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  • NAIC Seeks Slight Hike in 2013 Budget

    October 29, 2012 by Thomas Harman

    WASHINGTON – The National Association of Insurance Commissioners is proposing a virtually flat budget for 2013, as it seeks a slight expense increase of less than 1% over the $78.1 million set in the 2012 budget before business and fiscal impact statements are included. The plan contains a 2% increase in revenue to $80.8 million and includes seven fiscal projects and an increase in the travel budget.

    Salaries cover roughly half of the NAIC 2013 budget total. The group seeks $40.14 million in salaries, about $1.825 million more in salaries than sought for 2012 budget request, a 4.76% increase. The 2013 salary request is about a 5.45% increase over the projected 2012 budget number of $38.06 million. Another $7.4 million is sought for employee benefits, although that number is cut by nearly 4% from the 2012 increase and 12.7% over the projected 2012 cost.

    NAIC’s travel costs have been a contentious issue for some industry officials in the past and the new budget request may not dampen criticism (Best’s News Service, Nov. 2, 2011). NAIC’s 2013 budget shows that it seeks $4.88 million in travel costs, or $856,921 (21.29%) above the 2012 budgeted figure and $516,991 (11.84%) more than the 2012 projected figure.

    Jim Donelon, NAIC president-elect and Louisiana insurance commissioner, told Best’s News Service the plan is a “stand-still budget.,” He said while revenues are projected to increase by 2%, actual estimated expenditures in the new budget, which was approved by NAIC’s Executive Committee last week, are nearly 5% below actual 2012 expenditures. He attributes the change to elimination of one of two NAIC retirement plans, a move that impacted about 25% of the NAIC workforce, as well as a slight reduction in personnel costs.

    The budget must be approved by the NAIC Executive Committee and NAIC membership. Stakeholders have until Nov. 9 to file written comments and will have the chance to comment during a tentatively scheduled Nov. 20 public hearing.

    Neil Alldredge, senior vice president for state and policy affairs at the National Association of Mutual Insurance Companies, said he did not expect the NAIC’s numbers to change as the document moves through its approval process. Alldredge said NAIC does not appear to have a great level of extra costs in its budget compared to prior years, but questions NAIC’s transparency, since the document is only now available to NAMIC. “To the extent that the budget is available to view, the process is transparent,” he said. “To the extent that any of it is available for discussion and change [before now], it’s not transparent.” Nonetheless, he said NAMIC will be among those filing written comments. “Not one dollar of this will likely change,” he said.

    Donelon said NAIC staff had been preparing the document well before he met with them to begin further preparations during the summer. As for industry inclusion in the process, he said stakeholders are welcome to make suggestions during the comment period. “I dare say that I think our value to the industry has outgrown our increased costs to the industry,” Donelon said.

    NAIC proposes seven Business and Fiscal Impact Statements for 2013. One of these new business initiatives is the second phase of a multi-year effort to help states establish health insurance exchanges under the Affordable Care Act by aiding plan management data collection and communication through an enhancement of the System for Electronic Rate and Form Filing. Participating member states will provide $1.52 million in grant funds for this program in 2012 and 2013.

    Donelon said another 2013 project provides $1.8 million in consulting fees for the first phase of a project to start migration of State Based Systems services by updating existing architecture in order to improve performance. He said the project will be done next year and that depreciation will follow at 10% annually for 10 years. The NAIC Executive Summary says Phase I will cost $1.84 million in capital and $6,900 in expenses. NAIC estimates the cost of Phase II at between $3 million and $4.2 million.

    NAIC proposes to spent $114,000 on activities required to implement and monitor the group’s Actuarial Guidelines 38 and Principle-Based Reserving initiatives. NAIC approved changes to the AG 38 guidelines in September that require the NAIC’s Financial Analysis (E) Working Group to review reserving methodologies of impacted life insurance companies. The AG 38 portion of the NAIC proposal would have the NAIC retain outside actuarial consulting services to aid the FAWG and a new life actuary position to help handle work flow. In addition. states are implementing PBR initiatives that require centralized review and training for financial examiners and analysts, work that will require NAIC to hire a full-time actuary and additional financial and operational support. The cost for 2013 is expected to increase to $509,000 in 2014, before dropping to $344,500 in 2015, before only needing to cover the actuary cost after that date.

    Also, NAIC proposes to spend $1.13 million to enhance the clearinghouse, created to help state-specific filings and payment of premium tax and surplus lines taxes. This plan would develop and implement the clearinghouse in order to allow Non-admitted Insurance Multi-state Agreement member states to choose clearinghouse software, while allowing Nonadmitted Insurance Multi-State Agreement states to allocate taxes across all of NIMA members in order to comply with Dodd-Frank Act provisions related to surplus lines. For 2013, revenues for this effort are expected to return just $372,154, but NAIC has data from five states indicating revenues in future years will be anywhere between $1.7 million to $1.9 million.

    NIMA was developed by the NAIC as an alternative way to comply with the Nonadmitted and Reinsurance Reform Act provisions of the Dodd-Frank financial regulatory reform law, without adhering to the law’s focus on the home state of the insured. Over the past year, the number of states and jurisdictions that have signed on to NIMA has been cut in half, falling from the 12 members it had at its peak to just six as of August (Best’s News Service, Aug. 8, 2012).

    NAIC is proposing to spend $108,000 on a financial staff exchange program that will allow experienced regulators in one state work with counterparts in another state for roughly two weeks to enhance solvency regulation expertise by providing on-the-job training to improve solvency monitoring.

    Also, NAIC is preparing to conduct a financial stress test involving a natural catastrophic event to determine the financial impact on an insurer, its reinsurers and the insurance sector and has made a preliminary incremental annual cost estimates of $300,000 to $400,000 to acquire additional securities data and tools to support enhanced risk analysis on mortgage-backed and other structured securities. Finally, NAIC wants to continue its In-House Structured Securities Group for a fourth year. The group supports the current modeling of structured securities while allowing NAIC to expand its analysis to more complex structured securities products.

    Alldredge said items such as the SBS and the SERFF that NAIC provides to states are increasingly becoming revenue winners for NAIC, keeping member dues low, while also functioning as drivers in the state insurance regulatory process.
    (by Thomas Harman, associate editor, BestWeek) BN-NJ-10-26-2012 1100 ET #

    Originally Posted at Best's News Service on October 26, 2012 by Thomas Harman.

    Categories: Industry Articles
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