NAIC Exposes Key ComFrame-Motivated Changes

Internationally active insurance groups (IAIGs) with U.S. domestic insurers should be alert to key changes in regulatory oversight being considered by the National Association of Insurance Commissioners (NAIC). These changes are motivated by the Common Framework (ComFrame), a global template for regulating IAIGs (i.e., large insurers that straddle national boundaries) adopted in 2019 after years of discussion by the standards-setting body International Association of Insurance Supervisors (IAIS). 

The NAIC’s Group Solvency Issues Working Group (GSIWG) held a conference call with interested parties on June 6, 2022, to consider:

• Proposals by the GSIWG’s ComFrame Financial Examinations Drafting Group for changes to the NAIC’s Financial Condition Examination Handbook (FCEH)
• Proposals by the GSIWG’s ORSA Drafting Group to the NAIC’s Own Risk and Solvency Assessment Guidance Manual (ORSA Guidance Manual)

The changes are intended to reflect aspects of ComFrame deemed appropriate for U.S. insurance regulation. On the June 6 call, GSIWG voted to expose these changes for a 30-day public comment period ending July 8. The changes have been exposed in tandem with previous changes to the NAIC's Financial Analysis Handbook (FAH) on similar topics adopted by the FAH Drafting Group so that these three resources — FCEH, ORSA Guidance Manual and FAH — can be in alignment.

The proposed additions to FCEH intended to address ComFrame-motivated goals are generally as follows:

• Consideration of obtaining governance information and conducting review and assessment procedures at the head-of-IAIG level, when applicable
• Guidance clarifying that, for internal audit committee members to be considered independent, they should not have other operational, risk management or accounting responsibilities
• An additional section that includes inquiries/procedures applicable to IAIGs
• Additional guidance indicating that interviews may be necessary at the head-of-IAIG level, when applicable
• Additional guidance to evaluate a company’s/group’s due diligence prior to entering into new, material outsourcing agreements
• Additional guidance for reviewing and using new Appendix C (“IAIG Risk Management Assessment Considerations”) of the ORSA Guidance Manual
• An additional section that includes inquiries/procedures applicable to IAIGs
• A statement to respective examination repositories to indicate that some or all risks within the key activity could be used to address relevant ComFrame considerations
• Narrative guidance supporting the fact that some groupwide assessments are more appropriately conducted through coordinated on-site examinations, when relevant
• For coordinated examinations of IAIGs or other groups (as deemed appropriate), guidance that documentation on the Summary Review Memorandum may need to be expanded to include groupwide conclusions
• Additional guidance from ComFrame and from other NAIC resources regarding IAIG determination for background purposes, as well as an added reference to the FAH as the primary source for related information and procedures for identifying the IAIG and head of the IAIG

The June 6 changes also would add various updates throughout the ORSA Guidance Manual to incorporate:

• Enhancements related to the treatment and disclosure of liquidity and business strategies within the assessment
• Enhancements related to additional considerations relevant to IAIGs

Among items from the ORSA Guidance Manual specifically raised on the June 6 call were:

• Identification of the head of the IAIG and which non-insurance operations should be included in IAIG oversight
• Requirements that the ORSA Summary Report describe “main goals and objectives of the insurers’ business strategy for all insurance and non-insurance operations in scope”
• “Resilience against severe but plausible liquidity stresses,” adequacy of current sources of liquidity in stress scenarios and policies to manage liquidity risk and contingent funding sources
• A new section in the ORSA Guidance Manual on IAIGs
• Proposed changes to new Appendix C, “IAIG Risk Management Assessment Considerations”