NAIC 2006 models could spark debate in legislatures.

In the regulatory world, January marks the starting line for model laws of the National Association of Insurance Commissioners that were passed in the previous year.

Some of the 2006 bills proposed are sure to raise debate as they hit state legislatures across the country. Others, having been well vetted during the hearing process, are not slated to be pursued.

"As far as the most recent model laws that would have been eligible for advocacy last year and going forward, from NAMIC's perspective, we're probably more concerned with playing defense on a couple of them-the larger ones that we think are incomplete or downright troubling," said Neil Alldredge, vice president of state and regulatory affairs with the National Association of Mutual Insurance Companies.

Focus on the big fish is necessary, Alldredge said, given the number of items produced by the NAIC each year. In 2006 alone, the group's executive committee adopted eight model acts, 10 model regulations, three actuarial guidelines, three white papers, one study and two model bulletins.

Hot issues making it onto the radar screen for 2007 range from changes to the NAIC's Model Audit Rule to principles-based reserving.

Bruce Ferguson, vice president of the American Council of Life Insurers, said the principles-based reserving method adopted by the NAIC in September 2006 is one of the most important issues being followed this year by the ACLI, which represents 377 member companies that account for 91% of the life insurance industry's total assets in the United States.

The new "interim solution" of principles-based reserving succeeds the formula-based approach. Last year, the NAIC amended its Actuarial Guideline 38 to map out reserve levels for products such as term insurance and universal life policies with secondary guarantees. While changes to AG 38 are effective automatically in most states, legislatures will be left to adopt a new mortality table regulation produced by the NAIC.

Another important issue for life insurers in 2007 are proposed amendments to the NAIC's Viatical Settlements Model Act, which were passed out of a senior NAIC committee in December and are due for final approval by its executive committee in March. The revisions prevent life settlement transactions from taking place within five years of a policy's initiation. Ferguson said that states are already lining up to introduce the model in 2007.

"This is a huge, huge issue for us ... and we applaud the NAIC's A Committee's action in December" Ferguson said. "It's a very aggressive proposal that's designed to put an end to so-called, stranger-originated life insurance transactions, something that we think is just not good public policy and violates the spirit of insurance interest laws."

On the property/casualty front, NAMIC--whose 1,400 member companies underwrite more than 40% of the property-casualty insurance premium in the United States--will likely continue its long battle against the NAIC Model Audit Rule revisions which incorporate "best practices" corporate governance standards similar to those of the Sarbanes-Oxley Act of 2002. The model was approved by the NAIC in June.

Jeff Brewer, of the Property Casualty Insurers Association of America, said one 2006 NAIC provision his group will be looking at in '07 is a model bulletin on producer training that's already been adopted by the insurance regulators of 22 states, with more to come in '07, he said.

"While we are fully in favor of the idea of having the producers licensed and registered with the state ... one of the big concerns that we have is that the (onus) is on the insurers to report to the state which agents are being trained," Brewer said. "We think that should be split. The agents or the agency should be doing the reporting"

Sampling of Model Laws/Regulations Approved by the NAIC in 2006

* Annual Financial Reporting Model Regulation: Revisions incorporate certain best practices included in the Sarbanes-Oxley Act.

* Model Regulation Permitting the Recognition of Preferred Mortality Tables for Use in Determining Minimum Reserve Liabilities: Permits the use of new mortality tables and provides interim reserve relief pending the development of a principles-based reserving system.

* Authorization for Criminal History Record Check Model Act: Allows states to collect producer fingerprints to state law enforcement and the FBI.

* Health Policy Rate and Form Filing Model Act/Regulation: Creates framework for rate and filing process for medical-related coverages.

* Reinsurance Intermediary Model Act: Improves the arbitration process between ceding and assuming companies,

* Discount Medical Plan Organization Model Act: Helps insurance regulators determine legitimacy of companies offering medical discount cards.

* Long-Term Care Insurance Model Act: Addresses producer training requirements.

Source: The National Association of insurance Commissioners.