Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Corporate & Financial Regulation
of Insurance Companies
Pennsylvania Insurance Department
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Insurance
Commissioner
Office of Corporate
and Financial
Regulation
Office of Insurance
Product Regulation
and Administration
Licensing and
Financial Analysis,
Examinations
Administration
Property & Casualty
Life, Accident and
Health
Office of Liquidations,
Rehabilitations and
Special Funds
Office of Market
Regulation
Consumer Services
Market Actions
Licensing and
Enforcement
Office of Corporate and Financial Regulation
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Liquidations and
Rehabilitations
Special Funds
Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Pennsylvania Insurance Department
Office of Corporate &Financial Regulation
• We exist to protect policyholders by ensuring companies are
financially strong. Our shared goal is to ensure that insurance claims
can be paid when due.
• We regulate companies through licensing, approving corporate
transactions, analyzing company financial reports, requiring CPA
audit reports and actuarial opinions and conducting onsite
examinations of company financial statements.
• We coordinate with other states for the monitoring of foreign
insurance companies, in accordance with the NAIC solvency
accreditation standards.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Pennsylvania Insurance Department
Office of Corporate &Financial Regulation
•
We work with companies to regain financial strength when we identify
a company that may be troubled.
– Our Department has the authority to institute additional oversight
and monitoring, as needed.
– When a company becomes insolvent, the Commissioner is
appointed as Liquidator and Guaranty Associations are triggered.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Hot Topics
• Cybersecurity
• Long term care
• Corporate Governance Annual Disclosure
• PBR legislation
• Fiduciary Rule
• Interest Rates
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Cybersecurity – the protection of information
assets by addressing threats to information
processed, stored and transported by IT
systems through the internet. The concern is
the protection of personal data.
• The risks are significant and include
reputational risk and potential financial
losses.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
NAIC push towards a Cybersecurity model law will:
• Create new requirements for insurers’ cybersecurity
programs and helps to establish uniformity among state
laws.
• Require an information security program that is
appropriate for the size and complexity of the company
• Require a company to supervise third party service
providers with access to personal information.
• Notification requirements in the event of a breach.
• Compliance testing by the examiner.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Long Term Care
•
Long Term Care Insurance – LTC insurance provides coverage for the cost
of care supporting activities of daily living beyond a predetermined period.
•
Insurers that write this coverage have historically struggled to accurately
project claims costs, lapse rates, investment income and mortality rates.
•
Many writers have been unable to generate a profit and continue to face
significant solvency challenges. Many companies have requested
significant rate increases. Regulators are trying to balance the needs of the
company with the affordability to the policyholders.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Corporate Governance Annual Disclosure –
Will require all US insurers to provide annual detailed narratives of their
corporate governance and practices to their lead state regulators. No
small company exclusion. Not law in Pa. yet. My guess is 2018.
The narrative will provide information on the following areas:
Corporate governance framework and structure
Board of Directors Policies and Procedures
Senior Management Policies and Procedures
Oversight of the critical risk areas impacting the insurer
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Specific Requirements:
• Qualification for Board members. Reviewing the Board for
appropriate background, experience and integrity to fulfill their
prospective roles. The company charter or other documents must
define the responsibilities of the Directors including attendance at
board meetings and reviewing meeting materials in advance.
• Suitability standards for officers and key persons in control
functions.
• Structure of Board Committees
• Board access to management and advisory services
• Director and management compensation
• Board and management evaluations and succession.
• Information is confidential
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
PBR legislation – It will be effective 1/1/17. Enables life
insurers to model their reserves based on a set of
principles. 42 states and 75% of premium have been met.
Pa. legislation exempts Fraternals and small companies
with less than $300m and a 450% RBC. It’s prospective. 3
year window.
Advantages
• Better captures risks
• Utilizes company experience and economic conditions
• Leads to more appropriate right sizing of reserves
• Makes reserves self-adjusting based on changing
experience and economic conditions.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
• Fiduciary rule change – The US Department of Labor
updated its Conflict of Interest Final Rule to require all
individuals providing retirement investment advice to
abide by the fiduciary standard putting their clients’ best
interests ahead of their own profits. The rule is expected
to become effective in April 2017, with certain
exemptions to be phased in through January 1, 2018.
• The rule makes agents and brokers subject to the
change when selling annuity products to retirement plans
and their participants or IRAs.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
• Fiduciary Rule change could require agents and brokers to either
avoid payments that can create conflicts of interest, including
commissions paid by insurers, or otherwise comply with the terms of
the exemption outlined in the rule.
• For variable annuity and fixed indexed annuity products agents and
brokers may be required to abide by the Best Interest Contract
Exemption issued by the DOL. The updated provisions are intended
to require additional disclosure of material conflicts of interest, fees
or charges paid by the broker/agent and a statement of the types of
compensation expected to be received from third parties related to
the sale.
• Under the new rule the investor can request and receive information
on costs, fees and other compensation. It may have a significant
impact on the sale of VA and FIA products.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
The Fiduciary rule:
• Preserves access to retirement education
• Order taking not a fiduciary activity
• Carves out for sales pitches to plan fiduciaries with
financial expertise
• Expects to lead to gains for retirement savers in excess
of $40B in next 10 years.
• Strengthens enforcement of consumer protections under
ERISA and IRC.
Office of Corporate and Financial Regulation
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Insurance Regulatory
Update
Interest
R
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
Interest Rates/Investing
• Low interest rates with the possibility they could
increase quickly has the potential to significantly impact
Life insurers.
• Currently rates are historically low with the expectation
they will rise gradually. The challenge for Life insurers is
to generate sufficient income to cover interest rate
guarantees while recognizing if the rates increase
quickly they may experience a jump in surrenders which
will challenge their liquidity and profitability. Also, the
difference between the guarantee and actual earnings
may require additional reserves.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
•
•
•
Investing outside the traditional bond and equity markets has expanded
over the last several years. The total dollar exposure to non-traditional
asset classes has reached new peaks and as a percent of invested assets
is near the pre-crisis high.
Among smaller to mid-tier insurers, exposure to unaffiliated private equity
funds has remained even from 2014 to 2015; but unaffiliated hedge fund
exposure has increased. The profile and characteristics of alternative
investments may create volatility of returns and the potential for these type
of investments to be illiquid. For example, returns for private equity and
hedge funds have been less attractive than returns on traditional
investments and they remain relatively volatile and illiquid.
Many alternative investments are highly customized and their analytics are
very difficult to understand. Given their nature, alternative investments
should be a small percent of invested assets and should also not reflect a
substantial percent of surplus and capital. Investment managers may be
helpful when using alternative investments.
Office of Corporate and Financial Regulation
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Insurance Regulatory Update
Joseph DiMemmo, CPA, Deputy Insurance Commissioner
• Questions ?
Office of Corporate and Financial Regulation
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