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NAIC D.C. Symposium Focuses on Solvency Issues

The National Association of Insurance Commissioners (NAIC) held a meeting in Washington, D.C. on February 23 and 24 to discuss state regulatory options to ensure...
March 2, 2004

The National Association of Insurance Commissioners (NAIC) held a meeting in Washington, D.C. on February 23 and 24 to discuss state regulatory options to ensure insurer solvency and preserving the state guaranty association system. The primary emphasis was on the need to reform the existing systems.

NAIC's Risk Assessment Working Group recommended that the current regulatory process be modified because world financial markets are changing, the current examination approach focuses narrowly on balance sheet verification without considering the company's dynamic environment, examiners should look at both financial and qualitative data and greater efficiencies are needed for all parties involved in the examination process. The working group is advancing a risk-focused surveillance framework which would include risk-focused examinations, off-site risk-focused financial analysis, review of internal and external changes, development of a standard prioritization system, and preparation of a supervisory plan.

The NAIC expects that the new framework would give regulators a more qualitative profile of each insurer, so that regulators could identify potential problems earlier.

Mike Pickens, Arkansas Commissioner and NAIC Immediate Past President, offered the view that NAIC needs to change how it looks at receiverships. He said receiverships should not be viewed as failures, but as a natural consequence of consolidations and market operations. Regulators should get involved earlier with struggling insurers, preferably before insolvency is a certainty and while there is still an opportunity to save the company. Earlier intervention could avoid unpaid claims and high State Guaranty Association costs.

What It Means to Agents: As NAIC President and South Carolina Insurance Director Ernst Csiszar noted in his opening remarks, there have been several large insolvencies in the insurance sector (such as Reliance), as well as in other parts of the markets (such as Enron). To date, Congress has been focusing attention on non-insurance insolvencies, but is likely to turn its attention to insurer insolvencies if they continue to grow -- and if the states do not revise their antiquated systems.