© 2010 National Association of Insurance Commissioners

U.S. SolvencyU.S. SolvencyModernization InitiativeModernization Initiative

Director Christina Urias, ChairDirector Christina Urias, ChairSolvency Modernization Initiative (EX) Task ForceSolvency Modernization Initiative (EX) Task Force

Interim Meeting, Phoenix, March 11, 2010Interim Meeting, Phoenix, March 11, 2010

© 2010 National Association of Insurance Commissioners

Background - Evolution of the Background - Evolution of the U.S. Solvency SystemU.S. Solvency System

U.S. insurance regulation: a successful, detailed, U.S. insurance regulation: a successful, detailed, uniform financial regulatory system.uniform financial regulatory system.

Major financial regulation changes in the early Major financial regulation changes in the early 1990s; RBC development.1990s; RBC development.

20 years of continuous improvements: model 20 years of continuous improvements: model audit rule, risk-focused exams, uniform statutory audit rule, risk-focused exams, uniform statutory accounting model, etc. accounting model, etc.

Today, global and national developments call for Today, global and national developments call for another comprehensive review. another comprehensive review.

© 2010 National Association of Insurance Commissioners

Solvency Modernization Initiative Solvency Modernization Initiative (SMI)(SMI)

• Critical examination and review Critical examination and review of U.S Solvency Frameworkof U.S Solvency Framework

• Modernize, Modify, Expand, Modernize, Modify, Expand, Eliminate, Enhance U.S. Eliminate, Enhance U.S. regulatory system as regulatory system as appropriateappropriate

• Examine international Examine international developments for potential use developments for potential use in U.S. insurance regulationin U.S. insurance regulation

© 2010 National Association of Insurance Commissioners

Capital RequirementsCapital Requirements

TodayToday Risk-Based Cover Major

Risks Insurance

Parent – “Group RBC”

Additional Risk Charges

Defined Safety Level

Expanded Formula; Modeling with Safeguards

© 2010 National Association of Insurance Commissioners

Financial Reporting & SupervisionFinancial Reporting & Supervision(Off-Site and On-Site)(Off-Site and On-Site)

TodayToday Extensive Uniform

Financial Reporting Electronic reporting New Risk-Focused

Surveillance Process

Significant Training on Risk-Focused Surveillance

New ERM requirements – ORSA

Company Stress Tests

© 2010 National Association of Insurance Commissioners

Accounting/ValuationAccounting/Valuation

TodayToday Fully codified

statutory accounting

P&C Principles-Based Valuation (Life is Rules-Based)

Limited P&C discounting

Possibilities: Retain SAP? No changes? Utilize GAAP with some non-public statutory reporting?

Life Insurance principles-based reserving

Does P&C discounting with an explicit margin provide better information?

© 2010 National Association of Insurance Commissioners

ERM/GovernanceERM/Governance

TodayToday Existing legislation

and case law “Back door” –

Qualitative analysis, Risk-focused Financial Examinations

Broader authority; new law?

Governance framework

Risk management - ORSA

© 2010 National Association of Insurance Commissioners

Today’s Meeting: GoalsToday’s Meeting: Goals• Regulator and Interested Parties DialogueRegulator and Interested Parties Dialogue

• Discuss subject matter, allow parties who submitted Discuss subject matter, allow parties who submitted written comments to present further commentary prior written comments to present further commentary prior to regulator discussionto regulator discussion

• Gain information to further develop the Gain information to further develop the SMI Roadmap/work planSMI Roadmap/work plan

• Consider drafting a capital requirements Consider drafting a capital requirements white paper based upon the consultation white paper based upon the consultation paper and comments receivedpaper and comments received