FINANCIAL CONDITION (E) COMMITTEE Committee Agenda... · (EX) Committee and Plenary through the Financial Condition (E) Committee’s technical changes report process. Pursuant to

© 2019 National Association of Insurance Commissioners 1

Date: 7/15/19 2019 Summer National Meeting

New York, New York

FINANCIAL CONDITION (E) COMMITTEE Monday, August 5, 2019

1:00 – 1:30 p.m. Hilton New York Midtown—Gramercy

ROLL CALL

David Altmaier, Chair Florida Chlora Lindley-Myers Missouri Kent Sullivan, Vice Chair Texas Matthew Rosendale Montana Ricardo Lara California Marlene Caride New Jersey Michael Conway Colorado Glen Mulready Oklahoma Robert H. Muriel Illinois Raymond G. Farmer South Carolina Eric A. Cioppa Maine James A. Dodrill West Virginia Steve Kelley Minnesota Jeff Rude Wyoming Mike Chaney Mississippi NAIC Support Staff: Dan Daveline/Julie Gann/Bruce Jenson

AGENDA

1. Consider Adoption of its May 28 and Spring National Meeting Minutes Attachment One

—Commissioner David Altmaier (FL) 2. Consider Adoption of its Task Force and Working Group Reports —Commissioner David Altmaier (FL)

a. Accounting Practices and Procedures (E) Task Force Pending b. Capital Adequacy (E) Task Force Pending c. Examination Oversight (E) Task Force Pending d. Long-Term Care Insurance (B/E) Task Force Attachment Five e. Receivership and Insolvency (E) Task Force Pending f. Reinsurance (E) Task Force Pending g. Risk Retention Group (E) Task Force Pending h. Valuation of Securities (E) Task Force Pending i. Group Capital Calculation (E) Working Group Pending j. National Treatment and Coordination (E) Working Group Pending k. NAIC/AICPA (E) Working Group Pending l. Restructuring Mechanisms (E) Working Group Pending m. Group Solvency Issues (E) Working Group Pending

3. Discuss Preliminary Financial Condition Examiners Handbook Salary Update Recommendation Attachment Fifteen

—Commissioner David Altmaier (FL) 4. Discuss Proposed Changes to Restructuring Mechanisms (E) Working Group Charges Attachment Sixteen —Commissioner David Altmaier (FL)

5. Consider Request for Extension from the Mortgage Guaranty Insurance (E) Working Group Attachment Seventeen —Commissioner David Altmaier (FL)

6. Discuss Any Other Matters Brought Before the Committee—Commissioner David Altmaier (FL) 7. Adjournment W:\National Meetings\2019\Summer\Cmte\E\Materials\Preliminary Materials\E Committee Agenda.docx

Attachment One Financial Condition (E) Committee

8/8/19


Date: 6/6/19

Financial Condition (E) Committee Conference Call May 28, 2019

The Financial Condition (E) Committee met via conference call May 28, 2019. The following Committee members participated: David Altmaier, Chair (FL); Kent Sullivan, Vice Chair, represented by Doug Slape and Jamie Walker (TX); Ricardo Lara represented by Susan Bernard and Kim Hudson (CA); Michael Conway represented by Rolf Kaumann (CO); Robert H. Muriel represented by Kevin Fry (IL); Eric A. Cioppa (ME); Steve Kelley represented by Kathleen Orth (MN); Chlora Lindley-Myers represented by John Rehagen (MO); Matthew Rosendale represented by Steve Matthews (MT); Marlene Caride (NJ); Glen Mulready (OK); Raymond G. Farmer and Daniel Morris (SC); James A. Dodrill represented by Jamie Taylor (WV); and Tom Glause represented by Jeff Rude (WY).

1. Adopted Revisions to Model #785 and Model #786

Commissioner Altmaier stated that the only item was to consider adoption of proposed changes to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) for the “Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance” (Covered Agreement) and the same for the United Kingdom. He asked Mr. Rehagen to summarize the proposed action.

Mr. Rehagen stated that the Reinsurance (E) Task Force adopted revisions to Model #785 and Model #786 during its May 15 conference call to implement the reinsurance collateral provisions of the Bilateral Agreements with the European Commission and the United Kingdom, which both become operative 60 months after Sept. 22, 2017. He stated that the Task Force and its drafting group worked hard to accommodate the concerns of state, federal and international regulators and interested parties, and noted that he believes the final drafts achieve the goals as state insurance regulators.

Mr. Rehagen directed Committee members to the May 16 memorandum he submitted to the Committee (Attachment One-A). He described how during the Task Force’s May 15 conference call, the International Underwriting Association of London (IUA) raised an issue and suggested a specific change to Section 2F(7) of Model #785. He noted that the Task Force did not have adequate opportunity to review this language before it was proposed shortly before its May 15 conference call and, therefore, did not include the language in its adoption. However, the Task Force agreed to study this language further prior to today’s conference call and make a recommendation to the Committee. Mr. Rehagen stated that he polled the members of the Task Force, and there was unanimous agreement that the proposed change was clearer language of the Task Force’s original intent and, therefore, recommended that the Committee consider this friendly amendment to Section 2F(7) of Model #785 as it considers taking action on the model. He clarified that that the amendment is nonsubstantive in nature and, therefore, would not require any further exposure before adoption by the Committee.

Mr. Rehagen stated that the European Commission has continued to express concern with the language of Section 2F(7) of Model #785 and has concerns with Section 9C(2) of Model #786 because the $250 million capital and surplus requirement for European reinsurers does not address what it considers to be an applicable conversion rate to 226 million euros. He noted that the Task Force discussed these concerns on its May 15 conference call, but the Task Force decided against making these revisions. Mr. Rehagen stated the Task Force believes that the current drafts of Model #785 and Model #786 are consistent with the terms of the Covered Agreement.

Mr. Rehagen stated that a comment letter was received from the European Commission (Attachment One-B), noting that he and others discussed these comments with the Federal Insurance Office (FIO) April 25 and May 23. He stated that while the FIO cannot give the NAIC public assurances with respect to any potential federal preemption analysis, FIO staff did not express any concerns regarding the current language of these two provisions. He stated that the recommendation of the Task Force is that the current draft revisions to Model #785 and Model #786 are consistent with the provisions of the Covered Agreement, and it is not necessary to make the changes discussed by the European Commission in its comment letter.

Antoine Begasse (European Commission) expressed appreciation for the engagement with the NAIC on the proposed models. He reiterated the two previous concerns included in the European Commission’s comment letter. Mr. Rehagen responded that the Task Force previously considered these comments and believes the proposed models are consistent with the Covered Agreement.

Attachment One

Attachment One Financial Condition (E) Committee

8/8/19


Mr. Rehagen made a motion, seconded by Director Farmer, to adopt the May 15 draft revisions to Model #785 and Model #786, including the friendly amendment to Section 2F(7) of Model #785 as outlined in Mr. Rehagen’s May 16 memorandum (See NAIC Proceedings – Summer 2019 Executive (EX) Committee and Plenary (Attachment ? and Attachment ?). The motion passed unanimously.

Having no further business, the Financial Condition (E) Committee adjourned.

W:\National Meetings\2019\Spring\Cmte\E\2-19 E Minutes.docx

Attachment One

Draft Pending Adoption


Draft: 4/8/19

Financial Condition (E) Committee Orlando, Florida

April 8, 2019

The Financial Condition (E) Committee met in Orlando, FL, April 8, 2019. The following Committee members participated: David Altmaier, Chair (FL); Tom Glause, Vice Chair, and Linda Johnson (WY); Ricardo Lara, Kim Hudson and Susan Bernard (CA); Michael Conway represented by Rolf Kaumann (CO); Robert H. Muriel and Patrick Hyde (IL); Eric A. Cioppa and Robert Wake (ME); Steve Kelley represented by Kathleen Orth (MN); Chlora Lindley-Myers represented by John Rehagen (MO); Mike Chaney represented by David Browning (MS); Matthew Rosendale represented by Steve Matthews (MT); Marlene Caride and Kristine Maurer (NJ); Glen Mulready represented by Buddy Combs and Eli Snowbarger (OK); Raymond G. Farmer (SC); Kent Sullivan represented by Doug Slape and Jamie Walker (TX); and James A. Dodrill represented by Jamie Taylor (WV).

1. Adopted its Feb. 19, 2019, and 2018 Fall National Meeting Minutes

Mr. Slape made a motion, seconded by Director Farmer, to adopt the Committee’s Feb. 19, 2019 (Attachment One) and Nov. 17, 2018 (see NAIC Proceedings – Fall 2018, Financial Condition (E) Committee) minutes. The motion passed unanimously.

2. Adopted the Reports of its Task Forces and Working Groups

Commissioner Altmaier discussed some of the more significant work currently in process within the Committee’s task forces, working group and subgroups. This included: 1) the significant work near completion by the Reinsurance (E) Task Force to revise the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786); 2) the commencement of testing of the group capital calculation (GCC) beginning within the next month; 3) the new Restructuring Mechanisms (E) Working Group and Restructuring Mechanisms (E) Subgroup; and 4) the important work on long-term care insurance (LTCI), including the appointment of a new Executive (EX) Committee-level task force, as well as how it will interact with the Long-Term Care Insurance (B/E) Task Force.

Commissioner Altmaier stated that, in addition, items adopted within the Committee’s task force and working group reports that are considered technical, noncontroversial and not significant by NAIC standards—i.e., they do not include model laws, model regulations, model guidelines, or items considered to be controversial—will be considered for adoption by the Executive (EX) Committee and Plenary through the Financial Condition (E) Committee’s technical changes report process. Pursuant to this process, which was adopted by the NAIC in 2009, a listing of the various technical changes will be sent to NAIC members shortly after completion of the Spring National Meeting, and the members will have 10 days to comment with respect to those items. If no objections are received with respect to a particular item, the technical changes will be considered adopted by the NAIC membership and effective immediately.

Director Farmer made a motion, seconded by Commissioner Caride, to adopt the following task force and working group reports: Accounting Practices and Procedures (E) Task Force; Capital Adequacy (E) Task Force; Examination Oversight (E) Task Force; Long-Term Care Insurance (B/E) Task Force; Receivership and Insolvency (E) Task Force; Reinsurance (E) Task Force; Risk Retention (E) Task Force; Valuation of Securities (E) Task Force; Group Capital Calculation (E) Working Group (Attachment Two); National Treatment and Coordination (E) Working Group (Attachment Three); Restructuring Mechanisms (E) Working Group (Attachment Four); Risk-Focused Surveillance (E) Working Group (Attachment Five); and VariableAnnuities Issues (E) Working Group (Attachment Six). The motion passed unanimously.

The Financial Analysis (E) Working Group met Feb. 27 and Jan. 30 in regulator-to-regulator session pursuant to paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings.

Having no further business, the Financial Condition (E) Committee adjourned.

W:\National Meetings\2019\Spring\Cmte\E\4-8 E Minutes.docx

Attachment One



Date: 4/10/19

Long-Term Care Insurance (B/E) Task Force Orlando, Florida

April 8, 2019

The Long-Term Care Insurance (B/E) Task Force met in Orlando, FL, April 8, 2019. The following Task Force members participated: David Altmaier, Co-Chair (FL); Jessica Altman, Co-Chair (PA); Lori K. Wing-Heier represented by Sarah Bailey (AK); Jim L. Ridling represented by Steven Ostlund (AL); Keith Schraad represented by Erin Klug (AZ); Ricardo Lara represented by Perry Kupferman, Kim Hudson and Tyler McKinney (CA); Andrew N. Mais and Paul Lombardo (CT); Stephen C. Taylor represented by Howard Liebers (DC); Colin M. Hayashida represented by Kathleen Nakasone (HI); Doug Ommen represented by Andria Seip (IA); Dean L. Cameron (ID); Robert H. Muriel (IL); Vicki Schmidt represented by Julie Holmes (KS); Al Redmer Jr. represented by Nour Benchaaboun (MD); Eric A. Cioppa and Marti Hooper (ME); Anita G. Fox represented by Kevin Dyke (MI); Steve Kelley represented by Fred Andersen (MN); Chlora Lindley-Myers represented by Jessica Schrimpf (MO); Matthew Rosendale represented by Bob Biskupiak (MT); Jon Godfread represented by Chrystal Bartuska (ND); Bruce R. Ramge represented by Rhonda Ahrens, Martin Swanson and Laura Arp (NE); Marlene Caride represented by Philip Gennace (NJ); John G. Franchini represented by Paige Duhamel (NM); Barbara D. Richardson represented by David Cassetty (NV); Glen Mulready represented by Cuc Nguyen (OK); Andrew Stolfi (OR); Elizabeth Kelleher Dwyer represented by Sarah Neil and Matthew Gendron (RI); Julie Mix McPeak represented by Brian Hoffmeister (TN); Kent Sullivan represented by Doug Slape (TX); Todd E. Kiser represented by Tanji Northrup and Nancy Askerlund (UT); Scott A. White and Doug Stolte (VA); and Mike Kreidler and Doug Hartz (WA).

1. Heard Opening Comments

Commissioner Altmaier discussed how the NAIC membership has identified long-term care insurance (LTCI) as one of the key priorities of the NAIC for 2019, if not the No. 1 priority. He discussed how many of the workstreams this task force coordinates are doing a great deal of significant work, even though each one is focused on something distinctly different. He noted the appointment of a new Executive (EX) Committee-level task force on long-term care (LTC) pricing. He noted that the work of the Long-Term Care Insurance (B/E) Task Force will continue to be important, but said he also looks forward to coordinating with the new task force. He described how even though the states’ markets are different, all the states share some of the same concerns with respect to LTCI.

Commissioner Altman reiterated the focus the NAIC has on the use of LTCI. She said she and Commissioner Altmaier are committed to working hand-in-hand with all the other bodies of work being conducted by other groups, as coordination and collaboration are critical in this area. She stated the need to build on the great work that had already been completed and explained that today’s meeting is focused on hearing about the extensive work that has already been done. She noted that “level setting” is important as conversations begin in 2019.

2. Discussed Work Already Completed on the Product Innovation Charge

David Torian (NAIC) referred the Task Force to two documents previously developed by the now disbanded Long-Term Care Innovation (B) Subgroup. He described how the scope of this Subgroup was to consider ways to address some of the current challenges facing the LTCI market and develop realistic policy options that might result in an increase in the take-up rate of LTCI.

Mr. Torian said the first document, “Federal Policy Options to Present to Congress” (Attachment One), is a document the Subgroup developed to: 1) identify actionable, realistic policy options for consideration by state insurance regulators, state legislators, the NAIC as a body, federal agencies and the U.S. Congress; and 2) help increase private LTC financing options for consumers. He described how the document identifies policy options to consider, noting that it has been shared with various members of Congress, in both the U.S. House of Representatives and the U.S. Senate. He noted that in this current Congress, the NAIC has begun to share the document with those members who have expressed an interest in LTCI.

Mr. Torian noted that the second document, “Private Market Options for Financing Long-Term Care Services” (Attachment Two) was developed to help provide state insurance regulators, policymakers, consumers and other stakeholders an overview of the landscape of LTC financing mechanisms currently available in the private market, in addition to traditional LTCI. He stated that this document is currently posted on the Senior Issues (B) Task Force’s web page under the Related Documents tab.

Attachment Five



3. Received an Oral Presentation on LTCI Trends and Regulatory Pressure Mr. Slape, former chair of the Financial Analysis (E) Working Group, presented a summary of observations it had made relative to LTCI trends. He described how the Working Group had been reviewing LTCI companies and the LTCI space in general for well over a decade. He described how there had been a great deal of activity, but in a lot of cases, the discussion is centered on new products for the future. However, in the Working Group’s mind, there has been less discussion on the legacy closed blocks of business. He noted that the Working Group undertook an initiative in 2018 that represented a high-level summary of issues companies are facing from a solvency perspective to highlight for the state insurance commissioners. He noted that the Working Group developed a confidential document, but the co-chairs believed it would be helpful to highlight some of the things from the document. Mr. Slape described that, at one time, there were more than 170 companies writing LTCI; now that number is down to a little more than a dozen, with 80% of the reserves held by the top 15 companies. He noted that there was an increasing trend that companies can no longer subsidize the LTCI blocks of business, thus creating a cross-policyholder subsidization. He noted this comes now after the view for years that many of the largest writers of LTCI are well capitalized and diversified companies. However, the concern now is that as these companies move this business they are no longer willing to support, they do so with the LTCI business ending up with much weaker capitalized companies. Mr. Slape described how the Working Group has been working with the Valuation Analysis (E) Working Group on some of the issues it found to communicate with the domiciliary state insurance regulators to address some of the concerns from Valuation Analysis (E) Working Group. This work will continue in 2019. Mr. Slape noted that with respect to the pricing issue, the environment for getting rate increases is one where there is a lot of inconsistencies among the states. He stated the timing of getting rate increases is also having an impact on solvency because delaying rate increases is a negative to solvency. Mr. Slape also addressed the concern that exists when the consumers may not be given the choice to make their own decision, given all states have limits on what can be collected under guaranty fund coverage if an LTCI insurer goes insolvent. He stated that Texas has seen companies requesting too little of rate increases, even though the actuarial justified data suggests otherwise. He noted the importance for companies to request the right rate; otherwise, the industry is potentially misleading consumers regarding what the true cost of the policy may be currently and in the future. Mr. Slape stated that he believes there is an opportunity to make more options available to consumers and to consider the costs of the different options. He said had the industry and state insurance regulators been more willing to embrace these issues, perhaps the current situation would not be as bad. He also discussed how at times state insurance regulators may be their own worst enemy with a lack of linking between the liability valuation requirements and how the product is priced. He noted the high degree of opportunity either at the new task force, this Task Force or others, perhaps with new reporting that could better highlight issues. Mr. Hudson noted that while state insurance regulators do have an obligation to help the timing on the rate increases, there is also an obligation that the companies do a better job of providing enough data or timely response to inquiries. Bonnie Burns (California Health Advocates—CHA) stated that one of the things state insurance regulators may not be paying enough attention to is the way such services have changed. In the 1990s, that change began with the addition of home care and assisted living. However, over time, home care has become more significant, accounting for as much as 60% of the total costs of such services, with a small percentage for nursing home care and assisted living. The importance of keeping people in their homes and getting services in their homes reduces the later use of institutional care. She emphasized how new technology can be aimed at keeping people in their homes. She described the impact that home health care can have on caregivers and how that can affect the caregiver’s ability to pay for their own LTC in the future. She noted that not all dementias are Alzheimer’s and that they can affect each other differently and at different speeds. Ms. Burns stated that she is concerned about the options being presented to people instead of an LTCI rate increase, questioning if the consumers are being steered toward the option that is best for the company. She described an example, noting that none of the options provided the option to eliminate the consumer inflation protection or a paid-up policy. She questioned this given the other facts of the situations and noted that all of this leads her to believe the options can lead to lapsing of policies. Commissioner Altman agreed with the importance of the options being provided and said she looks forward to discussing the issue in more detail.

Attachment Five



4. Discussed Work Already Completed by the Long-Term Care Pricing (B) Subgroup Mr. Lombardo described in detail the Long-Term Care Pricing (B) Subgroup’s activities since the 2018 Fall National Meeting, which included five conference calls. His update included how, in November 2018, the Subgroup discussed the idea of the multistate coordinated LTCI rate review concept that was presented to the Task Force at the 2018 Summer National Meeting. He noted that during this same call, the Subgroup also discussed the concept of a survey that would not only respond to a question from the former co-chair of the Task Force, Director Cameron, concerning the consistency in information received by the states, but could also assist the Task Force in completing its charge to assess state activities regarding the regulatory considerations on rate increase requests on blocks and identify common elements for achieving greater transparency and predictability. Mr. Lombardo noted that the Subgroup developed such a survey in December 2018 and received 40 responses from the states and territories combined. He noted that since January, the Subgroup had spent a great deal of time discussing the survey, including whether solvency should affect LTCI rate increase decisions. He noted that most comments indicated that solvency should not play a role in the magnitude of the approved increase, and the magnitude should instead be determined purely by the actuarial justified amounts, although there was one state that suggested further discussion may be appropriate. He suggested this issue be discussed by the state insurance commissioners. Mr. Lombardo indicated that the Subgroup had discussed at length the potential cross-state policyholder inequity/cross-subsidization of LTC rates. He noted that there is a growing concern on behalf of those states that traditionally have approved requested rate increases that an inequity is created between their consumers and consumers in the states that have either not approved rate increases or have approved significantly lower rate increases. Mr. Lombardo said the purpose of the survey was largely to make sure the state insurance commissioners could begin to have discussions on the differences that exist among the states in a regulator-to-regulator venue. He said the Subgroup would continue to discuss other issues, such as credibility where data is too small, and will continue to inform the Task Force of its discussions. 5. Discussed Work Already Completed by the Long-Term Care Valuation (B) Subgroup

Mr. Andersen said the Long-Term Care Valuation (B) Subgroup developed Actuarial Guideline LI—The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves (AG 51), which became effective with year-end 2017 reporting. He stated that related to this was the work of the Valuation Analysis (E) Working Group, which is reviewing AG 51 reports of companies. He described how AG 51 has allowed state insurance regulators to determine that morbidity experience development is most likely the cause of future reserve and rate volatility. He stated that the past issues of downward trends of mortality, lapse and investment return have generally been addressed and should not result in substantial future volatility in reserves or rates. He stated there is some variation by companies, noting that the Valuation Analysis (E) Working Group and the Financial Analysis (E) Working Group have helped to communicate this to the domiciliary insurance regulators of such companies. Mr. Andersen described how, within the topic of morbidity, the consensus is that the length of a claim is generally increasing and there is still uncertainty in that area that could lead to volatility of reserves or rates. With respect to older age morbidity frequency, there is less consensus now and in the future. He stated that there is a varying amount of data among the companies, and they are addressing the lack of credibility in different manners, applying various amounts of margins. Mr. Andersen stated that these findings led to actions in 2018. He noted how this includes how some companies established sizeable reserve increases mainly due to a reaction to updated morbidity studies. He stated that related to this was that companies have increased discipline in assumption setting, as evidenced by more frequent morbidity study updates. He stated that with respect to state insurance regulators’ actions in 2018, the Valuation Analysis (E) Working Group reviewed AG 51 filings from more than 50 companies, which led to the findings stated previously. He indicated this also led to communication with domiciliary insurance regulators, the Financial Analysis (E) Working Group and public through forums such as this. Mr. Andersen described how the Subgroup saw the need for additional guidance, describing its work with the industry to develop a guidance document, which is posted on the Subgroup’s web page. As a result, all the AG 51 filings for year-end 2018 will contain information that will help state insurance regulators better understand the data underlying morbidity assumptions and methods, as well as the rationale for projecting future morbidity. He described how the goal was to better anticipate company-specific and industrywide volatility of reserves and, therefore, limit the frequency and magnitude of surprise reserve increases.

Attachment Five



Mr. Andersen said that while most companies with LTCI business have no solvency concerns, some do. As a result, the regulatory actuaries are working toward targets to ensure future claims will be paid. Surprises lead to moving targets and financial uncertainty. He described why this has led the Subgroup to focus more on the volatility. With respect to morbidity improvements, these relate only to incidence rates; for example, how the claim incidence of an 85-year-old in 2034 will compare to claim incidence of an 85-year-old today. Mr. Andersen stated that the data in this age range is coming in fast, but still not fast enough. He described how this is a complicated topic that includes factors such as what Ms. Burns highlighted. Mr. Andersen said it is not just about health, but how consumers manage their health with lifestyle and other changes. This includes factors such as prevention, smoking cessation, awareness and general wellness. He described how there is a significant difference between the overall and insured population. He noted that the Subgroup will have to consider advances in Alzheimer’s treatment advancement, and not just the prevention but the reduction of severe conditions. He described how behavior management of LTC policies affect claims. This includes a decision to go on claim after minimal activities of daily living (ADLs) or wait. He described how factors such as trends in nursing home and home care usage, increases in less costly companion care, adult daycare and prevention will also have an impact, as well as education on programs that prevent costly LTCI events. One concern is the potential for a labor shortage in the area of caretaking. However, Mr. Andersen said more technology usage can offset any labor shortage. Finally, lifestyle can have an impact, noting that today families are more spread out, and “cheap” caregivers are less likely to be around as they were years ago. He said this trend is expected over the next 15 years. He stated that a lot of data, research and studies will help inform these views over the next few years. Mr. Andersen said one of the areas of focus over the next year will include the morbidity improvement aspect, making sure it includes all the complicated factors previously noted. He said the Subgroup wants to ensure companies are not reliant on too simplistic of a view in setting future morbidity assumptions. He stated the Subgroup will be collecting a lot of information to gain greater insight into the entire morbidity improvement assumption. He described how there is a conservative base of state insurance regulators who believe this assumption is too optimistic, while other state insurance regulators might be on the other side. He said the Subgroup is hopeful that it will have a better handle on these complicated issues by the end of the year. Ms. Ahrens said the Society of Actuaries (SOA) is working on several studies in these areas. She highlighted how some of conferences presented by the SOA might be helpful to non-actuaries, noting that many of the topics are not exclusively for actuaries. She specifically highlighted an InsurTech LTCI conference in May and why actuaries are interpreting morbidity improvement the way they are. Ms. Seip asked Mr. Andersen to repeat the item that was having the single greatest impact on morbidity. Mr. Andersen responded that it is the impact of certain 85- to 90-year-olds coming onto claim going forward. Having no further business, the Long-Term Care Insurance (B/E) Task Force adjourned. W:\National Meetings\2019\Spring\TF\Joint LTCI (BE)\4-8-19_Joint LTCI minutes.docx

Attachment Five

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© 2019 National Association of Insurance Commissioners

MEMORANDUM

TO: Commissioner David Altmaier (FL) Chair of the Financial Condition (E) Committee

FROM: Superintendent Elizabeth Kelleher Dwyer (RI) & Buddy Combs (OK) Co-Chairs of the Restructuring Mechanisms (E) Working Group

DATE: July 8, 2019

RE: Update and Proposed 2020 Charges

During its Feb. 19, 2019 conference call, the Financial Condition (E) Committee formed the Restructuring Mechanisms (E) Working Group & Restructuring Mechanisms (E) Subgroup and adopted charges for each of these groups. However, the charges developed at that time did not set forth specific due dates for each of the charges which are now expected of any new NAIC group or any new charges for an existing NAIC group. The Committee agreed to temporarily waive such due dates at the time, but only under the expectation that they would be established by the 2019 Summer National Meeting. This memorandum summarizes the activity of the Working Group & Subgroup and sets forth proposed 2020 charges intended to meet such specific deliverables.

Restructuring Mechanisms (E) Working Group The primary charge of the Restructuring Mechanisms (E) Working Group is to prepare a White Paper which includes not only a summary of the current restructuring statutes, but also discusses the perceived need for restructuring statutes and the issues those statutes are designed to remedy as well as the alternatives that insurers are currently employing to achieve similar results. As such, the Working Group has primarily been focused on gathering information and viewpoints on the various issues which will become the core text included in the White Paper. The Working Group has already received a great deal of information from various presenters and regulators and as co-chairs we are beginning to develop an outline of the White Paper. We recognize the intent of timely deliverables within charges and at this juncture we intend to draft, discuss and finalize the White Paper by the 2020 Summer National Meeting, which includes having a draft available for public comment by early 2020, and then working with any feedback that the Working Group receives.

The Working Group is also charged with reviewing and proposing changes to the Guaranty Association Model Acts (Model #520 & #540) to ensure that policyholders that had guaranty fund protection prior to a restructuring continue to have it after the restructuring. In addition, the Working Group is also charged with reviewing and proposing changes to the Protected Cell Companies Model Act (Model #290) to allow for restructuring mechanisms. While the importance of these topic cannot be diminished, it is difficult to imagine the Working Group being able to complete that within the expected one-year time period, and as such we would not be opposed to removing these charges until after the Working Group has completed the White Paper. Alternatively, we have proposed instead that those charges be removed but be replaced with a charge that contemplates requesting to begin such work in 2020. We believe the Working Group is likely to discuss these issues during the development of the White Paper, and as such will likely be in a position to request development of those models shortly after completion of the White Paper,

Attachment Sixteen


but the existing process to change a model already requires approval from the parent Committee and Executive Committee, therefore removal of these charges at this time is likely appropriate. As such, the following represents our proposed changes to the 2020 Charges for the Working Group only:

1) Evaluate and prepare a White Paper that: a. Addresses the perceived need for restructuring statutes and the issues those statutes are designed to

remedy. Also, consider alternatives that insurers are currently employing to achieve similar results; b. Summarize the existing state restructuring statutes; c. Addresses the legal issues posed by an Order of a Court (or approval by an Insurance Department)

in one state affecting the policyholders of other states d. Considers the impact that a restructuring might have on Guaranty Associations and on

policyholders that had Guaranty Fund protection prior to the restructuring. e. Identify and addresses the legal issues associated with restructuring using a protected cell.

Complete by the 2020 Summer National Meeting 2) Consider requesting approval from the Executive (EX) Committee on developing changes to specific NAIC

models as a result of findings from the development of the White Paper Complete by the 2020 Fall National Meeting

3) Review and propose changes to the Guaranty Association Model Act to ensure that policyholders that had guaranty fund protection prior to a restructuring continue to have it after the restructuring

4) Review and propose changes to the Protected Cell Companies Model Act to allow for restructuring mechanisms

Restructuring Mechanisms (E) Subgroup While the Restructuring Mechanisms (E) Subgroup has not yet had the same level of discussions as the Working Group, much of this can be attributed to the difficultly of delivering on the charges without more clarity on the details of how these companies are expected to operate. More specifically, while regulators have practices that assist them in understanding how to conduct the review of the proposed transactions themselves, it’s been difficult to begin other conversations about the solvency risk these transactions may have on the companies after the transaction. This specifically includes RBC, where it’s difficult to imagine what changes would be made to the RBC formula (or other capital requirements) for companies that may have a different risk profile after the transaction. This is not to suggest that such a change cannot be made, but the Subgroup has yet to receive enough information that will allow it to even begin those discussions. Similarly, with respect to developing protected cell accounting and reporting requirements, it is unclear at this point whether each protected cell should be subject to RBC as if the protected cell was a standalone company or whether RBC should apply to the Protected Cell Company as a whole based on the combined capital level. However, to be clear, the Subgroup appreciates that laws have been adopted in states and is currently in the process of developing best practices that could be used by states that have adopted such laws for their use in both: a) considering whether the proposed transaction should be approved; and b) monitoring the financial condition of a company after a transaction has been executed. The Subgroup will aim to develop these best practices in a manner that it can recommend them as accreditation standards as inferred by the current charges. To emphasize this point, the below proposed changes to the charges emphasize the development of such best practices as a new charge, but one that incorporates many of the aspects of the pervious final charge, which has now been proposed to be deleted. The other proposed changes are clarifying either as to the estimated timeline for completion or reflective of the discussions that have taken place thus far within the Subgroup.

1) Develop best practices to be used in considering the approval of proposed restructuring transactions including among other things, the expected level of reserves and capital expected after the transfer along with the adequacy of long-term liquidity needs, and also develop best practices to be used in monitoring the companies after the transaction is completed. Once completed, recommend to the Financial Regulation

Attachment Sixteen


Standards and Accreditation (F) Committee for their consideration. Complete by the 2020 Summer National Meeting

2) Consider the development of financial surveillance tools that are specifically designed for companies inrunoff (companies that are no longer actively writing insurance business or collecting premiums) Minimumstandards of review

3) Consider the need to make changes to the RBC formula to better assess the minimum surplus requirementsfor companies in runoff. Complete by the 2020 Fall National Meeting

4) Review the various restructuringthe various restructuring mechanisms and develop, if deemed needed,protected cell accounting and reporting requirements for referring to the Statutory Accounting Principles(E) Working Group. Complete by the 2020 Fall National Meeting

a. Minimum capital requirementsb. Specific actuarial guidance in determining initial reserving levelsc. Protected cell reporting requirementsd. Proposed accreditation standards

Attachment Sixteen

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To: Commissioner David Altmaier (FL), Chair, Financial Condition (E) Committee

From: Kevin Conley (NC), Chair, Mortgage Guaranty Insurance (E) Working Group

Date: July 2, 2019

Re: Updated Request for Extension

As you may recall, the Mortgage Guaranty Insurance (E) Working Group is in the process of fulfilling its charge to update the Mortgage Guaranty Insurance Model Act (Model #630), and it had previously hoped to complete its work by the Summer National Meeting. As chair, I would like to update that request to the Financial Condition (E) Committee in accordance with NAIC procedures.

The NAIC engaged Milliman to assist the Working Group in finalizing a Mortgage Guaranty Insurance Capital Model that would become the new capital standard for mortgage insurers. That work has been ongoing for some time, partly because Milliman was originally engaged to validate a model previously developed by the mortgage industry, and it identified a significant amount of data and documentation-related problems. Since last fall, Milliman’s focus shifted to produce a more simplified model preferred by the state insurance regulators. I am happy to report that Milliman has completed its work, and the Working Group hopes to make the proposed Mortgage Guaranty Insurance Capital Model publicly available for finalization.

While the proposed Mortgage Guaranty Insurance Capital Model seems to meet the needs of the Working Group, the Working Group will soon be shifting gears to coordinate with the Property and Casualty Risk-Based Capital (E) Working Group and the Blanks (E) Working Group. Finally, the Mortgage Guaranty Insurance (E) Working Group will finalize the actual language used in Model #630 since it is intended to provide the legal authority over the Mortgage Guaranty Insurance Capital Model.

At this time, we believe we can complete this work by the 2020 Spring National Meeting. Again, a request for additional time is largely the result of the significant work that had to be completed by Milliman to meet the needs of the state insurance regulators. Regardless, we are mindful that we have been unable to complete our work within the one-year time period expected under the NAIC model law process; therefore, we request an extension until the 2020 Spring National Meeting in order to finalize a product that can be adopted by the domestic states of the mortgage insurers, as well as any other state also wishing to adopt the same.

Attachment Seventeen