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Understanding Accreditation for Indiana Companies

Learn about the NAIC Accreditation Program and how it promotes sound insurance company financial solvency regulation. Discover the benefits of accreditation and the types of accreditation reviews conducted.

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Understanding Accreditation for Indiana Companies

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  1. What Accreditation Means to Indiana Companies September 13, 2016 Kay Noonan NAIC General Counsel

  2. Topics to be Covered • NAIC Background • History of the Accreditation Program • Accreditation Standards • Types of Accreditation Reviews • How an Accreditation Review is Conducted

  3. NAIC Background • The NAIC was formed in 1871 as a voluntary association. • Today the NAIC is a Delaware corporation, organized as a 501(c)(3). • The Mission of the NAIC is to assist state insurance regulators. • Through the NAIC, state insurance regulators establish best practices, conduct peer review and coordinate regulatory oversight. • Regulatory standards are developed through a robust committee system.

  4. NAIC Background • Three offices- Washington D.C., Kansas City, and New York City. • The NAIC operates several systems for the benefit of insurance regulators- including SERFF, SBS, Opt-ins, and the Financial Data Repository. • NIPR, an affiliate of the NAIC, supports electronic state producer licensing.

  5. NAIC Standard Setting Activities • Model Laws/Regulations • Annual and Quarterly Statements • Accounting Practices and Procedures Manual • Valuation Manual • Financial Regulation Standards and Accreditation Program

  6. History of the Accreditation Program • Developed in late 1980s • Collaborative effort between state insurance departments, state legislators, and the NAIC • Created in response to Congressional report, “Failed Promises: Insurance Company Insolvencies”

  7. Development of the Accreditation Program • NAIC discussions began in 1988 • Standards developed in 1989 • First two states were accredited in 1990 • By 1985, 48 states were accredited • As of today, 50 states, DC and Puerto Rico are accredited

  8. Mission of the Accreditation Program • To establish and maintain standards to promote sound insurance company financial solvency regulation • Provides a process whereby solvency regulation of multi-state insurance companies can be enhanced and adequately monitored

  9. Coverage of the Accreditation Program • Accreditation standards includes all aspects of financial solvency regulation • Ensures that states have proper authority • Ensures that the authority is carried out appropriately • Accreditation standards are updated and modified as the insurance regulatory environment changes

  10. Benefits of Accreditation • Allows for inter-state reliance • Reduces regulatory redundancies • Promotes communication and coordination between states • Allows for the sharing of best practices

  11. Supervision of the Accreditation Program • F Committee votes on all accreditation-related matters • Significant items are approved by Executive (EX) Committee/Plenary • Three NAIC staff members directly support the Program with assistance from Accreditation consultants • NAIC Legal Division provides additional staff support

  12. Accreditation Standards • Part A: Laws and Regulations • Part B: Regulatory Practices and Procedures • Part C: Organizational and Personnel Practices • Part D: Organization, Licensing and Change of Control

  13. Part A: Laws and Regulations • States must adopt laws and regulations related to certain solvency regulation-related topics • Provide the state with sufficient authority to regulate the financial solvency of their domestic industry • New NAIC models or revisions to NAIC models related to financial solvency regulation are considered by F Committee each year

  14. Part A Standards • Exam Authority • Capital & Surplus • Accounting Practices & Procedures • Corrective Action • Investment Valuation • Holding Company • Risk Limitation • Investment Regs. • Liabilities & Reserves • Reinsurance Ceded • CPA Audits • Actuarial Opinion • Receivership • Guaranty Funds • Filings with NAIC • Producer Controlled Insurers • Managing General Agents • Reinsurance Intermediaries • Regulatory Authority

  15. Part B: Regulatory Practices and Procedures • Includes baseline regulatory practices and procedures that supplement and support enforcement of the states’ financial solvency laws • Compliance with the standards is required to ensure adequate solvency regulation of multi-state insurers

  16. Part B Standards • Financial Analysis • Includes standards related to staffing, communication, supervisory review, appropriate depth of review, and documentation of the review • Financial Examinations • Includes standards related to staffing, communication, supervisory review, use of specialists, use of Examiners Handbook, examination reports and documentation of the exam • Information Sharing and Procedures for Troubled Companies

  17. Types of Accreditation Reviews • Full accreditation review • Performed once every five years • Part A review performed by NAIC Legal (off-site) • Part B, C and D review performed by accreditation consultants (on-site) • Interim annual review • Performed annually • Part A review performed by NAIC Legal (off-site) • Part B, C and D review performed by NAIC Accreditation staff (off-site)

  18. Full Accreditation ReviewNAIC Legal Division • State completes Self-Evaluation Guide that includes citations for all Part A requirements • NAIC attorney confirms compliance via review of Self-Evaluation Guide and applicable laws and regulations • Coordinate with state department and NAIC accreditation staff

  19. Full Accreditation ReviewNAIC Legal Division • Report to F Committee includes detail on each Part A standard and any possible exceptions • Possible exceptions are presented by NAIC Legal Division at next National Meeting • State responds to possible exceptions • F Committee has final determination on compliance with Part A standards

  20. Interim Annual ReviewNAIC Legal Division • State reports any changes to laws/regulations in the last year • NAIC Legal Division reviews changes for continued compliance, as well as any new Part A requirements • If significant concerns exist, this is discussed with F Committee at the next National Meeting

  21. Part A StandardsBasis of Compliance • Many standards assessed on a “substantially similar” basis • Law, regulation or administrative practice must result in solvency regulation that is “similar in force and no less effective” than the NAIC model • Few standards assessed on a “regulatory framework” basis • Provides a means for a state to detect the occurrence of the solvency-related event/activity and to exercise appropriate oversight when such event or activity occurs

  22. Full Accreditation Review Accreditation Review Team • Each accreditation review consists of one NAIC observer and three to six accreditation consultants • Number of consultants is based on number of state’s multi-state domestic companies • State completes Self-Evaluation Guide that includes detailed information on items such as staffing, policies and procedures, dates to assess timelines, etc.

  23. Full Accreditation Review Accreditation Review Team • One individual on the team is denoted as the team leader • Prior to onsite review, team leader selects files to be reviewed by the team • Analysis: Each team member reviews two analysis files • For one file, review one year of analysis • For one file, review five years of analysis • Examinations: Each team member reviews one examination

  24. Full Accreditation Review Accreditation Review Team • In selecting files for review, a number of factors are taken into consideration • Size of company, priority of company, lines of business written, staff used to perform analysis or exam • Instructed to select at least one company from each of the following categories • 1) Not financially troubled; 2) Financially troubled; and 3) Insolvent and subject to receivership

  25. Full Accreditation Review Accreditation Review Team • In reviewing the files, team members assess compliance with accreditation standards • During scoring meeting, each team member assigns a score to each standard • The team’s recommendation related to accreditation is based on the average assigned scores • Accreditation team may recommend re-review or other action, as deemed necessary

  26. Full Accreditation Review Accreditation Review Team • Accreditation team prepares compliance report and management letter that are distributed to F Committee • At next National Meeting, team leader presents the reports of the review team • Committee members may question the team leader or the state under review • Committee votes on whether the state should be accredited and whether additional conditions are necessary

  27. Interim Annual ReviewNAIC Accreditation Staff • Required in years in which there is not a full review • State completes detailed Interim Annual Review form (over 90 pages long) • One NAIC staff dedicated to reviewing the IAR • Prepare spreadsheets to assess timeliness of analysis and examination process

  28. Interim Annual ReviewNAIC Accreditation Staff • Perform detailed review of information to ensure continued compliance • Follow-up with states with questions, areas of concern, best practices or information on new standards • Any significant concerns are reported to Committee at next National Meeting • Action is taken as warranted by the situation

  29. F Committee Website • Includes mission statement, upcoming changes, informational pamphlet, accredited jurisdictions, exposure drafts and contact information http://naic.org/committees_f.htm

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