ComFrame Elements Coming to the U.S.

State insurance regulators are in the process of incorporating aspects of the International Association of Insurance Supervisors (IAIS) Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) into the U.S. regulatory framework. In February of 2020, staff from the National Association of Insurance Commissioners (NAIC) published a gap analysis examining differences between ComFrame and the U.S. regulatory framework. While NAIC staff found that many of the key elements of ComFrame had already been incorporated into the state-based system of insurance regulation, they identified areas where the U.S. system did not include certain critical aspects of ComFrame. Therefore, NAIC staff issued seven recommendations to the NAIC’s Group Solvency Issues Working Group to address such gaps.

The Group Solvency Issues Working Group formed three drafting groups to assess these recommendations and advised those groups to make any required changes through edits to handbooks as opposed to changing or developing model laws or regulations. The drafting group that is looking at changes to the Financial Analysis Handbook was the first to get up and running. The drafting groups tasked with reviewing the Financial Condition Examiners Handbook and the ORSA Guidance Manual had not met as of the last Group Solvency Issues Working Group meeting in May. These groups likely will begin their work after the changes to the Financial Analysis Handbook are complete.

In May 2021, the working group exposed the highly anticipated proposed changes to the Financial Analysis Handbook, incorporating certain elements from ComFrame. While ComFrame applies only to Internationally Active Insurance Groups (IAIGs), the proposed changes to the Handbook contemplate that regulators could apply the IAIG standards to other large insurance groups that do not meet the IAIG criteria. This could be a significant development — one that we expect will result in much debate. Justin Schrader (chief financial examiner in Nebraska and chair of the Group Solvency Issues Working Group) emphasized that the drafting group extensively analyzed the appropriateness of each ComFrame element for inclusion in U.S. insurance regulation.

This workstream is one of the most direct examples of international standards being incorporated into the U.S. insurance regulatory framework. A summary of the proposed changes is available here. Comments are due to the NAIC by July 16.