The NAIC has a task force that addresses issues related to insolvency of companies, including rehabilitation of troubled companies, the liquidation/receivership process for insolvent companies and the operation of the guaranty funds that pay the claims of policyholders of insolvent companies. These issues arise both in the U.S. context and in the international standards set to address resolution and recovery of global companies that operate across borders.
More particularly the task force duties include: monitoring the effectiveness and performance of state administration of receiverships and the state guaranty fund system; coordinating cooperation and communication among regulators, receivers and guaranty funds; monitoring ongoing receiverships and reporting on such receiverships to NAIC members; developing and providing educational and training programs in the area of insurer insolvencies and insolvency guarantees to regulators, professionals and consumers; developing and monitoring relevant model laws, guidelines and products; and providing resources for regulators and professionals to promote efficient operations of receiverships and guaranty funds.
The product from this task force relates to NAMIC members especially through the costs of insolvencies members incur from guaranty fund assessments. If the practices of the receiverships managing insolvent companies are inefficient and unnecessarily costly there will be fewer assets remaining to pay policyholder claims and more will have to come from the insurance marketplace.
NAMIC follows the issues that affect companies from the criteria for deeming a company in hazardous financial condition to the attempts at rehabilitation, efforts to liquidate and the operations and costs of guaranty fund. Insolvencies in the industry affect the reputation of the entire industry so NAMIC supports a strong, effective and efficient solvency regulatory system. Also, due to our members’ ultimate obligation to pay assessments to the guaranty fund NAMIC has an even stronger interest in the continued solvency of the companies operating in the insurance market.
Our advocacy goal is to maintain basic solvency, but not to prop up poorly managed companies. Consequently, once the regulatory decision is made that a company cannot be saved, we want the receivership/liquidation process to work as efficiently as possible to preserve assets that can protect the policyholders. If adequate assets do not remain in the insolvent company to meet basic policyholder obligations, then we support an efficient guaranty fund process to protect those policyholders and pay the claims incurred under the insolvent company. Overall, the main concern must be the protection of the policyholder.
As part of the overall solvency efforts internationally, the IAIS is developing standards to address the possible recovery and resolution of troubled insurance companies.
Proposed recovery standards include supervisory practices including preventive measures, corrective measures and sanctions for troubled insurers. One of the preventive measures is a requirement that all insurers submit an annual prospective recovery plan to be used in the event they become insolvent. This is similar to the work at the NAIC to address companies in hazardous financial condition, failing the trend test or who meet RBC action levels. However, this recovery plan requirement will require healthy companies as well as financially troubled companies to submit a plan and it may also apply at the insurance group level.
Proposed resolution standards include details about how companies will exit from the markets including voluntary and involuntary exits based on lack of viability. These draft standards also include requirements for resolution plans for insurance companies and groups when their local supervisor deems necessary.
These issues arise both in the U.S. context and in the international standards set to address resolution and recovery of global companies that operate across borders. The NAIC has a task force as well that addresses issues related to insolvency of companies, including rehabilitation of troubled companies, the liquidation/receivership process for insolvent companies and the operation of the guaranty funds that pay the claims of policyholders of insolvent companies. The NAIC provides comments to the IAIS consultation drafts to address inconsistencies with the U.S. practice and the proposed international standards.
NAMIC follows the issues that affect companies from the criteria for deeming a company no longer viable to the attempts at recovery and efforts to resolve insurance companies and groups. Insurance insolvencies affect the reputation of the entire industry, so NAMIC supports a strong, effective and efficient solvency regulatory system world-wide. However, we do not support unnecessary, costly plans and reports that are not directed at troubled companies. We believe that sound enterprise risk management combined with own risk solvency assessments (ORSA) should be an adequate tool to identify risks and provide supervisors meaningful information about company practices in transferring, mitigating or reducing risks. We also argue that only insurance entities become insolvent, not insurance groups, so all regulation in the recovery and resolution arena should be focused on the insurance entities. Finally, we work with the NCIGF to encourage the development of policyholder protection systems like guaranty associations around the world to protect policyholders.