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VI. Principal Regulatory Developments Affecting Insurance Companies
licensed in at least 26 states or is licensed or accredited in at least 35 states (and licensed in at least 10 of such 35 states). Further, these revisions to the Model Law contain a grandfathering provision, specifying that the version of the Model Regulation adopted in the state may apply to any treaty containing: (A) policies issued on or after January 1, 2015; or (B) policies issued before January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.
In late 2015, Delaware urged the NAIC to consider further the potential consequence of the adoption by the states of the Framework and the Model Regulation. In particular, Delaware has proposed that the NAIC conduct a study of the impact of the Framework and the Model Regulation on consumer prices. Due to the fact that the NAIC has thus far not heeded Delaware’s request, Delaware presented the solitary vote of opposition to the revisions to the Model Law that were adopted by the NAIC on January 8, 2016.
ii. Accreditation
During 2015, the NAIC Financial Regulation Standards and Accreditation (F) Committee (the “Accreditation Committee”) revised the preamble to Part A of the NAIC accreditation standards (which are applicable to “multi-state insurers”) to expressly apply to captive insurers reinsuring XXX and AXXX business. The revised preamble expressly does not apply to: (i) a state’s domestic insurers licensed or organized under special purpose vehicle statutes or other similar statutory constructs; or (ii) a captive insurer that reinsures policies subject to the grandfathering provision under AG 48 (i.e., policies that were both (a) issued prior to January 1, 2015 and (b) ceded as part of a reinsurance arrangement as of December 31, 2014). The regulation of a captive insurer is deemed to satisfy Part A of the NAIC accreditation standards if the applicable reinsurance transaction satisfies the Framework.
The Accreditation Committee has also adopted revisions to Part A of the NAIC accreditation standards applicable to captive insurers reinsuring variable annuities and long- term care insurance business, although such adoption was accompanied by a note that: (i) the revisions to the preamble
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
are not yet effective; (ii) the effective date for applicability has yet to be determined; and (iii) the application of the preamble to in-force variable annuity and long-term care business requires further discussion. The Accreditation Committee will continue to monitor the work of the NAIC Variable Annuities Issues (E) Working Group (the “Variable Annuities Working Group”) as it considers the inclusion of grandfathering provisions and the effective date for applicability of the preamble to variable annuity and long-term care captives.
iii. Variable Annuities
With its XXX/AXXX captive project nearly completed, the NAIC has now turned its attention to variable annuities captive transactions. FSOCidentifiedinits2014AnnualReportvariable annuity and long-term care captive transactions as areas of particular concern potentially warranting regulatory attention. The NAIC responded by forming the new Variable Annuities Working Group to study, and provide a recommendation for addressing, variable annuities captives. The Variable Annuities Working Group has drafted a preliminary framework (the “VA Framework”) based on a report by an outside consultant, which currently proposes revisions to Actuarial Guideline 43, the C3 Phase II component of the life RBC formula and state laws, as well as statutory accounting rules pertaining to hedging activities. In addition, the VA Framework is intended to make changes that will apply retrospectively, and recommends that, once the revisions recommended by the VA Framework are effective, domestic regulators of insurers ceding variable annuities business to captives should request that such business be recaptured and the captives be subsequently dissolved. The substantive provisions of the VA Framework are subject to the results of a quantitative impact study, which will be conducted by the Variable Annuities Working Group’s outside consultant during 2016. The Variable Annuities Working Group has set an aggressive timeline of having all of its work completed by December 31, 2016.
3. Model Law Adoption
States continued to adopt recently developed or amended NAIC model laws while, at the same time, the NAIC moved forward with the process of making certain NAIC model laws, or amendments to such laws, into accreditation standards. As
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