CA.3. Discussed and exposed the “LTC HMO Guaranty Fund” memorandum for a 15-day public comment period.4. Exposed proposed changes to the bond structure and excessive growth charge referral letter for a 30-day public

comment period.b. Discussed the 2018 health risk-based capital (RBC) statistics.c. Adopted the 2019 health RBC newsletter.d. Re-exposed proposal 2019-04-H.e. Discussed managed care credit for category 1 and category 2B.f. Heard an update on the Health Test Ad Hoc Group.

3. Adopted the report of the Life Risk-Based Capital (E) Working Group, which met Aug. 3. During this meeting, theWorking Group took the following action:a. Adopted its July 22, June 24, June 17, June 6, May 13, April 26, and Spring National Meeting minutes, which

included the following action:1. Adopted the 2019 life and fraternal RBC newsletters.2. Adopted the proposed changes to the life and fraternal RBC instructions recommended by the Variable Annuities

Capital and Reserve (E/A) Subgroup.3. Adopted the combined life and fraternal RBC formula proposal.4. Discussed the 2018 life and fraternal RBC statistics.5. Discussed a proposal to update the RBC charge for unaffiliated common stock supporting long-horizon

contractual commitments.6. Heard an update from the American Academy of Actuaries (Academy) C2 Work Group.

b. Adopted the report of the Variable Annuities Capital and Reserve (E/A) Subgroup, highlighting the adoption of therecommended RBC instruction changes.

c. Adopted the report of the Longevity Risk (A/E) Subgroup, including its July 17 minutes. During this meeting, theSubgroup discussed comments received on the Academy Longevity Risk Task Force report.

d. Heard an update from the Academy Longevity Risk Task Force.e. Discussed pending items to be considered by the Working Group.

4. Adopted the report of the Property and Casualty Risk-Based Capital (E) Working Group, which met Aug. 4. During thismeeting, the Working Group took the following action:a. Adopted its May 17 minutes, which included the following action:

1. Adopted the Catastrophe Risk (E) Subgroup Spring National Meeting minutes.2. Adopted its Spring National Meeting minutes.

Attachment Three


3. Adopted proposal 2019-05-P (2019 Underwriting Risk Line 1 Factors). 4. Adopted proposal 2019-08-P (Affiliated Investment Instructions). 5. Exposed changes of bond pages in the P/C RBC formula. 6. Exposed proposed changes of percentage ownership calculation in the affiliated investment page. 7. Discussed the scope letter from the Academy Property and Casualty Committee regarding the plan on reviewing

the underwriting risk component. 8. Discussed the possible changes of the R3 related to the “Bilateral Agreement Between the United States of

America and the European Union on Prudential Measures Regarding Insurance and Reinsurance” (Covered Agreement).

b. Adopted the report of the Catastrophe Risk (E) Subgroup, which met Aug. 2. During this meeting, the Subgroup took the following action: 1. Heard a presentation from AIR Worldwide (AIR) on how the aggregate exceedance probability (AEP) and

occurrence exceedance probability (OEP) curves are created based on the AIR modeling results. 2. Heard a presentation from Risk Management Solutions (RMS) on how the AEP and OEP curves are calculated

and a comparison of the results. c. Adopted the 2019 property/casualty (P/C) RBC newsletter. d. Exposed proposal 2019-11-P (Clarification to Instructions Regarding Lloyd’s of London). e. Exposed proposal 2019-12-P (Remove PR035 Adjustment for Reinsurance Penalty). f. Discussed 2018 P/C RBC statistics. g. Discussed 2019 P/C RBC working agenda. h. Discussed R3 impact analysis. i. Discussed overall P/C RBC analysis. j. Discussed proposed changes of bond pages in the P/C RBC formula. The changes have been forwarded to the

Investment Risk-Based Capital (E) Working Group for further discussion. k. Discussed proposed changes of percentage ownership calculation in the affiliated investments page. The changes have

been forwarded to the Informal Affiliated Investment Ad Hoc Group for further discussion. l. Discussed the scope letter from the Academy Property and Casualty Committee regarding the plan on reviewing the

underwriting risk component. m. Discussed the possible changes of the R3 related to the Covered Agreement.

5. Adopted its working agenda.

6. Exposed its 2020 proposed charges for a 30-day public comment period ending Sept. 4.

7. Heard an update on the Affiliate Investment Ad Hoc Group.

8. Re-exposed the RBC Preamble for a 30-day comment period ending Sept. 4

9. Received a structured notes referral.

10. Received a comprehensive fund referral.

W:\National Meetings\2019\Summer\Summaries\Final Summaries\CADTF Summary.docx

Attachment Three



EXAMINATION OVERSIGHT (E) TASK FORCE Sunday, August 4, 2019

10:00 – 11:00 a.m.


The Examination Oversight (E) Task Force met Aug. 4, 2019. During this meeting, the Task Force:

1. Adopted its 2019 Spring National Meeting minutes.

2. Adopted the report of the Electronic Workpaper (E) Working Group, which met July 18 in regulator-to-regulator sessionpursuant to paragraph 4 (internal or administrative matters of the NAIC or any NAIC member) of the NAIC PolicyStatement on Open Meetings.

3. Adopted the report of the Financial Examiners Coordination (E) Working Group, which met April 8 in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement onOpen Meetings.

4. Adopted the report of the Financial Analysis Solvency Tools (E) Working Group, which met May 28 in joint session withthe Group Solvency Issues (E) Working Group in regulator-to-regulator session pursuant to paragraph 3 (specificcompanies, entities or individuals) and paragraph 6 (consultation with NAIC staff members related to technical guidance)of the NAIC Policy Statement on Open Meetings. The Working Group also met July 25 to discuss changes to the InsuranceRegulatory Information System (IRIS) for 2019 annual statement filings. The proposal included element changes to severalIRIS ratios, which were driven by financial blanks changes for 2019 annual. The proposed changes were exposed for a 30-day public comment period ending Aug. 26.

5. Adopted the report of the IT Examination (E) Working Group, including its July 16 minutes. During this meeting, theWorking Group exposed revisions on the following topics for a 30-day public comment period ending Aug. 15:a. Information technology (IT) review conclusions – Revisions are intended to clarify the scope of the IT review and the

way examiners should respond to IT review findings.b. Use of third-party work – Revisions are intended to clarify the ways that third-party work can be evaluated and used

during an exam’s IT review.c. Cybersecurity self-assessment tools – Revisions allow state insurance regulators to incorporate the results of a

company’s completed self-assessment. Additionally, a drafting group developed a mapping between IT examguidance and the cybersecurity self-assessment tool developed by the Financial Services Sector Coordinating Council(FSSCC) to facilitate state insurance regulator use of the information contained within the tool.

6. Exposed revisions to the Task Force and related Working Group 2020 proposed charges for a 30-day public commentperiod ending Sept. 3. The proposed revisions would:a. Update the charges of the Electronic Workpaper (E) Working Group in recognition of the discussions it has been

having in regulator-only settings.b. Simplify the principle-based reserving (PBR)-related charges for both the Financial Analysis Solvency Tools (E)

Working Group and the Financial Examiners Handbook (E) Technical Group.

7. Heard an update from Financial Examiners Handbook (E) Technical Group on revisions the Working Group will beconsidering later this year. Topics that will be discussed include Exhibit V – Prospective Risk Assessment, managementletters, examinations of troubled or potentially troubled companies, and the reserves/claims handling repositories.

W:\National Meetings\2019\Summer\TF\Examo\EOTF Summer 2019 Summary - TPR.docx

Attachment Four

Draft Pending Adoption


Date: 4/10/19

Long-Term Care Insurance (B/E) Task Force Orlando, Florida

April 8, 2019

The Long-Term Care Insurance (B/E) Task Force met in Orlando, FL, April 8, 2019. The following Task Force members participated: David Altmaier, Co-Chair (FL); Jessica Altman, Co-Chair (PA); Lori K. Wing-Heier represented by Sarah Bailey (AK); Jim L. Ridling represented by Steven Ostlund (AL); Keith Schraad represented by Erin Klug (AZ); Ricardo Lara represented by Perry Kupferman, Kim Hudson and Tyler McKinney (CA); Andrew N. Mais and Paul Lombardo (CT); Stephen C. Taylor represented by Howard Liebers (DC); Colin M. Hayashida represented by Kathleen Nakasone (HI); Doug Ommen represented by Andria Seip (IA); Dean L. Cameron (ID); Robert H. Muriel (IL); Vicki Schmidt represented by Julie Holmes (KS); Al Redmer Jr. represented by Nour Benchaaboun (MD); Eric A. Cioppa and Marti Hooper (ME); Anita G. Fox represented by Kevin Dyke (MI); Steve Kelley represented by Fred Andersen (MN); Chlora Lindley-Myers represented by Jessica Schrimpf (MO); Matthew Rosendale represented by Bob Biskupiak (MT); Jon Godfread represented by Chrystal Bartuska (ND); Bruce R. Ramge represented by Rhonda Ahrens, Martin Swanson and Laura Arp (NE); Marlene Caride represented by Philip Gennace (NJ); John G. Franchini represented by Paige Duhamel (NM); Barbara D. Richardson represented by David Cassetty (NV); Glen Mulready represented by Cuc Nguyen (OK); Andrew Stolfi (OR); Elizabeth Kelleher Dwyer represented by Sarah Neil and Matthew Gendron (RI); Julie Mix McPeak represented by Brian Hoffmeister (TN); Kent Sullivan represented by Doug Slape (TX); Todd E. Kiser represented by Tanji Northrup and Nancy Askerlund (UT); Scott A. White and Doug Stolte (VA); and Mike Kreidler and Doug Hartz (WA).

1. Heard Opening Comments

Commissioner Altmaier discussed how the NAIC membership has identified long-term care insurance (LTCI) as one of the key priorities of the NAIC for 2019, if not the No. 1 priority. He discussed how many of the workstreams this task force coordinates are doing a great deal of significant work, even though each one is focused on something distinctly different. He noted the appointment of a new Executive (EX) Committee-level task force on long-term care (LTC) pricing. He noted that the work of the Long-Term Care Insurance (B/E) Task Force will continue to be important, but said he also looks forward to coordinating with the new task force. He described how even though the states’ markets are different, all the states share some of the same concerns with respect to LTCI.

Commissioner Altman reiterated the focus the NAIC has on the use of LTCI. She said she and Commissioner Altmaier are committed to working hand-in-hand with all the other bodies of work being conducted by other groups, as coordination and collaboration are critical in this area. She stated the need to build on the great work that had already been completed and explained that today’s meeting is focused on hearing about the extensive work that has already been done. She noted that “level setting” is important as conversations begin in 2019.

2. Discussed Work Already Completed on the Product Innovation Charge

David Torian (NAIC) referred the Task Force to two documents previously developed by the now disbanded Long-Term Care Innovation (B) Subgroup. He described how the scope of this Subgroup was to consider ways to address some of the current challenges facing the LTCI market and develop realistic policy options that might result in an increase in the take-up rate of LTCI.

Mr. Torian said the first document, “Federal Policy Options to Present to Congress” (Attachment One), is a document the Subgroup developed to: 1) identify actionable, realistic policy options for consideration by state insurance regulators, state legislators, the NAIC as a body, federal agencies and the U.S. Congress; and 2) help increase private LTC financing options for consumers. He described how the document identifies policy options to consider, noting that it has been shared with various members of Congress, in both the U.S. House of Representatives and the U.S. Senate. He noted that in this current Congress, the NAIC has begun to share the document with those members who have expressed an interest in LTCI.

Mr. Torian noted that the second document, “Private Market Options for Financing Long-Term Care Services” (Attachment Two) was developed to help provide state insurance regulators, policymakers, consumers and other stakeholders an overview of the landscape of LTC financing mechanisms currently available in the private market, in addition to traditional LTCI. He stated that this document is currently posted on the Senior Issues (B) Task Force’s web page under the Related Documents tab.

Attachment Five



3. Received an Oral Presentation on LTCI Trends and Regulatory Pressure Mr. Slape, former chair of the Financial Analysis (E) Working Group, presented a summary of observations it had made relative to LTCI trends. He described how the Working Group had been reviewing LTCI companies and the LTCI space in general for well over a decade. He described how there had been a great deal of activity, but in a lot of cases, the discussion is centered on new products for the future. However, in the Working Group’s mind, there has been less discussion on the legacy closed blocks of business. He noted that the Working Group undertook an initiative in 2018 that represented a high-level summary of issues companies are facing from a solvency perspective to highlight for the state insurance commissioners. He noted that the Working Group developed a confidential document, but the co-chairs believed it would be helpful to highlight some of the things from the document. Mr. Slape described that, at one time, there were more than 170 companies writing LTCI; now that number is down to a little more than a dozen, with 80% of the reserves held by the top 15 companies. He noted that there was an increasing trend that companies can no longer subsidize the LTCI blocks of business, thus creating a cross-policyholder subsidization. He noted this comes now after the view for years that many of the largest writers of LTCI are well capitalized and diversified companies. However, the concern now is that as these companies move this business they are no longer willing to support, they do so with the LTCI business ending up with much weaker capitalized companies. Mr. Slape described how the Working Group has been working with the Valuation Analysis (E) Working Group on some of the issues it found to communicate with the domiciliary state insurance regulators to address some of the concerns from Valuation Analysis (E) Working Group. This work will continue in 2019. Mr. Slape noted that with respect to the pricing issue, the environment for getting rate increases is one where there is a lot of inconsistencies among the states. He stated the timing of getting rate increases is also having an impact on solvency because delaying rate increases is a negative to solvency. Mr. Slape also addressed the concern that exists when the consumers may not be given the choice to make their own decision, given all states have limits on what can be collected under guaranty fund coverage if an LTCI insurer goes insolvent. He stated that Texas has seen companies requesting too little of rate increases, even though the actuarial justified data suggests otherwise. He noted the importance for companies to request the right rate; otherwise, the industry is potentially misleading consumers regarding what the true cost of the policy may be currently and in the future. Mr. Slape stated that he believes there is an opportunity to make more options available to consumers and to consider the costs of the different options. He said had the industry and state insurance regulators been more willing to embrace these issues, perhaps the current situation would not be as bad. He also discussed how at times state insurance regulators may be their own worst enemy with a lack of linking between the liability valuation requirements and how the product is priced. He noted the high degree of opportunity either at the new task force, this Task Force or others, perhaps with new reporting that could better highlight issues. Mr. Hudson noted that while state insurance regulators do have an obligation to help the timing on the rate increases, there is also an obligation that the companies do a better job of providing enough data or timely response to inquiries. Bonnie Burns (California Health Advocates—CHA) stated that one of the things state insurance regulators may not be paying enough attention to is the way such services have changed. In the 1990s, that change began with the addition of home care and assisted living. However, over time, home care has become more significant, accounting for as much as 60% of the total costs of such services, with a small percentage for nursing home care and assisted living. The importance of keeping people in their homes and getting services in their homes reduces the later use of institutional care. She emphasized how new technology can be aimed at keeping people in their homes. She described the impact that home health care can have on caregivers and how that can affect the caregiver’s ability to pay for their own LTC in the future. She noted that not all dementias are Alzheimer’s and that they can affect each other differently and at different speeds. Ms. Burns stated that she is concerned about the options being presented to people instead of an LTCI rate increase, questioning if the consumers are being steered toward the option that is best for the company. She described an example, noting that none of the options provided the option to eliminate the consumer inflation protection or a paid-up policy. She questioned this given the other facts of the situations and noted that all of this leads her to believe the options can lead to lapsing of policies. Commissioner Altman agreed with the importance of the options being provided and said she looks forward to discussing the issue in more detail.

Attachment Five



4. Discussed Work Already Completed by the Long-Term Care Pricing (B) Subgroup Mr. Lombardo described in detail the Long-Term Care Pricing (B) Subgroup’s activities since the 2018 Fall National Meeting, which included five conference calls. His update included how, in November 2018, the Subgroup discussed the idea of the multistate coordinated LTCI rate review concept that was presented to the Task Force at the 2018 Summer National Meeting. He noted that during this same call, the Subgroup also discussed the concept of a survey that would not only respond to a question from the former co-chair of the Task Force, Director Cameron, concerning the consistency in information received by the states, but could also assist the Task Force in completing its charge to assess state activities regarding the regulatory considerations on rate increase requests on blocks and identify common elements for achieving greater transparency and predictability. Mr. Lombardo noted that the Subgroup developed such a survey in December 2018 and received 40 responses from the states and territories combined. He noted that since January, the Subgroup had spent a great deal of time discussing the survey, including whether solvency should affect LTCI rate increase decisions. He noted that most comments indicated that solvency should not play a role in the magnitude of the approved increase, and the magnitude should instead be determined purely by the actuarial justified amounts, although there was one state that suggested further discussion may be appropriate. He suggested this issue be discussed by the state insurance commissioners. Mr. Lombardo indicated that the Subgroup had discussed at length the potential cross-state policyholder inequity/cross-subsidization of LTC rates. He noted that there is a growing concern on behalf of those states that traditionally have approved requested rate increases that an inequity is created between their consumers and consumers in the states that have either not approved rate increases or have approved significantly lower rate increases. Mr. Lombardo said the purpose of the survey was largely to make sure the state insurance commissioners could begin to have discussions on the differences that exist among the states in a regulator-to-regulator venue. He said the Subgroup would continue to discuss other issues, such as credibility where data is too small, and will continue to inform the Task Force of its discussions. 5. Discussed Work Already Completed by the Long-Term Care Valuation (B) Subgroup

Mr. Andersen said the Long-Term Care Valuation (B) Subgroup developed Actuarial Guideline LI—The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves (AG 51), which became effective with year-end 2017 reporting. He stated that related to this was the work of the Valuation Analysis (E) Working Group, which is reviewing AG 51 reports of companies. He described how AG 51 has allowed state insurance regulators to determine that morbidity experience development is most likely the cause of future reserve and rate volatility. He stated that the past issues of downward trends of mortality, lapse and investment return have generally been addressed and should not result in substantial future volatility in reserves or rates. He stated there is some variation by companies, noting that the Valuation Analysis (E) Working Group and the Financial Analysis (E) Working Group have helped to communicate this to the domiciliary insurance regulators of such companies. Mr. Andersen described how, within the topic of morbidity, the consensus is that the length of a claim is generally increasing and there is still uncertainty in that area that could lead to volatility of reserves or rates. With respect to older age morbidity frequency, there is less consensus now and in the future. He stated that there is a varying amount of data among the companies, and they are addressing the lack of credibility in different manners, applying various amounts of margins. Mr. Andersen stated that these findings led to actions in 2018. He noted how this includes how some companies established sizeable reserve increases mainly due to a reaction to updated morbidity studies. He stated that related to this was that companies have increased discipline in assumption setting, as evidenced by more frequent morbidity study updates. He stated that with respect to state insurance regulators’ actions in 2018, the Valuation Analysis (E) Working Group reviewed AG 51 filings from more than 50 companies, which led to the findings stated previously. He indicated this also led to communication with domiciliary insurance regulators, the Financial Analysis (E) Working Group and public through forums such as this. Mr. Andersen described how the Subgroup saw the need for additional guidance, describing its work with the industry to develop a guidance document, which is posted on the Subgroup’s web page. As a result, all the AG 51 filings for year-end 2018 will contain information that will help state insurance regulators better understand the data underlying morbidity assumptions and methods, as well as the rationale for projecting future morbidity. He described how the goal was to better

Attachment Five



anticipate company-specific and industrywide volatility of reserves and, therefore, limit the frequency and magnitude of surprise reserve increases. Mr. Andersen said that while most companies with LTCI business have no solvency concerns, some do. As a result, the regulatory actuaries are working toward targets to ensure future claims will be paid. Surprises lead to moving targets and financial uncertainty. He described why this has led the Subgroup to focus more on the volatility. With respect to morbidity improvements, these relate only to incidence rates; for example, how the claim incidence of an 85-year-old in 2034 will compare to claim incidence of an 85-year-old today. Mr. Andersen stated that the data in this age range is coming in fast, but still not fast enough. He described how this is a complicated topic that includes factors such as what Ms. Burns highlighted. Mr. Andersen said it is not just about health, but how consumers manage their health with lifestyle and other changes. This includes factors such as prevention, smoking cessation, awareness and general wellness. He described how there is a significant difference between the overall and insured population. He noted that the Subgroup will have to consider advances in Alzheimer’s treatment advancement, and not just the prevention but the reduction of severe conditions. He described how behavior management of LTC policies affect claims. This includes a decision to go on claim after minimal activities of daily living (ADLs) or wait. He described how factors such as trends in nursing home and home care usage, increases in less costly companion care, adult daycare and prevention will also have an impact, as well as education on programs that prevent costly LTCI events. One concern is the potential for a labor shortage in the area of caretaking. However, Mr. Andersen said more technology usage can offset any labor shortage. Finally, lifestyle can have an impact, noting that today families are more spread out, and “cheap” caregivers are less likely to be around as they were years ago. He said this trend is expected over the next 15 years. He stated that a lot of data, research and studies will help inform these views over the next few years. Mr. Andersen said one of the areas of focus over the next year will include the morbidity improvement aspect, making sure it includes all the complicated factors previously noted. He said the Subgroup wants to ensure companies are not reliant on too simplistic of a view in setting future morbidity assumptions. He stated the Subgroup will be collecting a lot of information to gain greater insight into the entire morbidity improvement assumption. He described how there is a conservative base of state insurance regulators who believe this assumption is too optimistic, while other state insurance regulators might be on the other side. He said the Subgroup is hopeful that it will have a better handle on these complicated issues by the end of the year. Ms. Ahrens said the Society of Actuaries (SOA) is working on several studies in these areas. She highlighted how some of conferences presented by the SOA might be helpful to non-actuaries, noting that many of the topics are not exclusively for actuaries. She specifically highlighted an InsurTech LTCI conference in May and why actuaries are interpreting morbidity improvement the way they are. Ms. Seip asked Mr. Andersen to repeat the item that was having the single greatest impact on morbidity. Mr. Andersen responded that it is the impact of certain 85- to 90-year-olds coming onto claim going forward. Having no further business, the Long-Term Care Insurance (B/E) Task Force adjourned. W:\National Meetings\2019\Spring\TF\Joint LTCI (BE)\4-8-19_Joint LTCI minutes.docx

Attachment Five



RECEIVERSHIP AND INSOLVENCY (E) TASK FORCE Sunday, August 4, 2019 11:00 a.m. – 12:00 p.m.


The Receivership and Insolvency (E) Task Force met Aug. 4, 2019. During this meeting, the Task Force:

1. Adopted its Spring National Meeting minutes.

2. Adopted the report of the Receivership Financial Analysis (E) Working Group, which met Aug. 4 in regulator-to-regulatorsession pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on OpenMeetings. During this meeting, the Working Group discussed the status of individual receiverships.

3. Adopted the report of the Receivership Large Deductible Workers’ Compensation (E) Working Group, including its July18 minutes. During this meeting, the Working Group took the following action:a. Heard a presentation from NAIC staff on statutory reporting of large deductible workers compensation information.b. Reviewed comments received on draft guidance for the Receiver’s Handbook for Insurance Company Insolvencies.

The Working Group made further revisions which will be considered for adoption on a future conference call.

4. Adopted revisions to the Guideline for Stay on Termination of Netting Agreements and Qualified Financial Contracts(#1556). The revisions to the drafting note highlight the issue that rules on master netting agreements of the FederalReserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) donot recognize state receivership stays and advise any state considering adoption of Guideline #1556 to first determinewhether the rules of the Federal Reserve, the FDIC and the OCC have been amended to recognize state receivership stays.

5. Adopted the report of the drafting group including recommendations to address the Macroprudential Initiative (MPI)referral on recovery and resolution from the Financial Stability (EX) Task Force. Recommendations include:a. Explore the use of bridge institutions in regulatory oversight as a pre-receivership mechanism to address the early

termination of qualified financial contracts (QFCs);b. Explore remedies for ensuring continuity of essential services and functions to an insurer in receivership in

consultation with Group Solvency Issues (E) Working Group;c. Update guidance on taxes in receivership and federal releases;d. Update guidance on termination of qualified financial contracts; ande. Consider methods to encourage states to adopt key areas in receivership law to enhance efficiencies and effectiveness

of the receivership process across states.

Work on these items is expected to begin in 2020.

6. Adopted 2020 proposed charges for the Task Force and its working groups.

7. Heard an international resolution update from Texas that highlighted activities of the International Association of InsuranceSupervisors (IAIS). The IAIS Resolution Working Group will be meeting in September to:a. Continue work towards finalizing the Application Paper on Recovery Planning.b. Discuss the planning and scope of the Application Paper on Resolution.

W:\National Meetings\2019\Summer\Summaries\Final Summaries\RITF summary.docx

Attachment Six



REINSURANCE (E) TASK FORCE Sunday, August 4, 2019

8:30 – 10:00 a.m.


The Reinsurance (E) Task Force met Aug. 4, 2019. During this meeting, the Task Force:

1. Adopted its May 15 minutes, which included the adoption of the proposed revisions to the Credit for Reinsurance ModelLaw (#785) and the Credit for Reinsurance Model Regulation (#786), and its Spring National Meeting minutes.

2. Adopted the report of the Qualified Jurisdiction (E) Working Group. The Working Group met July 25 via conference callin regulator-to-regulator session, pursuant to paragraph 8 (consideration of strategic planning issues) of the NAIC PolicyStatement on Open Meetings. The Working Group has discussed a charge that was received from the FinancialCondition (E) Committee to consider changes to the Process for Developing and Maintaining the NAIC List of QualifiedJurisdictions as a result of the “Bilateral Agreement Between the United States of America and the European Union onPrudential Measures Regarding Insurance and Reinsurance” (Covered Agreement).

3. Adopted the report of the Reinsurance Financial Analysis (E) Working Group. The Working Group has not met since theSpring National Meeting. The Working Group has a charge from the Financial Condition (E) Committee to considerchanges in its current methods of monitoring certified reinsurers domiciled in qualified jurisdictions to incorporatechanges to state reinsurance collateral requirements caused by the Covered Agreement and any changes to Model #785and Model #786 to provide similar treatment to reinsurers domiciled in qualified jurisdictions.

4. Discussed the next steps in the process of implementing the 2019 revisions to Model #785 and Model #786. There areseveral tasks that will need to be completed by the Qualified Jurisdiction (E) Working Group, Reinsurance FinancialAnalysis (E) Working Group, the Blanks (E) Working Group, the Statutory Accounting Principles (E) Working Group,the working groups involved with RBC, and internal NAIC groups, including information technology (IT) and the NAICFinancial Data Repository.

5. Discussed Model #785 and Model #786 as an accreditation standard. Director Lindley-Myers provided a memorandumto the Financial Regulation Standards and Accreditation (F) Committee that outlined the necessary steps to make the2019 revisions to Model #785 and Model #786 accreditation standards.

W:\National Meetings\2019\Summer\Summaries\Draft Summaries\ReinsuranceTF.docx

Attachment Seven



RISK RETENTION GROUP (E) TASK FORCE Saturday, August 3, 2019

3:00 – 4:00 p.m.


The Risk Retention Group (E) Task Force met Aug. 3, 2019. During this meeting, the Task Force:

1. Discussed a letter received from the Vermont Captive Insurance Association (VCIA) regarding efforts to clarify issuesaround risk retention groups and their registration in non-domiciliary states.

2. Exposed proposed revisions to the NAIC Uniform Risk Retention Group – Notice and Registration form for a 30-daypublic comment period ending Sept. 6. The revisions update the form to provide clarity regarding required information.

3. Exposed Frequently Asked Questions (FAQ) and Best Practices documents for risk retention groups for a 30-day publiccomment period ending Sept. 6. These are new documents to assist the states with the registration of risk retention groups.

4. Referred proposed revisions to the Financial Regulation Standards and Accreditation (F) Committee to consider updatingthe Part B1: Financial Analysis Accreditation Guideline specific to risk retention groups.

W:\National Meetings\2019\Summer\TF\Riskretgrp\Riskretgrp_Tfreports.Docx

Attachment Eight



VALUATION OF SECURITIES (E) TASK FORCE Sunday, August 4, 2019

2:00 – 3:00 p.m.


The Valuation of Securities (E) Task Force met Aug. 4, 2019. During this meeting, the Task Force:

1. Adopted its May 30 and Spring National Meeting minutes, which included the following action:a. Received a referral from the Statutory Accounting Principles (E) Working Group on structured notes and a proposed

amendment to the Purposes and Procedures Manual of the NAIC Investment Analysis Office(P&P Manual) to update the definition and instructions for structured notes. Both were exposed for a 30-day publiccomment period ending July 8.

b. Heard a joint NAIC staff and industry report on the project to review existing credit tenant loan (CTL) guidance andpossible new guidance on other lease-based transactions.

c. Received and discussed a referral from the Statutory Accounting Principles (E) Working Group on regulatorytransactions and received a proposed P&P Manual amendment, that was exposed for a 30-day public comment periodending July 8, to add instructions for new administrative fields for regulatory transactions “RTS” and “RT.”

d. Discussed a referral to the Blanks (E) Working Group to add NAIC designation to U.S. Securities and ExchangeCommission (SEC) registered fund investments.

e. Discussed a referral to the Capital Adequacy (E) Task Force on the previously adopted comprehensive fundinstructions.

f. Received a proposed P&P Manual amendment to remove obsolete modified filing exempt (MFE) instructions, whichwas exposed for a 30-day public comment period ending July 8.

g. Discussed a referral to the Blanks (E) Working Group on adding an NAIC designation modifier to create an NAICdesignation category along with the SVO administrative symbols.

2. Adopted an amendment to the P&P Manual to update the definition and instructions for structured notes, which wasexposed for a 30-day public comment period ending July 8. The new guidance refers to the definition of structured notesin Statement of Statutory Accounting Principles (SSAP) No. 26R—Bonds, which was adopted by the Statutory AccountingPrinciples (E) Working Group. The definition removed these instruments from being in scope of SSAP No. 26R and, withthe exception of mortgage-referenced securities, SSAP No. 43R—Loan-Backed and Structured Securities. The P&PManual amendment also makes them ineligible for filing exemption.

3. Directed NAIC staff to update the amendment to include administrative transitional instructions and further defineterminology, and then re-expose the updated amendment for a 14-day public comment period. The amendment to the P&PManual adds instructions for new administrative fields for regulatory transactions, “RTS” and “RT,” which was exposedfor a 30-day public comment period ending July 8. The amendment adds specific instruction for reporting regulatorytransactions. Previously, reporting entities did not have any available reporting options when an investment schedulerequired an NAIC designation.

4. Received and exposed a proposed P&P Manual amendment to update the definition and instructions for principal protectednotes for a 45-day public comment period ending Sept. 19. The amendment proposes removing this class of securities fromeligibility for filing exemption; they would need to be filed with the Securities Valuation Office (SVO) for review.

5. Received and exposed a proposed P&P Manual amendment to update the interim instructions for mortgage referencesecurities for a 30-day public comment period ending Sept. 4. Insurers currently do not have instructions to assign an NAICdesignation to a newly issued or newly acquired mortgage reference security prior to the publication of the annualsurveillance data. This proposal would provide that interim guidance.

6. Adopted an amendment to the P&P Manual to delete a stray reference to MFE, which was exposed for a 30-day publiccomment period ending July 8. The Task Force previously adopted the deletion of the MFE provisions,, but there weresome residual references in the P&P Manual that this amendment would remove.

Attachment Nine


7. Heard a report from NAIC staff and industry on a project to review existing CTL guidance and possible new guidance onother lease-based transactions. The Task Force directed insurers to continue reporting the other lease-based transactionsas they have done in the past for year-end 2019 and directed NAIC staff to continue working with them on updating theguidance.

8. Heard NAIC staff reports on: 1) projects before the Statutory Accounting Principles (E) Working Group; 2) the impact ofresidential mortgage-backed securities (RMBS)/commercial mortgage-backed securities (CMBS) price breakpoints withthe upcoming change NAIC designation categories; 3) “bespoke” securities; and 4) infrastructure investments.

W:\National Meetings\2019\Summer\TF\VOS\2019 Summer National Meeting\Summary\VOSTF Meeting Summary 2019-08-04.doc

Attachment Nine



GROUP CAPITAL CALCULATION (E) WORKING GROUP Saturday, August 3, 2019

8:00 – 9:00 a.m.


The Group Capital Calculation (E) Working Group met Aug. 3, 2019. During this meeting, the Working Group:

1. Adopted its May 2 and Spring National Meeting minutes. During its May 2 call, the Working Group provided an overviewof its final group capital calculation (GCC) testing template and instructions before testing begins.

2. Discussed the need for confidentiality protections for the GCC once it is adopted, and reviewed a draft referral letter to theGroup Solvency Issues (E) Working Group explaining such a need. The discussion was followed by reactions from variousmembers of the industry, which was more specific in how such protections could be provided. Further discussion isexpected.

3. Received a presentation from the National Association of Mutual Insurance Companies (NAMIC), which summarized thepreliminary feedback from a group of their member insurers who had performed their own testing of the GCC testingtemplate and instructions.

W:\National Meetings\2019\Spring\Summaries\Final Summaries\Group Cap WG.docx

Attachment Ten

Attachment Eleven Financial Condition (E) Committee

8/5/19


Draft: 7/29/19

National Treatment and Coordination (E) Working Group Conference Call

July 17, 2019

The National Treatment and Coordination (E) Working Group of the Financial Condition (E) Committee met via conference call July 17, 2019. The following Working Group members participated: Jeff Hunt, Co-Chair (TX); Joel Sander, Co-Chair (OK); Cindy Hathaway (CO); Maura Welch and Joan Nakano (CT); Virginia Christy and Alison Sterett (FL); Stewart Guerin and Tangela Byrd (LA); Debbie Doggett (MO); Victoria Baca (NM); Cameron Piatt (OH); Cressinda Bybee (PA); Jay Sueoka (UT); Ron Pastuch (WA); and Linda Johnson (WY). 1. Adopted its May 15 Minutes Ms. Johnson said her name should be removed from the attendance on the Working Group’s May 15 minutes; she was not in attendance. Mr. Sander made a motion, seconded by Mr. Hunt to adopt the Working Group’s May 15 minutes (Attachment 1). The motion passed unanimously. 2. Exposed Proposal 2019-04 Ms. Johnson explained that the purpose of proposal 2019-04 was to include “statutory” before the home office address to provide clarity to the applicant company on the appropriate address to place on the consent to service of process form. Jane Barr (NAIC) added that there have been numerous questions from the industry and state insurance regulators on the state that should be identified on page 1 of the form. To provide additional clarity, Form 12 should include the state where the applicant company is regulated if different than the state where it is organized. Ms. Barr suggested that the Form 12 changes should be exposed for a 30-day public comment period ending Aug. 16.

3. Exposed Proposal 2019-08 Ms. Barr explained that when the Questionnaire, Form 8 was modified in 2012, several questions were moved and reworded; and during this update, the old question #24 was inadvertently deleted. It was suggested during the review of the Company Licensing Best Practices Handbook (Handbook) updates that this question be moved, renumbered as question #31,and made as an optional question for expansion applications. Ms. Doggett said this question pertains more towards the expansion application and not the primary application, but this information could also be found in the annual statement interrogatories. Ms. Belfi said the question should be required and Sub-Part B could be optional to provide copies of the investment management agreements and any investment guidelines. Ms. Barr suggested that the cover form for proposal 2019-08 be updated to reflect two options: 1) this question be placed back into the questionnaire in its original order and Sub-Part B be optional or, 2) this question not be placed back into the questionnaire since this information is already located in the general interrogatories of the annual statement, and it be exposed for a 30-day public comment period ending Aug. 16. The Working Group agreed. 4. Received Comments to the Handbook Mr. Hunt said updates to the Handbook was exposed for a 30-day public comment period ending June 14. Comments were received by Ms. Bybee, and they were incorporated into the Handbook, except for the request to remove the links. Ms. Bybee explained that her comments were in question to where in the Handbook the links were located because they appear to link to the description of the Priority Levels that were recently updated and not to the specific instructions. Ms. Barr said she will review the links and make any necessary corrections to the following updates:

a. Pages 15: Changes that listed prioritization of a company’s standing, from risk-based prioritization 1–3 (1 being in good standing and 3 not ready for expansion) to levels 1–4 (1 not ready for expansion and 4 being in good standing/no issues). Priority 4 should include the statement “Priority 1 companies should not be considered for expansion.”

b. Page 47: The reference to Form 8 Questionnaire may be removed once the comments are received on the exposure for Proposal 2019-18.

c. Page 51: The link to the instructions for the corporate amendment change type should not include the Priority reference.


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d. Pages 95–97: Includes edits pertaining to the referral from the Financial Analysis (E) Working Group. These edits are included in Appendix D – Form A Review Best Practices, and they will be exposed for a 30-day public comment period ending Sept. 16.

5. Discussed a Referral from the Financial Analysis (E) Working Group Ms. Doggett summarized the referral from the Financial Analysis (E) Working Group (FAWG). She said it is intended to caution state insurance regulators when reviewing applications to not place reliance on parental guarantees to resolve capital issues with the insurer. She indicated that previous instances have dictated that it is not the case, and most parental guarantees are not worth the paper written on. Mr. Hunt said Texas has licensed a company with consent orders when capital infusion has been guaranteed for Medicare business. Ms. Doggett agreed that would hold more water than just a parental guarantee. Mr. Hunt said the second part of the referral deals with acquisition, mergers and redomestications; and the surviving entity is still licensed appropriately in all the foreign jurisdictions. Ms. Doggett agreed and noted a recent situation where a company’s license through a merger was changed from a life and health company to one that is not regulated under most jurisdictions. This changed through a corporate amendment application where most states did not realize the impact it would make on the entity’s license. Missouri’s understanding is that the surviving entity must already be licensed in the state where the non-surviving company was licensed. Licenses do not automatically transfer from the non-surviving entity to the surviving entity if that surviving entity was not already licensed in that state. She added that the merger should not support changing the license of the non-surviving entity to a different type of license that may not be supported by the state where the non-surviving entity was already licensed. Mr. Hunt said the first level of a merger is authorized by the domiciliary state; and once approved, then a corporate amendment is filed with the foreign states to update their records of what happened. He indicated that it is difficult for the foreign state to revoke the license after the merger has been approved. Ms. Doggett said the FAWG struggled on where the referral should go to, and it selected the National Treatment and Coordination (E) Working Group since it deals with licensing as a place to start with additional guidance on reviewing these types of transactions. Ms. Barr said Appendix D is on the review of Form A’s, and it includes suggested language regarding the referral. She suggested exposing Appendix D for a 30-day public comment period ending Aug. 16. 6. Discussed Other Matters Ms. Barr said during prior conference calls, there has been discussion on creating an electronic biographical database to submit a biographical affidavit. The internal process to receive approval is to scope the process out in a proposal form, and the project was approved. The Ad Hoc groups will begin their work later this year and interested participants can email Ms. Barr. Ms. Barr added that there have been several issues that arose in the past few weeks regarding the biographical affidavit, and the majority are consistency issues where a state has posted the biographical affidavit and the form had been recently updated, but the state’s version of the form had not. She suggested that the states should provide a link to the NAIC/Uniform Certificate of Authority Application (UCAA) website to direct the applicant company to the most recent version of the form. When the company uses an older version of the form, applies to multiple states, and one state contacts the company and requests that they use the most recent form, which the application instructions states to do, the company is questioning that the state’s request when other application states are accepting the older form. The uniform states should require the uniform instructions to avoid inconsistencies amongst the states. Ms. Barr said another inconsistency has been on the interpretation of each question having a response. When the applicant company just enters “see attachment” as a response, then those attachments should include the affiant’s name and company information in the header, and the affiant should also sign those attached pages to attest to the validity and accuracy of those attachments. Ms. Barr suggested adding a Frequently Asked Question (FAQ) with this instruction. Ms. Barr said she is aware that there is some concern on how often the biographical affidavit has been updated, and currently, the Biographical Third-Party Review (E) Subgroup has adopted additional changes to the form; but before those are sent to the Working Group for exposure, she suggested that any additional questions or concerns regarding this form be forwarded prior to exposure. Once those changes are adopted, that should be the last change made to the form until the electronic database is developed. David Kodama (American Property Casualty Insurance Association—APCIA) agreed that inconsistency has been an issue. He asked who to contact regarding the biographical affidavit database and if it would be a central repository for the affidavit for all states to access. Ms. Barr concurred that it is the intent of the database to have one location for the form to be completed


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and submitted. Mr. Kodama asked if this database would also include fingerprinting. Ms. Barr said it would not; there are a few states that require fingerprinting, and the software to capture this is too expensive. Mr. Hunt announced that he will retire from the Texas Department of Insurance (DOI) effective July 31. He has worked with company licensing and this Working Group since 1999, and he will continue to participate as an interested party. Ms. Johnson has agreed to participate as co-chair for the remainder of the year. The Working Group plans to meet in late August or mid-September via conference call. Having no further business, the National Treatment and Coordination (E) Working Group adjourned. W:\National Meetings\2019\Summer\Cmte\E\NTCWG\07_17_ntcwgmin.docx

Attachment Twelve Financial Condition (E) Committee

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Draft: 7/30/19

NAIC/AICPA (E) Working Group Conference Call

July 25, 2019 The NAIC/AICPA (E) Working Group of the Financial Condition (E) Committee met via conference call July 25, 2019. The following Working Group members participated: Doug Stolte, Chair (VA); Jim Armstrong, Vice Chair (IA); Laura Clements and Susan Bernard (CA); Rylynn Brown (DE); Judy Weaver (MI); Levi Nwasoria (MO); Lindsay Crawford (NE); Doug Bartlett (NH); Dale Bruggeman (OH); James Borrowman (OR); Joe DiMemmo (PA); Johanna Nickelson (SD); and Jake Garn (UT). Also participating was: Shawn Frederick (TX). 1. Discussed the Premium Threshold Mr. Stolte said the Working Group is responsible for reviewing the premium threshold amounts contained within the Annual Financial Reporting Model Regulation (#205) on an annual basis. Bruce Jenson (NAIC) gave an update on the results of the annual review, noting that as of Dec. 31, 2018, 92.1% of all direct written premiums and 93.7% of all gross written premiums would be subject to reporting requirements. Mr. Stolte noted that these results were within the Working Group’s expectations and that no action to adjust the threshold was deemed necessary at this time. 2. Reviewed the States’ Adoption of Internal Audit Requirements Mr. Stolte stated that in 2014, the former Corporate Governance (E) Working Group developed and adopted revisions to Model #205 that require large insurers to establish and maintain an effective internal audit function. He said the NAIC/AICPA (E) Working Group assisted in the development of the revisions and is generally responsible for the review and maintenance of Model #205. Therefore, the Working Group is tracking the progress of the states in adopting these revisions. Mr. Stolte stated that as of July 2019, 33 states have adopted the internal audit revisions, compared to 19 states that had adopted the revisions at the same time in 2018. He stated that the internal audit function requirements are scheduled to be required under the NAIC Financial Regulation Standards and Accreditation Program as of Jan. 1, 2020. Therefore, he encouraged the states to continue their efforts in enacting the revisions.

3. Heard an Update on Recent Accounting and Auditing Pronouncements Jean Connolly (PricewaterhouseCoopers) provided an overview of recent accounting and auditing pronouncements affecting statutory audit reports. Ms. Connolly highlighted the new Statement on Auditing Standards (SAS) No. 134—Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements. Ms. Connolly stated that SAS No. 134 will be effective for periods ending on or after Dec. 15, 2020. and significantly changes the form and content of the auditor’s report issued after auditing a set of financial statements. The SAS moves the audit opinion to the second paragraph of the auditor’s report and requires an expanded discussion of the auditor’s responsibility to form an opinion on the financial statements. Ms. Connolly also provided an overview of other auditing standards that are currently under development and exposed for public comment, including a proposed SAS on amendments to the concept of materiality and a proposed SAS on audit evidence. Mr. Stolte thanked Ms. Connolly for her overview and encouraged Working Group members to continue to educate themselves on new auditing standards. 4. Discussed Access to IT Workpapers Mr. Stolte said that examination teams have recently raised concerns regarding access to audit workpapers associated with the testing of an insurer’s information technology (IT) controls. Mr. Stolte asked state insurance regulators to share any experiences they have had in this area to help the Working Group determine how prevalent these issues are. Ms. Clements stated that California has run into some issues in obtaining access to IT documentation and testing on a recent exam when the insurer claimed client/attorney privilege to protect the documents. However, Ms. Clements stated that this situation affected access to company documents and not external audit workpapers.

Attachment Twelve Financial Condition (E) Committee

8/5/19


Mr. Nwasoria said that Missouri has faced a situation whereby the IT functions of a domestic insurer were outsourced to a foreign affiliate, which made it difficult to obtain copies of audit workpapers from a foreign audit firm. Mr. Stolte and Ms. Connolly encouraged state insurance regulators to work with the certified public accountant (CPA) firm’s national office in this situation for assistance in obtaining access to workpapers. Mr. Stolte said that the Working Group will continue to monitor developments in this area. 5. Discussed the Completeness and Accuracy Testing of Reserve Data Mr. Stolte said that exam teams often face challenges in testing the completeness and accuracy of data used by actuaries in loss reserve calculations and estimates and meeting the expectations of the NAIC accreditation program in this area. As this testing is also an important element of external audits, Mr. Stolte asked whether the American Institute of Certified Public Accountants (AICPA) firm representatives might be able to work with state insurance regulators to provide training in this area. Mr. Jenson provided additional background information on the challenges for examination teams in this area, noting that testing for property/casualty (P/C) insurers is different from testing for life insurers. Mr. Jenson also discussed the challenge of identifying and testing internal controls in this area. Ms. Connolly stated that the AICPA firm representatives are willing to assist in this area and offered to work with NAIC staff to schedule a training webinar for state insurance regulators later this year. 6. Discussed Issues Related to the Communication of Internal Control-Related Matters Noted in an Audit Ms. Connolly said that AICPA firm representatives have noted that the Texas requirements to communicate internal control-related matters noted in an audit to the Department of Insurance (DOI) appear to be inconsistent with the NAIC model in this area. Ms. Connolly stated that one section of the Texas code indicates that the auditor should report all “significant deficiencies” noted in an audit, whereas another section indicates that only “material weaknesses” should be reported. As all other states only require the communication of “material weaknesses,” the firms are asking for clarification regarding the expectations in this area. Mr. Frederick clarified expectations by stating that Texas will require information on “material weaknesses” through a formal filing but will only require information on “significant deficiencies” upon request. Having no further business, the NAIC/AICPA (E) Working Group adjourned. W:\National Meetings\2019\Summer\Cmte\E\AICPA\7-25-19 AICPAWGmin.docx



RESTRUCTURING MECHANISMS (E) WORKING GROUP Sunday, August 4, 2019

3:00 – 4:00 p.m.


The Restructuring Mechanisms (E) Working Group met Aug. 4, 2019. During this meeting, the Working Group:

1. Adopted its July 8, July 1, May 16, and Spring National Meeting minutes; and the Restructuring Mechanisms (E)Subgroup’s May 23 minutes, which included the following action:a. Heard presentations from the respective departments of insurance (DOIs) related to corporate division laws adopted

in Connecticut, Illinois and Pennsylvania.b. Discussed proposed changes to its charges.c. Heard a presentation from the American Council of Life Insurers (ACLI) on its adopted principles for restructuring

mechanisms.d. Heard a presentation from Lloyds on the United Kingdom (UK) Part VII transfer requirements.e. Heard presentations from: 1) the ACLI; 2) Swiss Re America Holding Corporation (Swiss Re); 3) ProTucket Insurance

Company (ProTucket); and 4) the National Organization of Life and Health Insurance Guaranty Associations(NOLHGA) and the National Conference of Insurance Guaranty Funds (NCIGF).

f. Discussed comments received on the definition of “run-off,” as well as the charges of the Restructuring Mechanisms(E) Subgroup.

2. Heard presentations from: 1) Enstar Group; 2) Aon Service Corporation regarding its views on different restructuringmechanisms. Enstar’s presentation focused on the industry need for restructuring mechanisms, and Aon’s presentationfocused on the benefits of restructuring mechanisms.

W:\National Meetings\2019\Spring\Summaries\Final Summaries\Restructuring.docx

Attachment Thirteen



GROUP SOLVENCY ISSUES (E) WORKING GROUP Saturday, August 3, 2019 11:30 a.m. – 12:30 p.m.


The Group Solvency Issues (E) Working Group met Aug. 3, 2019. During this meeting, the Working Group:

1. Adopted the report of the ORSA Implementation (E) Subgroup, which included the following action:a. Reported it met July 29 in regulator-to-regulator session, pursuant to paragraph 3 (specific companies, entities or

individuals) and paragraph 6 (consultations with NAIC staff members related to NAIC technical guidance) of theNAIC Policy Statement on Open Meetings.

b. Discussed the recent adoption of Actuarial Standard of Practice (ASOP) 55 on Capital Adequacy Assessment.c. Discussed the International Association of Insurance Supervisors (IAIS) consultation on proposed revisions to

Insurance Core Principles (ICP) including a number of significant revisions to ICP 16 – Enterprise RiskManagement for Solvency Purposes.

2. Heard an update on recent group-related activities of the IAIS including the status of ongoing projects of the InsuranceGroups Working Group. Projects discussed included a proposed supervisory college workshop, as well as thedevelopment of an aide memoire and frequently asked questions (FAQ) document to assist in implementing theCommon Framework for the Supervision of Internationally Active Insurance Groups (ComFrame).

3. Discussed a referral from the recently disbanded Operational Risk (E) Subgroup recommending ongoing study andmonitoring of methodologies used in measuring, quantifying and mitigating operational risks.

4. Discussed comments received during the exposure of group-related analysis guidance developed for inclusion in theNAIC’s Financial Analysis Handbook. The Working Group agreed to refer the proposed revisions to the FinancialAnalysis Solvency Tools (E) Working Group for consideration of adoption.

5. Discussed the effectiveness of the Form F Implementation Guide in clarifying expectations regarding the Form F filingand improving its overall effectiveness and value in insurance regulation.

W:\National Meetings\2019\Summer\Summaries\Final Summaries\GSIWG.docx

Attachment Fourteen


MEMORANDUM TO: Financial Condition (E) Committee FROM: NAIC Staff

DATE: August 5, 2019

RE: Examiners’ Suggested Salary For its work in 2019, the Risk-Focused Surveillance (E) Working Group received the following charges from the Financial Condition (E) Committee:

Consider recommendations to the Financial Regulation Standards and Accreditation (F) Committee for the purpose of valuating the suitability of insurance department staffing in relation to the necessary skill sets.

Review the Financial Condition Examiners Handbook salary and per diem guidelines to determine the applicability,

value, and use to the states; consider alternative approaches based on current financial solvency responsibilities.

To address the first charge, the Working Group has developed and referred Handbook revisions that would provide clearer compensation suggestions to both the Financial Analysis Solvency Tools (E) Working Group and the Financial Examiners Handbook (E) Technical Group. The Working Group has also sent a referral to the Financial Regulation Standards and Accreditation (F) Committee to enhance consideration of Department compensation during the Accreditation review process. While the work progresses, NAIC staff have continued to update the existing Handbook guidance on regulator compensation as detailed within this memo. The Consumer Price Index (CPI), as defined by the U.S. Bureau of Labor Statistics (BLS), is a measure of the average change in prices of goods and services purchased by households over time. The CPI is based on prices of food, clothing, shelter, fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services purchased for day-to-day living. In 2008, it was decided that because the CPI takes into consideration most costs incurred by the average household, it is reasonable that an increase in salary should be within the same parameters as the increase in the cost of living. It was therefore proposed, and that proposal accepted, that the CPI be used as a basis for examiner salary increases. In years in which the CPI does not accurately reflect market conditions, additional work—including surveys and salary studies—may be completed to ensure proper salary suggestions. Consistent with past years, inflation has continued to show modest increases in prices and appears appropriate as a metric on which to base a suggested compensation increase. The following data table shows the average annual salary increases adopted in the previous five years as compared to the CPI, as well as the proposed increase for the following year. The information “as published by BLS” compares the CPI as of July of each year, consistent with the analysis performed in past years. For 2019, the CPI information has been released through May and will be updated in subsequent analysis that is provided to the Committee although NAIC staff do not expect substantive changes to the final recommendation.

Attachment Fifteen


2014 2015 2016 2017 2018 2019

As Published in Financial Condition Examiners Handbook

2.25% 2.00% 2.75% 3.00% 3.00% *2.00%

As Published by BLS 2.26% 0.17% 0.83% 1.73% 2.95% 1.53%

Difference 0.01% 0.83% 1.92% 1.27% 0.05% 0.47% * - Suggested change

As shown above, in recent years, the rates suggested by the NAIC were consistently comparable to those published by the BLS, regardless of the method used.

Based upon the current CPI data available (July 2018–July 2019), the estimated annual change in CPI is approximately 1.53%. As such, if the Committee intends to base salary increases on changes in the CPI, we would recommend a 2% increase in all classification categories as shown below.

2018 2019

Classification Daily Rates

Suggested Increase

Daily Rates

Insurance Company Examiner, AFE* 329 2% $ 336

Automated Examination Specialist, AFE (no AES**) 403 2% $ 411

Senior Insurance Examiner, CFE*** 403 2% $ 411

Automated Examination Specialist, AES 453 2% $ 462

Automated Examination Specialist, CFE (no AES) 453 2% $ 462

Insurance Examiner In-Charge, CFE 485 2% $ 495

Supervising or Administrative Examiner 515 2% $ 525

* Accredited Financial Examiner** Automated Examination Specialist*** Certified Financial Examiner

W:\National Meetings\2019\Summer\Cmte\E\Materials\Preliminary Materials\Attachment Fifteen-Examiners Sugg Comp - 2019.docx

Attachment Fifteen

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© 2019 National Association of Insurance Commissioners

MEMORANDUM

TO: Commissioner David Altmaier (FL) Chair of the Financial Condition (E) Committee

FROM: Superintendent Elizabeth Kelleher Dwyer (RI) & Buddy Combs (OK) Co-Chairs of the Restructuring Mechanisms (E) Working Group

DATE: July 8, 2019

RE: Update and Proposed 2020 Charges

During its Feb. 19, 2019 conference call, the Financial Condition (E) Committee formed the Restructuring Mechanisms (E) Working Group & Restructuring Mechanisms (E) Subgroup and adopted charges for each of these groups. However, the charges developed at that time did not set forth specific due dates for each of the charges which are now expected of any new NAIC group or any new charges for an existing NAIC group. The Committee agreed to temporarily waive such due dates at the time, but only under the expectation that they would be established by the 2019 Summer National Meeting. This memorandum summarizes the activity of the Working Group & Subgroup and sets forth proposed 2020 charges intended to meet such specific deliverables.

Restructuring Mechanisms (E) Working Group The primary charge of the Restructuring Mechanisms (E) Working Group is to prepare a White Paper which includes not only a summary of the current restructuring statutes, but also discusses the perceived need for restructuring statutes and the issues those statutes are designed to remedy as well as the alternatives that insurers are currently employing to achieve similar results. As such, the Working Group has primarily been focused on gathering information and viewpoints on the various issues which will become the core text included in the White Paper. The Working Group has already received a great deal of information from various presenters and regulators and as co-chairs we are beginning to develop an outline of the White Paper. We recognize the intent of timely deliverables within charges and at this juncture we intend to draft, discuss and finalize the White Paper by the 2020 Summer National Meeting, which includes having a draft available for public comment by early 2020, and then working with any feedback that the Working Group receives.

The Working Group is also charged with reviewing and proposing changes to the Guaranty Association Model Acts (Model #520 & #540) to ensure that policyholders that had guaranty fund protection prior to a restructuring continue to have it after the restructuring. In addition, the Working Group is also charged with reviewing and proposing changes to the Protected Cell Companies Model Act (Model #290) to allow for restructuring mechanisms. While the importance of these topic cannot be diminished, it is difficult to imagine the Working Group being able to complete that within the expected one-year time period, and as such we would not be opposed to removing these charges until after the Working Group has completed the White Paper. Alternatively, we have proposed instead that those charges be removed but be replaced with a charge that contemplates requesting to begin such work in 2020. We believe the Working Group is likely to discuss these issues during the development of the White Paper, and as

Attachment Sixteen


such will likely be in a position to request development of those models shortly after completion of the White Paper, but the existing process to change a model already requires approval from the parent Committee and Executive Committee, therefore removal of these charges at this time is likely appropriate. As such, the following represents our proposed changes to the 2020 Charges for the Working Group only:

1) Evaluate and prepare a White Paper that: a. Addresses the perceived need for restructuring statutes and the issues those statutes are designed to

remedy. Also, consider alternatives that insurers are currently employing to achieve similar results; b. Summarize the existing state restructuring statutes; c. Addresses the legal issues posed by an Order of a Court (or approval by an Insurance Department)

in one state affecting the policyholders of other states d. Considers the impact that a restructuring might have on Guaranty Associations and on

policyholders that had Guaranty Fund protection prior to the restructuring. e. Identify and addresses the legal issues associated with restructuring using a protected cell.

Complete by the 2020 Summer National Meeting 2) Consider requesting approval from the Executive (EX) Committee on developing changes to specific NAIC

models as a result of findings from the development of the White Paper Complete by the 2020 Fall National Meeting

3) Review and propose changes to the Guaranty Association Model Act to ensure that policyholders that had guaranty fund protection prior to a restructuring continue to have it after the restructuring

4) Review and propose changes to the Protected Cell Companies Model Act to allow for restructuring mechanisms

Restructuring Mechanisms (E) Subgroup While the Restructuring Mechanisms (E) Subgroup has not yet had the same level of discussions as the Working Group, much of this can be attributed to the difficultly of delivering on the charges without more clarity on the details of how these companies are expected to operate. More specifically, while regulators have practices that assist them in understanding how to conduct the review of the proposed transactions themselves, it’s been difficult to begin other conversations about the solvency risk these transactions may have on the companies after the transaction. This specifically includes RBC, where it’s difficult to imagine what changes would be made to the RBC formula (or other capital requirements) for companies that may have a different risk profile after the transaction. This is not to suggest that such a change cannot be made, but the Subgroup has yet to receive enough information that will allow it to even begin those discussions. Similarly, with respect to developing protected cell accounting and reporting requirements, it is unclear at this point whether each protected cell should be subject to RBC as if the protected cell was a standalone company or whether RBC should apply to the Protected Cell Company as a whole based on the combined capital level. However, to be clear, the Subgroup appreciates that laws have been adopted in states and is currently in the process of developing best practices that could be used by states that have adopted such laws for their use in both: a) considering whether the proposed transaction should be approved; and b) monitoring the financial condition of a company after a transaction has been executed. The Subgroup will aim to develop these best practices in a manner that it can recommend them as accreditation standards as inferred by the current charges. To emphasize this point, the below proposed changes to the charges emphasize the development of such best practices as a new charge, but one that incorporates many of the aspects of the pervious final charge, which has now been proposed to be deleted. The other proposed changes are clarifying either as to the estimated timeline for completion or reflective of the discussions that have taken place thus far within the Subgroup.

1) Develop best practices to be used in considering the approval of proposed restructuring transactions including among other things, the expected level of reserves and capital expected after the transfer along with the adequacy of long-term liquidity needs, and also develop best practices to be used in monitoring

Attachment Sixteen


the companies after the transaction is completed. Once completed, recommend to the Financial Regulation Standards and Accreditation (F) Committee for their consideration. Complete by the 2020 Summer National Meeting

2) Consider the development of financial surveillance tools that are specifically designed for companies in runoff (companies that are no longer actively writing insurance business or collecting premiums) Minimum standards of review

3) Consider the need to make changes to the RBC formula to better assess the minimum surplus requirements for companies in runoff. Complete by the 2020 Fall National Meeting

4) Review the various restructuringthe various restructuring mechanisms and develop, if deemed needed, protected cell accounting and reporting requirements for referring to the Statutory Accounting Principles (E) Working Group. Complete by the 2020 Fall National Meeting

a. Minimum capital requirements b. Specific actuarial guidance in determining initial reserving levels c. Protected cell reporting requirements d. Proposed accreditation standards

Attachment Sixteen

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To: Commissioner David Altmaier (FL), Chair, Financial Condition (E) Committee

From: Kevin Conley (NC), Chair, Mortgage Guaranty Insurance (E) Working Group

Date: July 2, 2019

Re: Updated Request for Extension

As you may recall, the Mortgage Guaranty Insurance (E) Working Group is in the process of fulfilling its charge to update the Mortgage Guaranty Insurance Model Act (Model #630), and it had previously hoped to complete its work by the Summer National Meeting. As chair, I would like to update that request to the Financial Condition (E) Committee in accordance with NAIC procedures.

The NAIC engaged Milliman to assist the Working Group in finalizing a Mortgage Guaranty Insurance Capital Model that would become the new capital standard for mortgage insurers. That work has been ongoing for some time, partly because Milliman was originally engaged to validate a model previously developed by the mortgage industry, and it identified a significant amount of data and documentation-related problems. Since last fall, Milliman’s focus shifted to produce a more simplified model preferred by the state insurance regulators. I am happy to report that Milliman has completed its work, and the Working Group hopes to make the proposed Mortgage Guaranty Insurance Capital Model publicly available for finalization.

While the proposed Mortgage Guaranty Insurance Capital Model seems to meet the needs of the Working Group, the Working Group will soon be shifting gears to coordinate with the Property and Casualty Risk-Based Capital (E) Working Group and the Blanks (E) Working Group. Finally, the Mortgage Guaranty Insurance (E) Working Group will finalize the actual language used in Model #630 since it is intended to provide the legal authority over the Mortgage Guaranty Insurance Capital Model.

At this time, we believe we can complete this work by the 2020 Spring National Meeting. Again, a request for additional time is largely the result of the significant work that had to be completed by Milliman to meet the needs of the state insurance regulators. Regardless, we are mindful that we have been unable to complete our work within the one-year time period expected under the NAIC model law process; therefore, we request an extension until the 2020 Spring National Meeting in order to finalize a product that can be adopted by the domestic states of the mortgage insurers, as well as any other state also wishing to adopt the same.

Attachment Seventeen

As adopted by Receivership and Insolvency (E) Task Force on 8/4/19

Model Regulation Service—October 2013

© 2013 National Association of Insurance Commissioners 1556-1

GUIDELINE FOR STAY ON TERMINATION OF NETTING AGREEMENTS AND QUALIFIED FINANCIAL CONTRACTS

Drafting Note: State receivership and insolvency laws may permit a contractual right to cause the termination, liquidation, acceleration or close-out obligations with respect to any netting agreement or qualified financial contract (QFC) with an insurer because of the insolvency, financial condition or default of the insurer, or the commencement of a formal delinquency proceeding. These laws are based upon similar provisions contained in the federal bankruptcy code and the Federal Deposit Insurance Act (FDIA). The FDIA also provides for a twenty-four-hour stay to allow for the transfer of QFCs by the receiver to another entity rather than permitting the immediate termination and netting of the QFC. 12 U.S.C. § 1821(e)(9)-(12). States that permit the termination and netting of QFCs may want to consider adopting a similar stay provision following the appointment of a receiver.

States that consider the enactment of a stay should take into account the relevant federal rules. In 2017 the Board of Governors of the Federal Reserve System (the Federal Reserve), the Federal Deposit Insurance Corporation (the FDIC) and the Office of the Comptroller of the Currency (the OCC) each adopted final rules and accompanying interpretive guidance (Final Rules) setting forth limitations to be placed on parties to certain financial contracts exercising insolvency-related default rights against their counterparties that have been designated as a global systemically important banking organization (GSIB).1 The Final Rules include the definition of master netting agreement that allows netting even though termination of the transaction in the event of an insolvency may be subject to a “stay” under several defined resolution regimes including Title II of Dodd Frank, the FDIA, as well as comparable foreign resolution regimes. Notwithstanding NAIC’s request for inclusion, stays under the state insurance receivership regime (State Receivership Stays) were not included as an exemption within the definition. Therefore, unless the Final Rules are amended to recognize State Receivership Stays, if a state implements a stay as contemplated by the Guideline, insurers would find themselves disadvantaged, potentially resulting in additional costs and/or collateral requirements given the regulatory treatment for contracts that do not meet requirements for QFCs. Therefore, if a state is considering implementation of this Guideline, consideration should be given to whether the rules of the Federal Reserve, FDIC and OCC have been amended to recognize State Receivership Stays. For example, a state could adopt a stay that would be effective if and when the Final Rules recognize State Receivership Stays.

The following statutory language is not an amendment to the NAIC receivership models, but is intended as a Guideline for use by those states seeking to require a stay with respect to the termination of a netting agreement or QFC of an insurer in insolvency:

Stay on Termination of Netting Agreements and Qualified Financial Contracts

A person who is a party to a netting agreement or qualified financial contract under [cite to applicable state law addressing qualified financial agreements] with an insurer that is the subject of an insolvency proceeding may not exercise any right that the person has to terminate, liquidate, accelerate or close-out the obligations with respect to the contract by reason of the insolvency, financial condition or default of the insurer, or by the commencement of a formal delinquency proceeding,

(1) Until 5:00 p.m. (eastern time) on the business day following the date of appointment of a receiver;or

(2) After the person has received notice that the contract has been transferred pursuant to [cite applicablestate law addressing transfer of qualified financial contracts].

_______________________________

Chronological Summary of Action (all references are to the Proceedings of the NAIC)

2013 Proc. 2nd Quarter, Vol. I 113, 127, 131-132, 537-538 (adopted).

1 Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 FR 42882 (13 November 2017), available at https://www.federalregister.gov/d/2017-19053; Restrictions on Qualified Financial Contracts of Certain FDIC Supervised Institutions; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 FR 50228 (30 October 2017), available at https://www.federalregister.gov/d/2017-21951; Restrictions on Qualified Financial Contracts of Certain FDIC-Supervised Institutions; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definition, 82 FR 61443 (28 December 2017), available at https://www.federalregister.gov/d/2017-27971; Mandatory Contractual Stay Requirements for Qualified Financial Contracts, 82 FR 56630 (29 November 2017), available at https://www.federalregister.gov/d/2017-25529.

Attachment Eighteen

Attachment Two Receivership and Insolvency (E) Task Force

8/4/19

Guideline for Stay on Termination of Netting Agreements and Qualified Financial Contracts

1556-2 © 2013 National Association of Insurance Commissioners

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Attachment Eighteen

8/4/19


PROJECT HISTORY

GUIDELINE FOR STAY ON TERMINATION OF NETTING AGREEMENTS AND QUALIFIED FINANCIAL CONTRACTS

1. Description of the Project, Issues Addressed, etc.

In 2017 the Board of Governors of the Federal Reserve System (the Federal Reserve), the Federal Deposit Insurance Corporation (the FDIC) and the Office of the Comptroller of the Currency (the OCC) each adopted final rules and accompanying interpretive guidance (Final Rules) setting forth limitations to be placed on parties to certain financial contracts exercising insolvency-related default rights against their counterparties that have been designated as a global systemically important banking organization (GSIB).1 The Final Rules include the definition of master netting agreement that allows netting even though termination of the transaction in the event of an insolvency may be subject to a “stay” under several defined resolution regimes including Title II of Dodd Frank, the FDIA, as well as comparable foreign resolution regimes.

Notwithstanding NAIC’s request for inclusion through a formal comment letter and subsequent discussions, stays under the state insurance receivership regime (State Receivership Stays) were not included as an exemption within the definition. Therefore, unless the Final Rules are amended to recognize State Receivership Stays, if a state implements a stay as contemplated by the Guideline for Stay on Termination of Netting Agreements and Qualified Financial Contracts (Guideline #1556), insurers would find themselves disadvantaged, potentially resulting in additional costs and/or collateral requirements given the regulatory treatment for contracts that do not meet requirements for qualified financial contracts (QFCs).

On Dec. 2, 2017, the Receivership and Insolvency (E) Task Force received a referral from the Financial Stability (EX) Task Force that included three tasks, one of which was to “evaluate whether there are any current misalignments between federal and state laws that could be an obstacle to achieving effective and orderly recovery and resolutions for U.S. insurance groups (e.g., federal rule recognizing importance of temporary stays on the termination of master netting agreements for QFCs that does not recognize the utility and import of state-based stays in state receivership proceedings)

The RITF assigned the task of evaluating these issues to a drafting group, who evaluated the impact of the federal rule recognizing temporary stays on terminating master netting agreements for QFCs. The regulators held discussions with federal banking authorities regarding the handling of QFCs in banking resolutions to assess the utility of a stay on terminations in insurance receiverships.

To address the conflict with the federal rule, the drafting group proposed amendments to the drafting note of Guideline #1556 explaining the above issue. Therefore, if a state is considering implementation of Guideline #1556, consideration should be given to whether the rules of the Federal Reserve, FDIC and OCC have been amended to recognize State Receivership Stays. For example, a state could adopt a stay that would be effective if and when the Final Rules recognize State Receivership Stays.

2. Name of Group Responsible for Drafting the Guideline and States Participating

The Receivership and Insolvency (E) Task Force is responsible for Guideline #1556. The 2019 members of the Task Force are: Texas (Chair); District of Columbia (Co-Vice Chair), Alaska, American Samoa, Arkansas, California, Colorado, Connecticut, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Missouri, Montana, Nebraska, New Jersey, New Mexico, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, and Washington.

1 Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 FR 42882 (13 November 2017), available at https://www.federalregister.gov/d/2017-19053; Restrictions on Qualified Financial Contracts of Certain FDIC Supervised Institutions; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 FR 50228 (30 October 2017), available at https://www.federalregister.gov/d/2017-21951; Restrictions on Qualified Financial Contracts of Certain FDIC-Supervised Institutions; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definition, 82 FR 61443 (28 December 2017), available at https://www.federalregister.gov/d/2017-27971; Mandatory Contractual Stay Requirements for Qualified Financial Contracts, 82 FR 56630 (29 November 2017), available at https://www.federalregister.gov/d/2017-25529.

Attachment Eighteen

8/4/19


The amendments to Guideline #1556 were drafted by the Task Force’s drafting group. The drafting group was comprised of Texas (Lead), Colorado, Connecticut, District of Columbia, Illinois, Massachusetts, Michigan, New Jersey, New Mexico, Pennsylvania. Washington, and Wisconsin. 3. Project Authorized by What Charge and Date First Given to the Group The Receivership and Insolvency (E) Task Force is charged with addressing any issues that affect receivership laws, including amendments to models and guidelines. The request to address misalignments with federal rules was first considered by the Task Force on March 25, 2018, at the NAIC 2018 Spring National Meeting, when a work plan to address the Financial Stability (EX) Task Force’s referral and formation of drafting groups were discussed. 4. A General Description of the Drafting Process and Due Process The drafting group of the Receivership and Insolvency (E) Task Force discussed the proposed amendments on a conference call on March 14, 2019, which included twenty interested parties.

The Receivership and Insolvency (E) Task Force discussed the proposed amendments in open session on April 7, 2019, at the NAIC Spring National Meeting. The Task Force exposed the proposed amendments for a 30-day public comment period ending May 7, 2019. One comment was received supporting the need for Federal rule changes. No changes were made to the Guideline #1556.

The Receivership and Insolvency (E) Task Force adopted the amendments on Aug. 4, 2019, at the NAIC Summer National Meeting.

The Financial Condition (E) Committee adopted the amendments on [DATE TBD].

The NAIC Executive (EX) Committee and Plenary adopted the amendments on [DATE TBD].

5. A Discussion of the Significant Issues

None. 6. Any Other Important Information

None.

Attachment Eighteen