US NAIC Summer 2023 National Meeting Highlights: Reinsurance Task Force

The Reinsurance (E) Task Force (“RTF”) of the US National Association of Insurance Commissioners (“NAIC”) held a virtual meeting on July 24, 2023, in lieu of meeting in person at the NAIC’s 2023 Summer National Meeting. In addition to routine matters such as adoption of the RTF’s 2023 Spring National Meeting minutes and minor revisions to RTF’s 2024 Proposed Charges, the meeting covered the following matters.

Reinsurance Financial Analysis (E) Working Group

The RTF received and adopted the report from the Reinsurance Financial Analysis (E) Working Group (“ReFAWG”). ReFAWG meets regularly in regulator-to-regulator sessions to assess certified and reciprocal jurisdiction reinsurers for passporting. As of July 24, 2023, ReFAWG has approved 61 reciprocal jurisdiction reinsurers and 41 certified reinsurers for passporting. ReFAWG reported that 41 states have already passported at least one reciprocal jurisdiction reinsurer, and additional states are expected to do so in the near future. “Passporting” is the process under which a reinsurer applies to an initial or “lead” state for recognition as a reciprocal jurisdiction or certified reinsurer, following which ReFAWG evaluates and makes its recommendation concerning the status (and any related rating for the reinsurer). Other states can then choose to defer to the lead state’s determination for recognizing a reinsurer as a reciprocal jurisdiction or certified reinsurer, which leads to administrative efficiency in obtaining and maintaining reciprocal jurisdiction or certified status in multiple states given the reduced level of information that must be submitted to states other than the “lead” state. According to the ReFAWG, the passporting process seems to be working well for all relevant parties.

Mutual Recognition of Jurisdictions (E) Working Group

The RTF received a report from the Mutual Recognition of Jurisdictions (E) Working Group (“Mutual Recognition WG”), but did not adopt the report, as the Mutual Recognition WG no longer formally reports to the RTF. In November 2022, the Mutual Recognition WG reapproved Bermuda, France, Germany, Ireland, Japan, Switzerland and the United Kingdom as qualified jurisdictions and Bermuda, Japan and Switzerland as reciprocal jurisdictions; the European Union and the United Kingdom qualify as reciprocal jurisdictions based on the existing respective covered agreements between the United States and those jurisdictions. The Mutual Recognition WG reevaluates the approved jurisdictions each fall, and also monitors regulatory developments in such jurisdictions on an ongoing basis; it will undertake the revaluation process for the above-mentioned jurisdictions again this fall.

Ongoing NAIC Projects that Affect Reinsurance

The RTF heard a report regarding the following five projects being undertaken at the NAIC that affect reinsurance:

• The Macroprudential (E) Working Group adopted a new reinsurance worksheet in June 2023. The worksheet is intended to be an optional tool for state insurance regulators to understand reinsurance transactions of the insurance companies that they regulate; however, neither the Financial Analysis Handbook nor the Financial Examiner’s Handbook will require the use of the worksheet, and it will not affect the policies or procedures of the RTF. (The Financial Condition (E) Committee adopted the worksheet at the NAIC Summer National Meeting.)
• The Valuation Analysis (E) Working Group is completing its first year of reviews of Actuarial Guideline LIII—Application of the Valuation Manual for Testing the Adequacy of Life Insurer Reserves (“AG 53”), which covers asset adequacy testing for life insurers. The RTF has focused on this process from the perspective of reinsurance issues for the covered agreements with the European Union and the United Kingdom.
• The Life Risk-Based Capital (E) Working Group has received a request to consider allowing comfort trusts or similar forms as collateral for reinsurance, but only for risk-based capital (“RBC”) treatment and credit for reinsurance purposes. Formal discussions on this topic are on hold for now.
• Due to recent catastrophe-related insurer insolvencies and the increasing cost of catastrophe reinsurance coverage, the NAIC staff has commenced a new project to obtain better information on the catastrophe reinsurance programs of property and casualty insurers. This project may lead to enhanced disclosures regarding catastrophe reinsurance programs and may include new interrogatories that will be added to the property and casualty RBC Instructions.
• Given several recent failures of banks on the list of Qualified US Financial Institutions (“QUSFI”), the Valuation of Securities (E) Task Force has adopted a revision to the Purposes and Procedures Manual intended to streamline removal of troubled financial institutions from the QUSFI list.

Term and Universal Life Insurance Reserve Financing Model Regulation

The RTF received a report on the adoption by the states of the NAIC’s Term and Universal Life Insurance Reserve Financing Model Regulation (#787), often referred to as the “XXX and AXXX” model regulation, which became an NAIC accreditation standard on September 1, 2022, and for which enforcement started on January 1, 2023. As of June 27, 2023, 34 United States jurisdictions had adopted Model Regulation #787. In lieu of adopting Model Regulation #787, states can satisfy accreditation standard requirements by adopting Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (“AG 48”) through an insurance bulletin or by adopting the Accounting Practices and Procedures (“AP&P”) Manual; however, if a state relies on AG 48 instead of adopting NAIC Model Regulation #787, it must also adopt Section 5B(4) of NAIC Model Regulation #785 (which are exceptions related to certified reinsurers and reciprocal jurisdiction reinsurers). Twelve states are currently relying on AG 48 instead of adopting Model Regulation #787.

To view additional updates from the US NAIC Summer 2023 National Meeting, visit our meeting highlights page.