James J. Wrynn has been confirmed as the 40th Superintendent of Insurance. He takes the helm at one of the oldest and most respected regulatory agencies in the United States in the midst of a continuing and deep recession which threatens the continued stability and viability of the nation’s insurance industry. He also assumes the office during the pendency of many important regulatory issues in which the industry and the New York Department don’t completely see eye to eye, such as capital and reserve requirements for the life insurance industry, producer compensation disclosure, medical liability insurance regulation, life settlement supervision and the geometric expansion of Section 332 assessments.

Wrynn brings to the job a busy career full of experience as an insurance lawyer specializing in the field of insurance law as a partner in the law firm of MacKay, Wrynn & Brady, LLP. He has counseled and represented insurance agents, brokers, risk retention groups and insurance companies in most lines of insurance and excess insurance, reinsurance, self-insurance and captive insurance. He has also served, albeit briefly, as the Executive Director of the State Insurance Fund. Governor Paterson said of the confirmation, “I am pleased that the Senate moved quickly to confirm Jim Wrynn as Superintendent of Insurance. Jim’s experience as an insurance lawyer and his expansive involvement in government prepare him well for his position. He will be an asset to the Department and the State in this critical time as the nation moves forward with health insurance reform and financial services regulatory reform.”

Wrynn said, “I look forward to working with the Department’s superb staff to focus on the special requirements of the local New York insurance marketplace, including all of its insurance companies, agents, brokers and consumers who together help this important industry prosper and grow here. There are areas we must and we will address, including medical malpractice, bond insurers and the life settlement industry. I will work diligently and innovatively to enhance New York’s reputation as the financial capitol of the world, so that we can continue to provide good jobs with good wages for New Yorkers.”

The new Superintendent is a softspoken gentleman who has impressed many in the industry so far with his availability and openness to discuss and learn about issues important to them. I had a chance to speak with him at the NAIC meeting and he seemed entirely comfortable with his new position, and impressed with the significant array of issues pending before that organization.

He hit the ground running by cochairing a hearing at his first NAIC meeting in Washington to “conduct a comprehensive evaluation of the reliance on Nationally Recognized Statistical Rating Organizations (NRSRO) by the NAIC, the insurance industry and the insurance marketplace.” In a statement about the hearing Wrynn said, “[c]orrecting the mistakes that led to the financial crisis is in everyone’s interest, and insurance regulators will benefit from the rating agencies’ insight as we work to keep the insurance industry strong and protect policyholders.” During the hearing, a panel of representatives from Standard & Poor’s, Fitch Ratings, and Moody’s admitted failures of accurately rating residential mortgage backed securities. The panel outlined several reform measures that are designed to prevent such problems in the future. It appeared that despite this talk of reform of the rating process, the regulators on the panel continued to urge that reliance on the ratings be further reviewed.

Many have urged the NAIC to organize its own rating organization. Whichever course the NAIC decides to take in this effort, it is clear that the new Superintendent, as co-chair of the NAIC rating agency working group, will have a significant influence on the process.

Additionally, Superintendent Wrynn also announced, with Governor Paterson, that the Department would see to it that all children, 19 and under, and enrolled in comprehensive health plans, must be covered by insurers for the seasonal flu and novel H1N1 vaccinations. “Wrynn said, [t]he protections provided under the Child Wellness Law are particularly important this season as our children are uniquely vulnerable to this new virus.

Governor Paterson has stressed the importance of child health care, and the Insurance Department will continue to do all it can to protect New York’s children.” Thus, the new Superintendent has been very active in his first month in office. He will come to experience all too well that problems, issues and crisises come at a fast and furious pace when one sits on the executive floor of the New York State Insurance Department. In most cases all of the matters that you envision working on at the beginning of your tenure there are not the matters that you find you spent most of your time on at the end.

I wish Superintendent Wrynn all the best in this exciting new venture.

News Flash – NAIC Get Some Things Done at its Fall Meeting

A Critical Piece of the Principles-Based Reserving Project Is Completed.

Amidst the vast confines of the Gaylord National Resort in Maryland, some seven miles from downtown Washington, D.C., a rare sound wafted through the cavernous atrium – which was filled with fake streams, shops and a massive sports bar that looked more like the NASA space-flight command center – it was the sound of some long term projects getting done. First and foreCommittee adopted the amendments to the model standard valuation law, which are designed to enable the implementation of a principles-based system for determining life and health insurance reserves. The project has been in development for over four years.

However, the final adoption of the amendments was not without some controversy. Prior to the main vote, Wisconsin offered its own amendment which would require that the establishment of a minimum floor for reserves within the new principles-based format. This amendment failed, setting the stage for the final vote. Both New York and Wisconsin voted no on the proposal because it did not contain a minimum formulaic floor and because the primary method for implementation of the principles- based system – the Valuation Manual – was not yet finished. Further, New York advocated that an initial trial period be enacted, during which the principlesbased system would coexist with the traditional formulaic method, providing for comparison and testing of reserves. The lack of New York support for the new standard valuation law has to be seen as a blow to the advocates of principles- based reserving. If New York does not enact the amendments, with the significant size of its domestic life industry, and the size of other state companies which carry the New York license, the impact of principles-based reserving could be blunted. The concept of uniformity in setting reserves, which, for better or for worse exists currently, will be shattered. With significant portions of the Valuation Manual still being debated, the issue of principles-based reserving will continue to be an important one for some time to come.

A New Dispute Erupts in the Battle Over Federal Regulation of Insurance

There was much controversy at the meeting over the NAIC proposal to create a National Insurance Supervisory Commission (NISC). This system would provide that in the event that national uniformity was unachievable on a particular regulatory matter, the NISC would mandate a national standard. The NAIC argues that this is the best way to preserve and enhance the state regulatory system into the future in light of the possible complete federal takeover of the field. However, the NAIC heard some pointed criticism of its position from the nearly 50 state legislators who were in attendance at the fall meeting during the State Government Liaison Committee. Many of the legislators seemed to believe that in its support for the NISC proposal the NAIC had essentially “sold out” state regulation. The legislator’s comments were “spirited” and the committee agreed to hold a summit of state regulators, lawmakers and other state officials to better discuss and examine the issue in the future. This is the latest installment of the lingering conflicts between insurance legislators and insurance regulators that began with the dispute over how to regulate the life settlement industry.

Capital and Surplus Relief

Work has continued on the ACLI proposal for capital and surplus relief that was rejected by the NAIC executive committee in January of 2009. The Plenary Committee adopted several changes needed to implement the ACLI’s proposals regarding the use of preferred mortality tables for any product covered by the 2001 CSO mortality tables. Further, the Plenary unanimously adopted changes to Regulation 815 in order to implement the clarification in the use of the mortality tables, which had been very controversial as it wound its way through the NAIC committee process. In particular the controversy surrounded Statutory Accounting Principle No. 61 regarding deferred premium asset accounting. Controversy still exists, however, concerning the amendments to SSAP 10 which contained a compromise to the ACLI’s original proposal on deferred tax assets. The compromise would permit companies with risk-based capital levels in excess of certain minimum thresholds may treat DTA’s as admitted assets under certain limited circumstances. The solution would be temporary for 2009 and 2010 with a new working group to be formed during that time to develop a long term solution. There was spirited protests from the opponents of the proposal and steadfast support from its supporters. The proposal has been approved by the Statutory Accounting Principles Working Group, the Accounting Practices and Procedures Task Force and the Financial Condition Committee. However, a battle is expected in the Executive and Plenary Committees at the December meeting. Currently the action in Vegas has it at 5-4 in favor of full passage.

Corporate Governance

In an interesting offshoot of the principles-based reserving project, the Solvency Modernization Initiative Task Force spent the bulk of its meeting considering a proposal to establish standards for corporate governance that would be applicable to all insurers and all lines of business. This effort has happened largely because of the urging of the New York Department. The discussion revolved around several general points; 1) the evaluation of areas in which corporate governance risk to insurers exists; 2) the identification of solutions to mitigating those risks; and 3) to coordinate the implementation of those solutions.

New York Gets Accredited

My congratulations go out to all of my former colleagues at the New York Department who have completed the lengthy trip back to NAIC accreditation. It has been far too long in coming. We all know that the professionals at the Department have always represented the highest quality and expertise amongst the nation’s insurance regulators, and it is fitting now to have the formal recognition of that fact.

I must admit that I now feel bad for Guam and the Marianas Islands who now stand alone amongst the community of un-accredited regulators. Your day will come soon enough folks!