Tag: NAIC

Comments on Request for Information on Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector

Mary Pat Campbell

Link: https://www.regulations.gov/document/TREAS-DO-2024-0011-0001/comment

Description:

Publicly available comments on Dept of Treasury’s request for information on AI use, opportunities & risk in financial services sector.

Example: https://www.regulations.gov/comment/TREAS-DO-2024-0011-0010 — comment from ACLI

The NAIC has developed its definition of AI, and the insurance industry has responded with
information in accordance with that definition. Any definition developed by Treasury should
align with, or at a minimum not conflict with, definitions of AI in existing regulatory
frameworks for financial institutions.

The Treasury definition of AI should reflect the following:
o Definitions should be tailored to the different types of AI and the use cases and
risks they pose. The definition used in this RFI is similar to an outdated definition put
forth by the Organization for Economic Coordination and Development (OECD),
which could be narrowed for specific use cases (e.g., tiering of risks under the EU
framework).
o There are also distinctions between generative AI used to make decisions, without
ultimately including human input or intervention, and AI used with human decisionmaking being absolute or the usage being solely for internal efficiencies and
therefore not impactful for customers.
o AI covers a broad range of predictive modeling techniques that would otherwise not
be considered Artificial Intelligence. A refinement to the definition that classifies AI
as machine learning systems that utilize artificial neural networks to make
predictions may be more appropriate.
o The definition of AI should exclude simpler computation tasks that companies have
been using for a long time.

Author(s): Various

Publication Date: accessed 9 Aug 2024

Publication Site: Regulations.gov

Private Credit Characteristics

Mary Pat Campbell

Link: https://content.naic.org/sites/default/files/capital-markets-market-buzz-private-credit-plr.pdf

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Excerpt:

The terms private credit and private letter ratings (PLRs) have unintentionally elicited some confusion
about their respective meanings. While there is no standardized definition, and the term may be used
differently by market participants, private credit generally refers to debt, or debt-like, securities that are
not publicly issued or traded. On the other hand, PLRs refer to credit opinions that are assigned to
privately rated securities by credit rating providers and are only communicated to the issuer and a
specified group of investors.


To bring some clarity, at least with respect to how the NAIC views them, these terms can be characterized
in two dimensions: 1) distribution; and 2) transparency.

Publication Date: 30 July 2024

Publication Site: NAIC Capital Markets Bureau Market Buzz

U.S. Insurers’ Bank Loan Exposure Rises at a Decelerated Pace in 2023

Mary Pat Campbell

Link:

https://content.naic.org/sites/default/files/capital-markets-special-reports-bank-loans-ye2023_0.pdf

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Executive Summary:

Bank loan investments increased to about $122 billion in book/adjusted carrying value (BACV)
at year-end 2023 from $117 billion at year-end 2022.

Despite the 4.6% growth, bank loansremained at 1.4% of U.S. insurers’ total cash and invested
assets at year-end 2023—the same as year-end 2022.

Approximately 70% of U.S. insurers’ bank loan investments were acquired, and 85% were held
by life companies.

In particular, large life companies, or those with more than $10 billion in assets under
management, accounted for 82% of U.S. insurers’ bank loan exposure, up from nearly 80% in
2022.

The top 25 insurance companies accounted for 75% of U.S. insurers’ total bank loan
investments at year-end 2023; the top 10 accounted for about 60%.

Improvement in credit quality for U.S. insurer-bank loans continued, evidenced by a fourpercentage-point increase in those carrying NAIC 1 and NAIC 2 designations and a
corresponding four-percentage-point decrease in bank loans carrying NAIC 3 and NAIC 4
designations.

Author(s): Jennifer Johnson

Publication Date: 16 July 2024

Publication Site: NAIC Capital Markets Special Report

The Impact of Rising Rates on U.S. Insurer Investments

Mary Pat Campbell

Link: https://content.naic.org/sites/default/files/capital-markets-special-reports-impact-of-rising-rates.pdf

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Excerpt:

As corporate bonds are mainly fixed rate, their relative value will decrease as floating rate investments
become more attractive with higher benchmark rates. That is, bond prices will fall as yields rise to make
them more attractive, given that their fixed-rate coupons will be lower. About half of insurer bond
investments are corporate bonds, and the vast majority of U.S. insurer corporate bond investments are
investment grade credit quality. From January 2022 to January 2023, the ICE Bank of America (BofA)
Investment Grade Corporate Bond Index, which measures the performance of investment grade
corporate debt, was down by about 14%.


Corporate bond yields have increased significantly since the beginning of 2022 with rising interest rates
and widening credit spreads. As of year-end 2022, investment grade and high-yield corporate bond
yields averaged 5.5% and 8.9%, respectively (refer to Table 1). Investment grade yields increased by
approximately 270 bps during 2022, while speculative-grade yields increased by about 370 bps.

Author(s): Jennifer Johnson and Michele Wong

Publication Date: 23 Feb 2023

Publication Site: NAIC Capital Markets Special Report

Insurtech Regs, ‘Dark Pattern’ Spottting on NAIC’s To-Do List

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/12/16/insurtech-regs-dark-pattern-spottting-on-naics-to-do-list/

Excerpt:

In August [2022], Birny Birnbaum, the executive director of the Center for Economic Justice, asked the [NAIC] Market Regulation committee to train analysts to detect “dark patterns” and to define dark patterns as an unfair and deceptive trade practice.

The term “dark patterns” refers to techniques an online service can use to get consumers to do things they would otherwise not do, according to draft August meeting notes included in the committee’s fall national meeting packet.

Dark pattern techniques include nagging; efforts to keep users from understanding and comparing prices; obscuring important information; and the “roach motel” strategy, which makes signing up for an online service much easier than canceling it.

Author(s): Allison Bell

Publication Date: 16 Dec 2022

Publication Site: Think Advisor

2022 Insurance Regulation Report Card

Mary Pat Campbell

Link: https://www.rstreet.org/2022/12/12/2022-insurance-regulation-report-card/

PDF link of report: https://www.rstreet.org/wp-content/uploads/2022/12/r-street-policy-study-no-272.pdf

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Excerpt:

KEY POINTS

  1. The RSI Insurance Regulation Report Card analyzes and evaluates the effectiveness of state government regulation of property and casualty insurance and assigns a letter grade to all 50 states. The grade for each state was calculated by adding the weighted results from seven categories.
  2. The highest grades were for Kentucky and Arizona, both of which received an A+. At the other end of the spectrum, California and Alaska both scored an F.
  3. 20 states had a higher grade than they did in R Street’s 2020 edition of the Report Card, 23 maintained the same grade and seven had lower grades. This result is positive and means that insurance regulatory regimes have become more effective and efficient in the past two years.

Executive Summary
We are pleased to present the 10th edition of R Street’s Insurance Regulation Report Card, which analyzes and evaluates the effectiveness of U.S. insurance regulation of property and casualty insurance. The first iteration of this report was published in June 2012, and this 2022 edition largely follows the format of prior reports. It begins with a brief introduction on the current landscape of U.S. insurance regulation; reviews recent, relevant federal and state-based regulatory changes; presents a detailed evaluation of the effectiveness of each state’s regulation of insurance in seven key categories; and synthesizes those category evaluations by offering a “report card” grade for each state for analysis and comparison purposes.

This report draws on 2021 year-end statutory insurance financial statistics and the most recent datasets available for non-financial information. Sources include data and reports from the National Association of Insurance Commissioners (NAIC), S&P Global Market Intelligence, National Conference of State Legislatures, R Street analyses and others, all of which were accessed through Sept. 30, 2022.

In this report, we seek to shed light on the same three foundational issues we have focused on in past iterations of this report card:
• How free are consumers to choose the insurance products they want?
• How free are insurers to provide the insurance products consumers want?
• How effectively are states discharging their duties to monitor insurer solvency and foster competitive, private insurance markets?

Author(s): Jerry Theodorou

Publication Date: 12 Dec 2022

Publication Site: R Street

NAIC 2021 Annual/2022 Quarterly Financial Analysis Handbook

Mary Pat Campbell

Link: https://content.naic.org/sites/default/files/publication-fah-zu-financial-analysis-handbook.pdf

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Excerpt:

The risk-focused surveillance framework is designed to provide continuous regulatory oversight. The risk-focused approach requires fully coordinated efforts between the financial examination function and the financial analysis function. There should be a continuous exchange of information between the field examination function and the financial analysis function to ensure that all members of the state insurance department are properly informed of solvency issues related to the state’s domestic insurers.

The regulatory Risk-Focused Surveillance Cycle involves five functions, most of which are performed under the current financial solvency oversight role. The enhancements coordinate all of these functions in a more integrated manner that should be consistently applied by state insurance regulators. The five functions of the risk assessment process are illustrated within the Risk-Focused Surveillance Cycle.


As illustrated in the Risk-Focused Surveillance Cycle diagram, elements from the five identified functions
contribute to the development of an IPS. Each state will maintain an IPS for its domestic companies. State
insurance regulators that wish to review an IPS for a non-domestic company will be able to request the IPS from the domestic or lead state. The documentation contained in the IPS is considered proprietary, confidential information that is not intended to be distributed to individuals other than state insurance regulators.

Please note that once the Risk-Focused Surveillance Cycle has begun, any of the inputs to the IPS can be changed at any time to reflect the changing environment of an insurer’s operation and financial condition.

Author(s): NAIC staff

Publication Date: 1 Jan 2022

Publication Site: NAIC

Congressional Hearing Considers Private Equity-Controlled Insurers

Mary Pat Campbell

Link: https://communications.willkie.com/110/1827/uploads-(icalendars-pdf-documents)/congressional-hearing-considers-private-equity-controlled-insurers.pdf

Excerpt:

On September 8, 2022, the U.S. Senate Committee on Banking, Housing and Urban Affairs (“Senate Banking Committee”) held a hearing to consider “Current Issues in Insurance.” One of the items discussed at the hearing was Senator Sherrod Brown’s (D-OH) March 2022 letter to the National Association of Insurance Commissioners (the “NAIC”) and U.S. Department of the Treasury’s Federal Insurance Office (“FIO”) regarding private equity-controlled insurers.1

In his letter, Senator Brown requested that FIO, in consultation with the NAIC, prepare a report for Congress that evaluates the investment strategies pursued by private equity-controlled insurers, the impact on protections for pension plan beneficiaries following pension risk transfer arrangements, and whether state regulatory regimes are capable of assessing and managing risks related to private equity-controlled insurers. In the early summer, the NAIC and the U.S. Department of the Treasury (on behalf of FIO) each provided substantive responses to Senator Brown.2

Author(s): Kara Baysinger | Leah Campbell | Jane Callanan | Matthew J. Gaul
Donald B. Henderson, Jr. | David G. Nadig | Allison J. Tam

Publication Date: 27 Sept 2022

Publication Site: Willkie Farr & Gallagher