Understanding Accreditation for Indiana Companies

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