CAPITAL ADEQUACY (E) TASK FORCE Sunday, August 4, 2019 4:00 – 5:00 P.M
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Date: 7/24/19 2019 Summer National Meeting New York, New York CAPITAL ADEQUACY (E) TASK FORCE Sunday, August 4, 2019 4:00 – 5:00 p.m. New York Hilton Midtown—Mercury Ballroom—3rd Level ROLL CALL David Altmaier, Chair Florida Chlora Lindley-Myers Missouri Todd E. Kiser, Vice Chair Utah Barbara D. Richardson Nevada Jim L. Ridling Alabama Marlene Caride New Jersey Lori K. Wing-Heier Alaska John G. Franchini New Mexico Ricardo Lara California Mike Causey North Carolina Andrew N. Mais Connecticut Jillian Froment Ohio Trinidad Navarro Delaware Glen Mulready Oklahoma Stephen C. Taylor District of Columbia Elizabeth Kelleher Dwyer Rhode Island Robert H. Muriel Illinois Kent Sullivan Texas Doug Ommen Iowa Mike Kreidler Washington Vicki Schmidt Kansas Mark Afable Wisconsin Steve Kelley Minnesota NAIC Support Staff: Jane Barr/Lou Felice AGENDA 1. Consider Adoption of its June 28 Minutes—Commissioner David Altmaier (FL) Attachment One 2. Consider Adoption of its Working Group Reports and Minutes —Commissioner David Altmaier (FL) a. Health Risk-Based Capital (E) Working Group Attachment Two b. Life Risk-Based Capital (E) Working Group Attachment Three c. Property and Casualty Risk-Based Capital (E) Working Group Attachment Four 3. Consider Adoption of its Working Agenda—Commissioner David Altmaier (FL) Attachment Five 4. Expose its 2020 Charges—Commissioner David Altmaier (FL) Attachment Six 5. Heard an Update Regarding the Affiliate Investment Ad Hoc Group—Tom Botsko (OH) 6. Receive Comments and Consider Adoption of the Risk-Based Capital (RBC) Preamble Attachment Seven —Commissioner David Altmaier (FL) a. AQS Asset Management⸺Stephen Gonzalez Attachment Eight b. American’s Health Insurance Plans (AHIP) Comment Letter—William Weller Attachment Nine c. American Academy of Actuaries (Academy) Life Capital Adequacy Committee Attachment Ten Comment Letter⸺Ian Trepanier d. American Fraternal Alliance Comment Letter⸺Joseph J. Annotti Attachment Eleven 7. Receive a Structured Notes Referral—Dale Bruggeman (OH) Attachment Twelve 8. Receive a Comprehensive Fund Referral—Kevin Fry (IL) Attachment Thirteen 9. Discuss Any of Matters Brought Before the Task Force—Commissioner David Altmaier (FL) 10. Adjournment © 2019 National Association of Insurance Commissioners W:\National Meetings\2019\Summer\TF\CapAdequacy\ Aug 4_Agenda_CapAd TF © 2018 National Association of Insurance Commissioners Attachment One Draft: 7/2/19 Capital Adequacy (E) Task Force Conference Call June 28, 2019 The Capital Adequacy (E) Task Force met via conference call on June 28, 2019. The following Task Force members participated: David Altmaier, Chair (FL); Todd E. Kiser, Vice Chair, represented by Jake Garn (UT); Jim L. Ridling represented by Richard Ford (AL); Ricardo Lara represented by Rachel Hemphill (CA); Andrew N. Mais represented by Wanchin Chou (CT); Doug Ommen represented by Mike Yanacheak (IA); Robert H. Muriel represented by Kevin Fry (IL); Vicki Schmidt represented by Richard Ramos (KS); Steve Kelley represented by John Robinson (MN); Chlora Lindley-Myers represented by John Rehagen (MO); Mike Causey represented by Jackie Obusek (NC); Marlene Caride represented by John Sirovetz (NJ); John G. Franchini (NM); Jillian Froment represented by Dale Bruggeman and Tom Botsko (OH); Glen Mulready represented by Eli Snowbarger (OK); Elizabeth Kelleher Dwyer represented by Matt Gendron (RI); Kent Sullivan represented by Mike Boerner (TX); Mike Kreidler represented by Patrick McNaughton (WA); and Mark Afable represented by Randy Milquet (WI). 1. Adopted its Spring National Meeting Minutes Mr. Sirovetz made a motion, seconded by Mr. Bruggeman, to adopt the Task Force’s April 7 minutes (see NAIC Proceedings – Spring 2019, Capital Adequacy (E) Task Force). The motion passed unanimously. 2. Disbanded the Operational Risk (E) Subgroup Commissioner Altmaier said the Operational Risk (E) Subgroup completed its charge by the Spring National Meeting. The Property and Casualty Risk-Based Capital (E) Working Group and the Health Risk-Based Capital (E) Working Group will continue to evaluate the risk-based capital (RBC) risk charges in the formula, which will include operational risk. Mr. Fry made a motion, seconded by Mr. Sirovetz, to disband the Operational Risk (E) Subgroup. The motion passed unanimously. 3. Adopted Proposal 2018-17-CA Mr. McNaughton said that the purpose of proposal 2018-17-CA (Electronic Capitation Tables) is to capture the capitation tables electronically to provide greater transparency and analysis of data and allow for crosschecks. He added that the effective date is for year-end 2020. Mr. McNaughton made a motion, seconded by Mr. Chou, to adopt proposal 2018-17-CA (Attachment A). The motion passed unanimously. 4. Adopted Proposal 2019-05-P Mr. Botsko said the purpose of proposal 2019-05-P (Underwriting Risk Line 1 Factors) is to update the line 1 factors. He added that this is an annual process for the premium and reserve factors. Mr. Botsko made a motion, seconded by Mr. Chou, to adopt proposal 20109-05-P Underwriting Risk Line 1 factors (Attachment B). The motion passed unanimously. 5. Adopted Proposal 2019-08-P Mr. Botsko said the purpose of proposal 2019-08-P (Affiliate Investment Instructions) is to remove the word “bond” from the instructions as affiliated bonds are no longer included in the affiliated investment calculations. He added that there is a change from “F” to “E” and “A” in the indirectly owned U.S. property/casualty (P/C) insurance affiliates to remove fair value. Mr. Botsko made a motion, seconded by Mr. Boerner, to adopt proposal 2019-08-P Attachment Three). The motion passed unanimously. 6. Adopted Proposal 2018-18-L © 2019 National Association of Insurance Commissioners 1 Attachment One Mr. Boerner said the purpose of proposal 2018-18-L (Life and Fraternal Combination Blank) is based on changes to the annual statement to combine fraternal with the life blank. The life and fraternal RBC formulas are nearly identical except for a few items that are not applicable to fraternal and references to the fraternal annual statement blank. The Working Group received comments from the fraternal industry and incorporated their input into the proposal. Mr. Boerner made a motion, seconded by Mr. Chou, to adopt proposal 2018-18-L (Attachment Four). The motion passed unanimously. 7. Adopted Proposal 2019-10-L Mr. Boerner said that the purpose of proposal 2019-10-L (Interest Rate Risk and Market Risk, LR027) is to modify the instructions as part of the Variable Annuities Framework adopted by the Variable Annuities Issues (E) Working Group. He added that extraordinary effort put into addressing the issues and the resulting framework involved modifications to both reserves and capital. Mr. Boerner made a motion, seconded by Mr. Botsko to adopt proposal 2019-10-L (Attachment Five). The motion passed unanimously. 8. Discussed Other Matters Commissioner Altmaier said that the Task Force received a notification of the Blanks (E) Working Group procedural changes now that the Working Group will no longer be meeting at the national meeting. He encouraged other groups to review those changes on the Blanks (E) Working Group’s web page and provide comments if necessary. He added that the Task Force will not be making comments on the exposure. Having no further business, the Capital Adequacy (E) Task Force adjourned. W:\National Meetings\2019\SummerTF\CapAdequacy\06-28_CapitalAdequacyTFmin_final.docx © 2019 National Association of Insurance Commissioners 2 Attachment Two Attachment XX Capital Adequacy (E) Task Force 8/4/19 Draft: 7/24/19 Health Risk-Based Capital (E) Working Group Conference Call July 17, 2019 The Health Risk-Based Capital (E) Working Group of the Capital Adequacy (E) Task Force met via conference call July 17, 2019. The following Working Group members participated: Patrick McNaughton, Chair, David Hippen and Steve Drutz (WA); Wanchin Chou (CT); Carolyn Morgan, David Roberts and Gilbert Moreau (FL); Tish Becker (KS); Kristi Bohn (MN); Rhonda Ahrens, Lindsay Crawford and Martin Swanson (NE); Annette James (NV); Christine Gralton (NY); Kimberly Rankin (PA); and Aaron Hodges and Mike Boerner (TX). 1. Adopted it June 24 and May 13 Minutes The Working Group met June 24 and May 13, and took the following action: 1) adopted its Spring National Meeting minutes; 2) discussed comments received on proposal 2019-04-H and 2018-17-CA; 3) exposed and discussed the “LTC HMO Guaranty Fund” memorandum for a 15-day public comment period; and 4) exposed the proposed changes to the bond structure and excessive growth charge referral letter for 30-day public comment period. Mr. Chou made a motion, seconded by Mr. Boerner, to adopt the Working Group’s June 24 (Attachment __) and May 13 (Attachment __) minutes. The motion passed unanimously. 2. Discussed 2018 Health RBC Statistics Mr. McNaughton said 965 companies filed health risk-based capital (RBC) in 2018, of which, 18 triggered an action level event. The first column reflects the exclusion of federal Affordable Care Act (ACA) fees while the second column reflects the actual RBC amounts. The aggregate net incurred claims amount should be corrected to $541,009,426,163 from $639,855,407,114. This change will be made prior to posting on the Health RBC webpage. The Working Group approved that the statistics (Attachment ___) be posted with the correction to the aggregate net incurred claims amount. 3. Adopted the 2019 Health RBC Newsletter Mr. McNaughton said the Working Group adopts the health RBC newsletter each year. The 2019 Health RBC newsletter includes the following changes for the formula: 1) the removal of the informational only excessive growth charge page for operational risk; 2) modification to the H0 component label to be more accurate; 3) modification to Table 2 in the electronic only stop loss interrogatories tables; and 4) modification to the asset concentration page for bonds and preferred stock. Editorial changes were also included for 2019. Ms. Rankin made a motion, seconded by Mr. Chou, to adopt the 2019 Health RBC Newsletter (Attachment __).