Regulation and Solvency Glossary · Insurance

Accreditation: the NAIC program under which a state's financial regulation of its domestic insurers meets standards (laws, practices, staffing, licensing) that other states rely on instead of re-examining (The State System).
Adverse Consumer Outcome: in the NAIC AI bulletin, a decision subject to insurance regulatory standards that adversely affects a consumer (Data, AI & Privacy Rules).
Adverse impact ratio: a group's favorable-outcome rate divided by the highest group's rate, one of the metrics New York's Circular Letter No. 7 names (Data, AI & Privacy Rules).
AIS Program: the written program for the responsible use of AI systems in regulated insurance decisions that the NAIC AI Model Bulletin expects every insurer to maintain (Data, AI & Privacy Rules).
Annual statement: the NAIC-format statutory financial statement each insurer files for each legal entity, due March 1 (Statutory Accounting & the Annual Statement).
Annual statement line: the NAIC line-of-business classification (homeowners line 4, workers' comp line 16) every statutory figure is reported by (Statutory Accounting & the Annual Statement).
Authorized Control Level RBC (ACL): the capital amount the RBC formula produces, against which every RBC action level is a multiple (Solvency & Capital).
Company Action Level: total adjusted capital from 150% to under 200% of ACL, or 200% to 300% with a trend test trigger; the insurer must file an RBC plan within 45 days (Solvency & Capital).
Complaint register: the record of all complaints since the last exam, by line, nature, disposition and time to process, that the Unfair Trade Practices Act requires (Market Conduct & Unfair Practices).
Covered agreement: a federal agreement with a foreign government on prudential insurance measures, under which FIO may preempt inconsistent state measures (The State System).
Covered claim: a claim under a liquidated insurer's policy that a guaranty association pays, up to the state's cap (When Insurers Fail).
Deemer: a statutory period after which a filing is deemed approved if the regulator hasn't acted (Florida's 90 days, California's 60 and 180) (Filing Rates & Forms).
Depopulation (takeout): moving policies from a residual market back to private insurers through approved offers (Stressed & Residual Markets).
Domiciliary state: the state where an insurer is incorporated, which alone regulates its solvency, holding company transactions and receivership (The State System).
FAIR plan: a state property insurance placement facility funded by member insurers, for property owners the voluntary market won't insure (Stressed & Residual Markets).
Federal Insurance Office (FIO): the Treasury office that monitors insurance, runs the terrorism program and can preempt state measures only under covered agreements (The State System).
File-and-use: a rate regime in which a filed rate may be used after a waiting period or on filing, subject to later disapproval (Filing Rates & Forms).
Flex rating: a regime in which rate changes within a band take effect without prior approval and larger ones need it (Filing Rates & Forms).
Guaranty association: a state association that pays covered claims of liquidated insurers up to statutory caps, funded by assessments on solvent insurers (When Insurers Fail).
Insurance Data Security Model Law (#668): the NAIC model requiring an information security program, third-party oversight, 72-hour notice of cybersecurity events and an annual certification (Data, AI & Privacy Rules).
IRIS ratios: the NAIC's 13 P&C and 12 life financial ratios computed from annual statements, with published industry means and medians (Solvency & Capital).
Liquidation: the receivership stage in which the liquidator takes the insurer's assets, policies cancel after 30 days and guaranty associations pay covered claims (When Insurers Fail).
Market conduct annual statement (MCAS): the NAIC's annual collection of claims and underwriting data in 13 lines for market analysis (Market Conduct & Unfair Practices).
Market conduct examination: a regulator's review of an insurer's treatment of consumers, from data requests and samples to a public report (Market Conduct & Unfair Practices).
McCarran-Ferguson Act: the 1945 federal law leaving insurance regulation and taxation to the states unless a federal law specifically relates to insurance (The State System).
Model law: a draft statute or regulation the NAIC adopts for states to enact; it binds no one until a state does (The State System).
NAIC: the National Association of Insurance Commissioners, the standard-setting body of the 56 jurisdictions' chief insurance regulators (The State System).
Nonadmitted asset: an asset statutory accounting excludes from the balance sheet because it can't pay claims, reducing surplus (Statutory Accounting & the Annual Statement).
ORSA: the Own Risk and Solvency Assessment, a confidential internal assessment of material risks and capital filed annually by insurers above $500 million (groups above $1 billion) (Solvency & Capital).
Permitted practice: a departure from statutory accounting a domiciliary regulator approves for one insurer (Statutory Accounting & the Annual Statement).
Prior approval: a rate regime in which a rate may not be used until approved or deemed approved (Filing Rates & Forms).
Priority of distribution: the statutory order in which a liquidated insurer's estate pays claims, policyholders ahead of general creditors (When Insurers Fail).
Proposition 103: California's 1988 initiative imposing prior approval of property-casualty rates, a rollback and compensated intervenors (Filing Rates & Forms), and requiring auto rates to follow three mandatory factors in decreasing order of importance (What You May Rate On).
RBC ratio: total adjusted capital divided by Authorized Control Level RBC; regulatory action begins below 200% (Solvency & Capital).
Receivership: state court proceedings (conservation, rehabilitation, liquidation) in which the commissioner takes over a troubled insurer (When Insurers Fail).
Rehabilitation: the receivership stage in which the receiver runs the insurer to restore or restructure it, with a plan due within a year (When Insurers Fail).
Residual market: a mechanism (state insurer, FAIR plan, assigned risk plan, JUA, reinsurance facility) for risks the voluntary market won't take (Stressed & Residual Markets).
SERFF: the NAIC's System for Electronic Rates and Forms Filing, through which rate, rule and form filings reach the states (Filing Rates & Forms).
Statutory accounting principles (SAP): the conservative, solvency-focused accounting basis of the NAIC's Accounting Practices and Procedures Manual that insurers file on (Statutory Accounting & the Annual Statement).
Total adjusted capital (TAC): the capital measure compared against RBC levels, based on statutory surplus with prescribed adjustments (Solvency & Capital).
Trend test: the RBC test that treats a company at 200% to 300% as at the Company Action Level when its combined ratio exceeds 120% (P&C) or its margin trends below 1.9 times ACL (life) (Solvency & Capital).
Unfair Trade Practices Act: the NAIC model (#880) and state laws defining misrepresentation, unfair discrimination, rebating and record failures as unfair practices when flagrant or a general business practice (Market Conduct & Unfair Practices).
Uniform Data Standard (UDS): the NCIGF file format in which receivers and guaranty associations exchange open claims (A records), unearned premium (B records) and payments (When Insurers Fail).
Use-and-file: a rate regime in which a rate may be used first and filed within a set period, subject to refund if unjustified (Filing Rates & Forms).