Ben Nelson, the new National Association of Insurance Commissioners chief executive officer, wants state lawmakers to adopt model rules he sees as beneficial to protect insurer solvency.Speaking at the National Conference of Insurance Legislators meeting in Washington, D.C., Nelson sought to develop a working relationship with lawmakers to approve NAIC efforts on principles-based reserving and the Own Risk Solvency Assessment model law that he sees as necessary for consumer protection. Our hope is to collaborate with you on an ongoing basis, he said.
In December, NAIC passed by one vote beyond the minimum a valuation manual that contained changes from a formulaic reserve model for life insurers to a principles-based model that supporters believe will right-size reserves, end redundancy in the market and lower consumer costs.
In urging movement on principles-based reserving, Nelson addressed state lawmakers who have not moved immediately to pass related legislation. To date, only seven states have issued bills seeking to approve principles-based reserving, all of them approximating the NAIC model, Tennessee Insurance Commissioner Julie McPeak said. Paul Graham, chief actuary for the American Council of Life Insurers, said it will take through 2015 for the necessary 42 states which also must have 75% of premiums - to ratify principles-based reserving.
Nelson urged lawmakers who have questions about principles-based reserving to contact the new NAIC task force created to aid its implementation. Commissioners from two of the leading states who criticized adoption of principles-based reserving, New York and California, will be among those on the panel.
Nelson also urged action on the NAIC-adopted ORSA model, saying it is an essential element to modernize regulation of insurance groups. The ORSA rule is set to take effect in 2015.
In September 2012, NAIC passed the ORSA Model Law requiring insurance companies with premiums of at least $500 million and groups with $1 billion to file a report to regulators including business plans and other items forecast for the next year, as well as a narrative on potential risks facing companies and their plans to mitigate them. While ORSA faces the same hurdles for ratification as principles-based reserving, industry and state sources see states moving ahead to pass it before a Jan. 1, 2015 deadline.
Nelson said NAIC is directly engaged with the Federal Insurance Office, which is overseen by the Treasury Department and is expected to identify risks to the U.S. financial system posed by the insurance industry and with development of federal policy on international insurance. There has been concern among regulators and the industry about the FIOs role and whether it will act in a regulatory fashion. Nelson said that while FIO has an important role to play within the federal government as a source of insurance expertise, NAIC will continue to serve as a voice of insurance regulators.
Nelson commented that while there are areas of collaboration that will prove essential, he wants to be sure FIO is not doing a job it has not been authorized to do and restated his belief that FIO is not a regulator. I think they're beginning to [understand that], he said.