US NAIC Fall 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 November 16, 2023, in lieu of meeting in person at the NAIC’s 2023 Fall National Meeting. In addition to routine matters such as adoption of the RTF’s 2023 Summer National Meeting minutes, the meeting covered the following matters.

Certified and Reciprocal Reinsurers

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 November 16, 2023, ReFAWG has approved 70 reciprocal jurisdiction reinsurers and 42 certified reinsurers for passporting. ReFAWG reported that 47 states have already passported at least one reciprocal jurisdiction reinsurer. “Passporting” is the process under which a reinsurer applies to an initial or “lead” state for recognition as a reciprocal jurisdiction reinsurer 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 reinsurer or certified reinsurer, which leads to administrative efficiency in obtaining and maintaining that status in multiple states, given the reduced level of information that must be submitted to states other than the “lead” state. The list of passported reinsurers can be found on the Certified and Reciprocal Jurisdiction web page.

Mutual Recognition of Jurisdictions (E) Working Group

The RTF received a status report from the Mutual Recognition of Jurisdictions (E) Working Group (“Mutual Recognition WG”), but did not adopt the status report, as the Mutual Recognition WG now reports directly to the Financial Condition (E) Committee rather than to the RTF. The Mutual Recognition WG reevaluates the approved jurisdictions each fall, and also monitors regulatory developments in such jurisdictions on an ongoing basis. In its November 1, 2023 meeting, 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. According to the Mutual Recognition WG, Bermuda, Japan and the European Union are in the process of making changes to their regulatory systems. The NAIC staff are monitoring the implementation of such changes and will report any findings to the Mutual Recognition WG.

Revisions to the Uniform Checklist for Reciprocal Jurisdiction Reinsurers

The RTF adopted revisions to the Uniform Checklist for Reciprocal Jurisdiction Reinsurers, adding the alien number and a short question section to guide users on what information must be provided based on the company’s specific situation. The proposed revisions were exposed for comment on October 27, 2023. According to the RTF, the comments they received were supportive of the proposed revisions, and included additional suggestions on how ReFAWG and the states can enhance the efficiency with which reciprocal jurisdiction reinsurers are reviewed and approved. ReFAWG similarly adopted these revisions to the Uniform Checklist for Reciprocal Jurisdiction Reinsurers during its October 26, 2023 meeting.

Referral to the Property and Casualty Risk-Based Capital (E) Working Group

The RTF adopted a referral to the Property and Casualty Risk-Based Capital (E) Working Group, to add new disclosures for catastrophe reinsurance programs in the property and casualty risk-based capital formula (the “RBC Disclosures”). The RBC Disclosures are intended to collect additional information from insurers on the structure of their natural catastrophe reinsurance program, including any changes from the prior year. According to the RTF, the recent catastrophe-related insolvencies in the market and the increasing cost of catastrophe reinsurance coverage led state insurance regulators to identify the need to collect additional information from insurers on the structure of their catastrophe reinsurance program. Because such information could be viewed as confidential and proprietary, the RBC Disclosures that request information on an insurer’s catastrophe reinsurance program will be added to the PR027 Catastrophe Risk Interrogatories.

The initial draft of the RBC Disclosures was exposed for comment on September 21, 2023. Based on comment letters from interested parties, the RTF created a new draft of the RBC Disclosures which reduced the information required to be disclosed.

Ongoing NAIC Projects that Affect Reinsurance

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

• The Macroprudential (E) Working Group adopted a 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). Further, the information provided to state regulators using the reinsurance worksheet will remain confidential.
• 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 review is being worked on by a range of people, including actuaries from the NAIC, regulators, investment experts, financial staff, and other subject matter experts.

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 November 1, 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 Manual; however, if a state relies on AG 48 instead of adopting NAIC Model Regulation #787, it must also adopt Section 5B(4) of the NAIC Credit for Reinsurance Model Law (#785) (which exempts certified reinsurers and reciprocal jurisdiction reinsurers from certain regulations relating to affiliated reinsurance arrangements). Twelve states are currently relying on AG 48 instead of adopting Model Regulation #787. At this time, all accredited NAIC jurisdictions are considered to be in compliance with the new accreditation standard for Model Regulation #787.

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