Download The Upside of Pooling Regulation

State
Regulation,
how would it
change your
world?
Dennis Tweedale, CEO, League of Wisconsin Municipalities Mutual Insurance
Company
Cheryll Bossingham, Financial Administration, Strohm Ballweg, LLP
AGRIP-Orlando, FL
March 2017
Wisconsin Climate for Pools/Municipal Mutuals
Wisconsin Statute 611.23 (1977)
-Pools not allowed
-7 municipal mutuals
-Statutes allow workers compensation, liability, and
property
-Relaxed start-up regulations
-No rate filings required
-
Regulation Of Insurance Companies
National Association of Insurance Commissioners (NAIC)
State Insurance Departments
Rating Agencies including AM Best
Regulation Of Insurance Companies
NAIC
Coordinates insurance regulation among the states but has no direct authority
Develops Model Laws and Regulations
Develops uniform financial filings and models
-Annual Statement
-Risk Based Capital or RBC
-Own Risk and Solvency Assessment (ORSA)
-Corporate Governance Annual Disclosure (CGAD)
Regulation Of Insurance Companies
State Insurance Departments
Enforces insurance laws to protect consumers, monitors
solvency, and regulates competition via:
-State-specific filings and reports
-Approval of rates and forms
-Financial and Market Conduct Exams
-Licensing
-Minimum surplus requirements
Filings Checklist for WI Insurers
Approval of Policy Forms
Policy Forms (Including endorsements and applications)
All original forms and any changes must be filed with the
state under Strict Filing Requirements
-Prescribed filing forms (signatures needed)
-Must be certified as readable
-File & Use (i.e. use 30 days after filing) or Use & File
-Approved/Filed/Not Disapproved
-If significant coverage decrease-must notify insureds in writing
Rates and Rules Filing
Original Rates/Rules and any changes must be filed with the State
Strict Filing Requirements
-Required forms (signatures needed)
-Minimum Documentation (Justification):
Three years of premium and loss information and;
Explanation of rate-making procedures; including at least one:
• A description of any statistical and actuarial methods used
• A statement of facts which explain judgements used
• A statement as to how the rates of the filing company compare with those of the
competition
-File & Use or Use & File (i.e. WI P&C filing required within 30 days after new rates/rules)
-Not Disapproved
-Different rules if insurer uses rate service organization (i.e. ISO) which files loss costs.
-Varying filing requirements by certain perils
-ALL PUBLIC INFORAMTION
Financial Examinations
-Looks at the Company’s financial condition as of a particular date
-Reviews the insurance company’s compliance with some of the many
insurance laws
-Company must complete and submit multiple questionnaires (lengthy IT
questionnaires)
-Basically look at everything in great detail (financial records, minutes,
marketing material, and contracts)
-Extensive interviews conducted
-Examination report is a public document
Financial Examination Interviews
Interview all levels (Directors, Management, and Staff) regarding:
-Experience and background
-Duties and responsibilities
-Reporting structure
-Ethics
-Risk Area
-Risk mitigation strategies
-Corporate strategy
-Other topics
Example Questions for Directors/Audit Committee:
1. As a member of the board, do you believe you receive adequate training
on corporate governance? How? What is your responsibility as a board
member?
2. Explain your relationship with the internal/external auditors.
Shareholders. CEO.
3. Explain the reporting structure, including who reports to the
board/committee.
4. Explain the commitment to ethics by the board/committee and explain
how the board/committee conveys that commitment to employees?
5. What key risks do you monitor as a member of the board? How do you
monitor the risks? Are the risks monitored the key risks of the company
based on your opinion.
Regulatory Requirement on Board of Directors
Required Forms
-Biographical Form A-Filed
-Conflict of Interest Form- Maintained
-Code of Ethics
Board Structure
-Audit Committee Required (Model Audit Rule)
-Audit Committee Structure -Must retain a certain proportion of independent
member based on previous year’s direct & assumed premium.
-Corporate Governance Annual Disclosure-Even more requirement for Boards
(discussed later on)
Rating Agencies
AM Best
Most widely recognized rating agency for insurers
Financial Strength Rating is based on the balance sheet strength, profitability, and
business profile
Insurer must pay to be rated
Have pushed industry towards a more conservative position in recent years
Potential Future Regulation
Corporate Governance Annual Disclosure (CGAD-Pertains to all insurers)
1-Corporate Governance Framework
2-Board and Committee Policies and Practices
3-Management Policies and Practices
4-Management and Oversight of Critical Risk Areas
Potential Changes in the future
Federal Insurance Office (FIO)
Created via Dodd-Frank
Role has yet to be determined
International Financial Reporting Standards (IFRS)
Not yet adopted by the SEC
Drastic changes for insurance accounting
NAIC is watching closely, several years off
The $64 dollar question…State Regulation
UPSIDE
DOWNSIDE
Transparency
 Transparency
Filings- Pools results are public
Ratios open pool to criticism
Regulators may find practices that
are questionable (on bad list)
Do not qualify for insolvency
protection
Subject to sanctions
Limited # of statutory experts
Cost of state regulation and
assessments
NAIC database measures
Deflect competitor criticism
Build regulator relationships
Insolvency protection
Part of State Insurance Alliance
(lobbying)