The Reinsurance (E) Task Force (“RTF”) of the National Association of Insurance Commissioners (“NAIC”) held a virtual meeting on July 25, 2022, in lieu of meeting in person at the NAIC Summer 2022 National Meeting in August 2022. Beyond various administrative matters, such as adopting the RTF’s proposed charges for 2023, a key focus of the meeting was the status of the states’ implementation of the 2019 revisions to the NAIC’s Credit for Reinsurance Model Law (#785), the NAIC’s Credit for Reinsurance Model Regulation (#786), and the NAIC’s Term and Universal Life Insurance Reserve Financing Model Regulation (#787), which are discussed further below.
Credit for Reinsurance
All but one of the US jurisdictions have already adopted NAIC Model Law #785, with American Samoa’s insurance commissioner considering issuing an order for the adoption of the model law. Similarly, 48 US jurisdictions have already adopted NAIC Model Regulation #786. The RTF indicated that of the remaining jurisdictions, three (Florida, Hawaii and New Jersey) have pending regulations, which are expected to be adopted. Since the RTF’s meeting, Hawaii has adopted the revised regulation. In addition, two other jurisdictions (Puerto Rico and US Virgin Islands) are in the process of instituting conforming regulations.
The RTF is optimistic that adoption of both NAIC Model Law #785 and NAIC Model Regulation #786 will be completed before September 21, 2022. The two models will become an NAIC accreditation standard effective as of September 1, 2022, with enforcement by the NAIC commencing on January 1, 2023. Also, as previously discussed (see “States Continue Adoption of Amended Credit for Reinsurance Models as Federal Preemption Deadline Looms”), the revisions to NAIC Model Law #785 and NAIC Model Regulation #786 were intended to satisfy the requirements of the bilateral agreements on insurance and reinsurance entered into by the United States with the European Union (“EU”) and the UK in 2017 (the “Covered Agreements”). The Covered Agreements require the director of the US Federal Insurance Office (“FIO”) to evaluate US state insurance laws and regulations for compliance with the requirements of the Covered Agreements, with determinations to be completed by September 1, 2022. If the FIO director finds that a US jurisdiction’s laws and regulations do not comply with these requirements, the US jurisdiction’s laws will be federally preempted. During the July 25 meeting, the RTF discussed that after the FIO finishes its federal preemption determination, the review could lead to states being required to do some “technical clean-up” of their credit for reinsurance laws and regulations.
The process for considering and approving “reciprocal jurisdiction reinsurers” (i.e., the status which allows a reinsurer from a reciprocal jurisdiction to qualify for zero collateral requirements for credit for reinsurance for US ceding companies) is continuing to be built out in the US jurisdictions and by the NAIC Reinsurance Financial Analysis (E) Working Group for “passporting” (i.e., the process that enables a reinsurer that has been approved as a reciprocal jurisdiction reinsurer in a “lead state” to expand that status to other US jurisdictions). The NAIC has set up a website (see Certified and Reciprocal Jurisdiction Reinsurers) with details on applications in “lead states,” passporting and other relevant information with respect to reciprocal jurisdiction reinsurers, and certified reinsurer status. The US jurisdictions are also setting up their own websites with reciprocal jurisdiction reinsurer applications and information (see, e.g., the New York Department of Financial Services website at Reciprocal Jurisdiction Reinsurer Information).
Currently, the reciprocal jurisdictions are the EU, UK, Bermuda, Japan, Switzerland, and the US accredited jurisdictions. As reported at the July 25 meeting by the NAIC’s Mutual Recognition of Jurisdictions (E) Working Group, approval of the Republic of Korea’s application to be recognized as a reciprocal jurisdiction continues to be delayed due to the NAIC’s concerns about data localization requirements in the Republic of Korea.
XXX and AXXX Model Regulation
The RTF received an update, as of July 8, 2022, that 20 US jurisdictions have adopted NAIC Model Regulation #787, often referred to as the “XXX and AXXX” model regulation, with adoption under consideration in four US jurisdictions. NAIC Model Regulation #787 will also become an NAIC accreditation standard effective as of September 1, 2022, with enforcement by the NAIC commencing on January 1, 2023. However, under the NAIC’s accreditation standards, an actuarial guideline can satisfy the accreditation requirement. Actuarial Guideline 48 (“AG 48”) has the same requirements as NAIC Model Regulation #787. Many states are planning to use AG 48 to satisfy the accreditation requirement in lieu of adopting NAIC Model Regulation #787.