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NAIC Panel Posts Insurance Solvency Draft

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The Financial Condition Committee at the National Association of Insurance Commissioners has unveiled a preliminary version of a proposed U.S. Insurance Solvency Framework.

The committee, the coordinator of solvency-related efforts at the NAIC, Kansas City, Mo., has posted a draft of the framework on its section of the NAIC’s website.

The NAIC launched a Solvency Modernization Initiative in June 2008.

“The purpose of this paper is to describe the framework of the U.S. Insurance Financial Solvency System and present a set of core financial principles underlying this framework,” the framework drafters write in a description of their objectives.

The framework draws on ideas developed by the International Association of Insurance Supervisors, Basel, Switzerland, but it “goes beyond the IAIS in important, material ways,” the drafters write.

“In particular, in the U.S. regulatory system, ongoing collaborative regulatory peer review, regulatory checks and balances, and risk-focused financial surveillance form the foundation of the regulatory process,” the drafters write.

The framework explains that, in the United States, the U.S. insurance financial solvency core principles are expressed in the NAIC’s Financial Regulation Standards and Accreditation Program, the drafters write.

The drafts write that the United States has “a national system of state based regulation.”

Here, “ultimate regulatory responsibility for insurer solvency rests with each state insurance department and the state insurance Commissioner,” the framework drafters write.

By following solvency standards, performing risk-focused financial surveillance, and enforcing solvency-related insurance laws, regulations and guidelines, the state regulatory system has limited insurer insolvencies, the drafters write.

“A hallmark of the state regulatory system is its dynamic efforts to constantly improve the regulatory solvency system and adjust the system as needed, especially regarding inputs into the model used to determine asset, liability and capital requirements,” the drafters write.

One point of the framework paper, the drafters add, is to explain how information flows to regulators and how regulators use the information to take appropriate actions.

In the framework draft, the drafters also provide a regulation mission statement.

In the United States, the mission of insurance regulation is, “To protect the interests of the policyholder and those who rely on the insurance coverage provided to the policyholder first and foremost, while also facilitating an effective and efficient market place for insurance products.”