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Noteworthy at the NAIC — Spotlight on DOL's fiduciary rule


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Noteworthy at the NAIC — Spotlight on DOL's fiduciary rule

The NAIC's SpringNational Meeting is in full swing this week, as regulators and industrystakeholders gather to discuss a range of insurance issues. To help keep upwith all the action, S&P Global Market Intelligence presents a dailybriefing on what's driving the discussion at the Sheraton Hotel in New Orleans.

On the agenda today:the final fiduciary rule, a proposed "cooling off" period andprinciples-based reserving. Don't forget to send comments, announcements andtips on improving this briefing for the next NAIC meeting to or

Fiduciary rule drops

The Department of Labor will unveil its much-anticipatedfiduciary rule on April 6, setting new and higher standards on the business ofproviding retirement investment advice. In a fact sheet shared ahead of therule's official release, the federal government pledged that the regulationswould "ensure retirement savers get advice in their best interest, whileminimizing the compliance burden on many advisers who already put their clients'best interest first."

The final rule's broad strokes appear similar to thoseincluded in the Obama administration's proposed rule, and would expand thetypes of retirement advice covered by fiduciary protections. The rule is alsodesigned to encourage a shift to more fee-based products while creating acarve-out called the Best Interest Contract exemption that allows advisers tosell certain commission-based financial instruments so long as they followprocedures aimed at eliminating conflicts of interest.

Eight-month deadline out, "phased" approach in: Theretirement industry must abide by the broader fiduciary definition by April2017, but will only have to meet certain "limited" conditions to takeadvantage of the BIC exemptions. The entire package of regulations will then gointo effect on Jan. 1, 2018.

That represents a more relaxed timeline than the federalgovernment's original plan to implement the entire fiduciary rule within justeight months of its release, in what the White House characterized as aconcession to concerns over companies' ability to handle the compliance burden.

Other notable changes: The final rule further clarifies whatconstitutes fiduciary advice, exempting certain investment educationactivities, public media talk show commentary and general marketing materials,among other services. It also makes BIC exemptions more broadly available,including in cases where advisers are guiding small businesses that sponsor401(k) plans. The fact sheet also indicated that the final rule would allow forthe grandfathering in of certain existing investments under a BIC exemption.

Now we wait: The U.S. Chamber of Commerce has threatened to sueif it believes the fiduciary rule is unworkable, in what analysts said could bepart of a multipronged strategyto water down the regulations. But the retirement industry will likely take itstime reviewing the rule before making any kind of definitive move.

Quote of the day: The American Council of Life Insurers has noplans to "throw chairs around" in response to the final fiduciaryrule, Senior Vice President of State Relations Bruce Ferguson said during anApril 5 presentation.

"We're going to lock our experts in a room, withoutwindows, and then spend time going through the rule," he told regulatorsat a meeting of the NAIC/Industry Liaison Committee.

NAIC governancedebate, round three

Louisiana Insurance Commissioner James Donelon on April 6will again propose a banon regulators working for the NAIC within two years of leaving office, arguingthat it would head off the potential for conflicts of interest as theorganization searches for a new CEO.

Donelon said in an interview that he plans to pitch the ideaat the NAIC's Executive Committee and Plenary meeting, despite failing to winover even a single member of its Governance Review Task Force during an April 5discussion of the proposal. Multiple task force members voiced concerns thatsuch a ban would limit the NAIC's applicant pool and potentially force it todisqualify highly qualified individuals simply because they recently served asinsurance commissioners. They also dismissed Donelon's argument that formerregulators would have an unfair advantage over outside applicants for the CEOjob.

The Executive Committee and Plenary session is scheduled for9 a.m. CT in the Grand ballroom, fifth floor.

Third time's the charm? Donelon introduced his cooling offperiod proposal at the NAIC's April 4 Executive Committee meeting, where itfound little immediate support before regulators agreed to move the discussionto the Governance Review Task Force. The idea then failed to receive anyendorsements from task force members. Now Donelon is raising the issue again,but is under no illusions that his fellow regulators will be more receptivethis time around.

"I don't expect to win," he said, adding that hehopes instead it will spark more discussion and maybe even lead to acompromise. "I would take a year [cooling off period]."

Texas in his corner: Texas Insurance Commissioner David Mattaxis in favor of the proposed two-year ban, saying April 5 that it would head offthe "appearance of impropriety" at the NAIC.

The long game: Months after backing governance that removed pastpresidents including himself from the NAIC Executive Committee, Donelon is backon the organization's top panel as vice chair of the southeast zone. Hereplaced North Carolina Insurance Commissioner Wayne Goodwin, who stepped downto focus on his re-election campaign and nominated Donelon to take his place.Donelon's return to the Executive Committee is motivated primarily by hisdesire to keep a closer eye on the search for a new CEO, he said.

Donegan countsherself out of CEO chase

Outgoing Vermont Department of Financial RegulationCommissioner Susan Donegan will not be among those applying for the NAIC's openCEO job, saying on multiple occasions that she has no interest in the position.

"I think you all should relax, I'm not throwing my hatin the ring for CEO," she said on April 5, joking that the NAIC could notafford her.

Donegan, who is leavingher post on June 30, said in an earlier interview that she plans to take Julyand August off and then weigh her options. She emphasized that she will notexplore any job opportunities before officially stepping down as a regulator.

Coveredagreement-focused charge moves forward

The Executive Committee and Plenary will consideradding a charge to the Financial Condition Committee's workload asking it todevelop "contingency regulatory plans to continue to protect U.S.consumers and U.S. ceding companies from potential adverse impact resultingfrom covered agreement negotiations."

The Financial Condition Committee voted in favor of theproposed chargeduring its April 5 meeting.

PBR celebration stillon hold

The NAIC is scrambling to figure out whether the U.S. hitthe participation threshold needed to start implementation of principles-basedreserving in 2017. Though the required minimum of 42 states representing morethan 75% of U.S. life and health premiums have passed PBR legislation, it isunclear whether thelaws in a few states are "substantially similar" enough to the NAIC'sstandard valuation law to qualify.

The organization must find an objective third party toevaluate whether the legislation counts or not, NAIC General Counsel Kay Noonansaid during an April 5 PBR Implementation Task Force meeting. But theorganization is still not sure what qualifies someone as an objective thirdparty in the first place. Noonan is planning to hold and conclude the review byJuly 1, in time to implement PBR by Jan. 1, 2017.