Proposed NAIC 2014 Budget Has $93 Million in Revenues; Funds Staff to Aid ORSA, Principles-Based Reserving Efforts
October 21, 2013 by Thomas Harman, associate editor, BestWeek
WASHINGTON – The National Association of Insurance Commissioners has proposed a 2014 budget showing slightly increased revenues and expenses, compared with 2013, as well as new funding for staff resources to aid the implementation of the principles-based reserving method for life insurers and the Own Risk and Solvency Assessment model act.
The NAIC is projecting total revenues of $93.2 million and expenses of $91.8 million, increases over the 2013 budget by 3.68% and 3.87% respectively. But the 2014 proposal represents an operating revenue drop of 1.51% and an expense increase of 2.67%, according to the budget executive summary.
“The 2014 proposed budget reflects the NAIC’s commitment to prudently manage expenses while investing in important projects to enhance the association’s ability to evolve with changes in insurance regulation,” said Adam Hamm, NAIC president-elect and North Dakota Insurance Commissioner, in a statement. Hamm will become the new NAIC president following the NAIC’s Fall 2013 National Meeting scheduled for Dec. 15-18 in Washington, D.C.
The proposed budget includes funding for principles-based reserving implementation. The NAIC’s budget summary said the methodology is complex and requires the addition of two actuaries at a cost of $311,.985 for salaries, benefits, recruitment and other employee-related costs.
New York and California have been opposed to principles-based reserving, which only a handful of states have ratified to date. California in particular has been reluctant to back the concept, because it questioned whether smaller states with fewer resources, would have the resources to actually manage principles-based reserving for life insurers (Best’s News Service, April 12, 2013).
Another budget item involves ORSA, the model act which was adopted in September 2012 and would require insurers meeting a certain premium threshold to submit an annual ORSA summary to the company’s lead state. “This is a new requirement and requires enterprise risk management expertise, which is in short supply,” the summary said. “To ensure the NAIC has this expertise on staff to support the states as this requirement is implemented, the NAIC will hire an individual with a strong ORSA/ERM background at a 2014 cost of $153,240.”
The National Association of Mutual Insurance Companies is just beginning to review the proposal, said Paul Tetrault, NAMIC state and policy affairs counsel. He said it appears the budget trend is headed upward — a point of concern because most NAIC funds are generated by industry. He noted the staff addition for ORSA. “It’s not unexpected to see NAIC bolstering its own internal expertise,” he said.
The NAIC also proposes to spend $122,118 on a reinsurance counsel who will conduct reviews and handle requests under the revisions to the Credit for Reinsurance Model Law and Credit for Reinsurance Model Regulation that were passed in November 2011. The changes require assuming insurers to be licensed and domiciled in a “qualified jurisdiction” before they can be certified as a reinsurer for reinsurance collateral reduction.
And NAIC proposed to move into Phase II of its work to redesign the State Based System technology platform by updating the system architecture and tool set designed to improve performance, stability and scalability. NAIC expects to spend $2.98 million on this phase and another $2.2 million to $2.4 million resulting in a project cost of $7.3 million.
NAIC is also set to spend $375,000 in 2014 on an educational outreach program designed to inform policymakers about the workings of the state-based regulatory system using one or more consultants to provide domestic and international programs. Tetrault asked whether this also had a travel component to it, as travel has been a budget item of concern for NAMIC.
The NAIC budget release prompted a statement from U.S. Rep. Ed Royce, R-Calif., who recently referred to NAIC as “an $80 million trade association” that has de facto regulatory power because of how it handles its accreditation process. He said the NAIC’s budget likely would result in lip service to words such as “transparency” and “disclosure,” but providing little of either. “One simple step the NAIC could take — but continues to refuse to do — is to file a Form 990 with the [Internal Revenue Service],” Royce said in a statement. “Specifics on where the association’s money is generated, how it is spent, how much senior staff members are paid, and the amount of money spent on lobbying activities would all be relevant. Policymakers, including Congress, owe it to consumers to shed some light on an organization that operates largely in the shadows — as most major decisions at the NAIC continue to happen behind closed doors.”
Public comment on the new budget can be sent to NAIC through Nov. 15, with a public hearing planned for late November.
