A National Association of Insurance Commissioners (NAIC) working group adopted changes to the NAIC’s Financial Analysis Handbook (Handbook) capturing a number of current topics affecting insurers. Insurers should consider the extent to which this guidance impacts them and the prospect that insurance regulators will have an enhanced roadmap for these matters in reviewing annual statements and otherwise. The changes offer a snapshot of some current industry issues and developments and how regulators perceive them.

The Handbook provides guidance to state insurance department financial analysts in reviewing insurer financial condition. Among the changes to the Handbook, adopted by the Financial Analysis Solvency Tools Working Group in its meeting by Webex on Dec. 6, were the following:

• The analyst should consider the extent to which the insurer is subject to terrorism risk, including mitigation of such risk by means of the Terrorism Risk Insurance Program of the U.S. government.
• Uncollected agents’ balances indicate a need to ensure that trust accounts at insurance producers are properly managed.
• For “priority companies” (insurers that are “troubled” or otherwise of high priority to the regulator) that are seeking to redomesticate, the domiciliary regulator should consult with all states in which the insurer is licensed.
• The amendments strengthen procedures for intercompany pooling agreements between insurers domiciled in multiple states.
• The “lead state” should be the primary reviewer of both Corporate Governance Annual Disclosure and Form F (on enterprise risk).
• In reviewing investments, particular attention should be paid to investments in related parties.
• When setting individual risk assessments as “Significant,” “Moderate” or “Increasing” (so-called branded risks), “the level of concern and trend of a risk is not defined relative to other risks” but instead “should be assessed individually on each’s factors and circumstances.”
• For health insurers, the analyst should obtain the most recent information about the insurer’s “Star Rating” from the Centers for Medicare & Medicaid Services (CMS).
• For life insurers, the analyst should review reporting under Actuarial Guideline 53 (Application of the Valuation Manual for Testing the Adequacy of Life Insurer Reserves) relating to assumptions and sensitivity testing for reinvested high-yielding complex assets within the asset adequacy analysis.
• New criteria are established for determining an insurer to be “priority 4 (non-priority)” (of low relative priority as compared with troubled or less secure insurers).