NAIC Spring Meeting Update Part One

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The Maynard Nexsen Insurance Regulatory team of attorneys attended the National Association of Insurance Commissioners (NAIC) Spring National Meeting held on March 23-26 in Indianapolis, Indiana.  As expected, regulators, industry members and other stakeholders from across the nation met to discuss many of the pressing issues that are impacting the insurance industry, such as the availability and affordability of residential property insurance, inflation, financial solvency of insurers and nuanced issues related to Artificial Intelligence (AI).  Last month, the NAIC Executive Committee released the initiatives and priorities for the association, highlighting many of these issues, some of which are summarized below:

Emphasizing pre-disaster mitigation efforts: With increased natural disasters, inflation causing heightened construction costs, and property insurers withdrawing from higher-risk markets, the affordability and availability of residential property insurance has become one of the most pressing issues facing the insurance industry.  In 2024, the NAIC adopted the National Climate Resilience Strategy for Insurance, which is designed to highlight more effective risk reduction strategies to reduce climate impacts and assist consumers in reducing premium costs.  Likewise, the NAIC'S Property and Casualty Risk-Based Capital Working Group and the Catastrophe Risk Subgroup are charged with studying U.S. and global catastrophe events and with evaluating and refining the risk-based capital (RBC) formulas and instructions related to a catastrophe risk charge.  At the Spring National Meeting, these groups held a joint meeting to discuss updates related to wildfire, climate and flood losses, underwriting risk factors for 2025, and statutory accounting principles related to capital notes and non-bond debt securities held by property and casualty companies.  They also adopted the 2024 U.S. and non-U.S. catastrophe risk event lists, highlighting the specific storms, hurricanes, and wildfires occurring in 2024 that trigger reporting requirements for insurers covering impacted risks.

Risk-Based Capital (RBC) Modernization: RBC formulas are designed to evaluate the financial stability of insurers to ensure these companies can keep their financial promises to policyholders.  For 2025, the NAIC’s Risk-Based Capital Investment Risk and Evaluation Working Group is charged with performing a comprehensive review of the RBC investment framework for various business lines, in order to strengthen oversight and regulation, as the insurance and investment marketplace evolves, and as the risks that companies face continue to change.  In particular, this group is assessing the impact and effectiveness of potential changes in RBC formulas, in an effort to fortify financial governance, address regulatory arbitrage, and modernize the RBC framework.  On a practical level, due to heightened scrutiny on the utilization and effectiveness of RBC formulas at the NAIC level, some states are proactively amending their insurance investment laws to more directly define and regulate innovative investment vehicles that may have higher RBC changes.  As a result, insurers should be mindful of potential changes in these laws that could affect their investment portfolios.

Enforcing Annuity Protections for Consumers: Determining and regulating suitability for annuities has been an evolving topic in the insurance industry for several years.  The NAIC’s Life Insurance and Annuities Committee and the Annuity Suitability Working Group met during the Spring National Meeting to continue discussing enhanced standards to ensure that consumers understand their annuity products and that agents and insurers act in the consumers’ best interest with regard to those annuity products.  As one of the NAIC strategic priorities, the NAIC plans to offer annuity suitability enforcement training in September during the 2025 Insurance Summit.  

Monitoring Implementation of the Aggregation Method (AM):  In 2024, state regulators and the NAIC completed the International Association of Insurance Supervisors process and developed the Aggregation Method as a group capital approach for Internationally Active Insurance Groups, after determining that this method would be more appropriate for the U.S. insurance market and supervisory regime.  At the Spring National Meeting, regulators met to begin creating procedures to fully implement the Aggregation Method.

Next week we will discuss the remaining strategic priorities targeted to address cybersecurity developments and privacy protections for the health insurance market.