Transcript Our 50 States: [Name of Your State]

Issues for Consideration in the
Solvency Modernization Initiative
Ramon Calderon
Deputy Commissioner, California
Department of Insurance
Chair, NAIC International Solvency and
Accounting (EX) Working Group
Solvency Modernization Initiative (EX)
Task Force, June 15, 2009
1
Solvency Modernization Initiative



2
The NAIC’s Solvency Modernization Initiative (SMI)
was announced in June 2008.
While we are always updating the U.S. regulatory
solvency system (annually adjusting RBC formulas and
factors, etc.), this initiative examines international
developments and their potential use in U.S. insurance
regulation.
The International Solvency and Accounting (EX)
Working Group offers some initial ideas to consider in
the SMI.
Framework, Principles, Roadmap

Create one cohesive document that will
convey foundational concepts underlying the
U.S. regulatory system.
–
–

3
Will provide a platform for continued development
of our system.
Will assist us to dialogue with other countries.
E Committee has agreed to document our
current framework and principles.
Study of Other Solvency and
Accounting Initiatives


Study will assist us in identifying potential enhancements to
our current system.
Study banking regulation as well as insurance regulation and
proposed accounting changes:
–
–
–
–
4
The Basel II international capital framework for banks and
implementation in the U.S.;
Solvency work by the International Association of Insurance Supervisors
(IAIS);
Solvency proposals in place or under development in other jurisdictions,
including Australia, Canada, Switzerland and the EU Solvency II;
International accounting standards being developed by the International
Accounting Standards Board (IASB).
Ideas that Merit Consideration

Economic Capital
–

Enterprise Risk Management
–

Just as the enhanced risk-focused financial examination process is
implementing a prospective risk analysis, a company’s “Own Risk and Solvency
Assessment” (ORSA) could be useful in assessing solvency positions.
Internal Models, Full or Partial Models
–
–
5
Benefit from knowing what enters the company’s calculation of their economic
capital as well as how the company interprets and uses it.
RBC is risk-focused and we have some modeling involved.
With prior approval and other safeguards, internal models could be a way for
regulators to more accurately assess the capital needs of a company.
Ideas that Merit Consideration

RBC
–
–
–
–
6
Analysis of our ladder of supervisory intervention
(Company Action, Regulatory Action, Authorized Control,
Mandatory Control Levels)
What is the “safety level” of the U.S. system in statistical terms?
Extent of internal models within RBC
For regulators to evaluate and approve models some
coordination amongst states is recommended, either through a
nationwide office or development of a coordinated NAIC
function
Ideas that Merit Consideration

Group Issues
–
–
–
–
–
7
Insurance Holding Company System Regulatory Act
Group Supervision – Model Law
Group Supervisory Colleges
Non-Regulated and Federally Regulated Entities within a
Group
Group Capital Requirements
Ideas that Merit Consideration



Reinsurance Modernization
Insurance Valuation – PBR
Corporate Governance
–
–


8
Model Audit Rule and PBR
Broader governance framework
Systemic Risk
Impact of Accounting Changes
SMI Process – Next Steps




9
Articulate our Current Framework/Principles
Decide whether adjustments should be made to the
Framework and/or Principles.
Continue studies & identify additional ideas.
Develop a Roadmap for the SMI implementation.