2. Financial Examinations and Market Regulation

3. Presenters Ignatius 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

4. 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

5. 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

6. Organization Charts – Financial Program
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
Chief Examiner
Angel Garrett
CPA, CFE
Director - Rehabilitation and Liquidation Oversight

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

8. Assistant Chief Examiner
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

9. Examinations

10. 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)

11. 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

12. Examinations – Number of Exams
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year

13. 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

14. 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

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

16. Examination Tools TeamMate 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

17. Market Regulation

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

19. Examinations – Number of Exams
Fiscal Year 2010 (estimate) – 18 to 20
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year

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

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

22. 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.

23. 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

24. 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

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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. QUESTIONS?