financial examinations and market regulation presenters ignatius wheeler, cfe chief examiner...
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Financial Examinations and Market Regulation
PresentersIgnatius Wheeler, CFE
Chief Examiner
Financial Examinations
David Moskowitz, CFE
Assistant Chief Examiner – Market Conduct
Steve Carter, CFE, AIE, FLMI, AIRC Senior Examiner
Royston Lanning, CPA, CFE
Market Analyst
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
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
Organization Charts – Financial Program
Danny Saenz, CFESenior Associate Commissioner
Financial Program
Godwin OhaechesiCFE
Director - Company Licensing &Registration
Mike BoernerASA, MAAA
Managing Actuary
Doug SlapeCFE, CISA
Chief Financial Analyst
Ignatius WheelerCFE
Chief Examiner
Angel GarrettCPA, CFE
Director - Rehabilitation and
Liquidation Oversight
Organization Charts – Examinations
David MoskowitzCFE
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
Jamie Walker, CFE
Assistant Chief Examiner
Examination Reports
Ignatius WheelerCFE
Chief Examiner
Organization Charts – Market ConductDavid Moskowitz, CFE
Assistant Chief ExaminerMarket Conduct
Steve Carter, CFE, AIE, FLMI, AIRCSenior Market Conduct Examiner
John Sedgwick, CPA, CIE, AFEMarket Conduct Examiner - Austin
Royston Lanning, CPA, CFEMarket Analyst
John Lim, CPA, CIEMarket Conduct Examiner - Houston
Jacqueline Butler, AIEMarket Conduct Examiner - San Antonio
Shemeddra Thomas, CIEMarket Conduct Examiner - Dallas
Laura YanezMarket Conduct Examiner - San Antonio
Karen Wright, CIEMarket Conduct Examiner - Austin
Examinations
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)
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
Examinations – Number of Exams
• Fiscal Year 2009 - 136• Fiscal Year 2008 - 134• Fiscal Year 2007 - 129• Fiscal Year 2006 - 142• Fiscal Year 2005 - 141
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
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
Texas Policies and Procedures Manual
• Procedures and regulations unique to Texas– Texas statutes and rules take precedence
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
Market Regulation
Examinations – Types of Entities
• Insurance Companies
• Premium Finance Companies
• Agents
• Third Party Administrators (TPA’s)
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
Examinations – Triggers
• Market Analysis• Financial Examinations• Referrals From Other Divisions
– Consumer Protection– Agents Licensing– Life/Health– Commissioner
• Current Events
Examinations – Issues
• Stranger Owned Life Insurance (STOLI) Policies– Premium Financing
• Race-Based Pricing• Clean Claims• Long Term Care
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.
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
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
Market Analysis (continued)
Steps in Market Analysis include:– Baseline Analysis– Level 1 Analysis– Level 2 Analysis– Continuum of Regulatory Responses
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
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
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
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
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
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
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
QUESTIONS?