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NAIC National Association of Insurance Commissioners. AD HOC TASK FORCE ON SOLVENCY AND ANTI-FRAUD Casualty Actuarial Society 2001 Spring Meeting The Fontainebleau May 8, 2001. Ad Hoc Task Force on Solvency and Anti-Fraud Overview. Purpose and Process Completed Improvements

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naic national association of insurance commissioners

NAICNational Association of Insurance Commissioners


Casualty Actuarial Society

2001 Spring Meeting

The Fontainebleau

May 8, 2001

ad hoc task force on solvency and anti fraud overview
Ad Hoc Task Force on Solvency and Anti-FraudOverview
  • Purpose and Process
  • Completed Improvements
  • Task Force Recommendations


purpose and process
Purpose and Process
  • NAIC filings
  • Informal discussions with states
  • Media reports

What happened?


purpose and process4
Purpose and Process

Question was:

How could it have been prevented or detected sooner?

Goal was to:

Propose improvements in NAIC programs, processes and procedures


completed improvements
Completed Improvements
  • Procedure which questions turnover activity of company’s portfolio
  • Reference guidance for considering the results of the procedure
  • Additional detailed procedures if concerns are raised including securities brokers’ standing with the SEC

NAIC Financial Analysis Handbook


completed improvements6
Completed Improvements

NAIC 5-Year Company Profile

  • Added turnover ratios for stocks, long-term bonds and total portfolio


  • Investment section of NAIC Financial Condition Examiners Handbook has been rewritten and includes new guidance on evaluating investment management and controls


task force recommendations
Task Force Recommendations
  • Report and Recommendations of Ad Hoc TF (dated 4/13/01) was adopted by Executive (EX) Committee on 4/25/00 (see Handout #1).
  • Three Levels of Recommendations
  • General Areas
  • Accreditation Standards and Guidelines
  • Financial Analysis and Examinations
  • Communication and Coordination
  • Anti-Fraud Programs and Resources
  • Disclosure and Notification
  • Improvements to Model Laws and Regulations


level one
Level One

“These items are generally the highest priority items that can be accomplished relatively quickly and that should not involve significant NAIC or state resources.”


level one9
Level One

Accreditation Standards

  • Model law regarding custodial arrangements
  • Use of investment specialists
  • Expanded requirements for “communications with states”
    • proactive
    • define applicable criteria
    • review teams to evaluate sufficiency and timeliness
  • Use of new Form A database
  • Task force recommended expedited adoption of these new standards


level one10
Level One

Financial Analysis and Examinations

  • Add an evaluation of investment management practices to the Level One checklist of the NAIC Financial Analysis Handbook
  • Develop examination procedures to evaluate investment management practices of insurers

Annual Statement Blanks and Instructions

  • Add disclosure affirming that investments are held pursuant to a qualified custody agreement
  • Add disclosure regarding changes in custodian or custody agreement


level one11
Level One

Form A Database

  • Create a Form A database containing the following elements:
    • State submitting data
    • Date of Form A application
    • Contact person and contact information for state submitting data
    • Application status (i.e., pending, approved, denied or withdrawn)
    • Names and addresses of applicants, directors, officers, and significant (10%) shareholders
    • Names and addresses of affiliated persons or companies or key parties to the transaction


level one12
Level One


  • Continue negotiations with NASD for shared database access
  • Compile detailed information on anti-fraud databases maintained by anti-fraud organizations, financial regulators, and law enforcement agencies, and identify criteria for access
  • Where members can meet criteria for access to such databases, negotiate access agreements for NAIC and member states


level one13
Level One

Anti-Fraud (continued)

  • Establish guidelines for investigative and prosecutorial resources based on objective measures
  • Consider modifications to the Insurance Fraud Prevention Model Act such as:
    • authority to investigate insider fraud
    • law enforcement status
    • prosecution authority
    • alternative structures for dedicated prosecution resources


level one14
Level One

Model Laws and Regulations

  • Modify the model law regarding custodial arrangements to require custodian to notify regulators upon significant withdrawal of assets or termination of the agreement
  • Amend the model audit rule to require modification upon change in auditors


level two
Level Two

“These are initiatives that overlap current projects of other NAIC groups, primarily the GLBA National Regulatory Priorities Working Groups. Although many of these items are considered priorities of the task force, they also appear high on the membership’s overall agenda so no further action is considered necessary at this time. However, the task force would like to endorse these initiatives for additional urgency.”


level two16
Level Two
  • Develop a process for coordinating financial exams of insurer groups
  • Develop requirements for consolidated accounting and reporting by insurer groups

Coordinated Financial Examinations


level two17
Level Two
  • NAIC Financial Analysis & Reporting Division to coordinate analysis of GAAP information, SEC filings, and Federal Reserve information on Financial Holding Companies
  • States to coordinate consolidated statutory analysis of insurance only groups

Consolidated Financial Analysis

Develop a process for consolidated financial analysis of insurer groups


level two18
Level Two
  • Develop standard review processes and procedures for holding company filings
  • Develop standard procedures for Form A data input

Holding Company Filings

Model Laws and Regulations

  • Consider modifying the model audit rule to require consolidated GAAP and statutory audit reports


level three
Level Three

“These are initiatives that may require lengthy discussions and development or that involve significant additional NAIC or state resources. They are no less important to the task force but are likely to require careful planning, organization and funding to complete. The task force has identified potential committees and charges to oversee these projects.”


level three20
Level Three
  • Consider adopting a review team guideline requiring that significant elements of Part A standards are reviewed during the financial analysis and financial examination processes
  • Consider revisions to accreditation scoring including both the weighting of scores and the review team guidelines for scoring

Accreditation Standards and Guidelines


level three21
Level Three
  • Consider adding review team guidelines that would require examination of troubled or first priority insurers more often that once every five years
  • Consider adding review team guidelines requiring better communications with other state insurance regulators and state and federal banking and securities regulators

Accreditation Standards and Guidelines (continued)


level three22
Level Three

Financial Analysis and Examinations

  • Consider adding guidance to the NAIC Financial Analysis Handbook and Financial Condition Examiners Handbook requiring compliance with Part A Accreditation Standards be reviewed and tested
  • Consider revising the NAIC Financial Condition Examiners Handbook to require scheduling of exams and targeted exams based on risks of insurers
  • Consider amending the NAIC Financial Condition Examiners Handbook to require a risk management assessment approach


level three23
Level Three


  • Develop alternatives for providing resources and expertise to state insurance departments for fraud investigation
  • Obtain insurance regulators’ access to NCIC for licensing and investigation purposes
  • Develop a structure for sharing information between insurance fraud investigations and prosecution authorities


level three24
Level Three

Model Laws and Regulations

  • Consider amendments to the Assumptions Model Act and the Disclosure of Material Transactions Model Act to increase prior approval of significant reinsurance transactions

NAIC Troubled Companies Handbook

  • Consider improvements to the NAIC Troubled Companies Handbook regarding potential causes of solvency problems

For status of the Task Force’s recommendations, see

Handout #2.