National Association of Insurance Commissioners (NAIC) officials want to include funding for a principles-based valuations impact study in the group’s 2011 budget.

The NAIC, Kansas City, Mo., began official consideration of the budget this week during the fall meeting in Orlando, Fla.

The NAIC is expecting to increase revenue 1.6%, to about $75.2 million, and expenses 5.3%, to $75.4 million.

For 2010, the NAIC adopted a budget that included a 0.8% cut in expenses. The association is predicting it will end the year with a total net operating margin of about $858,000.

NAIC members include insurance regulatory officials from the 50 states, the District of Columbia and 5 U.S. territories.

One sign of the severity of the effects of the Great Recession on California is NAIC member assessments. The states that pay an assessment of more than $100,000 are California, Florida, New York and Pennsylvania and Texas. NAIC assessments will be rising for 4 of those states in 2011 but falling to $171,080, from $172,352, for California.

Policy and business initiatives that could affect the 2011 budget include a $29,460 allocation for the hiring of an additional part-time technical services division employee. The employee will help the NAIC keep up with growing demands on its messaging systems and other communications systems, officials say.

The NAIC also plans to spend $83,953 on a records management project and $166,500 to help states comply with new federal health insurance consumer assistance data collection and reporting requirements.

The NAIC expects to spend $250,000 on a study of a proposed valuation methodology that would be used with the NAIC’s recently adopted Standard Valuation Law.

The NAIC’s Life and Health Actuarial Task Force has proposed shifting to a “principles-based reserving” approach, which would put more emphasis on use of general principles, actuarial judgment and statistical analysis, and less on use of unchanging formulas and pre-set numerical limits.

“The impact of the proposed valuation changes will be determined by comparing the reserves as calculated under the proposed principle-based valuation methodology with the reserves calculated under the current formula-based valuation methodology,” officials say in the NAIC budget proposal. “This information will be valuable to insurance regulators, life insurance companies and state legislators as they contemplate adopting the modifications to the Standard Valuation Law.”

The NAIC’s Executive Committee approved the release of a request for proposal (RFP) for the study, officials say.

The Executive Committee expects to hold a public teleconference hearing on the budget proposal Nov. 30.

In other NAIC meeting news:

- Therese Vaughan, chief executive officer of the NAIC, said she expects to see significant turnover as a result of commissioner retirements and the Nov. 3 elections.

“We expect a number of new members who will not be familiar with the work that [the NAIC does],” Vaughan said. “We are thinking hard about how to bring them into the fold and continue to do the important work that we are doing. We are doing some very hard thinking about it.”

NAIC President Jane Cline, the West Virginia commissioner, said “change does happen.”

The NAIC has a training program in place for new commissioners and a mentoring program for departments, Cline said.

Commissioner changes are unlikely to disrupt the work of the NAIC, Cline said.

“The personnel in each department and the significant amount of experience that they have, that makes change easier,” Cline said.

- Florida Insurance Commissioner Kevin McCarty said the state-based insurance regulatory system has proven in the past 2 years that it can withstand the worst possible economic turmoil.

“Regardless of your party affiliation, we all must admit that this year, 2010, has been a transformational

year for insurance companies and insurance regulators,” McCarty said.

Just two years ago, the industry was grappling with the worst economic crisis the country had seen in generations, McCarty said.

“We readily admitted that our system was under siege, and many in Washington were headstrong about federalizing our system,” McCarty said. “One thing we have learned from this crisis, our system is effective and has worked through this financial crisis; much better than the other financial sectors. And we as regulators should be proud of the work we have done to improve our regulatory framework.”

McCarty noted that commissioners are facing the challenges of implementing much of the Affordable Care Act health system change package, and he said that, despite having reservations about the act,, the NAIC has managed to meet its obligations.

Cline, who is ending her term as NAIC president, said the Dodd-Frank Wall Street Reform and Consumer Protection Act has increased the NAIC’s level of engagement with Washington, by creating a Federal Insurance Office and a Financial Stability Oversight Council that will have an NAIC representative, John Huff, as a non-voting member.