regulatory capabilities. In addition to verifying the capabilities of these departments, much was learned about the audit procedures required to obtain a thorough, credible assessment of solvency regulatory resources. Improvements to the procedures will be incorporated into the upcoming audits. We have been asked in recent months at what point the Accreditation Program will reach a "critical mass" - at which point enough states will have been accredited that the sanctions for non-accreditation will have sufficient national reach to spur the remaining jurisdictions to adopt the Financial Regulation Standards. This is a difficult question to answer, but we believe that the accreditation of Florida and New York is already adding to the pressure on other states to become accredited. The 866 life companies that are licensed to do business in one or both of those two states wrote nearly 95 percent of the life premiums in 1989. Similarly, the 992 property/casualty companies licensed in one or both of the accredited states wrote almost 80 percent of the property/casualty direct premiums in 1989. Only Montana, Nevada, and Wyoming have no domiciled insurers that would be affected by the sanctions imposed by the NAIC's Accreditation Program, even in the event that no other states were accredited before 1994. This seems quite unlikely, given that two more states have already been reviewed, with five others having been scheduled for review this Summer. Some critics of state regulation have questioned whether the states will respond to the NAIC's call for enhanced solvency regulation through passage of the statutes and regulations required for NAIC certification. We are here to report to you that the response in these first few months of the program has been very encouraging. Earlier this year, the National Conference of State Legislatures adopted a resolution calling on the states to adopt the NAIC's standards in every state, and the National Governors' Association passed a similar resolution endorsing the NAIC's Solvency Policing Agenda and reaffirming the organization's opposition to federal preemption of state solvency regulation (Attachments B and C). In the state legislatures, it is still early in the 1991 legislative sessions. So far, however, it appears that the joint call of regulators, legislators, and governors for enhanced solvency regulation is being heard. Across the nation, state legislatures are moving aggressively toward the implementation of legislation called for by the NAIC Financial Regulation Standards. As of May 17, 1991, 44 states had considered adoption of acts or regulations included in the NAIC's standards, in a widespread effort to achieve NAIC certification. Nineteen of those states have adopted, and another 25 states are still considering adoption of, such acts or regulations (Figure 2 and Attachment D).' While we will not know the full success achieved in this cycle of legislative sessions until later this year, we are confident that 1991 will be marked by the most sweeping enactment of insurance solvency legislation in the history of the country. Another element of the Financial Regulation Standards looks at the resources available to state insurance departments to enforce the laws and regulations imposed on insurance companies. The last several years has witnessed a dramatic increase in resources, 2 Both New York and Florida are considering adoption of amendments to existing models in the Standards. Therefore, 25 non-accredited states are considering the adoption of models included in the Standards. THE NAIC SOLVENCY STANDARDS THE RESPONSE IN THE STATES IN 1991 Figure 2 The Legislative Response of the States in 1991 to the NAIC Solvency Standards both economic and human, that states have brought to bear upon insurance regulation. From 1985 to 1990, funding for state insurance departments increased by 96.7 percent (Figure 3). Similarly, from 1986 to 1989, the aggregate staffs for state insurance departments increased by 23.2 percent (Figure 4). This growth in personnel has resulted in a 12.4 percent increase in the number of insurance department staff per company. Finally, one reason that total department funding has increased faster than staff levels is that insurance departments are making substantial investments in computer technology for improved solvency surveillance. Figure 4-State Insurance Department Staffing National Aggregate 1985-1990 The adoption of the Financial Regulation Standards is, however, but one aspect of a broader Solvency Policing Agenda of the NAIC, an agenda which was first adopted in December 1989, then updated last December. The NAIC Solvency Policing Agenda has five main components: (1) the Financial Regulation Standards which we have already described; |