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Noteworthy at the NAIC, April 4

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Noteworthy at the NAIC, April 4

The NAIC's SpringNational Meeting is in full swing this week, as regulators and industrystakeholders gather to discuss a range of insurance regulatory issues. To helpkeep up with all the action, S&P Global Market Intelligence presents adaily briefing on what's driving the discussion at the Sheraton Hotel in NewOrleans.

On the agenda today:cybersecurity, health co-ops and a game plan for retirement security. Don'tforget to send comments, announcements and tips on anything NAIC-related to acancryn@snl.com or efesta@snl.com.

Cybersecurity face-off

The insurance industry gets its first opportunity toconfront state regulators about the NAIC's new cybersecurity model law on April4, and they will likely have plenty to say. Criticism has poured in since theNAIC publicized itsproposal for strengthening cyber protections, totaling more than 120 pagesof formal comments taking issue with everything from the model law'sfeasibility to its potential for becoming overly burdensome.

The sessionis set for 2:30 p.m. CT, in the Armstrong ballroom A-E, eighth floor.

A preview: "We feel it necessary to stress some veryserious fundamental concerns relating to uniformity, the substantiverequirements for breach notification and remediation, that appear unworkable,and the possibility of duplicative regulation," a comment letter signed by13 trade groups across multiple insurance sectors said.

Process objections: Regulators could also feel some heat overthe model law's development process. The task force moved quickly to write theproposal, with little opportunity for outside input up until this point. Itvoted to expose the model law in a March 2 meeting that was closed to thepublic.

Co-op committee

The NAIC's Co-Op Solvency and Receivership Subgroup willofficially meet for the first time at a national meeting on April 4. Though thesession is a closed regulator-to-regulator discussion, New Mexico InsuranceSuperintendent John Franchini said in an interview that the group will focus inpart on the Affordable Care Act's risk adjustment program. Franchini is one ofa handful of commissioners worried that the program is and is endangering small andhigh-growth health insurance companies participating on state exchanges.

The meeting is scheduled for noon CT in the Napoleon B/C1&2 room, third floor.

Iowa, Connecticut take the lead: Iowa Insurance CommissionerNick Gerhart will chair the new subgroup, with Connecticut InsuranceCommissioner Katharine Wade serving as vice chair, according to a committeelist shared ahead of time.

One other meeting towatch

Terrorism Insurance Implementation Working Group: The groupwill discuss an ongoing call from some states for data on insurers' experiencewith terrorism insurance. The meeting is at 8 a.m. CT in the Napoleon Aballroom, third floor.

Big data in the BigEasy

The debate over data raged across two separate sessions onApril 3, as regulators considered whether to probe how auto insurers are usingthe mass amounts of consumer information that they collect.

The NAIC's Auto Insurance Working Group warned that it couldbe asking companies for granular information on their use of data forunderwriting, in response to concerns about the affordability and availabilityof auto insurance. Consumer representatives at the meeting argued that thestates should go as far as to track the prices that insurers quote individualswho ultimately opt not to purchase coverage, as a way to determine whetherthose people are being priced out of insurance. But industry groups pushed backduring that meeting and at an earlier public hearing on big data, warning that the scrutiny couldstifle innovation and prevent insurers from pricing based on risk.

Consumer representatives' stance in a nutshell: "Theexisting market regulation framework was designed for a different era and isunsuited and ineffective for addressing big data issues," Center forEconomic Justice Executive Director Birny Birnbaum said.

NAIC takes onretirement security

Missouri Insurance Director John Huff will make retirementsecurity a centerpiece of his tenure as NAIC president, he said in a speech atthe Spring National Meeting's opening session. That could include work eitherupdating existing model laws or creating new ones aimed at improving retirementproduct sales suitability standards and disclosures. The nation can do muchbetter in how it serves seniors, Huff said in an interview, while also ensuringthat regulation does not stifle innovation within the industry.

Three prongs: Huff said his initiatives will tackle retirementsecurity from three angles: education, consumer protection and productinnovation.

No love for PBR, yet

The insurance industry hit a long-awaited milestone in itsadoption of principles-based reserving standards at the end of March, when 42states representing just over 75% of U.S. life and health direct premiumspassed PBR legislation. That met the minimum thresholdneeded for implementation of PBR to start on Jan. 1, 2017.

Yet so far, there has been little fanfare from either theNAIC or the industry. The reason is because PBR-related legislation in threestates including Michigan and Maryland might not meet a requirement that theybe "substantially similar" to the NAIC's standard valuation law,sources familiar with the situation said. Industry groups are awaitingclarification from the NAIC on whether those laws will qualify and pave the wayfor PBR implementation.

Group capitalchallenged

State regulators and industry groups alike raised severallingering questions on April 3 about how the NAIC should develop its groupcapital tool, likely preventing the organization from making headway as fast asit would like.

Perhaps the main question is just how insurancecommissioners plan to use the group capital calculation in regulatingcompanies. Group Capital Calculation Working Group Chair David Altmaiermaintained that the calculation would be just another instrument for evaluatinginsurers' capital adequacy, but there is nevertheless unease within theindustry about how it might be otherwise applied.

NAIC bags Fed governor

Outspoken Federal Reserve Board Governor Daniel Tarullo willbe the keynote speaker at the NAIC's International Insurance Forum in May,according to Florida Insurance Commissioner Kevin McCarty.

IAIS opens back up

The International Association of Insurance Supervisors willreopen its annual meeting to outside participants, just more than a year afterit shut all industrystakeholders out of its sessions.

The reversal, which came in the wake of a torrent ofcriticism over the organization's transparency, is part of a renewed effort toimprove communicationwith insurance groups and consumer advocates around the world. The IAIS is alsoexpanding an upcoming global seminar in Brussels and will alter the format toemphasize more two-way communication, representative Andrew Stolfi said.

Nelson back in town

Former NAIC CEO Sen. Ben Nelson will be in New Orleans for anight, but not on any official insurance business. Nelson, whose tenure atop the organizationofficially ended in January, is scheduled to have dinner with LouisianaInsurance Commissioner James Donelon. Former Nebraska Insurance Director AnnFrohman will also be among those joining them, Donelon said.

McCarty bids farewell

Outgoing Florida Insurance Commissioner Kevin McCartychaired his last International Insurance Relations Committee on April 3.McCarty, who has spent more than a decade atop the Florida Office of InsuranceRegulation and is now eyeingthe NAIC's CEO job, urged regulators to remain deeply involved in thedevelopment of international insurance standards.

"We are at a critical crossroads for our industry andour consumers," he said.