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Financial Examinations and Market Regulation

Financial Examinations and Market Regulation. Presenters. Ignatius Wheeler, CFE Chief Examiner Financial Examinations Ignatius.Wheeler@tdi.state.tx.us David Moskowitz, CFE Assistant Chief Examiner – Market Conduct David.Moskowitz@tdi.state.tx.us Steve Carter, CFE, AIE, FLMI, AIRC

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Financial Examinations and Market Regulation

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  1. Financial Examinations and Market Regulation

  2. Presenters • Ignatius Wheeler, CFE • Chief Examiner • Financial Examinations • Ignatius.Wheeler@tdi.state.tx.us • David Moskowitz, CFE • Assistant Chief Examiner – Market Conduct • David.Moskowitz@tdi.state.tx.us • Steve Carter, CFE, AIE, FLMI, AIRC • Senior Examiner • Steve.Carter@tdi.state.tx.us • Royston Lanning, CPA, CFE • Market Analyst • Royston.Lanning@tdi.state.tx.us

  3. Topics of Discussion • Overview of Financial Program • Organizational Structure • Examinations • Examination Key Processes • Coordination with Other States • Risk Focused Examinations • Texas Policies and Procedures Manual • Examination Tools • Market Regulation • Market Conduct Examinations • Market Conduct Surveillance Act • Market Analysis • NAIC Support • Q & A

  4. Overview of Financial Program • Serves as the primary solvency guardian for policyholders • Seeks to detect financial concerns early and take prompt action by applying available statutes, rules and procedures to prevent insolvency and consumer problems • Priorities focus on “firm, fair, effective, and efficient” regulation for all insurance entities, while reducing impediments to competition

  5. Danny Saenz, CFE Senior Associate Commissioner Financial Program Godwin Ohaechesi CFE Director - Company Licensing & Registration Mike Boerner ASA, MAAA Managing Actuary Doug Slape CFE, CISA Chief Financial Analyst Ignatius Wheeler CFE Chief Examiner Angel Garrett CPA, CFE Director - Rehabilitation and Liquidation Oversight Organization Charts – Financial Program

  6. Ignatius Wheeler CFE Chief Examiner Jamie Walker, CFE Assistant Chief Examiner Examination Reports David Moskowitz CFE Assistant Chief Examiner Market Conduct Linda Peters, CFE Assistant Chief Examiner AES Zeke Ramirez, CFE, CPA Assistant Chief Examiner Financial - Central Eric Reiner, CPA, CFE Assistant Chief Examiner Financial - South Gigi Paul, CPA, CFE Acting Assistant Chief Examiner Financial - North Organization Charts – Examinations

  7. Organization Charts – Market Conduct David Moskowitz, CFE Assistant Chief Examiner Market Conduct Steve Carter, CFE, AIE, FLMI, AIRC Senior Market Conduct Examiner John Sedgwick, CPA, CIE, AFE Market Conduct Examiner - Austin Royston Lanning, CPA, CFE Market Analyst John Lim, CPA, CIE Market Conduct Examiner - Houston Jacqueline Butler, AIE Market Conduct Examiner - San Antonio Shemeddra Thomas, CIE Market Conduct Examiner - Dallas Laura Yanez Market Conduct Examiner - San Antonio Karen Wright, CIE Market Conduct Examiner - Austin

  8. Examinations

  9. Examination Key Processes • On-site examinations of the books, records, and operations of insurance companies and other entities • Financial examinations • Market conduct examinations • Analysis of annual operations reports filed by premium finance companies • Third Party Administrators (TPA’s)

  10. Examination Key Processes continued • Target examinations “as needed” in response to potential regulatory concerns • Other entities subject to examination include: • Guaranty Fund Associations • Premium Finance Companies • Reinsurance Intermediaries • Managing General Agents

  11. Examinations – Number of Exams • Fiscal Year 2009 - 136 • Fiscal Year 2008 - 134 • Fiscal Year 2007 - 129 • Fiscal Year 2006 - 142 • Fiscal Year 2005 - 141

  12. Coordination with Other States • Lead State • Allocation of work-load • Clear understanding regarding each state’s role and needs • Sharing of work papers and findings • Characteristics of Lead States • State with the largest number of domestic insurance companies in the group • State with large or largest premium volume or exposure • Domiciliary state of top-tiered insurance company

  13. Risk Focused Examinations • January 19, 2010 – Memo sent to all domestic insurers regarding risk focused examination approach • Provides clearer methodology for assessing residual risk • Allows the assessment of risk management processes other than those that result in financial statement line item verifications

  14. Texas Policies and Procedures Manual • Procedures and regulations unique to Texas • Texas statutes and rules take precedence

  15. Examination Tools • ACL • Software • Premium/Loss database requests • Independent testing and sample selection • TeamMate • Electronic work papers • Enhance regulatory insurance examinations • Central repository for standard examination procedures • Work papers can be shared/assessed • NAIC Citrix Server for Lead State Examinations

  16. Market Regulation

  17. Examinations – Types of Entities • Insurance Companies • Premium Finance Companies • Agents • Third Party Administrators (TPA’s)

  18. Examinations – Number of Exams • Fiscal Year 2010 (estimate) – 18 to 20 • Fiscal Year 2009 - 17 • Fiscal Year 2008 - 19 • Fiscal Year 2007 - 17 • Fiscal Year 2006 - 14 • Fiscal Year 2005 - 19

  19. Examinations – Triggers • Market Analysis • Financial Examinations • Referrals From Other Divisions • Consumer Protection • Agents Licensing • Life/Health • Commissioner • Current Events

  20. Examinations – Issues • Stranger Owned Life Insurance (STOLI) Policies • Premium Financing • Race-Based Pricing • Clean Claims • Long Term Care

  21. Market Conduct Surveillance Act • Texas Insurance Code – Chapter 751 • Framework for market conduct actions • Market Analysis • Market Conduct Actions • State Coordination • Impact on Examinations • Authority to schedule a triennial exam for domestic insurers regardless of cause • Authority to target problem areas of ALL insurers FOR cause regardless of where they are domiciled.

  22. Market Conduct Surveillance Act (continued) • Examination Timelines • Must provide 60 days notice (unless extraordinary) • Pre-exam conference 30 days prior • Draft report due 60 days after exit conference • Insurer’s written comments due 30 days after Draft • Final report due 30 days after written comments • Insurer has 30 days to accept or request hearing • NO MORE 1ST OR 2ND LEVEL INTERNAL APPEALS

  23. Market Analysis • Market Analysis is designed to: • Provide tools for each state to review its entire market • Identify companies operating in each state’s market that are potentially harming consumers • Assist in narrowing the scope of any regulatory action that a state determines it must use

  24. Market Analysis (continued) • Steps in Market Analysis include: • Baseline Analysis • Level 1 Analysis • Level 2 Analysis • Continuum of Regulatory Responses

  25. Market Analysis (continued) • Baseline Analysis • A systematic process by which basic parameters are used to evaluate the entire marketplace in order to identify those companies that require more detailed and thorough analysis • Baseline Analysis Tools include: • Market Analysis Company Prioritization Tool (MAPT) • PCCI Justified Complaint Index • Companies ranked by score comprised of: • MAPT Score • PCCI Score • Market Share Position

  26. Market Analysis (continued) • Level 1 Analysis • Market Analysis Review System • Areas of Review Include: • Management and Operations • Financial Performance Measures • Complaints • Regulatory Actions • Examinations • Recommended Next Step • Level 2 Analysis is scheduled • We will proceed within the Continuum of regulatory response • No further analysis is necessary

  27. Market Analysis (continued) • Level 2 Analysis • Core Areas of Review: • Consumer Complaints • Continuum Activity • Examinations • Interdepartmental Communications • Market Analysis • Regulatory Actions • Optional Areas of Review • Recommended Next Step • We will proceed within the Continuum of regulatory response • No further analysis is necessary

  28. Market Analysis (continued) • Continuum of Regulatory Responses • Includes: • Office–based information gathering • Targeted information gathering • Correspondence with company • Interrogatories • Desk audit • Company self-audit • Targeted examination • Comprehensive Examination • Enforcement action

  29. Market Analysis (continued) • Lines of Business • Credit Life • Group Accident & Health • Group Life & Annuities • Individual Accident & Health • Individual Life & Annuities • Long Term Care • Medicare Supplement

  30. Market Analysis (continued) • TDI Market Analysis Activity • 40 to 50 Level 1 Analyses performed each of the past two years • On target to complete 50 + Level 1 Analyses in the current year • 62% of current year Level 1 Analyses have resulted in recommendation of Level 2 Analysis or Continuum response

  31. NAIC Support • Examination Oversight Task Force • Financial Condition Examiners Handbook • Financial Condition (E) Committee • Market Regulation Handbook • Market Analysis Working Group (MAWG) • Market Analysis Review System (MARS) • Market Analysis Prioritization Tool (MAPT) • Market Initiative Tracking System (MITS) • Market Regulation Bulletin Board

  32. QUESTIONS?

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