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NAIC 2011 2011 NAIC Proposed Budget NAIC Proposed Budget Fall National Meeting October 2010

NAIC 2011 Budget

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Proposed 2011 Budget of the National Association of Insurance Commissioners

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Page 1: NAIC 2011 Budget

NAIC

20112011NAIC Proposed

BudgetNAIC Proposed

Budget

Fall National MeetingOctober 2010

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Page 3: NAIC 2011 Budget

T

able of

Contents

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PROPOSED 2011 NAIC BUDGET

TABLE OF CONTENTS Executive Summary ....................................................................................................1 Appendix A...........................................................................................................9

Revenue and Expense Summaries ............................................................................19

Detail Revenues ........................................................................................................25

Detail Expenses.........................................................................................................65

Business and Fiscal Impact Statement Summary ...................................................115

Fiscal Impact 1 — Records Management Project ............................................117

Fiscal Impact 2 — Application Development and Testing Environments Expansion ..................................................................................123

Fiscal Impact 3 — SBS Maintenance and Staffing Strategy ............................129 Fiscal Impact 4 — SBS Growth Strategy .........................................................139

Fiscal Impact 5 — SERFF Premium Rate Review Data Collection and Reporting Enhancements..........................................................149

Fiscal Impact 6 — NAIC Staffing: Messaging Administrator .........................155

Fiscal Impact 7 — Impact Study of VM-20 Principal-Based Approach to Valuation......................................................................................161

Fiscal Impact 8 — SBS Consumer Assistance Data Collection and Reporting Enhancements ...........................................................................169

Structured Securities Project...................................................................................175

Unrestricted Net Assets .........................................................................................187

2011 Program Budget .............................................................................................189 2009 Annual Report................................................................................................199

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Executive

Summ

ary

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© 2010 National Association of Insurance Commissioners

2011 Proposed Budget Executive Summary

The National Association of Insurance Commissioners (NAIC) is a voluntary, membership-based organization of the chief insurance regulatory officials of the 50 states, the District of Columbia, and the five U.S. territories. The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members to:

• Protect the public interest; • Promote competitive markets; • Facilitate the fair and equitable treatment of insurance consumers; • Promote the reliability, solvency and financial solidity of insurance entities; and • Support and improve state regulation of insurance.

The NAIC provides a forum for state insurance regulators to work together to protect insurance consumers and supervise the financial solvency and market conduct of entities engaged in the business of insurance. It serves members through facilitating committee-driven model laws and regulations, reporting standards and the development of regulatory policy, regulatory analysis of emerging issues and coordinated regulatory responses in countless areas of insurance regulation. The annual budget of the NAIC reflects the wide-range of valuable services and benefits the NAIC provides to its members and the insurance industry. The NAIC offers its members programs, publications, electronic systems and data, and many services to assist them in achieving their fundamental insurance regulatory goals in a responsive, efficient and cost-effective manner. It provides tremendous value to the states by alleviating the significant investment and ongoing costs for each state insurance department to create the regulatory tools and resources and technical infrastructure available through the NAIC. These regulatory tools create efficiencies and significant cost savings to insurance regulators, and most of them would be cost-prohibitive for the states to duplicate on their own. Without membership in the NAIC, the amount of state funding required in order to provide or access the similar type of services and data the NAIC provides — often at no extra charge — would far exceed what a state pays in member dues to the NAIC. Representing less than .005% of the more than $1.5 trillion in 2009 industry premium, the NAIC’s 2011 budget is miniscule in relation to its value to the insurance industry. NAIC products and services create efficiencies and significant cost-savings for insurers through automation, standardization and streamlining of many regulatory processes through web-based systems to transmit data and regulatory transactions between insurers, consumers and state insurance regulators. Further, NAIC services to state insurance regulators and the regulated industry have grown significantly over the past decade, to include the following 2009 results:

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© 2010 National Association of Insurance Commissioners

• Consumer Awareness • Insure U for Consumers • Insure U for Small Business • 208 million Consumer Alert impressions • 164,000 visits to Consumer Information Source website • 340,000 visits to Insure U website • 16 Consumer Funded Representatives • 731 million Media Impressions (TV, Radio, PSAs, Consumer Alerts) • Public Information Officer’s Forum

• Information Resources • 5.5 million visits to the naic.org website • 5.2 million visits to NAIC’s regulator-only I-SITE website • 400 million data elements in the NAIC’s Financial Data Repository (FDR) • 158 NAIC publications and data products • 87 financial and market regulator-only databases and applications • 87 online or classroom NAIC education courses • NAIC committee proceedings back to 1871

• Streamlined Processes • Model laws, best practices, guidelines and handbooks to facilitate coordination and

uniformity in state-based regulation • 527,139 filings through the System for Electronic Rate & Form Filing (SERFF) • 4.3 million producer licensing records in State Producer Licensing Database • 6,796 online fraud referrals to state regulators • 347 Uniform Certificate of Authority Applications transmitted to state regulators • 20 jurisdictions licensed to use State Based Systems (SBS) • 3,038 state tax premium filings through OPTins • 4,800 individual annual financial statement filings to FDR • Market conduct annual statement filing process enhancements • Implementation of Interstate Insurance Product Regulation Commission (IIPRC) with 36

states • Faster regulatory review and approval processes through NAIC systems • Quarterly Listing of Foreign Insurers • Securities ratings, Automated Valuation Services (AVS) and capital markets analysis • Structured securities modeling and valuation

• Service Provider • Financial Regulation Standards and Accreditation Program • 51 Full and Interim Accreditation Reviews • Quarterly Listing of Foreign Insurers • Securities ratings, Automated Valuation Services (AVS) and capital markets analysis • Structured securities modeling and valuation • Professional Designation Program • Federal legislative/regulatory coordination and policy development • International technical assistance • Daily insurance news services • 51 online multistate exams hosted • 115,889 regulator and non-regulator calls/e-mails handled by the NAIC’s Help Desk

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© 2010 National Association of Insurance Commissioners

The Budget Process Each year, a zero-based budget proposal is developed by each individual NAIC department, ultimately consolidating into ten NAIC Divisions. During this time, each department projects its current year results and begins to build its proposal for the coming year, focusing carefully on variances between the current year budget, current year projected results and anticipated needs for the coming year. This process includes a strategic management review and evaluation of all ongoing and evolving projects, products, programs, services, charges and technology initiatives in relation to the strategic priorities identified by the membership and tied to the NAIC’s mission. The NAIC’s senior management team reviews each budget in detail with the respective Division Director to make adjustments according to the strategic and financial needs of the Association.

Following an extensive development and internal review process, the proposed budget is presented in detail to the NAIC Officers, and subsequently the Executive (EX) Committee and Internal Administration (EX1) Subcommittee for consideration. The proposed budget is presented to the full NAIC membership at its Fall National Meeting and released for public review and comment. A public hearing is held in November to receive public comments before final consideration and adoption by the NAIC Executive Committee and Plenary. 2009 Recap As published throughout the NAIC’s 2009 projections and 2010 budget, and consistent with many businesses in the recent economy, the NAIC experienced budget challenges in 2009, primarily resulting from shortfalls in certain revenues. As concerns with the 2009 projections were identified in May 2009, NAIC management worked to identify potential areas for enhancing revenues and reducing costs. Working with the Internal Administration (EX1) Subcommittee, NAIC management implemented proactive measures to address projected revenue shortfalls and implement certain cost reductions in order to generate an estimated $2.0 million reduction in net spending from July to December 2009, while minimizing the impact to NAIC services to members. Key cost reductions implemented by staff in 2009 included (1) a systematic, priority-based review of hiring to fill vacant NAIC staff positions and (2) a freeze on NAIC salary increases effective July 1, 2009 through June 30, 2010. As a result of these measures, the NAIC performed within $284,336 of the 2009 budget, and within $13,349 (.02%) of the projections published in mid-2009. 2010 Projections Based on actual results through June 30, 2010, excluding the structured securities project and 2010 fiscal impact proposals, projections indicate a net operating margin of $1.2 million (1.66%), compared to a budgeted net operating margin of $899,645 in 2010. When including investment income, the NAIC projects a total net revenue margin of $2.4 million, driven primarily by positive investment performance through June 30, 2010, and excluding any potential decline in investment returns from July to December 2010. When including the structured securities project and fiscal impact proposals, the projections indicate a net operating margin of $858,058. Additional details of 2010 projected variances are included throughout the detailed footnotes of this budget proposal. 2011 Proposed Budget The reviews of 2010 projections and 2011 budget proposals continue to be focused on expense management, but also includes important investments in the NAIC membership and continued enhancements in the NAIC’s toolkit, which are outlined in the Business and Fiscal Impact Statements described below. It also includes continued travel subsidies to support each Commissioner’s involvement in NAIC national meetings, grant funds of $13,000 per state in 2011 (consistent with 2010), and additional grant funds to be awarded to state regulators upon application and demonstration of need

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© 2010 National Association of Insurance Commissioners

for travel dollars to participate in NAIC national meetings and/or education and training programs. It also includes $3,000 per state for members to host state legislators at the NAIC 2011 Summer National Meeting. In summary, the 2011 budget includes $2,908,877 in funding for the following membership initiatives:

• Commissioner Domestic Travel ($225,000) • Commissioner International Travel ($325,000) • Commissioners Conference Travel ($94,760) • Commissioner Washington D.C. Fly-In Events ($148,064) • EX1/EX Committee Retreats ($47,592) • E-Reg Conference Sponsorships ($127,400) • Financial Summit Sponsorships ($85,000) • SBS Product Steering Committee ($43,550) • PIO Forum ($60,325) • VOS Task Force Meeting in New York ($35,800) • SMI Interim Meetings ($29,900) • IAIS Reinsurance Subcommittee Meeting ($20,000) • International Education Fund ($2,000) • NAIC Grant Funds ($728,000) • Commissioner Travel to NAIC National Meetings ($225,000) • Academic Symposium on U.S. Insurance Regulation ($26,440) • Analyst Team System ($74,046) • Needs-Based Grant Funds Available for NAIC National Meetings ($250,000) • NAIC Zone Funds ($140,000) • Education and Training Scholarships ($53,000) • State Legislator Travel ($168,000)

The NAIC base budget (before adding the structured securities project and fiscal impact proposals) includes total revenues of $73.9 million and total expenses of $73.5 million, which represent a 0.34% and 3.52% increase, respectively, from the 2010 budget, for $412,761 in projected net revenue. Viewed in relation to the 2010 projected totals, the 2011 proposal represents an increase of 1.85% and 5.29%, respectively. Detailed explanations of 2010 variances and changes in to 2011 are included through the detailed footnotes of this budget proposal.

As noted above, these comparisons represent the NAIC’s base budget prior to the addition of revenues and expenses associated with the individual Business and Fiscal Impact Statements, which were reviewed individually by the Executive (EX) Committee. Such additional 2010 revenues and expenses are $321,305 and $651,541, respectively, and produce an overall net expense impact of $330,236 in 2010. Additional 2011 revenues and expenses are $1.3 million and $2.0 million, respectively, and produce an overall net expense impact of $700,557 in 2011. Upon adding these proposals, the NAIC consolidated budget includes total revenues of $75.2 million and total expenses of $75.4 million, which represent a 1.6% and 5.3% increase, respectively, from the 2010 budget. While these proposals result in an overall net operating expense in 2011, they represent important capital investments in the NAIC’s products and services, which are expected to generate net operating revenues in future years. Additionally, the proposed investments and resulting margins continue to fall well within the positive margins generated in 2009 and 2010.

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© 2010 National Association of Insurance Commissioners

NAIC Operating Reserve The NAIC’s operating reserve policy provides for a targeted ratio reserve of 80% of the next calendar year’s expense budget, calculated on a “liquid” reserve basis, which excludes fixed asset balances from net assets. This reserve policy has undergone extensive review and consideration by the NAIC Executive Committee, and was validated by an independent professional services firm with financial expertise with non-profit associations, financial planning and reserving. The reserve is designed to ensure the financial stability of the NAIC, in the event of emerging business risks and uncertainties, and to absorb new priority initiatives pursued by the NAIC membership. As such, the Association’s reserve status is of paramount consideration in the budgeting process, along with strong and prudent financial management of the NAIC’s assets. As of December 31, 2009, the NAIC maintained a liquid reserve ratio of 72%. Based upon 2010 projected results, and the 2011 budget proposal, including proposed fiscal impact statements and the structured securities project, the liquid reserve is projected to increase to 72.8% at December 31, 2010 and 73.3% at December 31, 2011. Regulatory Modernization and Initiatives Fund In 2005, the NAIC established a Regulatory Modernization and Initiatives Fund (the Fund) to manage new budget requests that arise following the adoption and implementation of the annual budget. The Fund is based on 1.5% of the projected net assets, or $909,933 for 2011. Business and Fiscal Impact Statements Business and Fiscal Impact Statements are prepared to describe the purpose and scope of each new budget proposal, its impact on the NAIC’s business, operations and finances, a description of the benefits to key stakeholders and an assessment of risks. The 2011 budget includes seven proposals as follows: 1. NAIC Records Management Project – This proposal seeks the upgrade of an existing Records

Specialist position to a Records Manager position during 2011, and to have both positions overlap for up to six months during the year for transition purposes. This proposal also includes $20,000 in records management consulting services in 2011, for the purposes of ensuring the NAIC is effectively managing its corporate records policy and retention requirements, and including an evaluation of any necessary technology to further improve the governance and staff compliance with the policy. This project is estimated to cost $83,953 in 2011.

2. Application Development and Testing Environment Expansion – This proposal seeks capital hardware and software expenditures of $117,841 to purchase the necessary technical infrastructure to improve the existing quality assurance testing environment for NAIC and NIPR software and database applications. This project is estimated to cost $53,944 in 2011 with ongoing depreciation in 2011 and 2012.

3. SBS Maintenance and Staffing Strategy – This proposal requests the addition of eight full-time

employees in early 2011 in an effort to establish the appropriate staffing level on the SBS Team to reduce the NAIC’s future reliance on consulting resources from its SBS business partner, Aithent, in anticipation of the expiration of the existing Aithent licensing agreement and partnership in July 2012. NAIC management believes this proposal also enhances the SBS Team’s ability to maintain and support a growing SBS customer base. The costs associated with the addition of eight employees are offset by eliminating 2011 projected consulting costs of $609,600, such that this project

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© 2010 National Association of Insurance Commissioners

generates a small savings of $23,571 in 2011 expenses and only increases staffing expenses by a net $12,045 and $33,645 (net of projected consulting needs) in 2012 and 2013, respectively.

4. SBS Growth Strategy – This proposal requests the addition of six full-time employees in late 2010

and early 2011 to supplement the SBS Team in order to implement a series of short-term initiatives aimed at improving the overall effectiveness of the system and increase user satisfaction, through the redesign of external interfaces and support of additional state implementation projects. A key focus of this proposal is to augment existing continuing education revenues through the incorporation of incentives for providers to submit online course roster uploads, which generates additional transaction fees to SBS. As noted below, initial resource investments in this proposal are projecting to generate additional revenues of $472,661 in 2011 and $1.2 million in 2012, such that this proposal generates a net cost of $80,236, $660,774 and $36,495 in 2010, 2011 and 2012, respectively.

Further, SBS Team projections indicate $1.5 million in net revenues generated from this proposal over the period 2011 to 2014.

5. SERFF Premium Rate Review Data Collection and Reporting Enhancements – This proposal seeks funding for enhancements to the data collection and reporting functionality of the SERFF system, in response to requirements arising from the Patient Protection and Affordable Care Act and specifications under development by the Department of Health and Human Services. This proposal assumes all costs incurred by the NAIC will be recovered from states receiving grant money from HHS (46 states awarded grants as of September 15, 2010). The proposal is designed to have a net $0 impact on the NAIC’s 2010 projections with only timing differences in the recording of revenues and expenses in 2011 through 2013 (because of depreciation over three years on capital hardware and software acquisitions) and a net $0 impact over the life of the project and underlying capital assets.

6. NAIC Messaging Administrator – This proposal seeks an additional part-time employee to

supplement an existing part-time position in the Technical Services Division. This additional employee will support the growing demands of NAIC messaging systems and communications at an incremental cost of $29,460 in 2011.

7. Impact Study of VM-20 Principal-Based Approach to Valuations – This proposal was sponsored by

the Principles-Based Reserving (EX) Working Group and supports the study of the impact of the Life and Health Actuarial Task Force’s proposed valuation methodology within the recently NAIC-adopted Standard Valuation Law. The impact of the proposed valuation changes will be determined by comparing the reserves as calculated under the proposed principle-based valuation methodology with the reserves calculated under the current formula-based valuation methodology. This information will be valuable to insurance regulators, life insurance companies and state legislators as they contemplate adopting the modifications to the Standard Valuation Law. The Executive (EX) Committee approved the release of an RFP to conduct research on the cost of this type of study, and approved the $250,000 fiscal impact of conducting this study on September 20, 2010.

8. SBS Consumer Assistance Data Collection and Reporting Enhancements – This proposal seeks

funding to support enhancements to SBS, in order to accommodate the data collection and reporting requirements from the recent announcement from HHS regarding federal grants to states to establish, expand, or provide support for the establishment of consumer assistance or ombudsmen programs. For SBS states, enhancements to SBS will allow their consumer assistance staff to continue using one software tool to respond to all consumer inquiries and complaints. Based on limited information,

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© 2010 National Association of Insurance Commissioners

and in the absence of detailed specifications from HHS, the NAIC is currently estimating the project's cost and timeline in an effort to support SBS states. At this time, the cost is estimated at $166,500 or $18,500 for each of the impacted SBS states, which is assumed to be offset by $166,500 in implementation fees from the states for a net $0 impact to the NAIC budget over the term of this project.

Details of the above new initiatives are presented in the various “Business and Fiscal Impact Statement” tabs of this budget proposal. Structured Securities Project As approved by the NAIC Executive (EX) Committee, the NAIC will continue to report the direct and indirect revenues and costs associated with the 2009 and 2010 structured securities projects (residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS)) separate from the base 2010 projections or base 2011 budget, and consistent with the NAIC’s reporting for the RMBS project in 2009. A separate Business and Fiscal Impact Statement highlights the components of project costs within the 2010 projections and 2011 budget proposal. In summary, the NAIC estimates a $6.2 million assessment to the industry in late 2010 to cover:

(1) $6.4 million in direct expenses associated with third party consultants (including Oliver Wyman, PIMCO, BlackRock Solutions, consultants to the NAIC New York Office, temporary personnel and outside legal counsel) for the modeling of an estimated 21,000 RMBS CUSIPs and 7,500 CMBS CUSIPs in 2010.

(2) $673,608 in direct expenses associated with the acquisition of data from Bloomberg to enable the NAIC to provide members with increased information on investments held by insurers, particularly the characteristics of fixed income and structured securities.

(3) $63,600 in direct expenses associated with enhancements to the NAIC’s Automated Valuation

System for improved delivery of RMBS and CMBS modeling results to insurers.

(4) $446,848 in other direct expenses estimated for (i) a $308,350 potential allowance for uncollectible accounts and (ii) $138,498 for other overhead items and contingencies for unplanned expenses arising from this project.

(5) $409,047 in indirect NAIC staff support costs to this initiative, estimated at staff’s best

projection of hours to be spent supporting this project at each employee’s salary (based on the mid-point of their salary grade) and including an estimated employee benefit expense of an additional 32.5%.

The NAIC will carefully account for actual revenues generated and expenses incurred in support of this initiative, and anticipates any net revenue or net expense will be reported and adjusted, as appropriate, as a component of any further NAIC work in the area of RMBS, CMBS and/or other structured securities during fiscal year 2011. Other 2011 Considerations At this time, there are two projects underway, which may further impact the NAIC’s 2011 budget proposal. These projects include:

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© 2010 National Association of Insurance Commissioners

1. The NAIC continues to evaluate its options for its Central Office space in Kansas City, upon expiration of its existing lease in January 2012, and analysis is still underway to fully evaluate potential long-term savings and incentives. The NAIC anticipates very competitive financial offers from four potential office sites, which are anticipated to generate significant savings for the Association in future years. Management continues to focus on the long-term financial terms of the NAIC’s new lease, and will continue to report any impact to the 2010 projections or 2011 budget once the Executive (EX) Committee is able to consider and make decisions regarding this lease.

2. The current NAIC/NIPR License and Services Agreement is scheduled for renewal effective January

1, 2011. Negotiations of the agreement’s renewal are underway and the NAIC engaged PricewaterhouseCoopers to perform an independent valuation and analysis of existing terms. The 2011 budget presently includes no change in the financial terms within the existing agreement, and any impacts to the 2011 budget will be presented upon the successful negotiation between the NAIC and NIPR.

Conclusion NAIC management appreciates the opportunity to present this 2011 budget proposal to the NAIC membership and the general public, and believes its contents provide a comprehensive and useful review of the NAIC’s business and financial operations for the current and upcoming fiscal year. An additional summary of key components of the 2011 budget proposal is included as Appendix A. Please feel free to contact Brady Kelley, Chief Financial and Business Strategy Officer, at (816) 783-8004, or Carol Hartley, NAIC Senior Controller, at (816) 783-8038, should you have any questions or need additional information.

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A

ppendix A

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1

2011 Budget Proposal

2

• Highlights• 2011 Comparison to 2010 Budget• 2010 Projections• Revenue Increases (Decreases)• Expense Increases (Decreases)• Headcount • Business and Fiscal Impact Statements

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3

Highlights• Revenues up 1.6%, or $1.2 million over 2010 budget to $75.2

million• Drivers: Increases in Insurance Data Product Sales, SERFF,

State Based Systems, and Education and Training registrations, offset by decreases in Licenses Fees from NIPR, Publications sales, National Meeting registrations, and Investment Income

• No Database Filing Fee Schedule Increase – 2% premium growth assumption

4

Highlights• Expenses up 5.31%, or $3.8 million from 2010 budget

to $75.4 million• Salaries up $2.3 million – Lifting salary freeze and adding a 3%

average increase and the addition of 14.5 FTEs in 2010 and 2011• Employee Benefits up $248,609 – Increase in health coverage

premiums offset by a decrease in defined benefit plan expenses• Professional Services up $118,159 – Rate Review and Reporting

through SERFF, Consumer Assistance Program through SBS and royalties to NAIC business partner in SBS

• Travel up $474,148 – Increase in member travel, SBS implementations, and international activity

• Net Revenue = ($287,796)

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5

Highlights

• Projected Liquid Operating Reserve Ratio• 72.0% at 12/31/09 (Actual)

• 72.8% at 12/31/10 (After Fiscals)

• 74.2% at 12/31/11 (Before Fiscals)

• 73.3% at 12/31/11 (After Fiscals)

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Highlights• Business & Fiscal Impact Statements

2010 Proposals

• 4 Proposals – Net expense impact of $330,236 and capital funding of $182,593, with 4 new FTEs to support SBS

2011 Proposals

• 7 Proposals – Net expense impact of $700,557 and capital funding of $877,627, with 10 new FTEs to support SBS and .5 new FTE for the Technical Services Division.

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2011 Budget vs. 2010 Budget(Including 2010 and 2011 Fiscals)

Increase %2011B 2010B (Decrease) Change

Revenues:Operations 73,851,208$ 72,536,291$ 1,314,917$ 1.8%Investments 1,304,111 1,433,388 (129,277) 9.0% Subtotal 75,155,319 73,969,679 1,185,640 1.6%

Expenses:Operations 75,443,115 71,636,646 3,806,469 5.3%

Net Revenue (287,796)$ 2,333,033$ (2,620,829)$

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Revenue Increases (Decreases)(2011 Budget vs. 2010 Budget)

Increase from 2010 Budget 1,185,640$ Database Fees (Merger and Acquisition activity) (54,956) Insurance Data Product Sales 682,601 ASFSP and RBCFSP Vendor Royalties (72,665) Publications (390,524) SVO Filing Fees (32,448) SERFF Filing Fees 296,934 SERFF License Fees - Premium Rate Review Data Collection and Reporting 445,790 OPT ins Filing Fees (76,511) SBS Transaction Fees 789,533 SBS License Fees - Consumer Assistance Data Collection and Reporting 18,400 Automated Valuation Services 35,125 National Meeting Registration Fees (133,000) Education and Training Programs (SERFF Training) 182,399 Investment Income (129,277) SPLR Usage Fees from NIPR 88,031 License Fees from NIPR (528,981) Other 65,189 Increase from 2010 Budget 1,185,640$

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Expense Increases (Decreases)(2011 Budget vs. 2010 Budget)

Increase from 2010 Budget 3,806,469$ Salaries/Compensation/Taxes 2,370,345 Employee Benefits (Defined Benefit and Health Plans) 256,725 Professional and Computer Services (249,249) Accreditation Services 88,610 SBS Royalties 353,841 Staff Travel 223,000 Commissioner National Meeting Travel 131,182 Other Member Travel 33,344 International Travel 85,997 Non-Capital (Upgrade Operating System and Virtual Desktops) 69,883 National and Interim Meetings 16,831 Interim Meetings 25,065 Education and Training (Financial Summit) 131,005 Office Services (Conference calls, Supplies, Mail, Printing) 172,288 Other 97,602 Increase from 2010 Budget 3,806,469$

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2011 Budget vs. 2010 Projection(Before 2010 or 2011 Fiscals)

Increase %2011B 2010P (Decrease) Change

Revenues:Operations 73,851,208$ 71,614,188$ 2,237,020$ 3.1%Investments 1,304,111 1,258,795 45,316 -3.6% Subtotal 75,155,319 72,872,983 2,282,336 3.1%

Expenses:Operations 75,443,115 70,442,726 5,000,389 7.1%

Net Revenue (287,796)$ 2,430,257$ (2,718,053)$

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Revenue Increases (Decreases)(2011 Budget vs. 2010 Projected)

Increase from 2010 Projected 2,282,336$ Database Fees (Based on Assumed 2% Industry Premium Growth) 222,637 Publications 115,158 Insurance Data Product Sales 462,390 ASFSP and RBCFSP Vendor Royalties (64,525) SVO Filing Fees (131,950) SBS Transaction Fees 1,058,380 SERFF Filing Fees 445,790 National Meeting Registration Fees (29,700) Investment Income 45,316 Education and Training Program Revenues 64,861 SPLR Usage Fees from NIPR 59,210 License Fees from NIPR (60,702) Other 95,471 Increase from 2010 Projected 2,282,336$

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Expense Increases (Decreases)(2011 Budget vs. 2010 Projected)

Increase from 2010 Projected 5,000,389$ Salaries/Development/Taxes 2,989,122 Employee Benefits (Defined Benefit and Health Plans) 801,489 Professional Service and Computer Services (285,575) SBS Royalties 404,782 Staff Travel 210,073 Commissioner Travel 58,145 Other Member Travel 68,037 International Travel (46,641) Equipment and Maintenance 263,745 Depreciation/Amortization on Capital Assets 21,340 Printing (Obsolete Inventory) 57,789 Non-Capital (Upgrade Operating System and Virtual Desktops) 92,739 National and Interim Meetings 64,832 Education and Training (Financial Summit) 134,354 Other Expense (Bad Debt Expense) 45,448 Other 120,710 Increase from 2010 Projected 5,000,389$

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2011 Revenue Composition(millions)

Revenue % Amounts Comp.

Database Filing Fees 25.7$ 34.2%Publications/InsData 18.7 24.9%Services (SERFF, OPTins, SBS, SVO, IID) 17.5 23.3%Administrative Services/License Fees 7.1 9.4%State Assessments 2.2 2.9%National Meetings 1.5 2.0%Investment Income 1.3 1.7%Education & Training/Other 1.2 1.6%

75.2$ 100.00%

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2011 Expense Composition(millions) Expense %

Amounts Comp.

Salaries, Taxes and Benefits 48.1$ 63.8%Lease and Office Equipment 8.2 10.9%Professional Services 6.0 8.0%Depreciation and Amortization 3.5 4.6%Administrative and Operational 3.2 4.3%Travel 3.5 4.6%National Meetings 1.2 1.6%Zone/Grant Funds 1.0 1.3%Education & Training 0.7 0.9%

75.4$ 100.0%

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Prior Year Margin Comparisons(Before 2010 or 2011 Fiscals)

Year Revenues Expenses Total Margin Operating Margin

2011 75,155,319 75,443,115 (287,796) (1,591,907) 2010 73,969,679 71,636,646 2,333,033 899,645 2009 73,144,396 71,565,501 1,578,895 (474,653) 2008 68,310,077 66,496,601 1,813,476 (207,906) 2007 64,999,252 64,794,735 204,517 (1,242,509) 2006 59,339,190 59,045,281 293,909 (726,041) 2005 59,231,565 56,315,622 2,915,943 2,123,225

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Department Headcount(Authorized FTEs = 449)

• Information • Technology

• 99

• Financial Regulatory • Services

• 50

• Corporate • (Legal, HR, Finance, • Member Services)

• 73.5

• Financial Data • Repository

• 31

• Insurance Products • and Services

• 29

• Securities Valuation • Office• 46

• SERFF • 20

• Government Relations• 16

• State Based Systems• 25

• Research• 14

• Education and • Training

• 10

Information Technology

97.5

Financial RegulatoryServices

43

Corporate(Legal, HR, Finance,Member Services)

71.5

Financial DataRepository

31

Insurance Productsand Services

28.5

Securities Valuation Office46.5

SERFF20

Executive Office(Including CIPR)

24

State Based Systems45

Research16

Education and Training

12.5

Market Regulation13.5

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17

FTE Additions (2010–2011)

The additional headcount above only reflects part of the picture regarding the use of NAIC human resources. NAIC management employs an on-going assessment process of staffing needs and will reallocate vacated positions to help ensure adequate and quality support for NAIC priorities and its mission.

Proposed Proposed

Producer Market GovernmentYear Total IAIS SBS SERFF System Regulation SVO IT Relations

2011 10.5 10 0.5

2010 5 4 1

18

Fiscal Impact Statements

2010 2011

Proposed Fiscal Impact Statements Net Impact Net Impact

1 Records Management (83,953)$

2 Application Development and Testing Environments Expansion (53,944)

3 SBS Maintenance and Staffing Strategy 23,571

4 SBS Growth Strategy (80,236)$ (660,774)

5 SERFF Premium Rate Review Data Collection and Reporting Enhancements 104,003

6 NAIC Staffing: Messaging Administrator (29,460)

7 Impact Study of VM-20 Principal-Based Approach to Valuations (250,000)

8 SBS Consumer Assistance Data Collection and Reporting Enhancements

Net Impact (330,236)$ (700,557)$

Structured Securities Project (313,404)$ (248,314)$

See the "Structured Securities Project" proposal within this budget for details.

17

Page 28: NAIC 2011 Budget

1818

Page 29: NAIC 2011 Budget

Revenue and

Expense Sum

maries

Page 30: NAIC 2011 Budget
Page 31: NAIC 2011 Budget

Incr

ease

Incr

ease

2010

(Dec

reas

e)(D

ecre

ase)

2009

12/3

1/20

1020

10P

roje

cted

2011

from

201

0fro

m 2

010

Des

crip

tion

Act

ual

Pro

ject

edB

udge

tV

aria

nce

Bud

get

Bud

get

%P

roje

cted

%

Ope

ratio

nal R

even

ues

69,4

24,5

06$

71,2

92,8

83$

72,2

14,9

86$

(922

,103

)$

72,5

92,9

52$

37

7,96

6$

0.

52%

1,30

0,06

9$

1.82

%O

pera

tiona

l Exp

ense

s69

,614

,825

69

,791

,185

70

,985

,105

(1

,193

,920

)

73

,484

,302

2,49

9,19

7

3.52

%3,

693,

117

5.

29%

Ope

ratio

nal R

even

ues

Ove

r/(U

nder

) Exp

ense

s(1

90,3

19)

1,50

1,69

8

1,

229,

881

271,

817

(891

,350

)

(2,1

21,2

31)

(2,3

93,0

48)

Inve

stm

ent R

even

u e6,

869,

302

1,25

8,79

5

1,

433,

388

(174

,593

)

1,30

4,11

1

(1

29,2

77)

(9

.02%

)45

,316

3.60

%

Tota

l Rev

enue

s B

efor

e B

usin

ess

and

Fisc

al Im

pact

Sta

tem

ents

76,2

93,8

08

72,5

51,6

78

73,6

48,3

74

(1,0

96,6

96)

73,8

97,0

63

24

8,68

9

0.

34%

1,34

5,38

5

1.85

%To

tal E

xpen

ses

Bef

ore

Bus

ines

s an

d Fi

scal

Impa

ct S

tate

men

t s69

,614

,825

69

,791

,185

70

,985

,105

(1

,193

,920

)

73

,484

,302

2,49

9,19

7

3.52

%3,

693,

117

5.

29%

Tota

l Rev

enue

s O

ver/(

Und

er) E

xpen

ses

Bef

ore

Bus

ines

s an

d Fi

scal

Impa

ct

Stat

emen

ts a

nd S

truc

ture

d Se

curit

ies

Proj

ect

6,67

8,98

3

2,

760,

493

2,66

3,26

9

97

,224

412,

761

(2

,250

,508

)

(2

,347

,732

)

Bus

ines

s an

d Fi

scal

Impa

ct S

tate

men

t Rev

enue

s (1

)32

1,30

532

1,30

51,

258,

256

Bus

ines

s an

d Fi

scal

Impa

ct S

tate

men

t Exp

ense

s (1

)65

1,54

1

651,

541

1,

958,

813

Bus

ines

s an

d Fi

scal

Impa

ct S

tate

men

t Rev

enue

s O

ver/(

Und

er) E

xpen

ses

(330

,236

)

(3

30,2

36)

(700

,557

)

Tota

l Pro

pose

d R

even

ues

Afte

r Bus

ines

s an

d Fi

scal

Impa

ct S

tate

men

ts76

,293

,808

72

,872

,983

73

,969

,679

(1

,096

,696

)

75

,155

,319

1,18

5,64

0

1.60

%2,

282,

336

3.

13%

Tota

l Pro

pose

d E

xpen

ses

Afte

r Bus

ines

s an

d Fi

scal

Impa

ct S

tate

men

t s69

,614

,825

70

,442

,726

71

,636

,646

(1

,193

,920

)

75

,443

,115

3,80

6,46

9

5.31

%5,

000,

389

7.

10%

Tota

l Rev

enue

s O

ver/(

Und

er) E

xpen

ses

Bef

ore

Stru

ctur

ed S

ecur

ities

Pro

ject

6,67

8,98

3

2,

430,

257

2,33

3,03

3

97

,224

(287

,796

)

(2,6

20,8

29)

(2,7

18,0

53)

Ope

ratin

g E

xpen

se R

educ

tion

- NA

IC S

taff

Sup

port

of th

e S

truct

ured

Sec

uriti

es P

roje

ct29

8,49

8

374,

047

37

4,04

7

35

,000

35,0

00

(3

39,0

47)

Rev

enue

s O

ver/(

Und

er) E

xpen

ses

Afte

r Stru

ctur

ed S

ecur

ities

Pro

ject

Allo

catio

n6,

977,

481

2,80

4,30

4

2,

333,

033

471,

271

(252

,796

)

(2,5

85,8

29)

(3,0

57,1

00)

Dire

ct S

truct

ured

Sec

uriti

es P

roje

ct R

even

ue (1

)4,

837,

891

7,00

1,10

0

7,

001,

100

(7

,001

,100

)

D

irect

Stru

ctur

ed S

ecur

ities

Pro

ject

Exp

ense

(1)

2,58

3,45

4

7,

314,

504

7,31

4,50

4

248,

314

24

8,31

4

(7

,066

,190

)

Dire

ct S

truct

ured

Sec

uriti

es P

roje

ct R

even

ues

Ove

r/(U

nder

) Exp

ense

s2,

254,

437

(313

,404

)

(3

13,4

04)

(2

48,3

14)

(2

48,3

14)

65

,090

Indi

rect

Stru

ctur

ed S

ecur

ities

Pro

ject

Exp

ense

s (N

AIC

Sta

ff S

uppo

rt)(2

98,4

98)

(374

,047

)

(3

74,0

47)

(3

5,00

0)

(3

5,00

0)

33

9,04

7

Tota

l Str

uctu

red

Secu

ritie

s Pr

ojec

t1,

955,

939

(687

,451

)

(6

87,4

51)

(2

83,3

14)

(2

83,3

14)

40

4,13

7

Tota

l Pro

pose

d R

even

ues

Ove

r/(U

nder

) Exp

ense

s A

fter B

usin

ess

and

Fisc

al

Impa

ct S

tate

men

ts a

nd S

truc

ture

d Se

curit

ies

Proj

ect

8,93

3,42

0$

2,

116,

853

$

2,33

3,03

3$

(2

16,1

80)

$

(5

36,1

10)

$

(2

,869

,143

)$

(2

,652

,963

)$

(1) S

ee th

e "S

truct

ured

Sec

uriti

es P

roje

ct" p

ropo

sal w

ithin

this

bud

get f

or d

etai

ls.

NA

TIO

NA

L A

SSO

CIA

TIO

N O

F IN

SUR

AN

CE

CO

MM

ISSI

ON

ERS

2010

2011

PRO

POSE

D 2

011

BU

DG

ETR

EVEN

UE

AN

D E

XPEN

SE S

UM

MA

RY

19

Page 32: NAIC 2011 Budget

20

Page 33: NAIC 2011 Budget

Incr

ease

Incr

ease

2010

(Dec

reas

e)(D

ecre

ase)

2009

6/30

/201

012

/31/

2010

2010

Pro

ject

ed20

11fro

m 2

010

from

201

0D

escr

iptio

nR

efer

ence

Act

ual

Act

ual

Pro

ject

edB

udge

tV

aria

nce

Bud

get

Bud

get

%P

roje

cted

%

Mem

ber A

sses

smen

tsR

12,

113,

949

$

1,07

3,28

8$

2,

162,

611

$

2,16

2,61

1$

2,

210,

160

$

47,5

49$

2.

20%

47,5

49$

2.

20%

Dat

abas

e Fe

esR

225

,539

,949

25

,512

,362

25

,512

,362

25

,789

,955

(2

77,5

93)

$

25

,734

,999

(54,

956)

(0.2

1%)

222,

637

0.87

%P

ublic

atio

ns a

nd In

sura

nce

Dat

a P

rodu

cts

R3

17,2

49,4

70

6,86

8,69

0

18

,154

,175

18

,408

,194

(2

54,0

19)

18

,662

,731

254,

537

1.38

%50

8,55

6

2.

80%

Ser

vice

sR

414

,476

,894

7,

879,

123

16,0

88,7

72

16,0

60,9

64

27,8

08

17

,519

,662

1,45

8,69

8

9.

08%

1,43

0,89

0

8.

89%

Nat

iona

l Mee

ting

Reg

istra

tion

Fee s

R5

1,81

4,07

5

478,

300

1,55

2,60

0

1,65

5,90

0

(103

,300

)

1,52

2,90

0

(1

33,0

00)

(8.0

3%)

(29,

700)

(1

.91%

)In

vest

men

t Inc

ome

R6

6,86

9,30

2

55

9,60

9

1,25

8,79

5

1,

433,

388

(174

,593

)

1,30

4,11

1

(1

29,2

77)

(9

.02%

)45

,316

3.60

%E

duca

tion

and

Trai

ning

R7

1,00

7,01

0

56

4,27

2

1,06

0,18

2

94

2,64

4

117,

538

1,12

5,04

3

18

2,39

9

19

.35%

64,8

61

6.

12%

Adm

inis

trativ

e S

ervi

ces

R8

7,18

1,74

8

3,

573,

959

7,05

3,20

5

7,

492,

663

(439

,458

)

7,05

1,71

3

(4

40,9

50)

(5

.89%

)(1

,492

)

(0.0

2%)

Oth

er In

com

eR

941

,411

18,3

29

30

,281

23,3

60

6,

921

24

,000

640

2.74

%(6

,281

)

(20.

74%

)

Tot

al R

even

ues

76,2

93,8

08

46,5

27,9

32

72,8

72,9

83

73,9

69,6

79

(1,0

96,6

96)

75,1

55,3

19

1,

185,

640

1.60

%2,

282,

336

3.13

%

Sal

arie

sE

132

,702

,517

16

,675

,080

33

,989

,718

34

,531

,519

(5

41,8

01)

36

,795

,179

2,26

3,66

0

6.

56%

2,80

5,46

1

8.

25%

Tem

pora

ry P

erso

nnel

E2

499,

301

13

7,75

6

369,

565

46

4,34

7

(94,

782)

399,

714

(6

4,63

3)

(1

3.92

%)

30,1

49

8.

16%

Pay

roll

Taxe

sE

32,

390,

723

1,40

0,52

2

2,

519,

943

2,48

3,04

1

36

,902

2,59

8,91

8

11

5,87

7

4.

67%

78,9

75

3.

13%

Em

ploy

ee B

enef

its

E4

6,73

2,10

8

3,

201,

300

6,74

8,33

9

7,

301,

219

(552

,880

)

7,54

9,82

8

24

8,60

9

3.

41%

801,

489

11.8

8%E

mpl

oyee

Dev

elop

men

tE

544

3,73

1

413,

147

58

5,53

0

618,

289

(3

2,75

9)

69

0,21

6

71,9

27

11

.63%

104,

686

17.8

8%P

rofe

ssio

nal S

ervi

ces

E6

4,34

1,79

8

1,

631,

166

4,15

0,90

9

4,

176,

356

(25,

447)

4,29

4,51

5

11

8,15

9

2.

83%

143,

606

3.46

%C

ompu

ter S

ervi

ces

E7

1,58

4,41

5

83

5,96

4

1,77

2,36

4

1,

672,

922

99,4

42

1,

747,

965

75,0

43

4.

49%

(24,

399)

(1.3

8%)

Trav

elE

82,

870,

491

1,36

8,68

1

3,

192,

564

3,03

3,49

7

15

9,06

7

3,

507,

645

474,

148

15.6

3%31

5,08

1

9.

87%

Occ

upan

cyE

95,

353,

504

2,67

8,27

0

5,

500,

438

5,45

8,85

1

41

,587

5,49

4,63

1

35

,780

0.66

%(5

,807

)

(0.1

1%)

Equ

ipm

ent R

enta

l and

Mai

nten

ance

E10

2,57

7,54

6

1,

221,

675

2,47

5,68

4

2,

680,

164

(204

,480

)

2,73

9,42

9

59

,265

2.21

%26

3,74

5

10

.65%

Dep

reci

atio

n an

d A

mor

tizat

ion

E11

4,67

7,74

1

1,

942,

581

3,50

1,15

6

3,

511,

836

(10,

680)

3,52

2,49

6

10

,660

0.30

%21

,340

0.61

%In

sura

nce

E12

421,

096

20

4,29

5

391,

880

43

6,56

8

(44,

688)

429,

492

(7

,076

)

(1.6

2%)

37,6

12

9.

60%

Tele

phon

eE

1343

1,20

0

210,

251

43

9,29

8

357,

685

81

,613

445,

413

87

,728

24.5

3%6,

115

1.

39%

Sup

plie

sE

1450

5,54

1

206,

785

48

2,58

0

480,

141

2,

439

57

9,60

8

99,4

67

20

.72%

97,0

28

20

.11%

Mai

l Ser

vice

sE

1528

8,74

3

130,

651

26

1,07

2

254,

159

6,

913

26

9,62

2

15,4

63

6.

08%

8,55

0

3.27

%R

efer

ence

Mat

eria

lsE

1654

7,02

6

285,

553

56

9,45

2

550,

634

18

,818

563,

401

12

,767

2.32

%(6

,051

)

(1.0

6%)

Prin

ting

and

Pro

duct

ion

E17

150,

585

84

,717

145,

762

17

6,75

5

(30,

993)

203,

551

26

,796

15.1

6%57

,789

39.6

5%N

atio

nal a

nd In

terim

Mee

tings

E18

1,52

4,22

8

42

2,87

0

1,15

5,92

9

1,

178,

865

(22,

936)

1,22

0,76

1

41

,896

3.55

%64

,832

5.61

%E

duca

tion

and

Trai

ning

E19

347,

784

32

5,24

6

441,

160

44

4,50

9

(3,3

49)

57

5,51

4

131,

005

29.4

7%13

4,35

4

30

.45%

Sta

te a

nd G

ener

al T

rain

ing

E20

1,10

1,25

3

38

0,59

4

1,15

4,39

3

1,

172,

746

(18,

353)

1,14

4,96

9

(2

7,77

7)

(2

.37%

)(9

,424

)

(0.8

2%)

Oth

er E

xpen

ses

E21

123,

494

51

,764

594,

990

65

2,54

3

(57,

553)

670,

248

17

,705

2.71

%75

,258

12.6

5%

Tota

l Ope

ratin

g E

xpen

ses

69,6

14,8

25

33,8

08,8

68

70,4

42,7

26

71,6

36,6

46

(1,1

93,9

20)

75,4

43,1

15

3,

806,

469

5.31

%5,

000,

389

7.10

%

Rev

enue

s O

ver/(

Und

er) E

xpen

ses

Bef

ore

Stru

ctur

ed S

ecur

ities

Pro

ject

6,67

8,98

3

12

,719

,064

2,

430,

257

2,33

3,03

3

97

,224

(287

,796

)

(2,6

20,8

29)

(2,7

18,0

53)

Ope

ratin

g E

xpen

se R

educ

tion-

NA

IC S

taff

Sup

port

of th

e S

truct

ured

Sec

uriti

es P

roje

ct29

8,49

8

374,

047

37

4,04

7

35

,000

35,0

00

(3

39,0

47)

Rev

enue

s O

ver/(

Und

er) E

xpen

ses

Afte

r Stru

ctur

ed S

ecur

ities

Pro

ject

Allo

catio

n6,

977,

481

12,7

19,0

64

2,80

4,30

4

2,

333,

033

471,

271

(252

,796

)

(2,5

85,8

29)

(3,0

57,1

00)

Dire

ct S

truct

ured

Sec

uriti

es P

roje

ct R

even

ue (1

)4,

837,

891

794,

000

7,

001,

100

7,00

1,10

0

(7

,001

,100

)

D

irect

Stru

ctur

ed S

ecur

ities

Pro

ject

Exp

ense

s (1

)2,

583,

454

878,

309

7,

314,

504

7,31

4,50

4

24

8,31

4

248,

314

(7,0

66,1

90)

Dire

ct S

truct

ured

Sec

uriti

es P

roje

ct R

even

ues

Ove

r/(U

nder

) Exp

ense

s2,

254,

437

(84,

309)

(3

13,4

04)

(313

,404

)

(248

,314

)

(248

,314

)

65,0

90

Indi

rect

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POSE

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ET

21

Page 34: NAIC 2011 Budget

22

Page 35: NAIC 2011 Budget

Tec

hnol

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ein.

23

Page 36: NAIC 2011 Budget

24

Page 37: NAIC 2011 Budget

D

etail Revenues

Page 38: NAIC 2011 Budget
Page 39: NAIC 2011 Budget

2009

6/30

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12/3

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2010

2011

Incr

ease

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crip

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11

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25

Page 40: NAIC 2011 Budget

26

Page 41: NAIC 2011 Budget

Percent $7,725 Minimum $7,725 Minimum $7,725 MinimumMember Total Premiums To Total Assessment 2011/12 Amount 2010/11 Amount 2009/10 Amount

Alabama 19,095,566,870$ 1.237% 26,956$ 26,956$ 26,097$ 25,831$ Alaska 3,160,089,098 0.205% 4,462 7,725 7,725 7,725 Arizona 24,981,918,472 1.619% 35,266 35,266 35,179 35,211 Arkansas 10,109,831,141 0.655% 14,272 14,272 13,629 13,271 California 121,196,173,956 7.853% 171,089 171,089 172,352 175,313 Colorado 25,577,366,198 1.657% 36,107 36,107 37,346 36,522 Connecticut 34,333,607,099 2.225% 48,468 48,468 43,201 45,386 Delaware 32,838,657,675 2.128% 46,357 46,357 50,387 35,359 District of Columbia 8,882,114,322 0.576% 12,538 12,538 12,306 11,432 Florida 102,571,367,427 6.646% 144,797 144,797 143,669 147,993 Georgia 38,768,144,835 2.512% 54,728 54,728 53,834 52,893 Hawaii 8,388,908,692 0.544% 11,843 11,843 10,870 11,182 Idaho 6,334,508,715 0.410% 8,941 8,941 8,175 8,059 Illinois 60,489,942,205 3.920% 85,392 85,392 82,886 81,814 Indiana 26,456,103,377 1.714% 37,346 37,346 37,572 38,245 Iowa 16,678,473,572 1.081% 23,545 23,545 33,113 31,291 Kansas 15,951,336,689 1.034% 22,518 22,518 22,219 27,926 Kentucky 16,553,842,120 1.073% 23,368 23,368 22,358 21,879 Louisiana 21,861,159,839 1.417% 30,861 30,861 29,783 29,110 Maine 6,003,531,759 0.389% 8,475 8,475 8,134 7,725 Maryland 28,041,053,064 1.817% 39,584 39,584 38,152 41,330 Massachusetts 41,774,320,546 2.707% 58,972 58,972 62,216 57,716 Michigan 51,795,404,034 3.356% 73,118 73,118 70,157 69,564 Minnesota 31,171,403,993 2.020% 44,004 44,004 39,975 40,117 Mississippi 10,080,044,404 0.653% 14,229 14,229 13,586 13,236 Missouri 29,246,472,045 1.895% 41,288 41,288 39,443 37,681 Montana 3,924,697,628 0.254% 5,540 7,725 7,725 7,725 Nebraska 9,741,909,326 0.631% 13,752 13,752 13,171 12,890 Nevada 10,983,796,872 0.712% 15,505 15,505 15,525 15,647 New Hampshire 8,183,515,674 0.530% 11,553 11,553 11,239 9,276 New Jersey 56,208,010,593 3.642% 79,346 79,346 79,618 80,370 New Mexico 9,464,770,174 0.613% 13,362 13,362 11,622 10,745 New York 150,944,378,370 9.781% 213,085 213,085 207,630 187,608 North Carolina 39,968,064,554 2.590% 56,423 56,423 50,837 50,554 North Dakota 4,048,112,312 0.262% 5,715 7,725 7,725 7,725 Ohio 55,282,872,698 3.582% 78,041 78,041 74,780 73,407 Oklahoma 14,337,118,322 0.929% 20,240 20,240 19,420 18,427 Oregon 19,025,400,697 1.233% 26,858 26,858 26,485 25,325 Pennsylvania 81,475,284,391 5.279% 115,017 115,017 111,007 105,424 Rhode Island 6,763,734,535 0.438% 9,549 9,549 9,119 10,635 South Carolina 18,491,021,032 1.198% 26,102 26,102 24,582 23,323 South Dakota 4,309,180,622 0.279% 6,083 7,725 7,725 7,725 Tennessee 26,703,963,264 1.730% 37,697 37,697 35,642 34,922 Texas 99,584,682,957 6.453% 140,582 140,582 135,153 131,365 Utah 10,865,028,380 0.704% 15,338 15,338 14,794 14,380 Vermont 2,927,954,722 0.190% 4,133 7,725 7,725 7,725 Virginia 35,576,884,363 2.305% 50,222 50,222 49,147 49,108 Washington 30,401,094,527 1.970% 42,917 42,917 41,275 40,286 West Virginia 7,769,773,696 0.503% 10,967 10,967 10,359 10,052 Wisconsin 31,244,958,839 2.025% 44,107 44,107 40,815 40,845 Wyoming 2,200,267,432 0.143% 3,107 7,725 7,725 7,725 American Samoa 4,393,685 0.000% 7 7,725 7,725 7,725 Guam 310,663,392 0.020% 438 7,725 7,725 7,725 Puerto Rico 9,878,587,174 0.640% 13,946 13,946 12,538 12,614 U.S. Virgin Islands 326,127,104 0.021% 460 7,725 7,725 7,725 Northern Mariana Islands 21,000,127 0.001% 31 7,725 7,725 7,725

Total Member Assessment 1,543,308,589,609$ 100.00% 2,178,647$ 2,225,921$ 2,178,647$ 2,130,539$

Four months of the May 2010-April 2011 assessment 726,213$ Eight months of the May 2011-April 2012 assessment 1,483,947

Total calendar year 2011 assessment 2,210,160$

NAIC Member Assessments Exhibit R1-One

27

Page 42: NAIC 2011 Budget

28

Page 43: NAIC 2011 Budget

*All

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29

Page 44: NAIC 2011 Budget

30

Page 45: NAIC 2011 Budget

2009

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even

ues.

BU

DG

ET

ITE

M:

Dat

abas

e F

ees

Item

Des

crip

tion:

Fee

sfr

omal

lins

uran

ceco

mpa

nies

filin

gw

ithth

eN

AIC

’sF

inan

cial

Dat

aR

epos

itory

(FD

R).

Fee

sar

eba

sed

onea

chfil

er’s

prem

ium

volu

me,

whi

chis

mea

sure

das

the

grea

ter

of d

irect

writ

ten

prem

ium

or

rein

sura

nce

assu

med

from

non

-affi

liate

s.

31

Page 46: NAIC 2011 Budget

32

Page 47: NAIC 2011 Budget

Exhibit R2-One

NAIC Database Filing Fee StructureFor 2010 Data Year Filings Submitted in March 2011

Premium Base Levels: 2011 Fee

-$ to 100,000$ 247$ 100,001$ to 1,000,000$ 484$

1,000,001$ to 2,500,000$ 722$ 2,500,001$ to 7,500,000$ 1,444$ 7,500,001$ to 25,000,000$ 2,403$

25,000,001$ to 100,000,000$ 3,600$ 100,000,001$ to 200,000,000$ 5,035$ 200,000,001$ to 300,000,000$ 6,289$ 300,000,001$ to 400,000,000$ 7,723$ 400,000,001$ to 500,000,000$ 9,167$ 500,000,001$ to 600,000,000$ 11,039$ 600,000,001$ to 700,000,000$ 12,958$ 700,000,001$ to 800,000,000$ 14,877$ 800,000,001$ to 900,000,000$ 17,271$ 900,000,001$ to 1,000,000,000$ 19,674$

1,000,000,001$ to 1,100,000,000$ 22,068$ 1,100,000,001$ to 1,200,000,000$ 24,472$ 1,200,000,001$ to 1,300,000,000$ 26,866$ 1,300,000,001$ to 1,400,000,000$ 29,269$ 1,400,000,001$ to 1,500,000,000$ 31,663$ 1,500,000,001$ to 1,600,000,000$ 34,067$ 1,600,000,001$ to 1,700,000,000$ 36,461$ 1,700,000,001$ to 1,800,000,000$ 39,339$ 1,800,000,001$ to 1,900,000,000$ 42,218$ 1,900,000,001$ to 2,000,000,000$ 45,096$ 2,000,000,001$ to 2,100,000,000$ 47,975$ 2,100,000,001$ to 2,200,000,000$ 50,853$ 2,200,000,001$ to 2,300,000,000$ 53,732$ 2,300,000,001$ to 2,400,000,000$ 56,610$ 2,400,000,001$ to 2,500,000,000$ 59,489$ 2,500,000,001$ to 2,600,000,000$ 62,367$ 2,600,000,001$ to 2,700,000,000$ 65,246$ 2,700,000,001$ or greater 69,428$

Combined Filing Fee 685$ Individual Filing Fee Cap 69,428$ Group Filing Fee Cap 208,284$

33

Page 48: NAIC 2011 Budget

34

Page 49: NAIC 2011 Budget

*All

Oth

er R

even

ue in

clud

es m

embe

r ass

essm

ents

, pub

licat

ions

and

subs

crip

tions

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vice

s, na

tiona

l mee

ting

regi

stra

tion

fees

, inv

estm

ent i

ncom

e, e

duca

tion

prog

ram

s and

ot

her i

ncom

e.

Dat

abas

e F

ees

as a

Per

cen

tag

e o

f N

AIC

Rev

enu

e

35.3

7%40

.76%

33.4

8%34

.87%

34.2

4%

64.6

3%

59.2

4%

66.5

2%

65.1

3%65

.76%

$5,0

00,0

00

$10,

000,

000

$15,

000,

000

$20,

000,

000

$25,

000,

000

$30,

000,

000

$35,

000,

000

$40,

000,

000

$45,

000,

000

$50,

000,

000

$55,

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000

Exhibit R2-Two

Dat

abas

e F

ees

All

Oth

er R

even

ue

2010

Bu

dg

et

2011

Bu

dg

et20

0720

0820

09

35

Page 50: NAIC 2011 Budget

36

Page 51: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

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e

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licat

ions

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027

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4,80

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312,

983

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4,92

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5%)

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ranc

e D

ata

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duct

s (2

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643,

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9,

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10

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ated

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uatio

n S

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ce (

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598,

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al17

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18

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,175

$

18

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18

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,731

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254,

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(1)

(2)

(3)

BU

DG

ET

ITE

M:

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licat

ions

and

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ranc

e D

ata

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duct

s

R3:

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licat

ions

and

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ranc

e D

ata

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duct

s

Pub

licat

ions

reve

nue

isge

nera

ted

from

the

sale

ofha

rdco

py,

elec

tron

icdo

wnl

oada

ble

and

CD

publ

icat

ions

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fere

nce

mat

eria

ls,

and

roya

lties

from

the

sale

ofth

ese

prod

ucts

byth

irdpa

rty

vend

ors.

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NA

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oduc

es14

8pu

blic

atio

ns,

whi

char

ede

sign

edto

(1)

prov

ide

stat

ein

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nce

regu

lato

rsw

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ndbo

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istic

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ctic

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ide

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ts.

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ceea

rly20

09,

sale

sha

vede

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sed

slig

htly

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rtic

ular

lyin

the

NA

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high

est

selli

ngpr

oduc

ts,

whi

chth

eN

AIC

attr

ibut

esto

cost

-sav

ing

mea

sure

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ong

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stom

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sean

dw

hich

isdr

ivin

gth

esa

les

budg

etde

ficit

in20

10.

The

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ranc

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rodu

cts

and

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vice

sD

ivis

ion

has

impl

emen

ted

sale

sca

mpa

igns

,in

clud

ing

mor

eta

rget

edm

arke

ting,

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cus

tom

ers,

dis

coun

ted

pric

ing,

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., in

an

effo

rt to

gen

erat

e ad

ditio

nal s

ales

. The

201

1 bu

dget

ass

umes

sal

es v

olum

es w

ill b

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ore

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iste

nt w

ith 2

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proj

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d le

vels

.

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nce

data

prod

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orth

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mad

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issi

ons

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arte

rlyan

d an

nual

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gs to

the

NA

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ct r

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rch,

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ench

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k sp

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and

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ance

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ario

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ry a

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mon

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her

thin

gs.

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crip

tion:

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enue

sge

nera

ted

from

the

sale

ofva

rious

refe

renc

em

ater

ials

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ndbo

oks,

subs

crip

tions

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form

atio

nst

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inth

eN

AIC

'sfin

anci

alda

taba

se,

and

secu

rity

desi

gnat

ions

ass

igne

d by

the

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uriti

es V

alua

tion

Offi

ce (

SV

O).

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omat

edV

alua

tion

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vice

(AV

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eN

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ectr

onic

syst

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rity

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gnat

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ffice

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stem

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com

pani

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hen

prep

arin

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eir

Sch

edul

eD

filin

gs.

2011

reve

nues

are

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iste

ntw

ith20

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ojec

tions

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hich

are

slig

htly

high

erth

anth

e20

10bu

dget

resu

lting

from

grow

th in

the

num

ber

of c

ompa

nies

leve

ragi

ng A

VS

dur

ing

2010

.

InJu

ly20

09,

the

NA

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plem

ente

dA

ccou

ntM

anag

er,

anon

line

publ

icat

ion

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tern

ativ

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ovid

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with

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ant

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s to

NA

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ns, (

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ffer

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(3)

redu

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agem

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Rev

enue

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nera

ted

from

the

sale

ofin

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nce

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ucts

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eted

at$7

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ude

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ract

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ithth

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ket,

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som

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ribut

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rate

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ness

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duct

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nific

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ines

s pa

rtne

rs.

37

Page 52: NAIC 2011 Budget

38

Page 53: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

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591,

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17

,000

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al14

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with

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quire

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ent

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enue

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ral”

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heW

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ngG

roup

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end

appr

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oved

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2010

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the

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men

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2003

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inth

ere

eval

uatio

n of

the

NA

IC fe

e as

sess

men

t to

the

indu

stry

in 2

011.

The

dec

reas

e in

bud

get f

or 2

011

is th

e re

sult

of a

dec

line

in t

he n

umbe

r of

cor

pora

te in

itial

filin

gs a

nd a

nnua

l upd

ates

.

BU

DG

ET

ITE

M:

Ser

vice

s

39

Page 54: NAIC 2011 Budget

(2) (3

)

(4)

(5)

SE

RF

F fi

ling

volu

mes

con

tinue

to g

row

as

a re

sult

of s

tate

impl

emen

tatio

ns o

f the

Uni

form

Pro

duct

Cod

ing

Mat

rices

and

con

tinue

d g

row

th in

the

use

of S

ER

FF

by

a gr

owin

g nu

mbe

r of

st

ates

and

com

pani

es.

The

sefa

ctor

sco

ntrib

ute

toth

e$2

54,4

88po

sitiv

eva

rianc

ein

2010

proj

ecte

dre

venu

esan

dth

e$2

96,9

34in

crea

sein

2011

budg

eted

reve

nues

.P

roje

cted

2010

filin

g vo

lum

es o

f 538

,458

are

ant

icip

ated

to in

crea

se to

569

,187

filin

gs in

201

1 at

an

aver

age

pric

e of

$7.

52.

Als

oin

clud

edin

the

SE

RF

Fre

venu

elin

eis

a$2

5,00

0an

nual

licen

sefe

efr

omth

eIn

ters

tate

Insu

ranc

eP

rodu

ctR

egul

ator

yC

omm

issi

on(I

IPR

C).

Und

erth

isse

rvic

esag

reem

ent,

the

IIPR

Cis

gran

ted

250

SE

RF

Fde

velo

pmen

tho

urs

tom

ake

mod

ifica

tions

toS

ER

FF

inor

der

toac

com

mod

ate

IIPR

Cfil

ings

and

the

over

all

expa

nsio

n/en

hanc

emen

tsof

IIPR

Cpr

oduc

tfil

ing

oper

atio

ns.

R4b

: S

ervi

ces

BU

DG

ET

ITE

M:

Ser

vice

s (c

ontin

ued

from

R4a

)

The

NA

IC's

onlin

epr

emiu

mta

xsu

bmis

sion

and

paym

ent

syst

em(O

PT

ins

)is

antic

ipat

edto

gene

rate

$72,

508

inre

venu

ein

2011

,re

pres

entin

ga

$25,

524

incr

ease

over

2010

proj

ecte

dre

venu

e.O

PT

ins

was

rele

ased

inJu

ne20

08to

auto

mat

ean

dsi

mpl

ifypr

emiu

mta

xre

turn

subm

issi

ons

byfil

ing

com

pani

esan

dth

ere

ceip

tof

filin

gsan

dco

llect

ion

ofpr

emiu

mta

xes

byst

ates

,in

exch

ange

for

a$1

0tr

ansa

ctio

nfe

e.T

he20

11bu

dget

antic

ipat

esgr

owth

infil

ings

thro

ugh

OP

Tin

sas

mod

ifica

tions

are

mad

eto

the

syst

emin

anef

fort

toad

dres

s fu

nctio

nalit

y an

d bu

sine

ss n

eeds

of s

tate

s cu

rren

tly e

valu

atin

g th

eir

use

of th

is s

yste

m.

Inte

rnat

iona

lIns

urer

sD

epar

tmen

t(I

ID)

reve

nues

are

gene

rate

dfr

ompr

oces

sing

initi

alap

plic

atio

nsan

dan

nual

upda

tefin

anci

alfil

ings

from

com

pani

eslis

ted

inth

eQ

uart

erly

List

ing

ofA

lien

Insu

rers

,co

mpa

nies

who

bene

fitfr

omth

islis

ting

inth

eir

abili

tyto

cond

uct

busi

ness

inth

ose

juris

dict

ions

who

rely

onth

eIID

and

Qua

rter

lyL

istin

gof

Alie

nIn

sure

rs.

The

budg

etis

base

don

129

filin

gsfr

omco

mpa

nies

and

Lloy

d’s

Syn

dica

tes,

thre

ene

wap

plic

atio

ns,

and

one

late

fee.

The

proj

ecte

dva

rianc

ein

2010

resu

ltsfr

oman

incr

ease

dnu

mbe

rof

appl

icat

ions

rec

eive

d in

201

0. 2

011

budg

eted

filin

gs, a

pplic

atio

ns, a

nd la

te fe

es a

re a

ntic

ipat

ed to

rem

ain

rela

tivel

y co

nsis

tent

with

thos

e ex

perie

nced

in 2

010.

SE

RF

Fis

licen

sed

and

used

by51

juris

dict

ions

and

repr

esen

tsa

key

NA

ICpr

oduc

tin

the

mod

erni

zatio

nan

def

ficie

ncy

ofth

est

ate-

base

din

sura

nce

regu

lato

rysy

stem

.C

ompa

nies

expe

rienc

esi

gnifi

cant

cost

savi

ngs

and

effic

ienc

yth

roug

hth

eel

ectr

onic

subm

issi

onof

prod

uct

filin

gsto

mul

tiple

juris

dict

ions

thro

ugh

SE

RF

F,

savi

ngpe

rson

nel

and

mai

ling

cost

sal

one

with

one

ele

ctro

nic

subm

issi

on a

nd r

educ

ing

regu

lato

ry r

evie

w p

erio

ds to

an

aver

age

of 2

9 da

ys fo

r P

rope

rty/

Cas

ualty

filin

gs a

nd 4

2 da

ys fo

r Li

fe, A

ccid

ent a

nd H

ealth

filin

gs.

The

Inte

rnal

Adm

inis

trat

ion

(EX

1)S

ubco

mm

ittee

spon

sore

dtw

oB

usin

ess

and

Fis

cal

Impa

ctS

tate

men

tspe

rtai

ning

toS

BS

.T

hefir

stis

afu

ndin

gre

ques

tto

supp

ort

the

SB

SG

row

thS

trat

egy

prop

osal

(See

Fis

cal

Impa

ct4)

.P

roje

cted

reve

nues

in20

11ar

e$4

72,6

61,

whi

chre

pres

ent

reve

nues

gene

rate

dpr

imar

ilyfr

omon

line

cont

inu

ing

educ

atio

nco

urse

s.T

hese

cond

isfu

ndin

gto

supp

ort

Con

sum

erA

ssis

tanc

eD

ata

Col

lect

ion

and

Rep

ortin

gth

roug

hS

BS

(See

Fis

cal

Impa

ct8)

.P

roje

cted

reve

nues

in20

10ar

e$7

4,00

0an

dan

addi

tiona

l$9

2,50

0 in

201

1, w

hich

rep

rese

nt a

n $1

8,50

0 pa

ymen

t fro

m e

ight

sta

tes

curr

ently

lice

nsed

for

SB

S a

nd o

ne a

dditi

onal

sta

te fo

r th

is e

xpre

ss p

urpo

se.

The

Spe

edto

Mar

ket

(EX

)T

ask

For

cesp

onso

red

aB

usin

ess

and

Fis

cal

Impa

ctS

tate

men

tre

ques

ting

fund

ing

tosu

ppor

tP

rem

ium

Rev

iew

Dat

aC

olle

ctio

nan

dR

epor

ting

thro

ugh

SE

RF

F(S

eeF

isca

lIm

pact

5).

Pro

ject

edre

venu

esin

2010

are

$247

,305

and

anad

ditio

nal$

693,

095

in20

11,

whi

chre

pres

ent

an$1

8,80

8pa

ymen

tfr

omth

e50

juris

dict

ions

usin

gth

eS

ER

FF

sys

tem

.

SB

Spr

ovid

esa

com

preh

ensi

vew

eb-b

ased

appl

icat

ion

for

use

byst

ate

regu

lato

rsin

supp

ort

ofal

lsta

te-b

ased

insu

ranc

ere

gula

tory

func

tions

.S

BS

enab

les

stat

ein

sura

nce

regu

lato

rsto

mor

eef

ficie

ntly

and

effe

ctiv

ely

proc

ess

licen

seap

plic

atio

ns,

licen

sere

new

als,

cons

umer

inqu

iries

,co

nsum

erco

mpl

aint

s,en

forc

emen

tac

tions

,am

ong

othe

rre

gula

tory

appl

icat

ions

,an

dre

mai

nco

mpl

iant

with

natio

nal

insu

ranc

ere

gula

tion

unifo

rmity

initi

ativ

es.

SB

Sis

licen

sed

by20

juris

dict

ions

thro

ugh

whi

chre

gula

ted

entit

ies

expe

rienc

esi

gnifi

cant

cost

savi

ngs

and

effic

ienc

yby

auto

mat

ion

ofst

ate

insu

ranc

ere

gula

tory

proc

esse

san

dtr

ansa

ctio

ns.

The

valu

eof

SB

Sse

rvic

esto

the

indu

stry

issi

gnifi

cant

inte

rms

ofco

stsa

ving

sto

insu

rers

,pr

oduc

ers

and

prov

ider

sm

anag

ing

the

cost

ofco

mpl

ianc

e,an

dfa

rex

ceed

sth

ein

sign

ifica

ntpr

oces

sing

fees

char

ged

byth

eN

AIC

infa

cilit

atin

gel

ectr

onic

tran

sact

ions

.F

urth

er,

SB

Sge

nera

tes

volu

ntar

ytr

ansa

ctio

nfe

esfr

omus

ers

who

leve

rage

the

SB

Ssy

stem

toco

mpl

ete

regu

lato

rytr

ansa

ctio

ns,

whi

chfu

rthe

rill

ustr

ates

the

ben

efit

ofva

lue-

adde

dse

rvic

esto

both

stat

e in

sura

nce

regu

lato

rs a

nd th

e in

sura

nce

indu

stry

.

OP

Tin

sis

licen

sed

and

used

by13

juris

dict

ions

and

inpr

oduc

tion

inni

neju

risdi

ctio

ns,

repr

esen

ting

anot

her

NA

ICin

itiat

ive

tom

oder

nize

and

impr

ove

the

effi

cien

cyof

the

stat

e-ba

sed

insu

ranc

ere

gula

tory

syst

em.

Com

pani

esex

perie

nce

cost

savi

ngs

and

effic

ienc

yth

roug

hth

eel

ectr

onic

subm

issi

onof

prem

ium

tax

retu

rns

and

elec

tron

icpa

ymen

tof

quar

terly

prem

ium

taxe

s.

40

Page 55: NAIC 2011 Budget

Incr

ease

2009

2010

2010

2011

(Dec

reas

e)20

07-2

009

2010

/201

1A

ctu

alB

ud

get

edP

roje

cted

Pro

ject

edA

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alB

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get

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roje

cted

Bu

dg

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m 2

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Pro

du

ct D

escr

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on

Fili

ng

Fee

Fili

ng

Fee

2009

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lum

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10 V

olu

mes

2010

Vo

lum

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olu

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Rev

enu

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even

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enu

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ue

Bu

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Co

rpo

rate

sC

orp.

Initi

al F

iling

Non

-Rat

ed2,

600

$

3,00

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31

7

471

34

3

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82

4,20

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1,

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$

1,

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$

1,

110,

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00)

$

(21.

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orp.

Ann

ual U

pdat

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2,60

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NR

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R (

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69

2

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)

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eign

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ity12

5

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tic E

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e B

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nnua

l Upd

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233.

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385

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%C

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men

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r N

ot in

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5,87

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Exhibit R4-One

Sec

uri

ties

Val

uat

ion

Off

ice

No

n-R

ated

Sec

uri

ties

Rev

enu

es

41

Page 56: NAIC 2011 Budget

42

Page 57: NAIC 2011 Budget

Item

Des

crip

tion:

Fee

s re

ceiv

ed fr

om a

ttend

ees

at N

AIC

Nat

iona

l Mee

tings

.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

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reas

e)P

erce

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e

Nat

iona

l Mee

ting

Reg

istr

atio

n F

ees

(1)

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(1)

R5:

Nat

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l Mee

ting

Reg

istr

atio

n F

ees

BU

DG

ET

ITE

M:

Nat

iona

l Mee

ting

Reg

istr

atio

n F

ees

Nat

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lmee

ting

regi

stra

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fees

are

proj

ecte

dba

sed

onE

xhib

itR

5-O

ne,

and

are

char

ged

ona

mul

ti-tie

rba

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43

Page 58: NAIC 2011 Budget

44

Page 59: NAIC 2011 Budget

Fee

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45

Page 60: NAIC 2011 Budget

46

Page 61: NAIC 2011 Budget

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47

Page 62: NAIC 2011 Budget

48

Page 63: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

NAIC INVESTMENT POLICY STATEMENT

AND ASSET ALLOCATION LONG TERM FUNDS

Effective Date: March 2003 Revision Date: August 2010

PURPOSE The purpose of this Investment Policy Statement (“Statement”) is to establish a clear

understanding between the National Association of Insurance Commissioners’ Long Term Funds (“Client”), Prairie Capital Management LLC (“PCM”) and the investment or mutual fund managers hired by the Client (“Managers”) of the investment policies and objectives of the Client. This Statement outlines an overall philosophy that is specific enough for PCM and the Managers to know what is expected, but sufficiently flexible to allow for changing economic conditions and securities markets. This Statement provides realistic risk policies to guide toward long-term rate of return objectives, which will serve as standards for evaluating investment performance. This Statement also establishes the investment restrictions with respect to the Long Term Funds to be placed upon PCM and the Managers and will outline procedures for policy and performance review.

Investments will be made for the sole interest and exclusive purpose of providing returns, both

capital appreciation and income, for the Client. All investments will be made within the guidelines of quality, marketability and diversification.

OBJECTIVES The objectives of the accounts should be pursued as long-term, designed to provide capital

appreciation and income without exposure to undue risk, as defined herein.

PCM’s primary objectives are to:

1. Assist Client in implementing these policies so as to achieve the Client’s objectives.

2. Notify the Client should circumstances occur in which PCM believes the policies need to be modified to achieve the objectives.

3. Assist Client in implementing these policies with the goal that the portfolio meets or outperforms the target asset mix, which is defined below.

4. Monitor the Managers hired by the Client and keep the Client advised with respect to the performance of such Managers and recommend substitute Managers if the need arises.

Knowing that the Client understands fluctuating rates of return are characteristic of the securities

markets, PCM’s objective for the Long Term Funds should be to first provide required income, and second to obtain long-term appreciation of the assets and consistency of the total portfolio returns relative to comparable indices. The portfolio will be formulated to achieve the following goal over a three-year moving time period: the investments of the Long Term Funds’ portfolio will meet or exceed the Consumer Price Index plus five percent.

Understanding that a long-term positive correlation exists between performance volatility (risk)

and expected returns in the securities markets, the Client has established the following short-term objectives:

49

Page 64: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

1. The portfolio should be invested in the chosen asset classes by the Managers in order to generate favorable returns given the level of risk employed by the Managers.

2. Following the initial funding period for the selected Managers, the Client expects PCM to

promptly consult with the Client if the asset allocation is not in compliance with the minimum or maximum restrictions set forth herein so as to prevent the returns of the total account from significantly underperforming the target asset allocation.

3. The portfolio should be invested to minimize the probability of low negative total returns,

defined as a one-year return worse than negative eight percent.

POLICIES AND RESTRICTIONS The Client intends to use the investment policies and restrictions presented in this Statement as a framework to help achieve the investment objectives at a level of risk deemed acceptable. These policies and restrictions are designed to minimize interfering with efforts to attain overall objectives and to minimize excluding any appropriate investment opportunities. The policy allows PCM discretion within specified parameters in the asset allocation and diversification of the assets for the purposes of increasing investment returns and/or reducing risk exposure. The Managers will not purchase assets other than those approved herein without the written consent of the Client. It is important for the Managers hired to be sensitive to the objectives and goals of the Client.

ASSET ALLOCATION The Client expects the asset allocation policies to reflect, and be consistent with, the investment objectives and risk tolerances expressed throughout this Statement. These policies, developed after examining the historical and possible future relationships of risk and return among asset classes, are designed to provide the highest probability of meeting or exceeding the return objectives at the lowest possible risk. The target equity asset allocation set forth in the following chart was developed through consultation with the Client. The following chart represents the asset allocation targets, with minimum and maximum allocations applicable to each asset class. Also, the comparative indices with which the results of the portfolio and the various Managers will be compared are defined.

50

Page 65: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

Although dynamic capital markets may cause fluctuating risk/return opportunities over a market

cycle, the comparative indices set forth in the prior chart will be used to evaluate the asset allocation (as measured at market value) over a three-year moving time period.

GENERAL ASSET ALLOCATION RESTRICTIONS 1. The investment returns of the asset allocation will be measured against those of both a target

portfolio consisting of 7.50% long/short equity fund of funds, 5.00% long/short international equity, 4.25% all cap equities, 4.25% yield focused equities, 8.25% large cap growth equities, 8.25% large cap value equities, 7.50% small cap value equities, 5.00% international equities, and 50.00% income/income alternative securities, including 7.50% multi-strategy fund of funds, and an actual weighted portfolio index blend. Equity and income market performance will be compared to the returns of the indices specified above. Other more appropriate indices may be used at the discretion of PCM.

2. U.S. Publicly traded equities will be represented in the portfolio up to 63.00% with a

minimum requirement of 23.00%. 3. Foreign equities will not exceed 10.00% of the account’s market value, with a minimum

requirement of 3.00%.

4. Long/Short Equity will be represented in the portfolio up to 10.00% with no minimum requirement.

5. Long/Short International Equity will be represented in the portfolio up to 7.50% with no

minimum requirement.

6. Income/income alternative securities will not exceed 67.00% of the account’s market value with a minimum requirement of 37.00%. The principal subcomponent of income securities,

ASSET CLASS TARGET ALLOCATION

MINIMUM ALLOCATION

MAXIMUM ALLOCATION

COMPARATIVE INDEX

U.S. EQUITIES 32.50% 23.00% 63.00% All Cap 4.25% 3.00% 8.00% Russell 3000

Yield Focused Equity 4.25% 3.00% 8.00% Russell 1000 Value Large Cap Growth 8.25% 6.00% 16.00% Russell 1000 Growth

Large Cap Value 8.25% 6.00% 16.00% Russell 1000 Value Small Cap Value 7.50% 5.00% 15.00% Russell 2000 Value

FOREIGN EQUITIES 5.00% 3.00% 10.00% MSCI EAFE LONG/SHORT EQUITY 7.50% 0.00% 10.00% HFRI Composite Fund of Funds LONG/SHORT INTERNATIONAL EQUITY

5.00% 0.00% 7.50% HFRX Global Hedge Fund

INCOME/ALTERNATIVES 50.00% 37.00% 67.00%

Core Plus Bond 13.00% 10.00% 25.00% Barclays Intermediate Government/Credit

Intermediate Fixed Income Securities

20.00% 16.00% 38.00% Barclays Intermediate Government/Credit

Core Bond 4.50% 0.00% 7.00% Barclays Aggregate Bond

International Fixed Income 5.00% 0.00% 10.00% Citigroup World Government Multi-Strategy Fund of Funds 7.50% 0.00% 10.00% HFRI Diversified Fund of Funds

51

Page 66: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

U.S. publicly traded domestic fixed income securities, will not exceed 38.00% of the account’s market value, with a minimum requirement of 16.00%.

7. Financial Sector allocation may be based on an individual manager’s discretionary allocation

to sector, rather than pursuant to the stated target allocation.

8. The Client foresees the possibility of using limited partnerships and/or mutual funds and understands that it would not have any control over the management of such funds with regard to guidelines and restrictions, and would be subject to the investment provisions set forth in the respective investment vehicle prospectus.

Because securities market conditions can vary greatly throughout a market cycle, it is expected that PCM shall from time to time recommend that the Client change the asset mix within the above ranges or make asset allocations outside the limits prescribed above, for the purpose of increasing investment returns and/or reducing risk. However, the written consent of the Client is required to change the asset mix through reallocation beyond the minimum and maximum parameters set forth herein.

U.S. PUBLICLY TRADED EQUITIES In keeping with the general investment philosophy, the Client expects PCM to monitor the U.S. equity Managers to see that they maintain the publicly traded equity portfolio at a risk level similar to that of the benchmark equity indices as a whole, with the objective of meeting or exceeding its results as represented by the relevant equity indices over a three-year moving time period. Equity holdings in individually managed accounts may be selected from the New York, American and Regional Stock Exchanges, or the NASDAQ markets. U.S. equity Managers are generally prohibited from investing in private placements, letter stock, and options; or from engaging in short sales, margin transactions or other specialized investment activities unless the Client agrees in writing under the terms of the Equity Managers’ investment management agreements. In addition, Managers are prohibited from investing in derivatives. Within the above guidelines, the Client gives the Managers full responsibility for security selection and diversification. However, Managers should carefully review any position exceeding a 10% commitment of the account’s market value for an individual security and the lesser of a 50% commitment or three times the normal sector weighting for a particular economic sector. Such limits should not be exceeded on an ongoing basis, but may, from time to time be exceeded on a short-term basis. Managers also will have full discretion over turnover and allocation of equity holdings among selected securities and industry groups, within the limits described above. While it is understood that Managers will deviate from the representative indices, the Client wishes to limit the extent of potential underperformance. Because of the inherent difficulty in defining specific restrictions, which would cover all possibilities, the Client instructs Managers to invest the equity component of the account to attempt to prevent the returns for that component from underperforming the relevant equity indices by more than 15% in any three consecutive quarters. All equity securities and cash held in individually managed equity accounts will be custodied at First Clearing, LLC (“FCC”), a fully disclosed clearing broker-dealer for UMB Financial Services, Inc. (“UMBFSI”), and a wholly owned subsidiary of Wachovia Corporation. Alternatively, the Client may custody securities at a bank or other financial institution, although the Client will bear the additional costs of any such arrangements. All Managers of individually managed accounts will be instructed to trade equity securities, whenever possible, through FCC. The parties realize that this may not be possible in certain circumstances, for example when FCC does not inventory an over the counter security. Securities in the FCC accounts will be protected up to the full value of the account for RMA and BSA accounts ($500,000 provided by SIPC, not in excess of $100,000 for claims relating to cash, and the remainder provided by a leading U.S. insurance carrier).

52

Page 67: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

FOREIGN EQUITIES In keeping with the general investment philosophy, the Client expects PCM to monitor the foreign equity Managers/Mutual Funds to see that they maintain the equity portfolio at a risk level similar to that of the benchmark equity indices as a whole, with the objective of meeting or exceeding its results as represented by the relevant equity indices over a three-year moving time period. Foreign equity Managers are generally prohibited from investing in private placements, letter stock, and options; or from engaging in short sales, margin transactions or other specialized investment activities unless the Client agrees in writing under the terms of the equity Managers’ or Mutual Fund investment management agreements. In addition, Managers are prohibited from investing in derivatives. Notwithstanding the foregoing, Mutual Funds may buy or sell option contracts and may hedge currencies. Within the above guidelines, the Client gives the Managers full responsibility for security selection and diversification. However, Managers should carefully review any position exceeding a 10% commitment of the account’s market value for an individual security. Such limits should not be exceeded on an ongoing basis, but may, from time to time be exceeded on a short-term basis. Managers/Mutual Funds also will have full discretion over turnover and allocation of equity holdings among selected securities and countries, within the limits described above. While it is understood that Managers/Mutual Funds will deviate from the representative indices, the Client wishes to limit the extent of potential underperformance. Because of the inherent difficulty in defining specific restrictions, which would cover all possibilities, the Client instructs Manager/Mutual Funds to invest the equity component of the account to attempt to prevent the returns for that component from underperforming the relevant equity indices by more than 15% in any three consecutive quarters.

FIXED INCOME Investments in fixed income securities will be managed actively by the Managers to pursue opportunities presented by changes in interest rates, credit ratings and maturity premiums. Managers may select from appropriately liquid, corporate debt securities, and obligations of the U.S. Government and its agencies, foreign governments and their agencies, and securities convertible to equities. Investments in municipal or other federal tax-exempt securities are prohibited. The Client gives the Managers full responsibility for security selection and diversification. Notwithstanding the foregoing, the Client desires to create a portfolio that is consistent with the duration of the Barclays Government/Corporate Intermediate Bond Index. The Managers shall follow the following guidelines.

1. The investment managers shall invest in fixed-income obligations with maturities or expected life from zero to 20 years. The portfolio duration shall be no longer than that of the Barclays Government/Corporate Intermediate Bond Index plus six months.

2. Securities of a single issuer, the security for which is the same source (with the exception of

the U.S. Government and its agencies) should not exceed 5% of the market value of the fixed income portfolio.

3. Corporate debt issues that are not investment grade quality (that do not have a credit rating of

at least BBB or Baa or better from Standard & Poor’s or Moody’s, respectively); corporate debt issues with a BBB or Baa credit rating from Standard & Poor’s or Moody’s, respectively, should not constitute more than 5% of a Manager’s portfolio. In the event of a split between Standard & Poor’s and Moody’s, the higher shall be the qualified determinant.

Managers are specifically prohibited from investing in private placements, from speculating in

fixed income or interest rate futures, and interest rate options. In addition, the Managers will not engage in investment transactions involving stock options, short sales, purchases on margin, letter stocks, private placement securities or commodities.

While it is understood that the Managers will deviate from the representative indices, the Client

wishes to limit the extent of potential underperformance. Because of the inherent difficulty in defining

53

Page 68: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

specific restrictions, which would cover all possibilities, the Client instructs the Managers to invest the domestic fixed income component of the account so as to attempt to prevent the returns for that component from underperforming the relevant fixed income indices by more than 15% in any three consecutive quarters.

Within the above restrictions, the Managers have complete discretion over timing and selection of fixed income securities.

ALTERNATIVE INVESTMENTS Alternative investments should be selected to provide the Client with diversification through less correlated asset classes. The Client foresees the possibility of using mutual funds/collective trust funds/limited partnerships that may serve as alternatives to either equity or income investments, and understands that the Client would not have any control over the management of such funds with regard to specific guidelines and restrictions. Specifically, Client anticipates utilizing hedge fund of funds to allocate assets across long/short equity and multi-strategy hedge fund strategies. Underlying managers within alternative investment strategies may invest in private placements, letter stock and options, short sales, margin transactions, derivative contracts and any other strategy permitted within the offering documents of the investment vehicle. The Client and PCM shall review the permitted investment strategies of such vehicles prior to investing in such vehicles. The performance of alternative investments will be expected to meet or exceed the performance of the benchmark determined by PCM, over a full market cycle.

CASH AND EQUIVALENTS The Managers may invest in commercial paper, repurchase agreements, Treasury Bills, certificates of deposit, and money market funds to provide income, liquidity for expense payments, and preservation of the account’s principal value. Commercial paper assets must be rated A-1 or P-1 by Standard & Poor’s or Moody’s, respectively. The Managers may not purchase short-term financial instruments considered to contain speculative characteristics (uncertainty of principal and/or interest). Uninvested cash reserves should be kept to minimum levels. Within the limitations mentioned above, the Managers have complete discretion to allocate and select short-term cash and equivalent securities.

OTHER ASSETS Managers will not purchase assets other than those mentioned above without the written consent of the Client. Investments not specifically addressed by this Statement are prohibited without the Client’s written consent.

COMMUNICATIONS PCM and the Managers shall provide the Client with a quarterly account review detailing investment performance, strategy, and account value, with the following provision to ensure that the management of the financial and health care sectors of the portfolio is performed with limited knowledge of Client. The only Client members or employees authorized to receive investment reports, purchase or sale confirmations, or brokerage statements shall be Ron Goodwin and Teresa Easley. No information regarding individual holdings in the financial and health care sectors shall be communicated to any member of Client’s Audit Committee, any member of Client or any employee of Client, other than Ron Goodwin and Teresa Easley. Sale and purchase strategies with respect to the financial and health care sectors shall not be discussed with or otherwise communicated to any employee or member of Client. Investment reports provided to Client personnel other than Ron Goodwin and Teresa Easley, and to the Client Audit Committee and Client members shall not include information regarding any of the individual holdings in the financial and health care sectors.

54

Page 69: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

The above restrictions shall only be waived or modified in writing by Client’s Chief Financial Officer. Also, the Client will receive information about changes in investment philosophy, management, ownership, and key personnel of the Managers in a timely fashion. Meetings will be held quarterly or as requested by the Client to discuss:

1. Managers’ investment performance and risk levels in light of the stated policies and objectives, in keeping with the above referenced provision, to ensure that the management of the financial and health care sectors of the portfolio is performed with limited knowledge of Client.

2. Proposed amendments to the policies and objectives presented in this Statement.

The Client or PCM may call more frequent meetings if significant concerns arise about the performance, strategy, personnel and organizational structure of the Managers.

MANAGER ALLOCATION The following chart sets forth the allocation to the selected Managers in all equity and income asset classes. Note that specific descriptions of the styles of U.S. equity managers are provided herein. Managers may be changed from time to time without any amendment of this document, with notice to and agreement of the Client.

55

Page 70: NAIC 2011 Budget

Exhibit R6-One

© 2010 National Association of Insurance Commissioners

ASSET CLASS TARGET ALLOCATION

MANAGER COMPARATIVE INDEX

EQUITY/ALTERNATIVES U.S. EQUITIES

All Cap 4.25% Horizon Asset Management Russell 3000 Yield Focused Equity 4.25% Schafer Cullen Capital

Management Russell 1000 Value

Large Cap Growth 8.25% Mitchell Capital Management Russell 1000 Growth Large Cap Value 8.25% Eagle Capital Management Russell 1000 Value Small Cap Value 7.50% Cardinal Capital Management Russell 2000 Value

FOREIGN EQUITIES 5.00% Tweedy Browne Global

Value Fund MSCI EAFE

LONG/SHORT EQUITY 7.50% Protégé Partners Ltd. HFRI Composite Fund of Funds LONG/SHORT INTERNATIONAL EQUITY

5.00% Indus Omni Fund, L.P. HFRX Global Hedge Fund

INCOME/ALTERNATIVES

Total Bond

13.00%

PIMCO Total Return Fund

Barclays Intermediate Government/Credit

Intermediate Fixed Income Securities

20.00%

Mitchell Capital Management

Barclays Intermediate Government/Credit

Investment Grade Bond

4.50% Loomis Sayles Investment

Grade Bond

Barclays Aggregate Bond International Fixed Income 2.50% Templeton Global Bond Citigroup World Government

International Fixed Income

2.50%

Oppenheimer International Bond

Citigroup World Government

Multi-Strategy 7.50% Protégé Opportunistic, Ltd. HFRI Diversified Fund of Funds Past performance is no guarantee of future results

56

Page 71: NAIC 2011 Budget

Item

Des

crip

tion:

Rev

enue

from

NA

IC e

duca

tion

and

trai

ning

pro

gram

s. 2009

6/30

/10

12/3

1/10

2010

2011

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ease

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crip

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Act

ual

Act

ual

Pro

ject

edB

udge

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ud

get

(Dec

reas

e)P

erce

ntag

e

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mis

sion

ers

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um (

3)31

,521

$

32,4

75$

32

,475

$

100.

00%

Lega

l CLE

Wor

ksho

ps

29,2

70

38

,130

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38,1

30$

36

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00)

(3

.15%

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egul

atio

n F

or S

olve

ncy

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0

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405

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95)

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plus

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es R

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atio

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)9,

790

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(9

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)

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.00%

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&C

Ann

ual S

tate

men

t (1)

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80

12

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00

23

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50

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.56%

Adv

ance

d F

raud

(4)

15,1

25

15

,390

$

15,3

90

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(15,

420)

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.00%

)M

arke

t Con

duct

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min

ers

Han

dboo

k (1

)5,

650

8,69

0

17

,435

8,74

5

100.

63%

Inte

rnat

iona

l Iss

ues

Con

fere

nce

(2)

47,3

50

50

,780

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35

51

,650

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15

(4

,035

)

(7.8

1%)

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/AV

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nlin

e (3

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16,9

45

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100.

00%

Onl

ine

Inve

stm

ent S

ched

ules

(1)

61,4

84

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215

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85

37

,170

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40

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670

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.25%

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ine

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oduc

tion

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anci

al R

egul

atio

n (2

)23

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24,3

95

42

,300

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00

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(7,1

40)

(2

0.00

%)

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ine

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inin

g (2

)27

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5

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)

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nlin

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nlin

e C

ore

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l Iss

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345

8,69

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8,

260

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35

8,

075

97

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Onl

ine

Rei

nsur

ance

(1)

23,8

16

16

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20

24

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7,08

5

41.8

7%O

nlin

e H

ealth

Ann

ual S

tate

men

t Pre

para

tion

(2)

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60

33

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75

19

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nal M

arke

t Con

duct

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inin

g (1

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al R

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80

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asic

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elf S

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Tra

inin

g (1

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agem

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rshi

p E

ffect

iven

ess

(4)

8,41

5

7,

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7,42

5

(7

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)

(100

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eg. O

verv

iew

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c.-B

ased

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. Sys

. (2)

11,6

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12

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21

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70

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1,69

0)

(5

3.23

%)

Reg

ulat

ion

of In

sura

nce

Pro

duct

s O

nlin

e (1

)29

,700

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5

10

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90

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10,8

90

10

0.00

%F

raud

Inve

stig

atio

n 10

1 (3

)7,

900

(395

)

(395

)

8,29

5

8,29

5

100.

00%

Ris

k-B

ased

Cap

ital T

rain

ing

22,0

20

11

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50

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%R

egul

atin

g fo

r S

olve

ncy:

Ris

k R

eten

tion

Gro

ups

8,28

0

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9,16

2

8,

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0

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anag

ing

the

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t of R

egul

ator

y C

ompl

ianc

e (2

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50

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(9,3

50)

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%)

Em

ergi

ng Is

sues

(6)

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(1

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00

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es a

nd S

uita

bilit

y (4

)15

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: E

duca

tion

and

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inin

g

BU

DG

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ITE

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catio

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d T

rain

ing

57

Page 72: NAIC 2011 Budget

Item

Des

crip

tion:

Rev

enue

from

NA

IC e

duca

tion

and

trai

ning

pro

gram

s. 2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Pro

fess

iona

l Des

igna

tion

Pro

gram

24

,500

$

8,12

5$

18

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18,2

50$

20

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$

2,00

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10.9

6%R

isk

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used

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m (

4)11

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5

(5,9

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(5

0.00

%)

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iss

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venc

y W

ebin

ar (

4)49

5

174

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4

0.00

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ER

FF

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inin

g (1

) (6

)57

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68,0

00

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0,00

0

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000

100.

00%

Sol

venc

y M

oder

niza

tion

Web

inar

(1)

31,8

85

46

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60

31

,615

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5

40.1

4%M

odel

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it R

ule

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inar

(6)

1,75

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15

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MB

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arke

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ual S

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1) (

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28

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00

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orpo

rate

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erna

nce

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0

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00%

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ding

Com

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ulat

ory

Act

(9)

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25

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ets

Web

inar

(9)

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100.

00%

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gram

s N

ot O

ffere

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fter

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alty

Rev

enue

s 7,

000

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6,

625

(6,6

25)

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ite P

rogr

ams

(5)

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40

30

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61,8

25

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(35,

051)

(46.

73%

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inan

cial

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mit

(7)

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50

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eg C

onfe

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(3,0

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al1,

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5%

(1)

(2)

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(5) (6

)

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NA

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rers

the

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ityof

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catio

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rtic

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he N

AIC

pro

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s th

e in

stru

ctor

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ials

, and

adm

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ion

of th

e pr

ogr

am fo

r a

fee.

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toth

ead

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nof

prog

ram

sin

mid

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ter

the

prep

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ebu

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ry/r

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been

esta

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ring

the

year

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budg

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SE

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sitiv

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they

will

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llow

ing

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le o

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rved

a p

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at w

ill n

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f an

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wid

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ervi

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catio

n to

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and

issu

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to 2

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purp

ose

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tion

&T

rain

ing

func

tion

with

inth

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AIC

isto

man

age

the

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regu

lato

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ulum

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refo

cus

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iden

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ngan

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eman

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ucts

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hile

assu

ring

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grity

and

com

preh

ensi

vene

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the

curr

icul

umas

aw

hol

e.In

the

exam

inat

ion

ofed

ucat

ion

oppo

rtun

ities

,th

ego

alis

toac

hiev

ea

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nce

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een

mee

ting

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lato

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eds

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ranc

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try

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nts

thro

ugh

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rra

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ofco

mpl

ianc

e tr

aini

ng to

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ease

d re

gist

ratio

ns a

re e

xpec

ted

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this

pro

gram

in 2

011.

Dec

reas

ed r

egis

trat

ions

are

exp

ecte

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r th

is p

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am in

201

1.BU

DG

ET

ITE

M:

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catio

n an

d T

rain

ing

(con

tinue

d fr

om R

7a)

58

Page 73: NAIC 2011 Budget

(7)

(8)

(9)

The

NA

ICF

inan

cial

Sum

mit

was

not

held

in20

09to

take

adva

ntag

eof

the

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ove

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conf

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ceto

June

2010

.T

he20

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asve

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nera

ting

regi

stra

tions

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cess

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iven

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mit

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ight

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tive

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lof

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tions

than

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ojec

tions

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an

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ease

in r

egis

trat

ions

from

the

2010

bud

get.

BU

DG

ET

ITE

M:

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catio

n an

d T

rain

ing

(con

tinue

d fr

om R

7b)

R7c

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duca

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inin

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New

pro

gram

for

2011

.

Rev

enue

for

the

2011

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Con

fere

nce

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xpec

ted

to b

e re

lativ

ely

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iste

nt w

ith 2

010

resu

lts.

59

Page 74: NAIC 2011 Budget

60

Page 75: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

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ual

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ject

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udge

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tem

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ive

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n on

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ceiv

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omth

elic

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ters

tate

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ITE

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inis

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ees

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valu

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abas

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greg

ated

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base

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oduc

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form

atio

n.In

sura

nce

com

pani

esar

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rage

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duce

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ase

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all

licen

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prod

ucer

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whi

chis

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cal

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ving

them

time

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mon

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ensu

ring

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ucer

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lling

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ness

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es c

ompl

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tate

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out

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se,

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arch

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ldha

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ron

ast

ate

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ate

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heN

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this

illus

trat

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ther

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ated

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now

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oniz

eth

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ates

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uald

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yan

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ts th

e ca

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oser

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l tim

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se o

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inat

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ostly

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suan

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hich

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eth

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etde

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nue

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crea

sein

NIP

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ctio

nre

venu

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nd m

ore

cons

iste

nt w

ith tr

ansa

ctio

n vo

lum

es a

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elat

ed r

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ues

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rate

d by

NIP

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201

0, b

ased

on

proj

ectio

ns f

rom

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ctiv

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pril

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teP

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cer

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gotia

ted

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een

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the

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astr

uctu

re.

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pril

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ease

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ly1,

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09on

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ober

1,20

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onJa

nuar

y1,

2009

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15on

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il1,

2009

,an

d$.

18on

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ober

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09,

whi

chis

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max

imum

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geun

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ting

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emen

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sefr

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ted

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ere

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ion

for

afu

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ease

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ted

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2010

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he20

11bu

dget

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sed

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tual

and

proj

ecte

dvo

lum

es fo

r 20

10, w

hich

are

slig

htly

hig

her

than

201

0 pr

ojec

ted

leve

ls.

61

Page 76: NAIC 2011 Budget

BU

DG

ET

ITE

M:

Adm

inis

trat

ive

Ser

vice

s/Li

cens

e F

ees

(co

ntin

ued

from

R8a

)

R8b

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inis

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ive

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vice

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cens

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ees

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cific

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divi

dual

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ucer

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sing

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sact

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red

byN

IPR

,a

non-

resi

dent

prod

ucer

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hing

tobe

licen

sed

ina

larg

enu

mbe

rof

non-

resi

dent

stat

es(e

.g.,

20st

ates

)is

able

tole

vera

geN

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'sno

n-re

side

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ensi

ng(N

RL)

tran

sact

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atio

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ectr

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ally

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axi

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rea

chof

the

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ates

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ceiv

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atio

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ude:

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atio

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roug

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quire

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icat

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inis

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itorin

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atus

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ceiv

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the

elec

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ic n

otifi

catio

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rova

l in

48 h

ours

.

62

Page 77: NAIC 2011 Budget

Item

Des

crip

tion:

Rev

enue

s re

ceiv

ed fr

om m

isce

llane

ous

sour

ces.

2009

6/30

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1/20

1020

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11In

crea

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escr

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get

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dg

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ecre

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cent

age

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er In

com

e (1

)

41,4

11$

18

,329

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30,2

81$

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,360

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24,0

00$

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0$

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74%

(1)

The

2011

budg

etco

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imar

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000

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ase

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63

Page 78: NAIC 2011 Budget

64

Page 79: NAIC 2011 Budget

D

etail Expenses

Page 80: NAIC 2011 Budget
Page 81: NAIC 2011 Budget

Item

Des

crip

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sal

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ease

s,bu

tfo

rw

hich

the

NA

IC20

09an

d20

10an

nual

budg

ets

elim

inat

edan

ysp

ecifi

cin

crea

sefo

rth

ese

prom

otio

nsan

dad

just

men

ts.T

heN

AIC

will

gene

rate

sign

ifica

ntsa

lary

savi

ngs

infis

caly

ear

2010

asa

resu

ltof

open

posi

tions

from

Janu

ary

1th

roug

hJu

ne30

,20

10,

som

eof

whi

chha

vere

mai

ned

open

for

long

erth

anth

eus

uals

even

wee

ksdu

eto

man

agem

ent's

prio

rity-

base

dre

view

ofop

enN

AIC

posi

tions

inan

effo

rtto

thor

ough

ly a

sses

s th

e ne

eds

of th

e po

sitio

n w

ithou

t im

pact

ing

criti

cal m

embe

rshi

p se

rvic

es.

The

turn

over

fact

oran

ticip

ates

atu

rnov

erpe

rcen

tage

of9%

with

aver

age

vaca

ncy

dura

tion

ofse

ven

wee

ksin

2011

.T

here

isno

chan

gefr

omth

eas

sum

ptio

nsus

edin

the

2010

budg

et.

65

Page 82: NAIC 2011 Budget

(3)

(4)

(5)

(6)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Sal

arie

s -

Exi

stin

g E

mpl

oyee

s (1

)8,

515,

633

$

7,44

0,88

2$

4,40

0,39

2$

8,

346,

637

$

1,99

9,56

8$

5,

911,

826

$

Tur

nove

r F

acto

r (2

)(1

04,8

86)

(89,

283)

(5

3,30

4)

(1

01,1

23)

(2

4,22

2)

(71,

623)

Sal

arie

s -

New

Em

ploy

ees

(3)

142,

021

56

,380

S

alar

ies

- P

ay fo

r P

erfo

rman

ce (

4)35

8,48

0S

econ

dmen

t (5)

Ove

rtim

e (6

)27

,823

7,

259

8,01

2

24,7

07

Tot

al8,

580,

591

$

7,

773,

718

$

4,

355,

100

$

8,24

5,51

4$

1,

975,

346

$

5,

864,

910

$

The

NA

ICbe

gan

usin

ga

prom

otio

nsan

dad

just

men

tslin

eeq

ual

to1%

ofsa

larie

sin

2007

for

the

purp

ose

ofat

trac

ting

and

reta

inin

gqu

alifi

edin

divi

dual

sfo

rem

ploy

men

tw

ithth

eN

AIC

.T

hepr

omot

ions

and

adju

stm

ents

budg

etof

1%of

sala

ries

has

been

rein

stat

edin

2011

toac

com

mod

ate

incr

ease

sin

sala

ryas

are

sult

ofm

arke

tad

just

men

tsto

reta

inex

istin

gst

aff a

nd to

cov

er p

rom

otio

ns s

ched

uled

in 2

011.

E1b

: S

alar

ies

The

NA

ICse

cond

men

tto

the

IAIS

was

appr

oved

in20

08,

allo

win

gth

eN

AIC

topl

ayan

impo

rtan

tro

lein

the

IAIS

Sec

reta

riat

byim

prov

ing

the

adm

inis

trat

ion

and

tran

spar

ency

ofth

eor

gani

zatio

nan

den

surin

gth

epr

oper

repr

esen

tatio

nof

U.S

.in

tere

sts

inIA

ISac

tiviti

es.

The

seco

ndm

ent

arra

ngem

ent

ende

din

Feb

ruar

y20

10an

d,co

nsis

tent

with

the

prop

osal

appr

oved

in 2

008,

this

em

ploy

ee r

etur

ned

as a

full-

time

NA

IC e

mpl

oyee

in M

arch

201

0. T

he 2

010

budg

et a

nd p

roje

ctio

n in

clud

es o

nly

thre

e m

onth

s of

the

seco

ndm

ent a

rran

gem

ent.

BU

DG

ET

ITE

M:

Sal

arie

s (c

ontin

ued

from

E1a

)

Req

uest

sfo

rne

wem

ploy

ees

wer

ere

view

edin

divi

dual

lyan

dap

prov

edby

the

Exe

cutiv

e(E

X)

Com

mitt

eean

dIn

tern

alA

dmin

istr

atio

n(E

X1)

Sub

com

mitt

eeon

Oct

ober

4,20

10.

The

rear

e fo

urte

en F

TE

req

uest

s (S

ee F

isca

l Im

pact

3 a

nd F

isca

l Im

pact

4),

one

pos

ition

upg

rade

(S

ee F

isca

l Im

pact

1),

and

one

par

t-tim

e po

sitio

n m

ovin

g to

full-

time

(See

Fis

cal I

mpa

ct 6

).

The

2010

proj

ecte

dam

ount

isa

refle

ctio

nof

the

amou

ntof

over

time

requ

ired

tosu

ppor

tN

AIC

func

tions

durin

gth

eye

aran

dis

expe

rienc

edin

alla

reas

ofth

eN

AIC

.S

ome

exam

ples

incl

ude

(1)

addi

tiona

lhou

rsw

orke

dby

desk

top

com

pute

rte

chni

cian

durin

gso

ftwar

ero

llout

s,ou

tage

s,an

dun

expe

cted

abse

nces

byte

amm

embe

rs;

(2)

trav

eltim

efo

rad

min

istr

ativ

est

aff

who

supp

ort

the

thre

eN

AIC

Nat

iona

lM

eetin

gs;

and

(3)

addi

tiona

lho

urs

wor

ked

byH

elp

Des

kst

aff

toad

dres

sba

cklo

gs.

The

2011

budg

etill

ustr

ate

sm

anag

emen

t’sde

sire

tobe

tter

plan

for

outa

ges

and

back

logs

suc

h th

at o

vert

ime

is d

ecre

ased

.

66

Page 83: NAIC 2011 Budget

Item

Des

crip

tion:

Fee

s pa

id to

out

side

age

ncie

s an

d w

ages

pai

d to

inte

rns

for

addi

tiona

l per

sonn

el d

urin

g pe

ak w

ork

perio

ds.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Nat

iona

l Mee

tings

(1)

68,5

27$

9,96

7$

62,2

23$

73

,181

$

65,0

29$

(8,1

52)

$

(11.

14%

)In

tern

s (2

)36

5,83

2

12

1,05

0

30

0,00

3

388,

566

33

3,48

5

(5

5,08

1)

(14.

18%

)O

ther

(3)

64,9

42

6,73

9

7,33

9

2,

600

1,20

0

(1

,400

)

(5

3.85

%)

Tot

al49

9,30

1$

13

7,75

6$

36

9,56

5$

464,

347

$

39

9,71

4$

(6

4,63

3)$

(13.

92%

)

(1)

(2)

(3)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Nat

iona

l Mee

tings

(1)

65,0

29$

In

tern

s (2

)33

3,48

5$

O

ther

(3)

1,20

0

Tot

al-

$

334,

685

$

65,0

29$

-

$

-

$

-

$

E2:

Tem

pora

ry P

erso

nnel

BU

DG

ET

ITE

M:

Tem

pora

ry P

erso

nnel

Oth

erte

mpo

rary

pers

onne

lar

ebu

dget

edto

prov

ide

addi

tiona

lre

sour

ces

durin

gbr

ief

perio

dsof

incr

ease

dde

man

d.T

heov

erag

ein

2010

repr

esen

tsth

een

gage

men

tof

tem

pora

ryst

aff

toas

sist

the

inte

rnat

iona

lte

amin

the

Exe

cutiv

eO

ffice

.T

he20

11bu

dget

antic

ipat

esa

cont

inue

dre

duct

ion

inth

ene

edfo

rou

tsid

ete

mpo

rary

reso

urce

sth

roug

hout

the

orga

niza

tion.

The

NA

ICin

tern

ship

prog

ram

isde

sign

edto

com

plem

ent

reso

urce

need

sin

vario

ushi

ghpr

iorit

yar

eas

each

year

.S

ome

ofth

epr

ojec

tssl

ated

for

inte

rna

ssig

nmen

tin

clud

eS

BS

impl

emen

tatio

ns;

SE

RF

Fpr

oduc

tsup

port

;Q

ualit

yA

ssur

ance

test

ing

ofN

AIC

appl

icat

ions

;su

ppor

tfor

the

Com

mun

icat

ions

Div

isio

n;N

AIC

Hel

pD

esk

supp

ort;

sale

sor

der

proc

essi

ngin

the

Insu

ranc

eP

rodu

cts

and

Ser

vice

sD

ivis

ion;

and

lega

lre

sear

ch.

The

use

ofin

tern

sal

low

sth

eN

AIC

tofin

dan

dat

trac

tte

mpo

rary

reso

urce

s,in

aco

mpe

titiv

em

arke

tpla

ce,

resu

lting

ina

very

succ

essf

ulpr

ogra

mfo

rth

eN

AIC

with

resp

ect

toid

entif

ying

and

reta

inin

gqu

alifi

edca

ndid

ates

for

full-

time

posi

tions

.T

hede

crea

sein

inte

rns

in20

10is

due

to(1

)in

tern

sno

tw

orki

ngat

the

full

budg

eted

sche

dule

of97

5ho

urs

due

tocl

ass

sche

dule

s;(2

)in

tern

sno

tbe

ing

utili

zed

for

the

full

budg

etpe

riod

due

toth

eir

date

ofhi

re;

(3)

the

abili

tyto

find

indi

vidu

als

qual

ified

to fi

ll ce

rtai

n in

tern

pos

ition

s; a

nd (

4) h

iring

an

incr

ease

d nu

mbe

r of

inte

rnat

iona

l stu

dent

s, w

hich

are

res

tric

ted

by im

mig

ratio

n la

ws

to o

nly

20 h

ours

per

wee

k.

The

decr

ease

inth

e20

11bu

dget

illus

trat

esco

ntin

ued

redu

ced

relia

nce

onin

tern

reso

urce

sin

2011

,ba

sed

ona

care

ful

revi

ewof

the

need

for

shor

tte

rmre

sour

ces

inar

eas

with

cycl

ical

incr

ease

s in

wor

kloa

d.

Tem

pora

ry r

esou

rces

for

natio

nal m

eetin

gs a

re u

sed

for

secu

rity

and

door

mon

itorin

g pu

rpos

es, a

nd th

e pr

opos

ed 2

011

budg

et is

rel

ativ

ely

cons

iste

nt w

ith 2

010

proj

ecte

d le

vels

.

67

Page 84: NAIC 2011 Budget

68

Page 85: NAIC 2011 Budget

Item

Des

crip

tion:

FIC

A a

nd u

nem

ploy

men

t com

pens

atio

n co

sts

incu

rred

for

all N

AIC

em

ploy

ees

and

inte

rns.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

FIC

A (

1)2,

282,

258

$

1,

294,

156

$

2,

395,

553

$

2,43

3,03

2$

2,

507,

083

$

74

,051

$

3.04

%F

ICA

Tur

nove

r (2

)(2

9,29

7)

(30,

727)

(1,4

30)

4.88

%N

ew Y

ork

City

Met

ro C

omm

uter

Tax

(3 )

16,1

23

9,72

3

19,4

27

19,4

44

19,4

44

100.

00%

Une

mpl

oym

ent C

ompe

nsat

ion

(4)

92,3

42

96,6

43

10

4,96

3

79,3

06

10

3,11

8

23

,812

30

.03%

Tot

al2,

390,

723

$

1,

400,

522

$

2,

519,

943

$

2,48

3,04

1$

2,

598,

918

$

11

5,87

7$

4.67

%

(1)

(2)

(3)

(4)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

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venc

yR

egul

ator

yan

dD

escr

iptio

nan

d S

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

FIC

A (

1)66

0,41

7$

443,

570

$

288,

765

$

56

6,04

8$

94,3

38$

453,

945

$

F

ICA

Tur

nove

r (2

)(8

,002

)

(5

,056

)

(3,5

00)

(6,8

58)

(1,8

06)

(5,5

05)

New

Yor

k C

ity M

etro

Com

mut

er T

ax19

,444

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mpl

oym

ent C

ompe

nsat

ion

(4)

27,4

59

19,6

45

9,79

6

23,4

54

3,

625

19,1

39

Tot

al67

9,87

4$

45

8,15

9$

29

5,06

1$

602,

088

$

96

,157

$

46

7,57

9$

BU

DG

ET

ITE

M:

Pay

roll

Tax

es

Une

mpl

oym

ent

com

pens

atio

nha

sbe

enbu

dget

edon

the

first

$13,

000

ofea

chin

divi

dual

sala

ryin

Mis

sour

ian

dth

efir

st$9

,000

inW

ashi

ngto

n,D

.C.

New

Yo

rkun

empl

oym

ent

com

pens

atio

n is

pai

d as

cla

ims

are

filed

.

E3:

Pay

roll

Tax

es

The

Met

ropo

litan

Com

mut

erT

rans

port

atio

nM

obili

tyT

ax(M

CT

MT

)is

ane

wta

xim

pose

don

cert

ain

empl

oyer

sen

gagi

ngin

busi

ness

with

inth

em

etro

polit

an

com

mut

ertr

ansp

orta

tion

dist

rict

(MC

TD

),w

hich

incl

udes

the

coun

tyof

New

Yor

k(M

anha

ttan)

whe

reth

eN

AIC

’sN

ewY

ork

Offi

ceis

loca

ted.

Thi

sta

xis

paya

ble

quar

terly

,and

isca

lcul

ated

as0.

34%

(.00

34)

ofth

e sa

lary

exp

ense

for

all c

over

ed e

mpl

oyee

s in

the

New

Yor

k of

fice.

The

turn

over

fact

orap

plie

dto

annu

alsa

larie

sis

also

appl

ied

toth

epa

yrol

ltax

esre

late

dto

thos

esa

larie

s,us

ing

cons

iste

nttu

rnov

eran

dva

canc

yra

tes

asth

ose

desc

ribed

inth

esa

lary

sect

ion

of th

e bu

dget

pro

posa

l.

FIC

Aex

pens

esa

ving

sin

2010

resu

ltfr

omth

eas

soci

ated

sala

rysa

ving

sde

scrib

edin

the

sala

ryse

ctio

nof

the

budg

etpr

opos

al.

The

incr

ease

inF

ICA

for

2011

isre

late

dto

(1)

apr

ojec

ted

incr

ease

inth

eF

ICA

wag

eba

se(in

crea

sing

from

$106

,800

in20

10to

$108

,600

in20

11),

(2)

the

incr

ease

inth

e20

11sa

lary

budg

etas

desc

ribed

inth

esa

lary

sect

ion

ofth

ebu

dget

pro

posa

l, an

d (3

) th

e ad

ditio

n of

14.

5 ne

w e

mpl

oyee

s in

201

1 (S

ee F

isca

l Im

pact

1,3

,4, a

nd 6

).

69

Page 86: NAIC 2011 Budget

70

Page 87: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Pen

sion

(1)

4,21

7,62

6$

1,83

3,62

8$

3,74

0,40

1$

4,

478,

242

$

3,89

0,45

2$

(587

,790

)$

(13.

13%

)H

ealth

Ben

efits

(2)

2,21

5,92

6

1,17

8,93

9

2,62

3,11

6

2,

448,

249

3,29

2,69

4

844,

445

34

.49%

Gro

up L

ife a

nd D

isab

ility

(3)

207,

798

111,

107

213,

807

22

6,47

3

219,

474

(6,9

99)

(3.0

9%)

Em

ploy

ee R

elat

ions

(4)

90,7

58

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26

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148,

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(1

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)

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108

$

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$

6,

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549,

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$

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(1)

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Item

Des

crip

tion:

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udes

all

pens

ion,

heal

thin

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life

and

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nce

paid

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for

itsem

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asw

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cehe

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reta

in N

AIC

em

ploy

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Als

oin

clud

edin

this

budg

etis

the

defin

edco

ntrib

utio

npl

anto

whi

chth

eN

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mak

esa

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scre

tiona

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chem

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ion

upto

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,fo

ran

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ated

$1.5

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11.

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sex

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budg

eted

toin

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se$7

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om20

10ba

sed

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rren

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cont

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e in

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e in

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se p

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sed

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2011

and

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ploy

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eque

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for

2011

.

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2011

net

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dic

pens

ion

cost

for

the

NA

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defin

edbe

nefit

plan

ises

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don

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erth

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e20

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his

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rect

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nse.

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orks

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eted

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31,0

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uded

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cont

ribut

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ls.

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ease

atth

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ugus

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te,

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ato

tal$

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ests

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uded

inth

e20

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).

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the

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ium

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rap

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ng25

%.

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nw

ithth

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se,

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xim

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% o

n av

erag

e w

hen

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parin

g em

ploy

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ontr

ibut

ion

leve

ls fr

om 2

009

to 2

010.

E4a

: E

mpl

oyee

Ben

efits

71

Page 88: NAIC 2011 Budget

(4)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

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ess

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vice

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venc

yR

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ator

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iptio

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roup

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mpl

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atio

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630

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al-

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-$

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eere

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Em

ploy

eeA

ppre

ciat

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Day

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nche

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flect

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ease

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ms

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ition

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ram

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are

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proj

ects

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com

plis

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the

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into

2010

.T

hebu

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onst

rate

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iden

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the

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mpl

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BU

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ITE

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cont

inue

d fr

om E

4a)

72

Page 89: NAIC 2011 Budget

Item

Des

crip

tion:

Inc

lude

s fe

es fo

r se

min

ars,

pro

fess

iona

l tra

inin

g co

urse

s an

d pr

ofes

sion

al a

ssoc

iatio

n m

embe

rshi

ps p

aid

by t

he N

AIC

.

2009

6/30

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2010

2011

Incr

ease

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crip

tion

Act

ual

Act

ual

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udge

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get

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reas

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erce

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e

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catio

n R

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(1)

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ram

in20

10.

The

2011

budg

etal

soas

sum

esfu

rthe

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owth

inth

ispr

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man

dth

ead

ditio

nof

seve

ral p

rofe

ssio

nal c

ertif

icat

ions

as

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sult

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ew te

chno

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the

NA

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rec

ent y

ears

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for

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inar

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atio

nto

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Sar

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here

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ease

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1 to

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the

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budg

etal

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mer

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lic A

ccou

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tate

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ssoc

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ns, a

mon

g ot

hers

.

73

Page 90: NAIC 2011 Budget

74

Page 91: NAIC 2011 Budget

Item

Des

crip

tion:

Fee

s pa

id to

out

side

con

sulta

nts

for

lega

l, ac

tuar

ial,

info

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2009

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Incr

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With

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ns,

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ting

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ices

tosu

ppor

tco

nsum

eraw

aren

ess

and

educ

atio

nm

edia

cam

paig

ns;

(2)

$36,

250

for

expe

nse

rela

ted

tore

gist

ratio

nso

ftwar

elic

ense

sfe

es,

tran

spor

tatio

n,fa

cilit

ies,

and

phot

ogra

pher

sfo

rN

AIC

Nat

iona

lM

eetin

gsan

dth

e20

11C

omm

issi

oner

sC

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renc

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d(3

)$4

8,51

3 fo

r re

gist

ratio

n so

ftwar

e lic

ense

s fe

es a

nd m

arke

ting

to in

sura

nce

indu

stry

pro

fess

iona

ls fo

r N

AIC

edu

catio

n an

d tr

aini

ng p

rogr

ams,

all

budg

eted

with

in S

ervi

ces

to M

embe

rs.

The

outs

ide

lega

lco

unse

lbu

dget

refle

cts

antic

ipat

edle

gal

expe

nses

toas

sist

the

Lega

lD

ivis

ion

in:

(1)

need

edex

pert

ise

toas

sist

inco

mpl

exan

dsp

ecia

lized

regu

lato

ryis

sues

and

proj

ects

;(2)

labo

ran

dem

ploy

men

tis

sues

;(3

)co

rpor

ate

mat

ters

rela

ting

toco

ntra

cts,

tax,

and

bene

fits;

and

(4)

amic

usbr

iefs

filed

atth

ere

ques

tof

NA

ICm

embe

rs.

The

expe

nditu

res

in20

09ar

ela

rgel

yre

late

dto

use

ofle

gal

serv

ices

for

proj

ects

such

asS

ecur

ities

Exc

hang

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omm

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onlit

igat

ion,

rein

sura

nce

mod

erni

zatio

nfr

amew

ork,

regu

lato

rym

oder

niza

tion,

and

vario

usbu

sine

ssm

atte

rs.T

hede

crea

sein

2011

refle

cts

the

antic

ipat

edco

mpl

etio

nof

the

nego

tiatio

nof

the

licen

sean

dse

rvic

esag

reem

entw

ithth

eN

atio

nalI

nsur

ance

Pro

duce

rR

egis

try

(NIP

R).

The

2011

budg

etfo

rot

her

prof

essi

onal

serv

ices

incl

udes

:(1

)$1

42,2

76in

fees

for

the

adm

inis

trat

ion,

leas

e,an

dov

ersi

ght

ofth

eco

-loca

tion

faci

lity

and

serv

ices

,in

clud

ing

apo

tent

ial

mov

eof

the

co-lo

catio

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cilit

yto

ane

wlo

catio

nin

2011

;an

d(2

)$1

70,7

80in

cons

ultin

gfo

rte

chno

logy

perf

orm

ance

mon

itorin

gan

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lidat

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allb

udge

ted

inth

ete

chno

logy

syst

ems

and

supp

ort a

reas

.

BU

DG

ET

ITE

M:

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fess

iona

l Ser

vice

s

InJu

ne19

90,

the

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rnal

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inis

trat

ion

(EX

1)S

ubco

mm

ittee

auth

oriz

edth

eN

AIC

toco

mpe

nsat

ein

depe

nden

tte

ams

who

cond

uct

revi

ews

ofin

sura

nce

dep

artm

ents

seek

ing

accr

edita

tion

unde

rth

eN

AIC

Fin

anci

alR

egul

atio

nS

tand

ards

and

Acc

redi

tatio

npr

ogra

m.

The

budg

etis

com

pose

das

sum

ing

the

num

ber

ofex

amin

atio

nsto

beco

nduc

ted,

whi

chflu

ctua

tes

from

year

toye

ar.T

he20

11bu

dget

assu

mes

nine

stat

esun

derg

oing

full

revi

ews

and

13st

ates

unde

rgoi

ngpr

e-re

view

s,bo

theq

ualt

oth

e20

10bu

dget

edle

vels

and

thre

est

ate

rere

view

s,co

mpa

red

totw

oin

the

2010

budg

et.

Thi

slin

eal

soin

clud

esfu

ndin

gfo

ra

bi-a

nnua

ltra

inin

gse

ssio

n,ho

sted

for

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inde

pend

ent

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mem

bers

,to

disc

uss

prog

ram

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es, s

tand

ards

, rev

iew

team

pra

ctic

es, c

hang

es to

the

prog

ram

and

NA

IC to

ols

used

by

mem

bers

to c

ompl

y w

ith th

e pr

ogra

m.

75

Page 92: NAIC 2011 Budget

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

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vice

s to

Sol

venc

yR

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ator

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iptio

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Mem

bers

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vice

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ervi

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Ser

vice

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Lega

l (1)

250,

000

$

Acc

redi

tatio

n T

eam

(2)

677,

930

Oth

er P

rofe

ssio

nal S

ervi

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(3)

315,

556

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55

1,51

1

73

4,70

5$

600

$

1,

764,

213

$

Tot

al31

5,55

6$

1,

479,

441

$

73

4,70

5$

-$

600

$

1,

764,

213

$

The

incr

ease

inex

pens

ein

2011

rela

tes

to:(

1)a

slig

htin

crea

sein

the

num

ber

ofac

cred

itatio

nre

view

san

dpl

ans

toho

stth

ebi

annu

alac

cred

itatio

nte

amm

embe

rtr

aini

ngin

2011

;(2

)in

crea

sed

cost

antic

ipat

edfo

ra

pote

ntia

lm

ove

ofth

eN

AIC

’sco

-loca

tion

faci

lity

and

utili

tyin

crea

ses

from

co-lo

catio

nse

rvic

esba

sed

ongr

owin

gbu

sine

ssre

quire

men

ts;

(3)

data

mod

elin

gre

quire

dto

reen

gine

erth

est

ate

prod

ucer

licen

sing

(SP

L)lo

adpr

oces

s;(4

)pu

blic

rela

tions

cons

ultin

gse

rvic

esto

supp

ort

cons

umer

awar

enes

san

ded

ucat

ion

med

iaca

mpa

igns

; and

(5)

roy

alty

pay

men

ts to

the

NA

IC's

SB

S b

usin

ess

part

ner,

due

to in

crea

sed

SB

S tr

ansa

ctio

n pr

oces

sing

and

rel

ated

SB

S r

even

ues.

E6b

: P

rofe

ssio

nal S

ervi

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BU

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ET

ITE

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fess

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l Ser

vice

s (c

ontin

ued

from

E6a

)

Inad

ditio

n,se

vera

lB

usin

ess

and

Fis

cal

Impa

ctS

tate

men

tsw

ere

revi

ewed

indi

vidu

ally

and

appr

oved

byth

eE

xecu

tive

(EX

)C

omm

ittee

and

Inte

rnal

Adm

inis

trat

ion

(EX

1)S

ubco

mm

ittee

onO

ctob

er4,

2010

.F

orth

e20

11bu

dget

,th

ese

incl

ude

(1)

$20,

000

for

the

2011

Rec

ords

Man

agem

ent

Pro

ject

(See

Fis

cal

Impa

ct1)

;(2

)a

red

uctio

nof

$609

,600

inco

nsul

ting

expe

nses

rela

ted

toth

eS

BS

Mai

nten

ance

Str

ateg

ypr

opos

als

(See

Fis

cal

Impa

ct3)

;(3

)an

incr

ease

inco

nsul

ting

expe

nses

rela

ted

toth

eS

BS

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prop

osal

(See

Fis

calI

mpa

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;(4)

$529

,661

,with

offs

ettin

gre

venu

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for

the

Pre

miu

mR

evie

wD

ata

Col

lect

ion

and

Rep

ortin

gth

roug

hS

ER

FF

(See

Fis

calI

mpa

ct5)

;and

(5)

$92,

500,

with

offs

ettin

gre

venu

es,

for

the

Con

sum

erA

ssis

tanc

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ata

Col

lect

ion

and

Rep

ortin

gth

roug

hS

BS

(See

Fis

cal

Impa

ct8)

.F

or20

10pr

ojec

tions

,ad

ditio

nal

amou

nts

app

rove

dar

e(1

)$7

4,00

0,w

ithof

fset

ting

reve

nues

,fo

rth

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mer

Ass

ista

nce

Dat

aC

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epor

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thro

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ithof

fset

ting

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rth

eP

rem

ium

Rev

iew

Dat

a C

olle

ctio

n an

d R

epor

ting

thro

ugh

SE

RF

F (

See

Fis

cal I

mpa

ct 5

); a

nd $

250,

000

for

the

Impa

ct S

tudy

of V

M-2

0 P

rinci

pal-B

ased

App

roac

h to

Val

uatio

ns (

See

Fis

cal I

mpa

ct 7

).

Fin

ally

,th

e20

11bu

dget

incl

udes

(1)

$30,

000

indi

gita

lrig

hts

secu

rity

serv

ices

insu

ppor

tof

the

NA

IC's

onlin

epu

blic

atio

nsor

der

and

deliv

ery

syst

em;

(2)

$24,

000

inse

rvic

esfe

esto

the

edito

rof

the

Jour

nalo

fIn

sura

nce

Reg

ulat

ion;

(3)

$609

,600

for

cons

ultin

gas

sist

ance

from

the

NA

IC's

busi

ness

part

ner

inS

tate

Bas

edS

yste

ms

(SB

S)

rela

ted

toex

istin

gS

BS

stat

esu

ppor

t and

new

SB

S im

plem

enta

tions

and

enh

ance

men

ts; a

nd (

4) $

834,

178

in r

oyal

ty p

aym

ents

to th

e N

AIC

’s b

usin

ess

part

ner

in S

BS

, bud

gete

d in

the

Pro

duct

s an

d S

ervi

ces

area

.

76

Page 93: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Dat

abas

e N

etw

ork

(1)

527,

283

$

294,

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$

599,

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$

59

8,78

8$

557,

725

$

(41,

063)

$

(6

.86%

)S

ecur

ity D

ata

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s (2

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8

32

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69

3,36

0

637,

517

69

4,35

0

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dit C

ard

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s (3

)24

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11

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7

25

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247,

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28

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34

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14

.05%

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er (

4)17

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189,

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9

24

,517

12

.96%

Tot

al1,

584,

415

$

83

5,96

4$

1,

772,

364

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1,67

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1,

747,

965

$

75

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$

4.49

%

(1) (2)

(3)

Inad

ditio

n,a

Bus

ines

san

dF

isca

lIm

pact

Sta

tem

ent

was

revi

ewed

and

appr

oved

byth

eE

xecu

tive

(EX

)C

omm

ittee

and

Inte

rnal

Adm

inis

trat

ion

(EX

1)S

ubco

mm

ittee

onO

ctob

er4,

2010

. F

or th

e 20

11 b

udge

t, an

add

ition

al $

17,9

32 fo

r cr

edit

card

fees

is d

etai

led

in th

e S

BS

Gro

wth

Str

ateg

y pr

opos

al (

See

Fis

cal I

mpa

ct 4

).

E7a

: C

ompu

ter

Ser

vice

s

Dat

abas

eN

etw

ork

expe

nses

incl

ude

(1)

Inte

rnet

conn

ectiv

ity($

79,0

98);

(2)

New

Yor

kO

ffice

and

Exe

cutiv

eO

ffice

circ

uits

and

back

ups

toth

eC

entr

alO

ffice

inK

ansa

sC

ity($

88,8

15);

(3)

wire

less

devi

ces

($10

0,87

2);

and

(4)

data

line

circ

uits

for

data

repl

icat

ion

and

netw

ork

sync

hron

izat

ion

betw

een

the

NA

IC’s

co-lo

catio

nsi

tean

dth

eC

entr

alO

ffice

data

cent

er($

288,

940)

.T

hede

crea

sein

2011

ispr

imar

ilyre

late

dto

the

mov

emen

tof

$69,

096

invo

ice

com

mun

icat

ion

expe

nses

toth

ete

leph

one

budg

etlin

e,in

anef

fort

tobe

tter

refle

ctne

twor

kan

dvo

ice

com

mun

icat

ion

char

ges

amon

gbu

dget

lines

.T

his

decr

ease

ispa

rtia

llyof

fset

byan

incr

ease

inth

enu

mbe

rof

wire

less

devi

ces

nece

ssar

yto

enab

lese

nior

man

agem

ent

and

spec

ific

staf

f mem

bers

to c

ondu

ct A

ssoc

iatio

n bu

sine

ss w

hile

trav

elin

g an

d ou

tsid

e of

cor

e of

fice

hour

s.

BU

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ET

ITE

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pute

r S

ervi

ces

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uriti

esda

tafe

eds

repr

esen

tsth

epu

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seof

natio

nally

reco

gniz

edst

atis

tical

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gor

gani

zatio

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tings

and

secu

rity

data

feed

su

sed

topr

oduc

eS

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desi

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for

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O-r

ated

secu

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clud

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icip

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icin

g,co

rpor

ate

bond

pric

ing,

Blo

ombe

rg,

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dy’s

and

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hese

data

feed

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sous

edto

pop

ulat

eth

eA

VS

data

base

with

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SR

Ora

tings

for

use

byA

VS

cust

omer

sin

prep

arin

gce

rtai

nin

vest

men

tsc

hedu

les.

The

maj

ority

ofth

ein

crea

sein

2010

,w

hich

cont

inue

sin

to20

11,i

sre

late

dto

the

sign

ifica

ntpr

ice

incr

ease

s fo

r th

e da

ta fe

eds

rece

ived

by

the

SV

O.

Cre

dit

card

fees

incl

ude

char

ges

from

vend

ors

and

bank

sto

settl

eN

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cust

omer

cred

itca

rdtr

ansa

ctio

nsan

dde

posi

tfu

nds

inth

eN

AIC

bank

acco

unt.

Th

eov

erag

ein

2010

and

the

resu

lting

incr

ease

inth

e20

11bu

dget

rela

tes

to(1

)an

incr

ease

inon

line

sale

sof

publ

icat

ions

;(2

)an

incr

ease

inth

enu

mbe

rof

cust

omer

sw

ishi

ngto

satis

fyth

eir

outs

tand

ing

acco

unt

bala

nces

bycr

edit

card

;and

(3)

anin

crea

sein

onlin

eco

ntin

uing

educ

atio

n(C

E)

tran

sact

ions

proc

esse

dth

roug

hth

eS

BS

syst

emin

2011

.The

SB

Sin

crea

seis

offs

etby

anin

crea

sein

tran

sact

ion

reve

nue.

Add

ition

ally

,th

e20

11bu

dget

incr

ease

dby

$17,

932

asa

resu

ltof

addi

tiona

lrev

enue

spr

ojec

ted

unde

rth

eS

BS

Gro

wth

Pro

posa

l(S

eeF

isca

lIm

pact

4).

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edit

card

fee

redu

ctio

n w

as n

egot

iate

d w

ith th

e N

AIC

's v

endo

r ef

fect

ive

July

1, 2

009,

and

add

ition

al c

ost s

avin

g m

easu

res

are

curr

ently

in th

e de

velo

pmen

t pha

se.

Item

Des

crip

tion:

Fee

s pa

id to

out

side

pro

vide

rs fo

r co

mpu

ter

proc

essi

ng, p

ayro

ll pr

oces

sing

, cre

dit c

ard

proc

essi

ng, e

vent

re

gist

ratio

ns fo

r na

tiona

l mee

tings

and

edu

catio

n pr

ogra

ms,

and

sec

urity

dat

a fe

eds

from

rat

ing

agen

cies

.

77

Page 94: NAIC 2011 Budget

(4)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

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Ser

vice

s to

Sol

venc

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Mem

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sS

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s

Dat

abas

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557,

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E7b

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ompu

ter

Ser

vice

s

78

Page 95: NAIC 2011 Budget

2009

6/30

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2010

2011

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ease

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ual

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fere

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011.

79

Page 96: NAIC 2011 Budget

(4)

(5)

(6)

(7)

(8)

2011

Bud

get b

y A

rea

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nalm

eetin

gs;

(5)

$94,

760

tofu

ndC

omm

issi

oner

trav

elto

the

annu

alC

omm

issi

oner

sC

onfe

renc

ehe

ldfo

rst

rate

gic

plan

ning

purp

oses

atth

ebe

ginn

ing

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chye

ar;

(6)

$26,

440

for

anA

cade

mic

Sym

posi

umdu

ring

2011

;(7)

$22,

474

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alco

mm

ittee

assi

gnm

ent

mee

ting

ofth

eN

AIC

lead

ersh

ipte

am;

and

(8)

$2,0

00fo

rpa

rtic

ipat

ion

inth

eN

AIC

'sIn

tern

atio

nalI

nter

nshi

pP

rogr

am.

Tra

velf

orna

tiona

lmee

tings

repr

esen

tsth

eco

stfo

rad

min

istr

ativ

esu

ppor

tst

aff

(e.g

.,C

omm

issi

oner

Ser

vice

s)at

natio

nalm

eetin

gs.

The

incr

ease

in20

11is

rela

ted

toco

stof

trav

elto

the

site

s se

lect

ed fo

r th

e 20

11 n

atio

nal m

eetin

gs.

The

cons

umer

fund

ing

budg

etis

allo

cate

dfo

rth

eN

AIC

'sfu

nded

cons

umer

repr

esen

tativ

esto

spon

sor

natio

nalm

eetin

gtr

avel

part

icip

atio

nin

NA

ICte

leco

nfer

ence

san

dlu

nche

ons

for

the

NA

ICC

onsu

mer

Boa

rdof

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stee

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lthou

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enu

mbe

rof

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nalm

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crea

sed

from

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toth

ree

in20

10,

ther

ew

asno

chan

gein

the

fund

ing

leve

lfor

the

NA

ICfu

nded

cons

umer

rep

rese

ntat

ives

.

80

Page 97: NAIC 2011 Budget

Item

Des

crip

tion:

Inc

lude

s al

l ren

t, bu

ildin

g op

erat

ing

expe

nses

, m

aint

enan

ce fe

es, c

lean

ing

and

war

ehou

se s

tora

ge fe

es in

curr

ed b

y th

e th

ree

NA

IC o

ffice

s.

2009

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2010

2011

Incr

ease

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crip

tion

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ual

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ual

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ject

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udge

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ud

get

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reas

e)P

erce

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e

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t (1)

4,79

1,51

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4,69

7$

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7,68

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4,

843,

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4,85

6,76

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0.

28%

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ities

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arki

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areh

ouse

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00

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353,

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2,

678,

270

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5,

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5,45

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Bas

ere

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is$2

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t($

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age)

with

ale

ase

expi

ratio

nof

Janu

ary

31,

2012

.D

ueto

the

appr

oach

ing

expi

ratio

nof

this

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eN

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has

reta

ined

aco

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alre

ales

tate

brok

er,

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chite

ctur

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man

da

law

firm

toas

sist

inde

finin

gsp

ace

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irem

ents

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ns,

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tiatin

gle

ase

term

san

dpu

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ncen

tive

pack

ages

from

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and

Mis

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i.T

heN

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ipat

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ving

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r th

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ew le

ase

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year

12.

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land

lord

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gan

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ork

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$43,

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age)

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ase

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July

2014

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heN

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cent

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ted

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ly20

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ork

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ceto

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finan

cial

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rict

afte

rth

ede

stru

ctio

nof

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orld

Tra

deC

ente

r on

Sep

tem

ber

11, 2

001

incl

udin

g:

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du

stri

al a

nd

Co

mm

erci

al In

cen

tive

Pro

gra

m -

Thi

s pr

ogra

m o

ffers

an

exem

ptio

n fr

om a

dditi

onal

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l est

ate

asse

ssm

ents

for

capi

tal i

mpr

ovem

ents

. The

NA

IC w

as a

ccep

ted

for

this

reb

ate

prog

ram

and

ref

lect

s re

duce

d re

nt e

xpen

se fo

r th

e S

VO

leas

ehol

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Bas

ere

ntfo

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ashi

ngto

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.C.

offic

esp

ace

inth

eH

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fth

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$28,

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thly

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ntab

lesq

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ofof

fice

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e($

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ot).

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curr

ent

leas

eex

pire

sin

Janu

ary

2014

.T

heN

AIC

expa

nded

this

leas

ehol

din

2008

toin

clud

ean

addi

tiona

l2,

703

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refe

etof

offic

esp

ace

at$1

1,06

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rm

onth

($49

.14

per

squa

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ot)

toac

com

mod

ate

the

tran

sitio

n of

the

Was

hing

ton

D.C

. offi

ce to

the

NA

IC E

xecu

tive

Offi

ce a

nd th

e ad

ditio

n of

Cen

ter

for

Insu

ranc

e P

olic

y an

d R

esea

rch

supp

ort s

taff.

BU

DG

ET

ITE

M:

Occ

upan

cy

Inac

cord

ance

with

Gen

eral

lyA

ccep

ted

Acc

ount

ing

Prin

cipl

es(G

AA

P),

the

tota

lcos

tof

each

leas

eis

reco

rded

asex

pens

eev

enly

thro

ugho

utth

elif

eof

the

leas

e.T

hean

nual

budg

etfo

rre

ntex

pens

eis

deriv

edby

calc

ulat

ing

the

tota

lcos

tof

the

leas

e,in

clud

ing

sche

dule

din

crea

ses

inre

ntal

paym

ents

,and

divi

ding

that

byth

enu

mb

erof

year

sco

vere

dby

the

leas

e.A

dditi

onal

ren

t cha

rges

for

com

mon

are

a m

aint

enan

ce a

nd r

eal e

stat

e ta

xes

are

reco

rded

as

incu

rred

and

in a

dditi

on to

the

cont

ract

ual r

ent e

xpen

se.

81

Page 98: NAIC 2011 Budget

(2)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

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venc

yR

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ator

yan

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escr

iptio

nS

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rtO

pera

tions

Mem

bers

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vice

sS

ervi

ces

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vice

s

Ren

t (1)

3,71

8,58

1$

549,

882

$

58

8,29

8$

Util

ities

& P

arki

ng (

2)1,

125

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432,

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War

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15

,610

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al9,

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69

5,73

1$

-$

9,85

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The

over

age

in20

10is

the

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ltof

incr

ease

sin

com

mon

area

mai

nten

ance

cost

sfo

rth

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alO

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ansa

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ity,

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etby

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are

am

aint

enan

cefo

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ewY

ork

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cebe

ing

less

than

antic

ipat

edin

the

2010

budg

et.

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incr

ease

inth

e20

11bu

dget

isdu

eto

anan

ticip

ated

incr

ease

inpa

rkin

gex

pens

esfo

rth

eC

entr

alO

ffice

asso

ciat

ed w

ith th

e ne

w p

ositi

ons

appr

oved

by

the

Exe

cutiv

e (E

X)

Com

mitt

ee a

nd In

tern

al A

dmin

istr

atio

n (E

X1)

Sub

com

mitt

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n O

ctob

er 4

, 201

0, r

elat

ed to

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cal I

mpa

cts

3 an

d 4.

E9b

: O

ccup

ancy

BU

DG

ET

ITE

M:

Occ

upan

cy (

cont

inue

d fr

om E

9a)

82

Page 99: NAIC 2011 Budget

Item

Des

crip

tion:

Ren

tal a

nd m

aint

enan

ce fe

es fo

r of

fice

equi

pmen

t, ha

rdw

are,

and

sof

twar

e, in

clud

ing

pers

onal

com

pute

rs, p

rinte

rs, c

opie

rs, e

tc.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

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ud

get

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reas

e)P

erce

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e

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ipm

ent R

enta

l (1)

210,

079

$

112,

157

$

229,

998

$

23

1,37

3$

221,

875

$

(9,4

98)

$

(4.1

1%)

Nat

iona

l Mee

ting

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ipm

ent R

enta

l (2)

5,61

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17

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18

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577,

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675

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2,68

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$

59

,265

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2.21

%

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(2) (3)

2011

Bud

get b

y A

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incr

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used

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late

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ents

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view

edin

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dual

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et,

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r th

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her

rent

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tal

purc

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cost

effe

ctiv

e.T

hede

crea

sein

expe

nse

for

2011

isre

late

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upgr

ade

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ent

inth

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high

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ntly

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ount

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full

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of t

his

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cted

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e 20

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and

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initi

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cost

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ent

plan

ned

for

retir

emen

tin

late

2010

and

into

2011

.T

he20

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rianc

eof

$206

,076

isth

ere

sult

of(1

)co

mpe

titio

nin

the

data

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age

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ket

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ings

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aint

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ceof

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2010

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rage

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ork

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esh;

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the

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back

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ctur

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dget

edin

2010

,unt

ilth

ete

chno

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fully

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ved;

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repl

acem

ent

ofag

ing

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urce

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.g.,

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ers)

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.,N

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ithth

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rant

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to20

11bu

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cts

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ases

.

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Page 100: NAIC 2011 Budget

8484

Page 101: NAIC 2011 Budget

2009

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85

Page 102: NAIC 2011 Budget

2011

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86

Page 103: NAIC 2011 Budget

Description Qty Cost Total Qty Cost Total Total Cost

Itanium Database Blade Servers 6 71,962$ 431,772$ 431,772$ Itanium Application Blade Servers 8 32,319 258,552 258,552 Blade Enclosure 2 52,173 104,346 104,346 BL460c (2 Quad Core Processors, 32GB Memory) 2 7,500 15,000 15,000 NAS Storage Refresh 2 81,149 162,298 162,298 Fiber Channel over Ethernet (FCoE) 1 231,840 231,840 231,840 VoIP Server Upgrades 4 7,800 31,200 31,200 Blade Server Refresh (Intel Servers) 6 7,500 45,000 45,000 Exchange Server Refresh 4 6,000 24,000 24,000 Proliant DL360 - Upgrade Altiris Server 1 5,400 5,400 5,400 Desktop PCs for Staff 82 1,075 88,150 88,150 Laptops-Loaner 10 1,100 11,000 11,000 Laptops-Staff 1 1,595 1,595 1,595 Video Conference Upgrades 1 23,552 23,552 23,552 HP Color MFP Printer (DC and KC) 2 8,500 17,000 17,000 HP Network Printer (KC) 4 4,100 16,400 16,400 HP Black and White MFP Printer (KC) 2 4,700 9,400 9,400 Backup Architecture Evolution (Tape to Disk) 1 290,000 290,000 290,000 Web Server 1 53,041 53,041 53,041 Application Server (Blades) 2 6,908 13,816 13,816 Database Server 2 79,033 158,065 158,065 SBS Storage 1 82,932 82,932 82,932 Application Server Memory (HP-UX) 7 2,573 18,011 18,011 BL460c (2 Quad Core Processors, 32GB Memory) 4 5,087$ 20,348$ 20,348 NAS Storage Refresh 2 118,652 237,304 237,304 Oracle Partition Licenses 10 8,280 82,800 82,800 Oracle GRID Plugin for Microsoft SQL Server 4 1,296 5,184 5,184 Oracle WebLogic Suite 2 32,400 64,800 64,800 Backup Architecture Evolution (Tape to Disk) 1 45,000 45,000 45,000 ARC Enterprise Attendant Console + Whisper Clients 1 9,750 9,750 9,750 SIP Trunking Licenses 1 6,500 6,500 6,500 Quest Migration Tool for Sharepoint 1 18,180 18,180 18,180 Application Server (Blades) 4 4,038 16,152 16,152 Glassfish Enterprise Server 8 3,250 26,000 26,000 Database Server 2 8,292 16,584 16,584 Oracle RAC License 16 14,950 239,200 239,200 Oracle Partition License 8 7,475 59,800 59,800 SBS Storage 1 13,289 13,289 13,289 Informatica ETL 1 105,188 105,188 105,188 Oracle Web Logic Suite 1 64,800 64,800 64,800

2,092,370$ 1,030,879$ 3,123,248$

Computer Hardware Computer Software

2011 Capital Expenditures

Exhibit E11-One

87

Page 104: NAIC 2011 Budget

88

Page 105: NAIC 2011 Budget

Exhibit E11-Two

2011 Proposed Capital Expenditures Unit Cost $25,000 or Greater

Maintaining the technology infrastructure falls into four primary categories (1) cost or labor saving; (2) high availability or disaster recovery; (3) technology trend; and (4) useful life. A technology trend is a project that would better utilize an existing resource (e.g., upgrade the fiber infrastructure from 2GB to 4GB because recent server purchases come standard with 4GB interfaces) or to address a current issue (e.g., moving to new tape storage devices to get more data on a tape and survive within existing backup windows).

High Availability or Disaster Recovery

• Backup Architecture Evolution ($290,000/$45,000) – In 2010, budget dollars were approved to advance the Association’s overall backup architecture. After many months of research with numerous vendors, NAIC management made a decision to postpone this project due to an overall belief this technology and market were still evolving. This line item represents a device which will compress backup data before writing it onto inexpensive disks. This will allow NAIC to migrate the current tape based backup solution to a more robust and reliable disk based solution. It will also over time eliminate off-site storage of tapes. This will reduce backup times an estimated 75%, eliminate costs associated with physical tape, provide faster restore speeds, and reduce storage required for backups due to the compression of the data. This technology change is estimated to save $70,092 in annual costs for tapes, off-site storage, tape libraries, and backup client software maintenance (i.e., Veritas).

Technology Trend

• Fiber Channel over Ethernet (FCoE) ($231,840) – This line item represents the cost for hardware devices required to expand the current Fiber Channel over Ethernet (FCoE) footprint to support an additional 10 redundant ports, which is the continuation of a 2010 business decision. In addition, two more cards are needed for the core switches to support the expanding number of 10 Gbps devices. NAIC is leveraging the FCoE technology to slowly upgrade the legacy fiber switch gear that connects all the servers to storage. The legacy fiber switch gear only supports 2Gbps speeds while new server hardware is shipping with base support for 4Gbps speeds. An increase to 4Gbps doubles the speed at which the database servers could request data. The legacy fiber switch gear costs approximately $400,000 to upgrade, has a maximum speed today of 4Gbps, and is expected to not be expanded beyond this point because of FCoE. FCoE supports speeds up to 10Gbps today with 40Gbps in the near future. The FCoE implementation will not only replace the legacy fiber switch gear, but will increase the Ethernet network speeds from 1Gbps to 10Gbps (i.e., speed at which servers communicate with each other). In addition, FCoE will help reduce cable clutter in the Data Center.

• Oracle WebLogic Suite ($64,800) – In 2007, the NAIC began migrating applications from SunOne

Web Server and JRun to Oracle’s Internet Application Server (IAS). In 2008, Oracle purchased BEA Systems, Inc., which had the competing product to IAS named WebLogic. Oracle’s direction is to continue support of the WebLogic product and to discontinue their IAS product. The effort to migrate NAIC applications from the current Oracle product to WebLogic is unknown at this time. This cost is to build an environment on which to test the migration and to accurately gauge the server resources required to fully migrate all NAIC applications in 2012. The building of the environment and migration testing will be a joint effort between Technical Services and the Application Architects. Oracle does offer an Oracle Technology Network (OTN) license for this product free of charge but it limits the audience who can participate in testing the applications and would also not allow NAIC to leverage Oracle support to troubleshoot any migration issues. Since WebLogic is the strategic direction for NAIC applications, these licenses will be reused when the migration is complete in 2012.

89

Page 106: NAIC 2011 Budget

Exhibit E11-Two

Useful Life

• Itanium Database Blade Servers ($431,722)/Itanium Application Blade Servers ($258,552) – In 2007, a total of 27 servers were purchased for new projects (e.g., State Producer Licensing Reengineering) and the expanding strategic initiatives (e.g., clustering of NAIC databases). This is the beginning of a two-year project to replace that server hardware. The industry standard of replacing servers at a three-year interval proved impractical because of the cost involved given the quantity held by the NAIC, such that a two-year plan was devised and begins when the servers will be more than four years old. By moving to new server hardware, the NAIC is able to take advantage of a more complete use of hardware resources by implementing virtualization. Hewlett Packard’s Integrity Virtual Machines allow NAIC to deploy a standard hardware configuration and run multiple database images on the same hardware. Currently, servers are isolated to their individual business area, which often means in times of non-peak loads they are idle resources on the isolated servers. With Integrity Virtual Machines, NAIC can shift available resources between business areas while still keeping the database images isolated. The six database servers this purchase represents will replace the existing FDR and SERFF production environments (2), State Producer Licensing production environments (2), and both the production and non-production State Based Systems environments (2). Currently, these servers represent approximately $55,700 in annual maintenance. The Itanium Blade servers proposed carry an estimated annual maintenance cost of $23,604, an annual savings of more than $32,000.

The eight application servers this purchase represents will replace the existing State Producer Licensing Production environment (1), FDR and SERFF production and non-production environments (3), the develop, quality assurance and user assurance web server environments (2), and two of the seven production web server environments (2). Currently, these servers represent approximately $50,800 in annual maintenance. The Itanium Blade servers proposed carry an estimated annual maintenance cost of $21,768, for an annual savings of $29,032.

• Blade Enclosure ($104,346) – New server hardware continues to move to blade technology. Initially

this move was focused on non-UNIX servers running Windows and Linux operating systems or for server virtualization. In the past year, the industry continues to migrate more server technology to blade servers including high-end UNIX servers used for databases and backend applications. The blade technology creates a physical separation of processing power from input/output resources (i.e., network, disks, etc.). This allows one area to be upgraded without impacting the other. This also allows multiple servers to share the same input/output resources, which is a critical aspect of server virtualization. This separation is achieved with the blade enclosure, where each blade enclosure can support up to eight full height blades or 16 half height blades. Included in the 2011 budget are 14 full height blades and eight half height blades. To support the number of server blades being purchased, two additional blade enclosures are required in addition to the existing capacity purchased in 2010.

• NAS Storage Refresh ($162,298/$237,304) – The existing Network Attached Storage (NAS)

environment used by the NAIC and NIPR was purchased in 2007. Originally purchased to provide both NAS support and Storage Area Network (SAN) support to servers with lower performance needs, over a four year span the current solution now supports NAS and VMWare environments. Several challenges exist in the support of the VMWare environment on the current storage solution. This purchase replaces the existing NAS storage environment with a solution that more closely ties to the needs of the VMWare environments at the NAIC. New functionality provided with this NAS system will include the ability for developers to have snapshots of their desktops. This will allow them to make a backup before significantly changing their configuration or deploying new tools. If the change renders their desktop unusable, they can revert to the backup version without significant down time for re-loading software and configuring tools. This also saves time for the Desktop Support team, who currently has to re-image a developer’s workstation if it becomes unusable. In addition to VMWare integration, this NAS solution will also provide improved performance to the many NAIC applications that rely on NAS file systems. NAS file systems allow multiple servers to access the same files. For the NAIC, this allows six physical web servers to all share a single set of data on our web sites. It also

90

Page 107: NAIC 2011 Budget

Exhibit E11-Two

allows for separate physical servers to operate in a workflow manner on the same files without the need to transfer files from server to server saving time for large batch applications. The current NAS environment will be over four years old when replaced and currently represents an annual maintenance cost of $45,336. The proposed NAS solution would carry an annual maintenance cost of $37,140 representing an annual savings of $8,196.

New Initiatives Several Business and Fiscal Impact Statements were reviewed individually and approved by the Executive (EX) Committee and Internal Administration (EX1) Subcommittee on October 4, 2010, which included the following capital purchases.

• Database Server ($158,065)/SBS Storage ($82,932)/Informatica ETL ($105,188) – The current application server farm for State Based Systems (SBS) is designed to support twenty four production and non-production environments. Since legacy SBS is a Windows environment, this maintains a ratio of 0.67 CPUs and 2.66GB of memory per production environment or state. This ratio is reduced for the non-production environments (e.g., develop & integration) to 0.33 CPUs and 1.33GB of memory per environment or state. Currently, SBS has twenty environments defined between existing states, a test area for NIPR, a demo environment, and an environment for Professional Designation. SBS has recently licensed two additional states, is working with a third state, and projects four or five more states will become SBS users in the next fifteen months. This projected growth exceeds the NAIC’s current capacity. Fiscal Impact 4 provides for the additional servers and storage to support up to thirty six environments or states and the component that is associated to an expansion of external services offered under SBS.

• Web Server ($53,041)/Oracle Web Logic ($64,800) – Fiscal Impact 2 includes the necessary

infrastructure to improve a constrained quality assurance testing environment for NAIC and NIPR computer applications, which today lacks the ability to adequately support the breadth of application testing required based on the types of integrated systems currently in place. This proposal seeks to (1) improve the Association’s ability to make high priority, business critical changes to production quickly and without error; (2) improve the ability of the application areas to adequately test applications for high volume and high load conditions; and (3) provide an environment that ensures testing is adequately representative of the conditions experienced in the production environment.

91

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92

Page 109: NAIC 2011 Budget

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6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Gen

eral

Bus

ines

s In

sura

nce

(1)

27

5,53

9$

12

9,51

3$

23

2,80

6$

280,

918

$

24

3,26

4$

(3

7,65

4)$

(13.

40%

)P

rofe

ssio

nal L

iabi

lity

(2)

96,1

69

46,2

65

94

,080

99

,994

110,

465

10,4

71

10.4

7%E

rror

s an

d O

mis

sion

s (3

)49

,388

28

,517

64,9

94

55,6

56

$7

5,76

320

,107

36

.13%

Tot

al42

1,09

6$

20

4,29

5$

39

1,88

0$

436,

568

$

42

9,49

2$

(7

,076

)$

(1

.62%

)

(1)

(2)

(3)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Gen

eral

Bus

ines

s In

sura

nce

(1)

24

3,26

4$

P

rofe

ssio

nal L

iabi

lity

(2)

110,

465

Err

ors

and

Om

issi

ons

(3)

75,7

63

Tot

al-

$

429,

492

$

-$

-$

-$

-$

E12

: In

sura

nce

The

incr

ease

inpr

ofes

sion

allia

bilit

yin

sura

nce

cove

rage

sat

the

May

2010

rene

wal

was

due

toth

ead

ditio

nof

cove

rage

.T

his

incr

ease

isof

fset

bysa

ving

sas

are

sult

ofm

arke

ting

the

exis

ting

lines

of c

over

age.

The

201

1 bu

dget

ass

umes

an

incr

ease

of 6

% o

ver

exis

ting

cove

rage

s an

d pr

emiu

ms

at th

e M

ay 2

011

rene

wal

.

BU

DG

ET

ITE

M:

Insu

ranc

e

The

rene

wal

ofer

rors

and

omis

sion

insu

ranc

eco

vera

geat

the

May

2010

rene

wal

was

high

erth

anth

e5%

assu

mpt

ion

inth

e20

10bu

dget

.T

he20

11bu

dget

assu

mes

anin

crea

seof

6% o

ver

exis

ting

cove

rage

s an

d pr

emiu

ms

at th

e M

ay 2

011

rene

wal

.

The

May

2010

rene

wal

ofge

nera

lbus

ines

sin

sura

nce

cove

rage

spo

licie

sre

sulte

din

asu

bsta

ntia

lsav

ings

asa

resu

ltof

taki

ngco

vera

gelin

esto

mar

ket.

The

2011

budg

etas

sum

esan

incr

ease

of 6

% o

ver

exis

ting

cove

rage

s an

d pr

emiu

ms

at th

e M

ay 2

011

rene

wal

bas

ed o

n co

unse

l fro

m th

e N

AIC

's c

omm

erci

al in

sura

nce

bro

ker.

93

Page 110: NAIC 2011 Budget

94

Page 111: NAIC 2011 Budget

Item

Des

crip

tion:

Inc

lude

s co

nfer

ence

cal

ls a

nd lo

cal a

nd lo

ng-d

ista

nce

char

ges

for

staf

f, th

e N

AIC

Offi

cers

, and

at n

atio

nal m

eetin

gs.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Tel

epho

ne (

1)43

1,20

0$

21

0,25

1$

43

9,29

8$

357,

685

$

44

5,41

3$

87

,728

$

24.5

3%

(1)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Tel

epho

ne (

1)10

8,88

5$

38,6

80$

114,

496

$

79

,783

$

87,7

57$

15,8

12$

E13

: T

elep

hone

BU

DG

ET

ITE

M:

Tel

epho

ne

The

incr

ease

in te

leph

one

expe

nse

for

2010

and

201

1 is

for

conf

eren

ce c

all c

osts

, prim

arily

due

to in

crea

sed

com

mitt

ee a

ctiv

ity r

elat

ed to

hea

lth c

are

refo

rm.

95

Page 112: NAIC 2011 Budget

96

Page 113: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Cop

ier

Sup

plie

s (1

)10

9,52

2$

44

,317

$

10

7,19

6$

107,

196

$

11

2,55

6$

5,

360

$

5.00

%O

ther

Sup

plie

s (2

)23

7,50

2

11

3,60

5

24

1,26

2

219,

365

24

0,19

1

20

,826

9.

49%

Non

-Cap

ital E

quip

men

t (3)

158,

517

48,8

63

13

4,12

2

153,

580

22

6,86

1

73

,281

47

.72%

Tot

al50

5,54

1$

20

6,78

5$

48

2,58

0$

480,

141

$

57

9,60

8$

99

,467

$

20.7

2%

(1)

(2)

(3)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Cop

ier

Sup

plie

s (1

)11

2,55

6$

O

ther

Sup

plie

s (2

)86

,006

$

70

,647

25

,760

$

26,8

60$

4,

296

$

26,6

22$

N

on-C

apita

l Equ

ipm

ent (

3)19

5,80

915

07,

475

23

,427

Tot

al28

1,81

5$

18

3,35

3$

33

,235

$

26,8

60$

4,

296

$

50,0

49$

Cop

ier

supp

lies

rela

tes

topa

per,

tone

r,an

dot

her

supp

lies

need

edby

the

NA

ICC

opy

Cen

ter

for

the

prep

arat

ion

ofco

mm

ittee

mat

eria

lsfo

rna

tiona

land

inte

rimm

eetin

gs,

the

prin

ting

of N

AIC

pub

licat

ions

, mat

eria

ls, a

nd a

mul

titud

e of

add

ition

al p

roje

cts.

The

201

1 bu

dget

ant

icip

ates

a 5

% in

crea

se in

pap

er c

osts

.

BU

DG

ET

ITE

M:

Sup

plie

s

Item

Des

crip

tion:

Incl

udes

com

pute

rha

rdw

are

and

softw

are

and

furn

iture

and

equi

pmen

tpu

rcha

ses

unde

r$2

,000

,co

mpu

ter

supp

lies,

copy

pape

r,st

atio

nery

,pe

rfor

ated

invo

ice

pape

r,bu

sine

ss c

ards

, and

oth

er s

uppl

ies.

E14

: S

uppl

ies

Non

-cap

itale

quip

men

tpu

rcha

ses

incl

ude

min

orso

ftwar

eup

grad

esan

dpu

rcha

ses

asw

ella

sm

inor

offic

eeq

uipm

ent

and

com

pute

rsu

pplie

sne

eded

tofu

rnis

hst

aff

mem

bers

with

the

tool

sth

atar

ene

cess

ary

toco

mpl

ete

thei

ras

sign

edta

sks.

The

incr

ease

in20

11is

attr

ibut

able

toth

eup

grad

eof

the

oper

atin

gsy

stem

onal

lNA

ICst

aff

com

pute

rsan

dth

ead

ditio

nof

four

teen

full-

time

posi

tions

from

the

Bus

ines

san

dF

isca

lIm

pact

Sta

tem

ents

.The

2011

budg

etal

soin

clud

es31

virt

uald

eskt

opde

vice

sat

ato

talc

ost

of$3

2,65

0.P

leas

ere

fer

toE

11:

Dep

reci

aito

n an

d A

mor

itiza

tion

for

a de

taile

d ex

plan

atio

n of

virt

ual d

eskt

ops

devi

ces

and

the

NA

IC's

dec

isio

n to

exp

ense

rat

her

than

cap

italiz

e th

ese

purc

hase

s.

Inad

ditio

n,ex

pens

esre

late

dto

Bus

ines

san

dF

isca

lIm

pact

Sta

tem

ents

wer

ere

view

edin

divi

dual

lyan

dap

prov

edby

the

Exe

cutiv

e(E

X)

Com

mitt

eean

dIn

tern

alA

dmin

istr

atio

n(E

X1)

Sub

com

mitt

eeon

Oct

ober

4,20

10.

For

the

2011

budg

et,

thes

ein

clud

e(1

)$1

0,21

9fo

rth

eS

BS

Mai

nten

ance

and

Sta

ffing

Str

ateg

y(S

eeF

isca

lIm

pact

3);

(2)

$7,5

83fo

rth

eS

BS

Gro

wth

Str

ateg

y(S

eeF

isca

lIm

pact

4);a

nd(3

)$8

00fo

rth

eA

pplic

atio

nan

dD

evel

opm

ent

Tes

ting

Env

ironm

ent

Exp

ansi

on(S

eeF

isca

lIm

pact

2).

The

2010

proj

ectio

nin

clud

es$6

,846

for

the

Pre

miu

m R

evie

w D

ata

Col

lect

ion

and

Rep

ortin

g th

roug

h S

ER

FF

(S

ee F

isca

l Im

pact

5);

and

$5,

147

for

the

SB

S G

row

th S

trat

egy

(See

Fis

cal I

mpa

ct 4

).

The

incr

ease

in o

ther

sup

plie

s fo

r 20

10 a

nd 2

011

is d

ue to

incr

ease

d co

nsum

ptio

n an

d co

st o

f mis

cella

neou

s of

fice

supp

lies.

97

Page 114: NAIC 2011 Budget

98

Page 115: NAIC 2011 Budget

Item

Des

crip

tion:

Inc

lude

s m

eter

mai

l, U

PS

, exp

ress

, and

oth

er c

arrie

r ch

arge

s.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Mai

l Ser

vice

s (1

)28

8,74

3$

13

0,65

1$

26

1,07

2$

254,

159

$

26

9,62

2$

15

,463

$

6.08

%

(1)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Mai

l Ser

vice

s (1

)2,

825

$

29,1

14$

59,1

19$

11

,880

$

4,05

0$

16

2,63

4$

In20

09,

the

NA

ICbe

gan

aca

mpa

ign

tode

liver

mor

em

erch

andi

seel

ectr

onic

ally

,get

ting

the

prod

uct

toth

est

ate

depa

rtm

ents

and

outs

ide

cust

omer

sm

ore

timel

yan

din

am

ore

user

-fr

iend

lyfo

rmat

,el

imin

atin

gm

uch

ofth

esh

ippi

ngco

sts

inth

ede

liver

yof

prod

ucts

.T

heN

AIC

’son

line

publ

icat

ion

orde

ran

dde

liver

ysy

stem

,A

ccou

nt

Man

ager,w

asre

leas

edin

July

2009

,al

low

ing

the

NA

ICto

offe

ral

lpu

blic

atio

ns,

even

the

Acc

ount

ing

Pra

ctic

esan

dP

roce

dure

sM

anua

l,in

anel

ectr

onic

and

dow

nloa

dabl

efo

rmat

.U

nfo

rtun

atel

y,th

ere

ques

tsfo

rha

rdco

pym

ater

ials

have

not

decr

ease

dto

the

exte

ntan

ticip

ated

inth

e20

10bu

dget

.A

lthou

ghth

isva

rianc

eha

sbe

enca

rrie

dfo

rwar

din

toth

e20

11bu

dget

,ef

fort

sto

prom

ote

the

elec

tron

ic d

eliv

ery

of d

ocum

ents

con

tinue

.

BU

DG

ET

ITE

M:

Mai

l Ser

vice

s

E15

: M

ail S

ervi

ces

99

Page 116: NAIC 2011 Budget

100

Page 117: NAIC 2011 Budget

Item

Des

crip

tion:

Inc

lude

s co

sts

for

book

s, p

erio

dica

ls, a

nd o

n-lin

e re

fere

nce

serv

ices

.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Ref

eren

ce M

ater

ials

(1)

332,

692

$

181,

891

$

389,

745

$

36

9,57

0$

376,

847

$

7,27

7$

1.

97%

Per

iodi

cals

(2)

78,3

99

35,8

97

47

,134

75

,484

57,3

98

(18,

086)

(2

3.96

%)

Loos

e Le

af S

ervi

ces

(3)

17,5

42

10,2

80

18

,573

22

,528

15,1

56

(7,3

72)

(32.

72%

)O

nlin

e R

esea

rchi

ng (

4)11

8,39

3

57

,485

114,

000

83

,052

114,

000

30,9

48

37.2

6%

Tot

al54

7,02

6$

28

5,55

3$

56

9,45

2$

550,

634

$

56

3,40

1$

12

,767

$

2.32

%

(1) (2)

(3)

(4)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

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venc

yR

egul

ator

yan

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escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Ref

eren

ce M

ater

ials

(1)

2,18

8$

13

,175

$

61

,343

$

299,

455

$

68

6$

P

erio

dica

ls (

2)49

,538

7,86

0

Loos

e Le

af S

ervi

ces

(3)

15,1

56

O

nlin

e R

esea

rchi

ng (

4)11

4,00

0

Tot

al2,

188

$

13,1

75$

240,

037

$

30

7,31

5$

-$

686

$

Onl

ine

rese

arch

ing

incl

udes

serv

ices

such

asW

estla

wan

dLe

xis/

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eus

edex

tens

ivel

yby

the

Lega

lDiv

isio

nan

dse

rver

alot

her

area

sw

ithin

the

NA

IC.

Use

ofth

isre

sear

chto

olha

s ou

tpac

ed b

udge

t as

a re

sult

of u

npre

cede

nted

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slat

ive

activ

ity o

ccur

ing

in H

ealth

Car

e an

d F

inan

cial

Ser

vice

s R

efor

m. T

his

leve

l of u

sage

is e

xpec

ted

to c

ontin

ue in

to 2

011.

Sta

tistic

alre

fere

nce

mat

eria

lsin

clud

ere

fere

nce

sour

ces

onC

D-R

OM

and

subs

crip

tion

serv

ices

for

reso

urce

sus

edin

perf

orm

ing

rese

arch

inth

eN

AIC

Res

earc

hLi

brar

yan

dS

ecur

ities

Val

uatio

nO

ffice

.T

here

fere

nce

colle

ctio

nis

avi

tals

ourc

eof

up-t

o-da

tein

form

atio

non

insu

ranc

e,bu

sine

ss,

finan

cean

dte

chno

logy

-rel

ated

issu

esan

dsu

ppor

tsth

eN

AIC

'sfu

lfillm

ent

ofre

sear

chqu

estio

nsfr

omth

eN

AIC

mem

bers

,N

AIC

staf

f,an

din

tere

sted

part

ies.

The

2010

incr

ease

rela

tes

toth

eco

ntin

ued

incr

ease

inth

eco

stof

refe

renc

em

ater

ials

for

the

Sec

uriti

es V

alua

tion

Offi

ce a

nd th

e in

tern

atio

nal a

rea

of th

e E

xecu

tive

Offi

ce, o

ffset

by

cost

sav

ing

mea

sure

s im

plem

ente

d in

the

NA

IC R

esea

rch

Libr

ary.

E16

: R

efer

ence

Mat

eria

ls

An

exte

nsiv

ere

view

oftit

les

prov

ided

unde

rlo

ose

leaf

serv

ices

,as

cond

ucte

din

2010

,el

imin

ated

anu

mbe

rof

publ

icat

ions

whe

reus

age

was

not

suffi

cent

tosu

ppor

tth

epu

rcha

seof

the

mat

eria

ls. T

he 2

011

budg

et in

clud

es a

full

year

of t

hese

red

uctio

ns.

BU

DG

ET

ITE

M:

Ref

eren

ce M

ater

ials

Per

iodi

cals

are

also

used

inpe

rfor

min

gth

ese

rvic

esof

the

NA

ICR

esea

rch

Libr

ary

and

Sec

uriti

esV

alua

tion

Offi

ceam

ong

othe

rdi

visi

ons

ofth

eN

AIC

.E

xpen

sein

2010

will

beun

der

budg

etas

are

sult

ofm

ovin

gto

ane

wse

rvic

epr

ovid

erin

late

2009

and

the

disc

ontin

uatio

nof

perio

dica

lsw

here

onlin

ede

liver

yof

info

rmat

ion

ispr

ovid

edby

othe

rso

urce

s.T

he20

11bu

dget

incl

udes

thes

e co

st s

avin

g m

easu

res

but i

s of

fset

som

ewha

t by

an a

ntic

ipat

ed in

crea

se in

pric

ing.

101

Page 118: NAIC 2011 Budget

102

Page 119: NAIC 2011 Budget

Item

Des

crip

tion:

Out

side

cos

ts in

curr

ed fo

r pr

intin

g bo

oks,

sub

scrip

tion

upda

tes,

CD

pro

duct

s, m

arke

ting

mat

eria

ls, t

he N

AIC

Ann

ual R

epor

t, an

d ot

her

publ

icat

ions

.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Pub

licat

ions

(1)

141,

908

$

77,7

02$

133,

085

16

3,05

5$

189,

581

$

26,5

26

16.2

7%O

utsi

de P

rintin

g (

2)8,

677

7,01

5

12,6

77

13,7

00

13

,970

27

0

1.97

%

Tot

al15

0,58

5$

84

,717

$

14

5,76

2$

176,

755

$

20

3,55

1$

26

,796

$

15.1

6%

(1)

(2)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Pub

licat

ions

(1)

189,

581

$

O

utsi

de P

rintin

g (

2)2,

520

$

11,4

50$

Tot

al-

$

2,52

0$

11,4

50$

-

$

-

$

18

9,58

1$

E17

: P

rintin

g an

d P

rodu

ctio

n

Out

side

prin

ting

incl

udes

the

cost

ofpr

intin

gth

eN

AIC

Ann

ual

Rep

ort,

prod

uct

cata

logs

,na

tiona

lm

eetin

gsi

gnag

e,an

dm

arke

ting

mat

eria

lsth

atre

qui

reou

tsid

epr

intin

gdu

eto

size

and

pape

r re

quire

men

ts.

Pub

licat

ions

prin

ting

expe

nse

repr

esen

tsth

eco

stof

allp

ublic

atio

nin

vent

ory

item

sso

ld,

incl

udin

gth

eco

stof

spec

ialp

aper

and

othe

rsu

pplie

sus

edto

prod

uce

apu

blic

atio

nan

dth

eco

stof

exte

rnal

prin

ting

and

bind

ing

serv

ices

.T

heva

rianc

efr

ombu

dget

in20

10is

attr

ibut

able

tode

crea

sed

publ

icat

ion

sale

sin

2010

.T

hein

crea

sein

the

2011

budg

etis

the

resu

ltof

the

writ

e of

f of i

nven

tory

item

s be

com

ing

obso

lete

dur

ing

2011

.

BU

DG

ET

ITE

M:

Prin

ting

and

Pro

duct

ion

103

Page 120: NAIC 2011 Budget

104

Page 121: NAIC 2011 Budget

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Rec

eptio

ns (

1)19

4,61

0$

41

,338

$

11

9,84

6$

122,

208

$

13

4,01

3$

11

,805

$

9.66

%H

otel

Ser

vice

(2)

721,

140

198,

258

477,

456

52

3,82

7

523,

377

(450

)

(0.0

9%)

Rep

rodu

ctio

ns (

3)96

,475

28

,585

86,7

15

88,8

95

89

,571

67

6

0.76

%A

udio

-Vis

ual S

ervi

ces

(4)

387,

504

114,

039

320,

039

31

7,00

0

321,

800

4,80

0

1.

51%

Inte

rim M

eetin

gs (

5)12

4,49

9

40

,650

151,

873

12

6,93

5

152,

000

25,0

65

19.7

5%

Tot

al1,

524,

228

$

42

2,87

0$

1,

155,

929

$

1,17

8,86

5$

1,

220,

761

$

41

,896

$

3.55

%

(1)

(2)

(3)

(4)

(5)

Rec

eptio

nex

pens

esre

flect

the

cost

offo

odan

dbe

vera

gese

rvic

esan

dse

rvic

ech

arge

sfo

rth

eN

AIC

’sw

elco

min

gre

cept

ion

atna

tiona

lmee

tings

.T

hein

crea

sein

2011

isdu

eto

food

and

beve

rage

min

imum

requ

irem

ents

inco

njuc

tion

with

the

use

ofa

Con

vent

ion

Cen

ter

spac

efo

rth

isev

ent

atth

eN

AIC

Sum

mer

Nat

iona

lM

eetin

gan

dth

eva

rian

cebe

twee

nfo

odan

d be

vera

ge m

inim

ums

for

the

Fal

l Nat

iona

l Mee

ting

loca

tions

in 2

011,

Was

hing

ton,

D.C

. and

201

0, O

rland

o.

Item

Des

crip

tion:

Out

side

cost

sth

atar

edi

rect

lyre

late

dto

cond

uctin

gth

eC

omm

issi

oner

sC

onfe

renc

ean

dna

tiona

l,in

terim

,an

dco

mm

ittee

mee

ting

sth

atca

nnot

becl

assi

fied

with

inot

her

budg

et it

em c

ateg

orie

s.

E18

a: N

atio

nal a

nd In

terim

Mee

tings

Hot

else

rvic

esin

clud

esth

eco

stof

(1)

tech

nici

ans

and

setu

psu

ppor

t,(2

)el

ectr

ical

supp

ort,

(3)

regu

lato

ran

dst

aff

brea

kfas

ts,

lunc

hes,

and

brea

ks,

and

(4)

tran

spor

tatio

n.T

hepr

ojec

ted

varia

nce

from

the

2010

budg

etis

due

prim

arily

toth

ree

reba

tes

atta

ched

toth

eN

AIC

2011

Spr

ing

Nat

iona

lM

eetin

g.T

here

duct

ion

inho

tel

serv

ices

from

the

2009

leve

lre

late

s to

the

redu

ctio

n fr

om fo

ur to

thre

e na

tiona

l mee

tings

beg

inni

ng in

201

0.

BU

DG

ET

ITE

M:

Nat

iona

l and

Inte

rim M

eetin

gs

The

NA

ICis

unde

rco

ntra

ctw

ithan

outs

ide

vend

orto

prov

ide

natio

nalm

eetin

gco

pyce

nter

serv

ices

for

asp

ecifi

edam

ount

per

year

rega

rdle

ssof

the

num

ber

ofm

eetin

gshe

ld.

The

redu

ctio

n fr

om 2

009

is a

res

ult o

f elim

inat

ing

over

ages

for

one

natio

nal m

eetin

g pe

r ye

ar.

The

inte

rimm

eetin

gbu

dget

varia

nce

in20

10re

sults

from

anin

crea

sein

the

num

ber

ofre

ques

tsfo

rin

terim

mee

tings

,as

wel

las

the

addi

tion

ofa

seco

ndC

omm

issi

oner

Fly

-In,

NA

ICin

terim

mee

ting

onH

ealth

Insu

ranc

eR

efor

mIm

plem

enta

tion

(Hea

lthan

dM

anag

edC

are

(B)

Com

mitt

ee),

and

the

July

Cen

ter

for

Insu

ranc

eP

olic

yan

dR

ese

arch

(CIP

R)

Sym

posi

um.

The

201

1 bu

dget

ant

icip

ates

the

num

ber

of in

terim

mee

tings

to b

e co

nsis

tent

with

201

0 gi

ven

the

activ

ity r

elat

ed to

hea

lth c

are

ref

orm

.

Aud

iovi

sual

serv

ices

incl

ude

the

utili

zatio

n,co

stan

dse

tup

fees

for

mic

roph

ones

,el

ectr

onic

pres

enta

tions

,etc

.,to

faci

litat

em

eetin

gsan

dde

liver

pres

enta

tions

.It

also

incl

udes

NA

ICco

mpu

ter

netw

ork

conn

ectio

nsin

Com

mis

sion

erS

ervi

ces

atna

tiona

lmee

tings

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hebu

dget

edam

ount

sfo

rth

ese

serv

ices

are

base

don

cont

ract

uala

mou

nts

and/

orpr

ice

quot

esfr

omth

e se

lect

ed n

atio

nal m

eetin

g si

tes.

The

dec

reas

e fr

om th

e 20

09 e

xpen

ditu

re le

vel i

s re

late

d to

the

elim

inat

ion

of o

ne n

atio

nal m

eetin

g.

105

Page 122: NAIC 2011 Budget

Yea

rS

prin

gS

umm

erF

all

Win

ter

2011

Aus

tinP

hila

delp

hia

Was

hing

ton

D.C

.20

10D

enve

rS

eattl

eO

rland

o20

09S

an D

iego

Min

neap

olis

Was

hing

ton

D.C

.S

an F

ranc

isco

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

arke

tP

rodu

cts

Sys

tem

s an

dB

usin

ess

Ser

vice

s to

Sol

venc

yR

egul

ator

yan

dD

escr

iptio

nS

uppo

rtO

pera

tions

Mem

bers

Ser

vice

sS

ervi

ces

Ser

vice

s

Rec

eptio

ns (

1)13

4,01

3$

Hot

el S

ervi

ce (

2)52

3,37

7

Rep

rodu

ctio

ns (

3)89

,571

Aud

io-V

isua

l Ser

vice

s (4

)32

1,80

0

Inte

rim M

eetin

gs (

5)15

2,00

0

Tot

al-

$

-$

1,

220,

761

$

-$

-$

-$

E18

b: N

atio

nal a

nd In

terim

Mee

tings

BU

DG

ET

ITE

M:

Nat

iona

l and

Inte

rim M

eetin

gs (

cont

inue

d fr

om E

18a)

106

Page 123: NAIC 2011 Budget

Item

Des

crip

tion:

Exp

ense

s in

curr

ed b

y th

e N

AIC

for

educ

atio

n pr

ogra

ms.

2009

6/30

/10

12/3

1/10

2010

2011

Incr

ease

Des

crip

tion

Act

ual

Act

ual

Pro

ject

edB

udge

tB

ud

get

(Dec

reas

e)P

erce

ntag

e

Com

mis

sion

ers

For

um (

3)25

,085

$

30

,855

$

30

,855

$

100.

00%

Lega

l CLE

Wor

ksho

ps

11,8

09

15,4

25$

15

,425

$

15,0

49

(376

)

(2.4

4%)

Reg

ulat

ion

for

Sol

venc

y (2

)57

1

5,24

9

5,

249

2,88

9

(2

,360

)

(4

4.96

%)

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plus

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es R

egul

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n (

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70)

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2

(1

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C A

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l Sta

tem

ent (

2)3,

513

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0

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9.68

%)

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ance

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raud

(4)

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1

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$

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322

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2)

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arke

t Con

duct

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7

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ased

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rain

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catio

n an

d T

rain

ing

107

Page 124: NAIC 2011 Budget

Man

agin

g th

e C

ost o

f Reg

ulat

ory

Com

plia

nce

6,79

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b: E

duca

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ET

ITE

M:

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catio

n an

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rain

ing

(con

tinue

d fr

om E

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The

se p

rogr

ams

are

offe

red

ever

y ot

her

year

.

Incr

ease

d re

gist

ratio

ns a

re e

xpec

ted

for

thes

e pr

ogra

ms

in 2

011.

The

NA

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fers

insu

rers

the

oppo

rtun

ityof

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ing

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nnua

lSta

tem

ent

Inve

stm

ents

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edul

es,

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lthA

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Pre

para

tion

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icR

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essm

ent

prog

ram

son

site

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hein

sure

rpr

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elo

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nan

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rtic

ipan

ts;

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esth

ein

stru

ctor

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ater

ials

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dad

min

istr

atio

nfo

rth

epr

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mfo

ra

fee.

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reas

ein

expe

nses

for

this

prog

ram

is b

ased

on

a de

crea

se in

the

estim

ated

eng

agem

ents

dur

ing

2011

.

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se p

rogr

ams

will

not

be

offe

red

in 2

011

as p

art o

f an

asso

ciat

ion-

wid

e re

view

of s

ervi

ces

and

prio

ritie

s of

edu

catio

n to

pics

and

issu

es in

to 2

011.

Dec

reas

ed r

egis

trat

ions

are

exp

ecte

d fo

r th

ese

prog

ram

s in

201

1.

The

purp

ose

ofth

eE

duca

tion

&T

rain

ing

func

tion

with

inth

eN

AIC

isto

man

age

the

NA

IC’s

regu

lato

rycu

rric

ulum

.T

heco

refo

cus

ison

iden

tifyi

ngan

dse

izin

gop

port

uniti

esto

deve

lop

just

-in

-tim

e,on

-dem

and,

and/

orun

man

ned

trai

ning

and

deve

lopm

ent

ofpr

oduc

ts,

whi

leas

surin

gth

ein

tegr

ityan

dco

mpr

ehen

sive

ness

ofth

ecu

rric

ulum

asa

who

le.

Inth

eex

amin

atio

nof

educ

atio

nop

port

uniti

es,

the

goal

isto

achi

eve

aba

lanc

ebe

twee

nm

eetin

gth

ere

gula

tory

trai

ning

need

sof

Dep

artm

ent

ofIn

sura

nce

empl

oyee

san

das

sist

ing

indu

stry

clie

nts

thro

ugh

abr

oade

r ra

nge

of c

ompl

ianc

e tr

aini

ng to

pics

.

108

Page 125: NAIC 2011 Budget

(6)

(7)

(8)

(9)

(10)

(11)

2011

Bud

get b

y A

rea

Tec

hnol

ogy

Fin

anci

alM

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cts

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tem

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Mem

bers

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vice

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vice

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n an

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ing

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gram

s27

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2$

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anci

al S

umm

it 23

1,87

7$

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k A

sses

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t Tra

inin

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rogr

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eg C

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al-

$

-$

27

6,92

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231,

877

$

-

$

66

,715

$

New

pro

gram

for

2011

.

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plus

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spr

ogra

mis

co-s

pons

ored

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atio

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iatio

nof

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fess

iona

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plus

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ffice

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$8,0

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rye

arto

fund

the

cost

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ispr

ogra

m.

E19

c: E

duca

tion

and

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inin

g

The

NA

ICF

inan

cial

Sum

mit

was

not

held

in20

09to

take

adva

ntag

eof

the

chan

gein

natio

nalm

eetin

gsc

hedu

lean

dm

ove

the

offe

ring

ofth

isco

nfer

ence

toJu

nein

2010

.T

he20

11bu

dget

assu

mes

am

ore

cons

erva

tive

leve

lof

regi

stra

tions

than

2010

proj

ectio

ns,

but

anin

crea

sein

regi

stra

tions

from

the

2010

budg

et.

The

maj

ority

ofth

eco

stin

crea

sein

2011

isre

late

dto

min

imum

char

ges

for

audi

o/vi

sual

and

food

and

beve

rage

serv

ices

inco

njun

ctio

nw

ithne

gotia

tions

tore

duce

asi

zeab

leat

triti

onch

arge

asa

resu

ltof

decr

ease

dre

gist

ratio

nfo

rth

eN

AIC

2009

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mer

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iona

lM

eetin

gin

the

sam

eho

tel.

The

2011

budg

etal

soas

sum

esfu

llut

iliza

tion

ofth

etr

avel

spon

sors

hips

offe

red

tore

gula

tors

,w

hich

wer

eno

tfu

llyco

nsum

ed in

the

2009

pro

gram

.

The

cos

t for

thes

e pr

ogra

ms

will

var

y ba

sed

on p

artic

ipat

ion,

spe

aker

exp

ense

s, in

tern

et h

ostin

g co

sts

for

onlin

e pr

ogra

ms,

and

loca

tion

and

trav

el c

osts

for

clas

sroo

m p

rogr

ams.

The

prof

essi

onal

desi

gnat

ion

prog

ram

bega

nin

2007

topr

ovid

est

ruct

ured

expe

rienc

esin

whi

chco

ncep

tsan

dsk

ills

are

taug

htan

dle

arne

d.D

ueto

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impo

rtan

ceof

regu

lato

rs'

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ing

purs

uit

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ofes

sion

alex

celle

nce

thro

ugh

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atio

n,th

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AIC

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arsh

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edto

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ide

22$1

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ally

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dual

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ngto

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dan

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ssio

nalD

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natio

n.W

ithth

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olut

ion

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ispr

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m,

seve

rals

ervi

ces

that

are

nolo

nger

nece

ssar

yha

vebe

enel

imin

ated

orre

plac

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ithlo

wer

cos

t pro

mot

iona

l str

ateg

ies.

Due

toth

ead

ditio

nof

prog

ram

sin

mid

-yea

raf

ter

the

prep

arat

ion

ofth

ebu

dget

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sed

onem

ergi

ngto

pics

orin

dust

ry/r

egul

ator

ytr

aini

ngne

eds,

anam

ount

has

been

esta

blis

hed

toas

sum

eth

atat

leas

ton

eed

ucat

ion

prog

ram

will

aris

edu

ring

the

year

,whi

chm

ayno

tha

vebe

enco

ntem

plat

eddu

ring

the

prep

arat

ion

ofth

ebu

dget

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SE

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FT

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ing,

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elA

udit

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e,an

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arke

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men

tpr

ogra

ms

are

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dget

edpr

ogra

ms

that

aros

edu

ring

2010

.D

ueto

the

posi

tive

resp

onse

toso

me

ofth

ese

prog

ram

sth

eyw

illbe

cont

inue

d in

the

follo

win

g ye

ar, w

hile

oth

ers

serv

ed a

par

ticul

ar a

udie

nce

that

will

not

reo

ccur

in th

e fo

llow

ing

year

.

BU

DG

ET

ITE

M:

Edu

catio

n an

d T

rain

ing

(con

tinue

d fr

om E

19b)

109

Page 126: NAIC 2011 Budget

110

Page 127: NAIC 2011 Budget

Item

Des

crip

tion:

Util

izat

ion

of g

rant

and

zon

e fu

nds

and

expe

nses

incu

rred

by

the

NA

IC fo

r st

ate

and

gene

ral N

AIC

trai

ning

eve

nts.

2009

6/30

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2010

2011

Incr

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ual

Act

ual

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udge

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cate

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each

mem

ber

byth

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urZ

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sein

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sed

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ease

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The

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rm

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udes

the

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oved

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atio

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l of $

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ralt

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nse

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the

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ning

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nder

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natio

n sc

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p pr

ogra

ms

of $

20,0

00 a

nd $

33,0

00, r

espe

ctiv

ely.

111

Page 128: NAIC 2011 Budget

112

Page 129: NAIC 2011 Budget

Item

Des

crip

tion:

Cos

ts in

curr

ed fo

r re

crui

ting

expe

nses

, bad

deb

t allo

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ce a

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Incr

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113

Page 130: NAIC 2011 Budget

114

Page 131: NAIC 2011 Budget

Business &

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Page 132: NAIC 2011 Budget
Page 133: NAIC 2011 Budget

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115

Page 134: NAIC 2011 Budget

116

Page 135: NAIC 2011 Budget

Fiscal Im

pact 1

Page 136: NAIC 2011 Budget
Page 137: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: AUGUST 17, 2010 NAME OF PROJECT/INITIATIVE: RECORDS MANAGEMENT PROJECT

REGULATOR/BUSINESS SPONSOR: NAIC CENTRAL OFFICE NAIC STAFF SUPPORT: BRENT ROPER, DIRECTOR HR & INTERNAL SERVICES DIVISION

REQUESTED PROJECT START DATE: JANUARY 1, 2011

ANTICIPATED COMPLETION DATE: DECEMBER 31, 2011

TOTAL REVENUE GENERATED: $0

TOTAL EXPENSE REQUESTED: $83,953

TOTAL CAPITAL REQUESTED: $0

I. Executive Summary:

This proposal includes (1) the upgrade of the current Records Specialist position in the Office Services Department to a Records Program Manager position, and (2) hiring a consultant to advise the Association on alternative technologies regarding a comprehensive records management system. The Association recently completed a comprehensive review of its records management systems. A number of “best practices” were identified, that if implemented, would greatly enhance the NAIC’s overall records management program. The NAIC’s records management needs have grown to the extent a corporate records manager position is important because of: • The increased complexities of the NAIC’s records systems, including increased reliance on

NAIC to maintain state regulatory data and records; • The Association’s increased reliance on electronic records; • The need for the Association to eventually move to a comprehensive records system to

accommodate both electronic and physical records; and

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Page 138: NAIC 2011 Budget

• The need to implement more advanced records management practices including annual department audits, e-mail mailbox and network server limitations, more sophisticated records policies and the ability to hold directors, managers and staff accountable for their records practices.

Currently, the Association has an outdated software product called Advantage, which manages physical/hard copy records only. The program was purchased in 1991 and, while it has gone through some revised releases since that time, the functionality of the program remains largely the same. Currently, the Association uses the standard file management functionality in Windows to manage electronic files. As a first step toward a comprehensive system to manage physical and electronic records (including e-mail), the Association proposes to retain a consultant to perform a preliminary review of needs and options of products that could meet NAIC needs and budget. A high quality records management system is important for the Association in terms of: • Maintaining and searching records to document, backup and support regulatory initiatives

and decisions; • Enhancing the maintenance and support of state data that is housed at the NAIC; and • Providing better maintenance and protection of the intellectual property of the NAIC. The cost of an enterprise-wide comprehensive records system to meet the NAIC’s needs is currently unknown. However, the NAIC has made substantial progress in the area of records management and is ready to further evaluate its needs and the potential for implementing a more comprehensive records system. II. Benefits of Project/Initiative to NAIC Members:

Benefits of this project include: • Enhanced quality and management of the Association’s overall records management program

by professional level staff; • Better alignment with state regulatory data and records needs; • Increased accountability for NAIC staff for complying with records policies; • Staff productivity gains will be realized as new records systems and processes are put in

place that allow staff to more efficiently search and find needed information; • Reduced cost as the Records Program Manager enforces electronic storage limits which will

control the purchase of electronic storage capability; and • Elimination of redundant physical and electronic records including the storage of the same. A primary benefit of hiring a records consultant to review current systems is to gain valuable experience and knowledge without prematurely spending dollars on a system that may or may not ultimately meet NAIC needs. Many of the systems on the market are extremely complex, costly and take years to implement. Without the professional expertise in-house, it is prudent to get unbiased professional level experience before making any long-term decisions. Further, the Association will likely save warehouse storage costs as the NAIC moves from physical to electronic storage. The NAIC currently has approximately 3,200 boxes and spends

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approximately $7,000 annually in off-site storage. While the physical storage costs are not excessive, the process of managing, controlling and tracking the boxes is difficult and time consuming. This project will improve the Association’s ability to manage and control its records on an ongoing and permanent basis. III. Stakeholders: The primary stakeholders in this initiative are NAIC management and members. It is critical to the long-term success of the Association to retain and have ready access to historical information, and uniquely important to an organization that is nearly 140 years old. This initiative is the first step in building and upgrading the capability of the NAIC to retain and retrieve its vital corporate records. Further, this project will eventually assist the NAIC and its employees in doing a better job in searching, retrieving, and organizing information on a daily basis. IV. Business and Operational Impact: The business and operational impacts of this project are minimal. To upgrade the Records Specialist position to a Records Program Manager, it is recommended to maintain an overlap of the two positions for three to six months. This will allow NAIC Records Specialist to train the new Records Program Manager on current NAIC systems and provide for continuity. The two positions will also work together to streamline current systems and implement new processes to improve the Association’s overall records system. V. Financial Impact: • Upgrade Records Specialist Position to Records Program Manager – To achieve a three

to six month overlap between the Records Specialist and the Records Program Manager positions, in 2011, the cost for this project is estimated at $63,953.

• Records Consultant – This proposal includes $20,000 to retain a records consultant to

review the NAIC’s needs regarding a comprehensive records system and to evaluate suitable systems that would meet NAIC needs and budget. Because the Association must retain a records consultant it was estimated a budget of $20,000 was necessary. The necessity of a consultant with a deep background in information systems, electronic records, electronic storage, and the myriad of comprehensive records systems is a key component of this project. However, the Association will limit these costs to the extent possible.

See Attachment I for a detailed summary of costs associated with this proposal.

VI. Alternatives or Partnerships: Other alternatives include the following: • One alternative is to simply maintain the status quo, which is not desirable in the

Association’s long-term plans and solutions to better manage electronic records, and organize and store e-mails that are corporate records. With a greater dependency on electronic records status quo represents a number of disadvantages and greater legal liability.

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• Another alternative is to completely outsource all records management both hardcopy and

electronic to a third party. This can be costly, but is an option the Association plans to explore with the records consultant.

• A third alternative is to simply spend the money now to purchase a comprehensive records

system. This type of system can be very costly both in terms of purchase price and human resources to implement the system (sometimes years). By upgrading our internal infrastructure in terms of hiring a professional records manager and engaging a consultant with expertise in records management the Association may be able to save time and money and achieve a more cost effective long-term solution.

VII. Risk Management:

The NAIC’s current records systems are fragmented in that the Association has no comprehensive system to manage all of its records and information. In addition, the Association is lacking a records system to manage electronic records and its physical records system is outdated.

The risks associated with this request are fairly limited, while the risks associated with the larger records management project are substantial as the Association moves forward to better track, organize, search and produce its corporate records. Association management believes this project is a reasonable and measured first step toward enhancing its records management systems.

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Attachment I

121

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122

Page 143: NAIC 2011 Budget

Fiscal Impact 2

Page 144: NAIC 2011 Budget
Page 145: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: JULY 6, 2010 NAME OF PROJECT/INITIATIVE: APPLICATION DEVELOPMENT AND

TESTING ENVIRONMENTS EXPANSION

REGULATOR/BUSINESS SPONSOR: INFORMATION SYSTEMS (EX1) TASK FORCE COMMISSIONER SANDY PRAEGER (KS), CHAIR

NAIC STAFF SUPPORT: DENISE MATTHEWS, DIRECTOR INFORMATION SYSTEMS DIVISION

REQUESTED PROJECT START DATE: JANUARY 2011

ANTICIPATED COMPLETION DATE: DECEMBER 2011

TOTAL REVENUE GENERATED: $0

TOTAL EXPENSE REQUESTED: $53,944

TOTAL CAPITAL REQUESTED: $117,841

I. Executive Summary: The NAIC has developed and supports over 400 computer applications supporting key regulatory business functions for all 56 member jurisdictions including financial solvency, market regulatory analysis, electronic rate and form filings, company licensing, online fraud reporting and receivership data. NAIC also works closely with its affiliate, NIPR, in support of numerous applications transacting electronically the business of producer licensing. NAIC provides a technology infrastructure that securely connects over 12,000 state insurance regulators with over 4,500 insurance companies and 4 million producers, as well as supports 8,000 individual insurance industry users transacting daily regulatory compliance activities. In 2009, over 16.8 million transactions were processed using these NAIC on-line applications on behalf of participating state insurance departments, insurance companies, and insurance producers, as well as $350 million in electronically processed state and transaction fees. Because these systems perform such a critical role in helping to streamline and make more uniform state-based insurance regulation, it is vital the NAIC continue to enhance and provide improvements to meet the growing needs of the members and related business partners. This

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proposal seeks to respond to customer requests to upgrade the testing infrastructure in support of these computer systems. Specifically, it would improve NAIC’s and NIPR’s ability to make high priority, business critical changes to production quickly and without error, improve the ability of the application areas to adequately test applications for high volume and high load conditions and provide an environment that ensures testing is adequately representative of the conditions that will be experienced in the production environment. The request is for 2011 capital expenditure of $117,841 and additional expenses of $17,930, to purchase the necessary infrastructure to improve a constrained quality assurance testing environment for these computer applications, which today lacks the ability to adequately support the breadth of application testing required based on the types of integrated systems currently in place. II. Benefits of Project/Initiative to NAIC Members: NAIC is a significant technology provider in the state-based insurance regulatory arena. State regulators, along with their customers and business partners, expect to have reliable access to these online software systems and technology services, to successfully transact thousands of insurance regulatory processes each day. Therefore, it is essential for NAIC to enhance, expand and enforce its information systems best practices to meet this ever-increasing responsibility. The successful growth of our state producer licensing systems and increase in their transaction volumes have produced constraints on the current technology infrastructure “environments”, which are used to test this system software. This has resulted in falling short on some state and business partner’s expectations regarding access and availability to these systems. This initiative proposes a solution, using an incremental expenditure approach, to expand the infrastructure capacity and resolve the current system’s limitations. The proposal requests adding additional hardware and software to expand the testing environment capacity, which would allow computer developers and analysts the ability to test software applications with a more complete set of data fields; load-test a larger number of transactions, or test a greater variety of test-scenarios; to help insure when new versions of the software are rolled-out to customers, they are stable and error-free. Having a larger capacity testing environment should also improve the ability to resolve system errors more quickly, thus reducing the amount of system disruption time for users. This upgraded hardware configuration would provide more flexibility in the available times to schedule the roll-out of a software release or perform load/volume tests. This project would introduce a new testing environment component, allowing NAIC the ability to code, test and roll-out an “emergency fix” quickly, without disrupting the work in progress for a “scheduled maintenance” software release. Today, NAIC’s testing environments limit the ability to successfully perform this type of simultaneous testing. The new testing environment will improve the NAIC’s ability to resolve system errors quickly, thus reducing the amount of time these disruptions affect system users. The upgraded hardware

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configuration would also provide more flexibility in the roll-out of software releases and greater capacity for performing load/volume tests. An additional benefit is future cost savings in application developer resources. Today there are application development workflows that require an extensive amount of time to be spent in testing environments, due to the capacity constraints. The increased system availability provided by this initiative would dramatically shorten the time frame for development and testing, and would significantly reduce the impact on other software releases by not compromising an existing environment while making urgent repairs.

III. Stakeholders: Stakeholders for this initiative include NAIC members; NIPR and their business partners; state insurance department regulators; insurance companies; insurance agents and brokers, as well as their third-party vendors who support these groups. IV. Business and Operational Impact: This project would work in tandem with other process improvements, which will be implemented within the information technology divisions – including a significant enhancement of services provided by the NAIC Information Systems Quality Assurance Testing team (ISQA); a new workflow initiative being implemented by the NIPR developer and testing analyst teams; as well as leveraging several new monitoring tools and process metrics NAIC technology teams will be utilizing to be able to quantify and measure the expected system improvements. Specific NAIC staff resource teams which will be impacted by this project are: • Technical Services for procurement and hardware and software component set-up; • Database Analysts to monitor and tune new hardware components; • Application Developers for initial application set-up of new testing environments; • ISQA staff will have an additional environment to monitor and maintain; • All information systems staff will be required to place a greater emphasis on documented

workflows and proper disciplines put into practice; • Training in all areas in using the new environments will be required; and • Testing teams will need to validate roles and responsibilities. Note: There should be no noticeable impact to system users and customers during the project implementation. V. Financial Impact: The request is for 2011 capital expenditures of $117,841 which represents expenses for hardware and software to purchase the necessary infrastructure for this initiative and includes (1) a hardware server for $39,623; (2) software UNIX operating system for $13,418; and (3) the Oracle Web Logic Suite for $64,800. Additional expenses include (1) a fee for the one-time Unix backup client of $800; (2) annual SSL certification fees of $2,503; and (3) annual maintenance expenses for the hardware and software components of $14,627. See Attachment I for a detailed summary of costs associated with this proposal.

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VI. Alternatives or Partnerships: Alternatives for this initiative include: (1) Remain with the current NAIC hardware infrastructure for the computer testing

environments. This provides an avoidance of any expenditure in 2011, but will also negate realizing any of the benefits described within this proposal.

(2) Expand this proposal to purchase and install more than one server with data storage, to

proactively plan for a continued increase in transaction volumes and users. However, the cost analysis for this alternative was greater than the achievable business benefit.

(3) No partnerships were investigated. VII. Risk Management: Risks include: • An unplanned delay during the procurement process or server set-up could cause the delivery

of the project to be delayed. • Once the project is implemented, system improvements could initially trend lower than

expected, until environments can be further tuned and adjusted, or until procedural changes and staff training were completed.

• This initiative, once implemented, may require the purchase of an unbudgeted database,

which would also require additional employee head count. While this risk was contemplated, a decision that this component will not be necessary was reached, at least during the first year of operation.

If this project is not approved, the ability to gain any of the benefits described within this proposal would be severely limited, which would result in impact to users of NAIC systems and services. Finally, the success of this project depends on a disciplined approached by all business areas using the new environments to maintain up-to-date, documented system workflows and testing guidelines and procedures.

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Attachment I

127

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128

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Fiscal Im

pact 3

Page 152: NAIC 2011 Budget
Page 153: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: JUNE 18, 2010 NAME OF PROJECT/INITIATIVE: SBS MAINTENANCE AND STAFFING STRATEGY

REGULATOR/BUSINESS SPONSOR: INTERNAL ADMINISTRATION (EX1) SUBCOMMITTEE

NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES

REQUESTED PROJECT START DATE: JANUARY 1, 2011

ANTICIPATED COMPLETION DATE: ONGOING

TOTAL REVENUE GENERATED: $0

TOTAL EXPENSE SAVINGS: $23,571

TOTAL CAPITAL AMOUNT REQUESTED: $8,600

I. Executive Summary:

State Based Systems (SBS) is a membership-supported project designed to provide a comprehensive web-based application to state regulators for more efficient and expeditious licensing processes of producers, companies, and other regulated entities (bail bondsmen, motor vehicle service providers, pre-need funeral, and much more). In addition, the software supports continuing education, consumer complaints/assistance, regulatory enforcement, investigations, revenue, examinations and project tracking. Originally, this project was established as a ‘pay as you go’ type initiative. In 2006, the membership recognized the budgetary and resource constraints facing the states and supported a shift in the cost structure such that states were no longer required to pay for an SBS implementation effective January 2007. This move was based on an assumption that, over time, SBS would be subsidized by revenue generating transactions.

The NAIC entered into a 10-year licensing and services agreements with a business partner, Aithent, Inc. (Aithent) in July 2002. This partnership allowed the NAIC to leverage a set of web-based software from Aithent that served as the initial code base for SBS, supporting only

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producer licensing, company licensing services and limited reporting. All other services have since been built into SBS (continuing education, pre-licensing education, complaints, enforcement, investigations, regulated industries, revenue, examinations, project tracking, and expanded reporting). As compensation for Aithent’s contribution to the partnership, the NAIC is obligated to share revenues with Aithent and must provide Aithent a right of first refusal for all consulting services through July 2012.

The purpose of this proposal is to meet the following objectives:

(1) Initiate efforts to establish an appropriate staffing level to maintain State Based Systems (SBS);

(2) Enhance ability to respond effectively and quickly when code changes are needed in preparation for production deployment;

(3) Augment testing capabilities; and

(4) Expand the customer support area to meet the needs of the growing customer base resulting from the expansion in licensees.

Strengthen SBS Staffing

Experience has proven that a state implementation is typically more involved than it was in 2002, due to the states’ desire to have SBS cover more back office functionality to support regulatory needs and membership initiatives, resulting in the expansion of SBS services/functionality over time (see Appendix A). These factors, combined with the more recent rapid growth in SBS licensees with significantly more detailed and stringent requirements and covering a broader range of services has resulted in an expanded need for resources. The NAIC now has 20 states licensed to use SBS (Appendix B), with five licensed in 2007, four licensed in 2008, four licensed in 2009 and one licensed in January 2010. This has resulted in over 200% licensee growth in three years, a period during which staff increased by 50%. In order to address the growing need for resources, the NAIC has become more reliant upon consulting resources.

A primary objective of this fiscal is to establish a resource pool sufficient to support the growth in SBS into 2011.

Improve Ability to Respond Quickly to Meet Production Deadlines

By augmenting full time staff the NAIC will be able to avoid delays and implement projects.

Improved Software Testing

Over time, as more states have licensed SBS, the testing cycles have become longer and more complex. This is the direct result of the SBS software structure and state specific business rules. The underlying code that serves as the basis for SBS contains separate state databases for each state. In addition, while the general business practices in each state are similar, the business rules vary with respect to license types, lines of authority, fees, expirations cycles, grace periods, continuing education requirements, letter templates, license templates, etc. As a result, for each software release to all licensed states, which occurs 3-4 times per year, NAIC staff must fully test all new functionality and regression test all existing functionality for each state. This is very time

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consuming and must be successful or it can result in the release of code with potential issues that must subsequently be addressed, diverting critical resources from future projects.

In converting consulting dollars to full time resources, the NAIC will be able to add two additional quality assurance staff, one at a senior level assigned responsibility for improving testing plans and processes. In addition, adding these staff will allow the team to shift testing responsibilities to the testing staff and away from the business analyst and developer resources needed for other state implementation and enhancement projects.

Customer Support

With the growth in SBS licensed states, SBS customer support needs have significantly expanded. Some staff restructuring in this area has already assisted in mitigating a backlog, but the team anticipates moving two states into production in 2010 and four more in 2011, SBS customer support needs will automatically expand. This proposal incorporates one customer support analyst as a result of the consulting for full time staff substitution.

The SBS initiative supports the NAIC mission of providing tools to regulators to support their regulatory responsibilities and is a critical component to 20 states today. It is anticipated this license base will continue to grow as other states discover the benefits of leveraging SBS as a no cost initiative. In fact, the NAIC has been notified of three additional contract awards, not included in the six states previously slated for production as mentioned above. SBS is guaranteed to comply with member initiatives in the areas of producer and company licensing, continuing education, complaints, enforcement and investigations.

Ultimately, this proposal will reduce the long term net cost to NAIC of supporting the existing licensees with the existing software. After careful analysis of the SBS project, it has been determined the NAIC can replace consulting resources (currently seven developers) with four full time development/data migration staff, two quality assurance staff, one customer support analyst, and one database analyst. Further, this staffing can be accomplished with little impact to the NAIC budget and enhance the NAIC’s ability to meet SBS software release dates. II. Benefits of Project/Initiative to NAIC Members:

The direct benefits of this fiscal include:

• Reduction in Consulting Costs: Currently, the NAIC budgets approximately $600,000 per year in consulting related to SBS for resource augmentation. This proposal is designed to result in the elimination of future consulting expenses.

• Reduced Duration of Code Modifications Prior to Production Release: A significant benefit of replacing consultants with full time employees is the ability to respond quickly to necessary code modification immediately prior to an implementation, using onsite resources intimately involved in the project.

The benefits the SBS initiative in general are identified and described below.

• Compliance with NAIC Initiatives: Continuing to develop SBS as a consistent back office system for states provides licensed states a low-cost solution for complying with national state regulatory initiatives. Examples include changes to the producer uniform application

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and changes in complaint coding (both due in 2010). Ultimately, this results in greater uniformity across states, which is critically important to the 20 licensed states and was a primary factor in selecting SBS. This proposal will enable staff to continue to meet these obligations and support of the increased number of SBS state implementations.

• Enhanced Functionality: The expansion of SBS services is a key component to several states’ consideration of SBS as a viable solution for their regulatory needs. Several years ago, the state focus was on internal functionality. However, with increased focus on providing regulated entities with the ability to comply with regulatory requirements and streamline access to information, states have increasingly focused on the development of external customer online functionality. These requests can be very state specific, so it is critical SBS is able to fill the wide variety of needs across states. This proposal will enable SBS to better support state requirements to provide more services online.

• Cost Savings to the States: By improving the efficiency of processing, SBS can significantly reduce costs. Cost savings vary by state, but examples include:

(1) One state licensing SBS realized an immediate cost savings of over $3 million dollars

annually as a result of the SBS implementation; (2) Other states have been able to maintain their staffing levels, but process considerably

more applications and consumer complaints or other types of requests due to efficiencies emanating from the SBS tool suite;

(3) States are able to redeploy resources to projects that were previously not prioritized due to the need to expend resources on functionality that is now provided by the NAIC;

(4) SBS licensees are able to avoid the resource and financial costs of making system modifications to software as a result of member initiatives;

(5) Reduced cost of publishing information online in each state; (6) Elimination or reduction in hardware/software costs to state insurance departments that

are necessary when the state develops and supports its own software; (7) Elimination or reduction in hardware/software costs charged to the insurance

department by state IT agencies that provide services to the insurance department; and (8) End user productivity gains through the submission of applications and reports online,

thus reducing low value data entry burdens on state staff and ultimately enabling resources to focus on higher value work.

• Streamlined Data Entry Processes: Implementing the online functionality for SBS, which includes using NIPR resident and non-resident producer licensing, significantly reduces the amount of data entry required of state insurance department staff. These interfaces allow data entry by the applicant and only require regulatory staff to audit and approve the application. This should provide significant labor cost savings to state insurance departments. The same benefits apply to complaints processing where complaints are submitted to the state online.

• Speed to Market: By improving the efficiency of the licensing and appointment process, insurance companies and producers benefit by being able to market products more quickly.

• Modernization: A web application eliminates or significantly reduces time and effort required to maintain software on the desktop and operating system and processor issues encountered using client server systems. In addition, the SBS system includes the advantages of increasing customer (i.e., licensee) satisfaction and reducing demands on states’

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licensing/customer service personnel, as licensees are able to initiate licensing applications/changes 24-7 and can obtain status checks online.

• Increased Services to Consumers and Regulated Entities: Leveraging SBS generally results in a significant and immediate increase in services provided to consumers and other regulated entities. For example, consumers can easily access information regarding licensed entities in order to confirm whether or not a producer has an active license for the type of insurance sought. Licensed entities are able to access their license record, print a copy of licenses, sign up for online notifications, conduct licensing transactions, etc. Other regulated entities are also able to conduct licensing business and submit reports and payments to the states as required by law. Undertaking the proposed work will result in improving online services to users by enhancing their experience and making it easier to conduct business across states.

• Excellent Customer Service: SBS implementations feature a high level of customer service and support as the NAIC understands the needs of the regulators and it is the NAIC’s mission to support those needs. A high priority is placed on excellent customer service. Implementation of SBS has resulted in a transfer of considerable customer support to the NAIC as customers access online services to meet their needs (license printing, continuing education transcripts, licensee lookup features, etc.). As a result, states have benefitted by receiving fewer phone calls, letters and other forms of inquiries that can be easily addressed through online services. This proposal is designed to improve online services for constituents, further reducing needed state support.

III. Stakeholders:

• SBS Licensees/NAIC Members: The key stakeholder would be those NAIC members who have licensed SBS and those that are interested in participating in the SBS initiative, in that they would receive the benefit of utilizing the low-cost, web-based system for licensing, market regulation, consumer services, legal, enforcement, investigations, revenue, project tracking, regulated industries, and financial examinations business areas incorporated into SBS. The licensee states agreed to purchase SBS with the expectation the system would evolve to include the aforementioned modules, and they would receive the level of customer service that the NAIC is known to provide. The NAIC will continue to market SBS to states as a full service suite of tools designed to minimize cost to the states, improve services to constituents, and increase the value of regulatory work by eliminating low value activities.

The NAIC has added 14 states to the SBS family since January 2007. The NAIC will remain focused on maintaining a suite of tools that continue to be enhanced in order to meet state needs. It is difficult to anticipate how many additional states will license SBS, but it is anticipated a full service application that enhances regulatory efficiencies within the state and for constituents will continue to increase the demand for SBS.

• NIPR is a stakeholder for resident and nonresident licensing, appointment and termination, attachment warehouse and address change data needs that flow through the NIPR and SBS systems for SBS states.

• Insurance Companies, Insurance Agencies, Producers, Providers, other Regulated Entities and Consumers: Licensed entities have the advantage of being able to submit their licensing applications, renewals, registrations, and reports online, which should reduce the

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time for approval and receiving of the license or certificate of authority. It also eliminates the potential for data errors that can occur with hard copy submissions to state that require data entry. Providers benefit from the ability to submit provider applications, course applications, instructor applications and course rosters online, thus streamlining the process of meeting regulatory requirements.

• Consumers are a stakeholder with the complaints functionality. Consumers are able to utilize the system to file complaints against insurance entities online.

IV. Business and Operational Impact:

The business and operational impact is limited to the hiring of additional staff, offset by the reduced cost and administration of utilizing outside consulting resources.

V. Financial Impact:

2011 2012 2013

Revenues $0 $0 $0

Expenses ($23,571) $12,045 $33,645

Net Revenue $23,571 ($12,045) ($33,645)

• Salary and associated expenses and Employee Benefits: The majority of expenses are derived from salary and associated salary items such as FICA and unemployment compensation and from health insurance, life and disability insurance and parking. The expenses associated with hiring the staff are offset by a reduction in professional consulting services.

• Minor computer equipment: A small amount of expenses are associated with minor computer software purchases.

• Professional Consulting Services: From 2011 and 2013, expenses are reduced by the projected consulting expenses in each future year.

See Attachment I for a detailed summary of costs associated with this proposal. VI. Alternatives or Partnerships:

Alternatives to this proposal are to increase reliance upon consulting as the NAIC licenses additional states and increases services. This will only serve to increase consulting costs to the NAIC through 2012. Absent the NAIC’s ability to reduce reliance upon consulting, currently at $609,800 per year, the need for these resources are projected to continue beyond 2012. VII. Risk Management:

This proposal is focused on risk management. At this time, the NAIC is heavily dependent upon consulting services and reducing NAIC reliance should more effectively position the NAIC for long term SBS support.

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APPENDIX A

SBS Service Augmentation History

2002 2003 2004 2005 2006 2007 2008 2009 2010

State Services

Producer X X X X X X X X X

Continuing Education X X X

Company X X X X X X X

Complaints X X X X X X

Enforcement X X X X X

Investigations X X X

Market Conduct Exams X X X

Financial Exams X X X X

Project Tracking X X X

Revenue X X X X

Regulated Industries X X

External Services

Licensee Lookup X X X X X X

Online Licensee Services X X X X X

Online CE X X X

Regulated Industry Services

X

Connect X X

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APPENDIX B

State License History

State 2002 2003 2004 2005 2006 2007 2008 2009 2010

Alabama X X X X

Delaware X X X X X X X X X

District of Columbia X X X X X X X X X

Florida X X X X

Illinois X X X X

Iowa X X X X

Kansas X X X X

Maryland X X

Missouri X X X X

Nebraska X X

New Hampshire X X X X X X

New Jersey X X X X X X X X X

North Carolina X X X X

North Dakota X X X X

Oklahoma X X

Puerto Rico X X X X

Rhode Island X X X X X X X X

Tennessee X X X X

U.S. Virgin Islands X

West Virginia X X

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137

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138

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Fiscal Im

pact 4

Page 164: NAIC 2011 Budget
Page 165: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: AUGUST 30, 2010 NAME OF PROJECT/INITIATIVE: SBS GROWTH STRATEGY

REGULATOR/BUSINESS SPONSOR: INTERNAL ADMINISTRATION (EX1) SUBCOMMITTEE

NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES

REQUESTED PROJECT START DATE: OCTOBER 1, 2010

ANTICIPATED COMPLETION DATE: ONGOING

TOTAL REVENUE GENERATED: $1,678,181 (2010-2012)

TOTAL EXPENSE REQUESTED: $2,455,686 (2010-2012)

TOTAL CAPITAL REQUESTED: $755,486 (2010-2012)

I. Executive Summary:

The SBS project has just completed its eighth year and has two years remaining in a contractual relationship with its business partner, Aithent. Over the last eight years, the NAIC has licensed 20 states and implemented 15. The remaining five states are slated for production release in 2011. Initially, the SBS software focus was solely on Producer functionality. Following the initial release with two states, the Company features were enhanced and made available for production release. During the ensuing seven years, the NAIC staff significantly enhanced the originally delivered base functionality by adding Consumer Services, Enforcement, Revenue, Investigations, Continuing Education (CE), Pre-Licensing Exams, Market Conduct Exams, Financial Exams, Project Tracking and Regulated Industry Services. In addition, the NAIC has rewritten all reporting functionality originally delivered, enhanced standard reports, built export functionality to allow access to all underlying data, created correspondence templates, added attachment capabilities and scan client functions, and modified the ‘to-do list’ workflow. Furthermore, the NAIC has developed many external transaction functions, some of which generate revenue and some of which do not, as demanded by the state licensees.

139

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Given the complexity and expansion of the SBS product suite, each state implementation project is more involved and time consuming. And despite the fact the software has grown significantly, states often require various state-specific features and functions challenging the original concept of a uniform system deployed in all states. The NAIC integrates all new SBS state code into existing software through a time-consuming code merge process following each state implementation, but due to the underlying structure of SBS, each new state adds another layer of complexity, resulting in exponential testing requirements and additional customer support, both of which would be significantly enhanced with an augmented testing team. In addition, the underlying infrastructure places a heavy burden on the SBS staff and the Technical Services Division staff in supporting database requests, code releases, state implementation projects, data migrations, and more. In 2002, a state implementation required four staff: a manager; a business analyst; a software engineer; and a data migration analyst. These staff shared testing and customer support functions. This team of four was able to support a Producer or Producer/Company implementation only. As the NAIC has expanded the SBS product suite to include additional services, the staffing requirement per implementation has grown. Today, a typical state implementation is generally completed in two phases: Licensing (Producer, CE, Pre-Licensing Education and Company) and Market Regulation (Consumer Services and Enforcement). Should a state desire Investigations or Regulated Industry Services, additional phases are required. A licensing implementation today generally requires seven or eight staff: two business analysts (one producer/company and one for CE); one data migration analyst; two or three software engineers (depending on state requirements); and one tester, all led by a manager. A market regulation implementation requires five staff: one business analyst, one data migration analyst, one software engineer, one tester, and a manager. To the extent a state does not complete a full implementation upon initial release, which is common, the NAIC staff must support additional service implementations as the states become ready for additional SBS modules. Given the current staffing levels, the NAIC will be able to complete the five licensing implementations currently underway, four market regulation implementations, one market regulation service enhancement (complaints coding), one market regulation service development (external health care review), and three general enhancement releases in 2011. However, this leaves a number of initiatives under-resourced, including: (1) Replacement of existing credit card functionality with NAIC standard functionality; (2) Incorporating web services functionality to enhance the transfer of state data initiated by

NIPR transactions; (3) Redesign of external services to streamline and reduce customer confusion upon using and

enhance revenue generating capability; and (4) Servicing any new executed contracts.

It should also be noted that adding states requires expanded testing and customer service support. This proposal is designed to establish a separate team focused on testing, thus relieving business analyst staff, software engineers and marketing staff of testing responsibilities, which will enable them to focus on other tasks that require their time. Given the rapid growth in SBS licensees, a series of short-term initiatives are being proposed to improve overall effectiveness and increase user satisfaction. These steps will enable the NAIC to

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improve high quality products through the redesign of external interfaces allowing customers access to all states with a single user identification and password, streamline the customer registration process and support additional state implementation projects. In addition, the NAIC will be able to streamline internal fee collection reporting and monitoring as well as introduce electronic payments to states rather than monthly paper check remittances. Specifically, this proposal is designed to allow the NAIC to: (1) License two to three additional states in 2010 and initiate their implementations. One must

deliver by June 30, 2011. Two would deliver in 2012; (2) Initiate a redesign of external reporting and transaction interfaces, resulting in a single sign-

on approach for user access to all SBS states, a more intuitive design and fewer Help Desk calls;

(3) Augment continuing education revenues through the incorporation of incentives for providers to submit online course roster uploads by publishing schedules and ‘advertising’ which providers use the online upload process;

(4) Replace existing credit card processing functionality with NAIC standard credit card processing functions, in an effort to more easily meet Payment Card Industry (PCI) compliance requirements;

(5) Enhance fee reporting and introduce online payments to states; (6) Build web services to improve database updates stemming from NIPR transactions; (7) Further augment the testing team to free up additional business analyst resources,

marketing and software engineer resources, resulting in a more effective use of resources; (8) Augment data migration capacity to facilitate acceleration of state deployments; (9) Augment the Technical Services Division by adding a web administrator who will function

as a key player in the many code deployment processes, thus enhancing state implementations;

(10) Expand capacity so the NAIC is able to handle five licensing implementations, staggering the implementations between two licensing teams;

(11) Augment market regulation state implementation efforts to allow for five state implementations each year;

(12) Accommodate the new complaint codes in SBS; (13) Initiate a new External Health Review service, which will support the Patient Protection

and Affordable Care Act; and (14) Expand the technical infrastructure to handle the addition of new states and growth in

capacity for existing licensed states.

II. Benefits of Project/Initiative to NAIC Members:

The benefits of this proposal and the SBS initiative in general are identified and described below.

• Compliance with NAIC Initiatives: Continuing to develop SBS as a consistent back office system for states provides licensed states a low-cost solution for complying with national state regulatory initiatives. Examples include changes to the producer uniform application and changes in complaint coding (both due in 2010). Ultimately, this results in greater uniformity across states, which is critically important to the 20 licensed states and was a primary factor in selecting SBS. This proposal will enable staff to continue to meet these obligations and support of the increased number of SBS state implementations.

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• Enhanced Functionality: The expansion of SBS services is a key component to several states’ consideration of SBS as a viable solution for their regulatory needs. Several years ago, the state focus was on internal functionality. However, with increased focus on providing regulated entities with the ability to comply with regulatory requirements and streamline access to information, states have increasingly focused on the development of external customer online functionality. The requests can be very state specific, so it is critical SBS be able to fill the wide variety of needs across states. This proposal will enable the NAIC to better support state requirements to provide more services online.

• Cost Savings to the States: By improving the efficiency of processing, SBS can significantly reduce costs. Cost savings vary by state, but examples include:

• One state licensing SBS realized an immediate cost savings of over $3 million dollars

annually as a result of the SBS implementation; • Other states have been able to maintain their staffing levels, but process considerably

more applications and consumer complaints or other types of requests due to efficiencies emanating from the SBS tool suite;

• States are able to redeploy resources to projects previously not prioritized due to the need to expend resources on functionality now provided by the NAIC;

• SBS licensees are able to avoid the resource and financial costs of making system modifications to software as a result of member initiatives;

• Reduced cost of publishing information online in each state; • Elimination or reduction in hardware/software costs to state insurance departments

necessary when the state develops and supports its own software; • Elimination or reduction in hardware/software costs charged to the insurance department

by state IT agencies providing services to the insurance department; and • End user productivity gains through the submission of applications and reports online,

thus reducing low value data entry burdens on state staff and ultimately enabling resources to focus on higher value work.

• Streamlined Data Entry Processes: Implementing the online functionality for SBS, which includes using NIPR resident and non-resident producer licensing, significantly reduces the amount of data entry required of state insurance department staff. These interfaces allow data entry by the applicant and only require regulatory staff to audit and approve the application. This should provide significant labor cost savings to state insurance departments. The same benefits accrue to complaints processing where complaints are submitted to the state online.

• Speed to Market: By improving the efficiency of the licensing and appointment process, insurance companies and producers benefit by being able to market products more quickly.

• Modernization: A web application eliminates or significantly reduces time and effort required to maintain software on the desktop and operating system and processor issues encountered using client server systems. In addition, the SBS system includes the advantages of increasing customer (i.e., licensee) satisfaction and reducing demands on states’ licensing/customer service personnel, as licensees are able to initiate licensing applications/changes 24-7 and can obtain status checks online.

• Increased Services to Consumers and Regulated Entities: Leveraging SBS generally results in a significant and immediate increase in services provided to consumers and other

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regulated entities. For example, consumers can easily access information regarding licensed entities in order to confirm whether or not a producer has an active license for the type of insurance sought. Licensed entities are able to access their license record, print a copy of licenses, sign up for online notifications, conduct licensing transactions, etc. Other regulated entities are also able to conduct licensing business and submit reports and payments to the states as required by law. Undertaking the proposed work will result in improving online services to users by enhancing their experience and making it easier to conduct business across states.

• Excellent Customer Service: SBS implementations feature a high level of customer service

and support as the NAIC understands the needs of the regulators and it is the NAIC’s mission to support those needs. A high priority is placed on excellent customer service. Implementation of SBS has resulted in a transfer of considerable customer support to the NAIC as customers access online services to meet their needs (license printing, continuing education transcripts, licensee lookup features, etc.). As a result, states have benefitted by receiving fewer phone calls, letters and other forms of inquiries easily addressed through online services. This proposal is designed to improve online services for constituents, further reducing needed state support.

III. Stakeholders:

• SBS Licensees/NAIC Members. The key stakeholder would be those NAIC members who have licensed SBS and those interested in participating in the SBS initiative, as they would receive the benefit of utilizing the low-cost, web-based system for licensing, market regulation, consumer services, legal, enforcement, investigations, revenue, project tracking, regulated industries, and financial examinations business areas incorporated into SBS. The licensee states agreed to use SBS with the expectation the system would evolve to include the aforementioned modules, and they would receive the level of customer service the NAIC is known to provide. The NAIC will continue to market SBS to states as a full service suite of tools designed to minimize cost to the states, improve services to constituents, and increase the value of regulatory work by eliminating low-value activities.

• The NAIC has added 14 states to the SBS family since January 2007. The NAIC will remain focused on maintaining a suite of tools which continue to be enhanced in order to meet state needs. It is difficult to anticipate how many additional states will license SBS, but it is believed with a full service application enhancing regulatory efficiencies within the state and for constituents, the appeal of SBS will continue to grow.

• NIPR is a stakeholder for resident and non-resident licensing as well as appointment and termination and address change data needs flowing through the NIPR and into SBS.

• Insurance Companies, Insurance Agencies, Producers, Providers, other Regulated Entities and Consumers are stakeholders. Licensed entities will have the advantage of being able to submit their licensing applications, renewals, registrations, and reports online, which should reduce the time for approval and receiving of the license or certificate of authority. It also eliminates the potential for data errors and result in cost savings as compared to hardcopy submissions to the state. Providers will benefit from the ability to submit provider applications, course applications, instructor applications and course rosters online, thus streamlining the process of meeting regulatory requirements. Furthermore, users of online

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course roster upload services will be able to benefit from posting course schedules and links to provider websites for easier participant registration.

• Consumers are a stakeholder with the release of the complaints functionality. Consumers will be able to utilize the system to file complaints against insurance entities.

IV. Business and Operational Impact:

The business and operational impact is limited to the hiring of additional staff and to the teams supporting the implementation and maintenance of SBS: the Insurance Products and Services Division, Information Systems Division, Technical Services Division, and NIPR. No new financial, legal or enterprise processes are expected to change as a result of this proposal. V. Financial Impact: 2010 2011 2012

Revenues $0 $472,661 $1,205,520

Expenses $80,236 $1,133,435 $1,242,015

Net Revenue ($80,236) ($660,774) ($36,495)

Revenues are generated primarily from online continuing education services. The assumption is a 15% increase in market share in states using the services as of year end 2009 or planned for 2010. Salaries and employee benefits: Nearly 90% of 2010 expenses and 37-39% of 2011 and 2012 expenses are derived from salary and associated salary items such as FICA and Unemployment Compensation and from health insurance, life and disability insurance and parking. 2010 2011 2012

Salary and Associated Expenses $74,732 $447,278 $462,933

Travel: Travel expenses are expected to increase as a result of this proposal. Expenses are related to staff travel for state implementations as well as state travel for attendance at the SBS Product Steering Committee Summit. 2010 2011 2012

Travel $0 $54,302 $56,985

Miscellaneous Expenses: A small amount of expenses are associated with items such as training, minor computer software purchases, staff training, telephone, mail services and reference materials. 2010 2011 2012

Miscellaneous Expenses $5,147 $14,982 $6,586

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Professional Services (Other): As revenues grow, so does the NAIC’s obligation to share royalties with Aithent. In addition, credit card or online check expenses are anticipated to increase. 2010 2011 2012

Professional Services (Other) $0 $249,395 $348,033

Maintenance and Depreciation: In order to provide the technical infrastructure necessary to support the growth in SBS, additional hardware and software purchases are required. These also result in ongoing maintenance costs. 2010 2011 2012

Maintenance and Depreciation $357 $367,478 $367,478

See Attachment I for a detailed summary of costs associated with this proposal.

VI. Alternatives or Partnerships: One alternative to this proposal would be to increase the NAIC’s reliance on consultants. However, augmenting full time staff better positions the project in addressing the current and long term needs for SBS. This approach allows the NAIC to build the knowledge base and expertise in state regulatory business areas supported by the SBS product suite. Part of this proposal will enable the SBS staff to create two licensing implementation teams, thus allowing the SBS team to increase the number of concurrent state implementation projects. This is required in order to accommodate new state licensees. The alternative is to delay new licensee implementations, which again compromises the NAIC’s strategy for SBS and its service to members. With regard to rebuilding external interfaces, an alternative would be to continue using the existing SBS toolset. However, this would prevent SBS from enhancing the user experience and significantly limit the NAIC’s ability to generate additional revenues designed to cover project expenses. VII. Risk Management: If this proposal is not approved, the NAIC is subject to the following risks:

• Reduced ability to meet member needs through SBS; • Delayed redesign of the external services inhibiting the ability to generate revenues to cover

SBS expenses and limiting the NAIC’s ability to improve the user experience; and • Continued resource challenges in testing, database administration, data migration and

customer support areas.

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Attachment I

147

Page 174: NAIC 2011 Budget

148

Page 175: NAIC 2011 Budget

Fiscal Impact 5

Page 176: NAIC 2011 Budget
Page 177: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: SEPTEMBER 9, 2010 NAME OF SERFF PREMIUM RATE REVIEW DATA PROJECT/INITIATIVE: COLLECTION AND REPORTING

ENHANCEMENTS REGULATOR/BUSINESS SPONSOR: SPEED TO MARKET (EX) TASK FORCE NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES

REQUESTED PROJECT START DATE: OCTOBER 1, 2010

ANTICIPATED COMPLETION DATE: APRIL 30, 2011

TOTAL REVENUE GENERATED: $940,400 (2010 TO 2011)

TOTAL EXPENSE REQUESTED: $940,400 (2010 TO 2013)

TOTAL CAPITAL REQUESTED: $178,293

I. Executive Summary:

On June 7, 2010, the U.S. Department of Health and Human Services (HHS) announced an invitation for states to apply for a Health Premium Review – Cycle I grant. The deadline for submission of applications was July 7, 2010. This grant opportunity was established under Section 2794 of the Public Health Service Act (PPACA Section 1003) entitled, ‘Ensuring That Consumers Get Value for Their Dollars’. This program is designed to increase the transparency of the health insurance system through enhanced rate review processes and reporting.

Section 1003 of the PPACA requires the Secretary of HHS, in working with the states, to establish a process for the review of health insurance rates to protect consumers from unreasonable, unjustified and/or excessive rate increases, a requirement taking effect with the 2010 plan year. Key components of the oversight includes insurers providing the Secretary and states with specified information when rate increases reach an unreasonable threshold (not yet defined by HHS as of the date above) and justifications for those unreasonable increases.

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Section 2794 provided a program of grants to states to assist with improving health insurance rate review and reporting. In order to receive grant funds, the applicant was required to propose a plan for using grant funds to develop or enhance current state processes for health insurance rate review, including a plan for disclosing rates to the public and the Secretary. Proposed plans could include money to support the development or enhancement of database systems used to support rate review and disclosure processes. In addition, states accepting grant funds will be required to collect, analyze, and report to the Secretary critical information about rate filings and the review and, to the extent permitted by law, the approval and disapproval process.

Forty-six states applied for grant funds pertaining to Cycle I (rate review). In addition, another submission period was opened on September 1, 2010 and extends to September 30, 2010, applicable to states and territories initially choosing not to apply for grant funds.

Prior to submitting applications for grant funding, some states requested NAIC assistance with the requirements for collecting and reporting data, per the grant, given the widespread use of SERFF and the logic in leveraging an existing system. The NAIC evaluated the requirements presented in the grant announcement and held several discussions with state insurance regulators regarding the interpretation of requirements. Based on limited information and in the absence of detailed specifications from HHS, the NAIC estimated the project effort and implementation schedule and shared this information with the states, requesting states that submitted for a grant share in the cost of enhancing SERFF. The cost per state was estimated at $18,808.

The purpose of this proposal is to assist states with meeting the data collection and reporting requirements. II. Benefits of Project/Initiative to NAIC Members:

The direct benefits of this proposal include:

• Minimize the cost of meeting grant requirements: In leveraging SERFF, the cost for developing a data collection and reporting process is spread across states, eliminating the need for states to develop duplicate systems requiring companies to report separately, using 50 different systems.

• Reduce implementation timeline: In leveraging SERFF, states will be able to meet the grant requirements in a more expedient manner as a result of leveraging the existing infrastructure for rate filing reporting.

• Allow states to divert grant funds to other rate review enhancement processes: In leveraging SERFF and minimizing the cost per state, each state applying for grant funds was able to allocate remaining grant funds to other rate review processes rather than spending a significant amount on the data collection and reporting requirements.

III. Stakeholders:

• State Insurance Regulators: Key stakeholders are those NAIC members who have licensed SERFF, or 51 jurisdictions (including Puerto Rico and excluding Florida). All members, whether or not they applied for grant funds, will be able to leverage the enhanced functionality.

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• Insurers: Nearly 3,100 insurers are licensed to use SERFF. Given the transparency requirements being developed per the PPACA, all insurers will benefit from leveraging the same system they use to submit rate filings today in meeting new filing requirements.

• The U.S. Department of Health and Human Services: Leveraging SERFF opens the potential for streamlining the reporting to HHS, eliminating the need to receive reports separately from each jurisdiction.

• Consumers receive greater transparency and rate disclosure requirements, such that information should be more easily accessible to all consumers.

IV. Business and Operational Impact:

The business and operational impact is limited to the SERFF team. In order to accomplish the project within prescribed timelines, the NAIC will be required to hire consultants to backfill for existing SERFF projects in order to allocate more experienced NAIC SERFF staff to this project. V. Financial Impact:

2010 2011 2012-2013 Totals

Revenues $247,305 $693,095 $0 $940,400

Expenses (including depreciation on capital assets)

$247,305 $589,092 $104,003 $940,400

Net Revenue $0 $104,003 ($104,003) $0

This project is designed to have a net zero budget impact to the NAIC. Funding will be received in 2010 and 2011, while expenses will be incurred from 2010-2013. Total revenue is projected at $940,400. The cost for the project is projected to be the same and includes primarily consulting and capital hardware and software purchases. The consulting costs will be expensed, while the capital hardware and software will be depreciated over a three-year expected life.

Revenues of $940,000 represent $18,808 payments from 50 jurisdictions using the SERFF system. Expenses include: • Professional Services ($755,261): Consulting will be acquired and used to augment and

backfill for existing SERFF staff. • Capital Hardware and Software ($178,293): These expenditures include additional memory

for two existing servers and a server upgrade that has approached CPU utilization capacity, as well as computers for the consultants.

• Minor Computer: ($6,846): These expenses cover developer software purchases and phones for the consultants.

Attachment I includes overview of the project’s revenues and costs from 2010 through 2013.

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VI. Alternatives or Partnerships:

The only alternative to this proposal is to require states to develop their own reporting mechanisms. However, the NAIC does not view this as a viable alternative given the low cost, efficiency and uniformity of leverage the existing SERFF system. VII. Risk Management:

Leveraging SERFF minimizes the risk any state insurance department will be unable to meet this portion of the grant requirements. Risks associated with this funding arise from the fact that, as of the above date, HHS has not yet provided final data collection and reporting specifications. Therefore, this proposal contains project estimates based on the limited amount of information currently available. Should the final requirements be more expansive than anticipated, the project scope and cost could grow.

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Attachment I

153

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154

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Fiscal Im

pact 6

Page 184: NAIC 2011 Budget
Page 185: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: JUNE 15, 2010 NAME OF PROJECT/INITIATIVE: NAIC STAFFING: MESSAGING

ADMINISTRATOR

REGULATOR/BUSINESS SPONSOR: NAIC CENTRAL OFFICE NAIC STAFF SUPPORT: FROSTY MOHN, DIRECTOR TECHNICAL SERVICES

REQUESTED PROJECT START DATE: MARCH 1, 2011

ANTICIPATED COMPLETION DATE: ONGOING

TOTAL REVENUE GENERATED: $0

TOTAL EXPENSE REQUESTED: $29,460

TOTAL CAPITAL REQUESTED: $0

I. Executive Summary:

The Technical Services Division is requesting the addition of a part-time (.5) head count in order to meet the messaging support needs of the Association. This will provide the Messaging Systems team with the flexibility to move one of the part-time positions to a full-time exempt position or add a third part-time position. Utilization of the messaging systems is the primary communication method the NAIC uses daily to support its business operations and facilitate strategic discussions. The growth of the messaging systems and reliance of NAIC business operations on this technology has increased the demands on the Message Systems team. To maintain the quality service and support the organization expects, additional resources must be added to the Messaging Systems team in 2011. II. Benefits of Project/Initiative to NAIC Members:

Adding a part-time resource to the Messaging Systems team has both tangible and intangible benefits. These benefits are as follows:

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Increased services and customer support – The Messaging Systems team can utilize this part-time resource to implement new services or support messaging issues relating to NAIC staff.

End user productivity gains – More time can be devoted to helping end users with issues and teaching them better ways to utilize the messaging systems.

Increased knowledge of technologies, resulting in improved staff efficiency – The Messaging Systems team will be able to devote more time to understanding the details of how the systems work. This knowledge can then be relayed to the end user making them more efficient in utilizing the messaging systems.

Improved efficiency or effectiveness of the department resources – Having the correct technology in place will help departments to become more effective in their daily tasks. The Messaging System team will have more time to share their knowledge with the end users with the addition of this resource.

Faster adoption of technologies – The Messaging Systems team will have more resources to help with implementation of new technologies thereby getting them to the end users quicker.

Improved communications – The Messaging Systems team plays a key role in the organization’s daily communications and we will be able to provide improved support and make ensure the systems are running at top performance. III. Stakeholders:

All NAIC staff and state regulators that use NAIC messaging systems, such as email, Blackberry devices, distribution lists, and forums are stakeholders. The quality and amount of support that can be provided for the messaging systems are at risk.

IV. Business and Operational Impact:

All NAIC areas would see a positive impact if this resource were to be added. Support levels would be maintained or improved and there would be an increase in the amount of support delivered by the Messaging Systems team. There will be no additional impact to existing resources with this addition, other than salary and benefit dollars.

V. Financial Impact:

The addition of part-time resources will have a financial impact of $29,460, which includes salary, benefits, and taxes.

See Attachment I for a detailed summary of costs associated with this proposal. VI. Alternatives or Partnerships:

Doing nothing means retaining the status quo and with that the messaging systems support level will suffer due to the amount of work related to administrative duties required of the Messaging Systems team.

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VII. Risk Management:

The risk of not approving this request is resulting decline in the quality support Messaging Systems provides to the end users and a decline in the number of new services that can be added (e.g., Lyris lists). Available resources will have to be redirected to maintain this infrastructure. The measure of success by adding this part-time resource will be the continuation of quality support and maintenance of systems the Messaging Systems team delivers and their ability to grow these systems.

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Attachment I

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Fiscal Impact 7

Page 192: NAIC 2011 Budget
Page 193: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT DATE SUBMITTED: SEPTEMBER 17, 2010 NAME OF PROJECT/INITIATIVE: IMPACT STUDY OF VM-20 PRINCIPAL-

BASED APPROACH TO VALUATIONS REGULATOR/BUSINESS SPONSOR: PRINCIPLES-BASED RESERVING (EX)

WORKING GROUP COMMISSIONER ADAM HAMM, CHAIR

NAIC STAFF SUPPORT: JOHN ENGELHARDT, CHIEF LIFE AND HEALTH ACTUARY

REQUESTED PROJECT START DATE: OCTOBER 1, 2010 ANTICIPATED COMPLETION DATE: MARCH 31, 2011 TOTAL REVENUE GENERATED: $0 TOTAL EXPENSE REQUESTED: $250,000 TOTAL CAPITAL REQUESTED: $0 I. Executive Summary: In September 2009, the NAIC adopted modifications to the Standard Valuation Law, which sets forth minimum valuation requirements for life insurance liabilities. The modifications authorize the use of a principle-based valuation methodology, which will be implemented through the use of a valuation manual. The Life and Health Actuarial Task Force (LHATF) has developed a principle-based valuation methodology for the calculation of reserves for life insurance products. The principle-based valuation requirements for life insurance products are detailed in the working draft valuation manual, section VM-20. The most recent version of the working draft can be located on the NAIC webpage for the Life and Health Actuarial Task Force. The Principles-Based Reserving (EX) Working Group believes it is important to understand the impact of the proposed valuation methodology on the life insurance industry as a whole, and specifically life insurance companies writing a mix of life insurance new business. Therefore, the

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Working Group believes it is important to conduct a study for the purpose of determining the impact of these proposed changes. The potential impact of the proposed valuation changes will be analyzed by comparing the reserves as calculated under the proposed principle-based valuation methodology with the reserves calculated under the current formula-based valuation methodology. This information will be valuable to insurance regulators, life insurance companies and state legislators as they contemplate adopting the modifications to the Standard Valuation Law. The objectives of the proposed impact study will be to analyze various provisions of VM-20, including: • Exclusion tests that allow an insurer to use simpler valuation methods if one of the tests is

met.

• The use of the American Academy of Actuary’s Economic Scenario Generator and the provisions to use small numbers of scenarios and still be statistically credible.

• The method of recognizing different forms of reinsurance, both proportional and non-proportional agreements, determination of pre and post reinsurance amounts and reinsurance reserve credits.

• The processes involved with determining anticipated experience assumptions and establish margins for adverse deviation and company variation using credibility theory and sensitivity testing.

• The reporting and documentation of reserve results, modeling assumptions, experience assumptions, margins and sensitivity testing.

• The ease of implementation of the proposed methodology taking into account human resources, information technology resources, computer modeling run times and required sensitivity analysis. The ease of implementation should take into account available scenario reduction techniques or processes that may be implemented.

• Areas where further refinements or changes, if any, to the methodology are needed or suggested based on the results of the modeling or analysis to improve the risk measurement functionality of the methodology.

• Areas where further clarification of the proposed methodology or processes are needed in order to facilitate a smooth implementation.

As a first step in evaluating this proposal, on July 12, 2010, the NAIC Executive (EX) Committee approved the release of a Request for Proposal (RFP) for the purpose of conducting the impact study of proposed new valuation methodologies for life insurance. The NAIC issued an RFP on July 29, 2010 (posted on NAIC website), soliciting proposals for an actuarial firm to perform the study. Eight responses were received, and each was reviewed by the Regulatory Testing Subgroup (RTS), a subgroup of the LHATF, on August 27, 2010. The eight responses were refined to a list of four candidates and each candidate was then requested to provide additional information and update their proposal based on the testing of 25 companies averaging three products each for a total of 75 total products. The responses from the four finalists were

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reviewed by the RTS on September 3, 2010, and a recommendation was reached to select Towers Watson based on their experience and project approach. Before the NAIC can enter into a contact with Towers Watson to conduct this study, the Executive (EX) Committee and Internal Administration (EX1) Subcommittee was asked to approve this project and agree to commit the required funding in 2010. Based on the work of the RTS of LHATF, the Principles-Based Working Group recommends moving forward with this project and entering into a contract with Towers Watson, with a goal of completing the study by March 31, 2011 in an effort to facilitate adoption of the valuation manual at the NAIC 2011 Summer National Meeting. II. Benefits of Project/Initiative to NAIC Members: The results of the impact study will be valuable to insurance regulators and state legislators as they contemplate adopting the modifications to the Standard Valuation Law. The study may uncover areas of VM-20 in need of modification. At present, the NAIC and its members do not know the financial impact of this methodology on the reserves required to be maintained by insurance companies on their life insurance products. This study would qualify the amount and would also assist regulators in fine-tuning components of the principle-based valuation methodology. In addition, the impact study will assist regulators in determining the best and most efficient reporting and documentation requirements. III. Stakeholders: The primary stakeholders of this project are NAIC members and insurance companies. Insurance policyholders and state legislators also have an indirect interest in this project. • NAIC Members: This project will provide NAIC members and regulators information on the

impact of the principle-based valuation requirements on the life insurance industry. In addition, the members will have assurance the requirements in VM-20 are appropriate for statutory valuations.

• Insurance Companies: Insurance companies will apply the proposed requirements in VM-20 on their new business and have the assurance the methodology is appropriate prior to its implementation. The study will indentify potential issues and allow methodologies to be modified prior to acceptance thereby enhancing state legislative consideration of the SVL and valuation manual.

• Insurance Customers: Insurance customers will benefit by having the appropriate level of reserves established for each type of policy sold under this framework.

• State legislators: State legislators will benefit by having credible data they can rely on in crafting their state laws to implement this new methodology.

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IV. Business and Operational Impact: During the operational phase of this study, there will be a number of representatives from state insurance departments, associations (e.g., American Academy of Actuaries and American Council of Life Insurers), life insurance companies and the actuarial consulting firm involved in this project. The key teams and their primary function is as follows: • The consultant(s) will work closely with the Regulatory Testing Subgroup (RTS), the

Profession and Industry Liaisons (PIL) and the Actuarial Task Forces (ATFs) to meet the impact study objectives.

• The RTS will provide oversight and direction for the project, including recruiting ATFs. The RTS will consist of members of LHATF representing the states of Kansas, Alaska, California, Florida, New York, Ohio and Texas.

• The PIL will consist of representatives of the Life Reserve Working Group (LRWG) of the American Academy of Actuaries, and representatives of the American Council of Life Insurers (ACLI). RTS and the consultant(s) will work with PIL on potential changes to the methodology or any alternatives to be studied.

• ATFs are working groups comprised of company actuaries who will model the proposed valuation methodology and any alternatives using new business issued in the last 12 months and projected new business for each future modeling year consisting of actual insurance products that are currently being issued by their individual insurance companies. They would also identify areas where guidance or clarification is needed. The ATFs have the assignment of producing the information that the consultant(s) will utilize in producing the report.

• The consultant(s) role will be to manage and coordinate the project on a day to day basis, collaborate with the RTS in finalizing the list of products and companies to be modeled and the instructions to the ATFs; collaborate with the RTS and PIL on any methodology changes or alternatives to be tested; keep the RTS informed of the project progress and any issues that arise, aggregate and analyze the results of the ATFs, validate the work of the ATFs; fill modeling holes (if any), and prepare a summary report containing the results of the study that will be useful to the NAIC.

The impact study will include all products subject to the scope of VM-20 which includes, but not necessarily is limited to, the testing of the following life insurance products:

• Term Insurance (various types) with no return of premium benefits • Term Insurance with return of premium benefits • Universal Life with no secondary guarantee (various types) • Universal Life with secondary guarantee (various types) • Variable Universal Life with no secondary guarantee (various types) • Variable Universal Life with secondary guarantee (various types) • Participating and Non-participating Whole Life (various types)

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The impact study is a short duration project and should be completed by March 31, 2011. The results of this study will be improvements in VM-20 and assistance in the adoption of the modifications to the Standard Valuation Law. There will be no lasting impact on the business operations of the NAIC. V. Financial Impact: The study is currently proposed to be comprised of 25 companies with an average of three products each for a total of 75 products. It has also been determined the final report should be completed by March 31, 2011 – this date provides sufficient time to design the study, coordinate with the various insurance companies, compile the results and have adequate time to analyze the results prior to the NAIC 2011 Summer National Meeting. The cost of this project is estimated to be $250,000 which includes consulting costs and incremental support costs. See Attachment I for detailed summary of costs associated with this proposal. VI. Alternatives:

If a consulting actuarial firm were not hired to help coordinate and perform the impact study and compile the required reports, the NAIC membership could pursue the following alternatives: (1) rely on NAIC staff to develop the study, coordinate the teams involved in this project, and compile the final report, or (2) decide not conduct the impact study altogether. However, the first alternative presents significant challenges, as the NAIC does not have the staff resources to complete this project within the required time-frame. Moreover, absent the proposed impact study, there will be less information available to assist in the adoption of the modifications to the Standard Valuation Law. VII. Risk Management: Given the importance of this project and the requirement to have insurance company support, the Principles-Based Reserving (EX) Working Group believes it is critical to finalize the work plan for conducting the study, identify the participating companies as quickly as possible, and then perform the actual study in a timely manner. The actuarial consulting firm will have project management responsibilities; the strength of Tower Watson’s project manager was one of the key criteria in their selection as the consulting firm for this project. In addition, LHATF will be engaged in this project to ensure it stays on task and on-time.

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Attachment I

167

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168

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Fiscal Im

pact 8

Page 202: NAIC 2011 Budget
Page 203: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: OCTOBER 4, 2010 NAME OF SBS CONSUMER ASSISTANCE DATA PROJECT/INITIATIVE: COLLECTION AND REPORTING

ENHANCEMENTS REGULATOR/BUSINESS SPONSOR: INTERNAL ADMINISTRATION (EX1) SUBCOMMITTEE NAIC STAFF SUPPORT: JULIE FRITZ, DIRECTOR INSURANCE PRODUCTS AND SERVICES

REQUESTED PROJECT START DATE: OCTOBER 8, 2010

ANTICIPATED COMPLETION DATE: APRIL 30, 2011

TOTAL REVENUE GENERATED: $166,500 (2010 TO 2011) TOTAL EXPENSE REQUESTED: $166,500 (2010 TO 2011)

TOTAL CAPITAL REQUESTED: $0

I. Executive Summary:

On July 22, 2010, the U.S. Department of Health and Human Services (HHS) announced an invitation for states to apply for a Consumer Assistance Program grant. The deadline for submission of applications was September 10, 2010. This grant opportunity was established under Section 2793 of the Public Health Service Act (PHS Act) which provides for federal grants to states to establish, expand, or provide support for the establishment of consumer assistance or ombudsman programs.

Section 2793 of the PHS Act requires states, as a condition of receiving grant funds to assist consumers with filing complaints and appeals, to assist with the enrollment into health coverage and to educate consumers regarding their rights and responsibilities under their health insurance coverage. In addition, the states must collect data on consumer complaints, inquiries and referrals to assist the HHS Secretary in identifying problems in the marketplace. Data collection and reporting under the grant program includes reporting the types of problems and questions consumers experience with health insurance, regardless of their health insurance coverage, as

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well as how their problems and questions are resolved. In addition, the grantee is required to assist consumers with the filing of appeals. HHS intends to share reports with the U.S. Department of Labor and the U.S. Treasury.

This grant opportunity was for state insurance departments as well as other state agencies meeting the eligibility requirement for the grant. Prior to submitting applications for grant funding, a number of state insurance departments using the NAIC’s State Based Systems (SBS) product suite requested the NAIC consider enhancing SBS to accommodate the data collection and reporting requirements of the grant. For these states, it was determined to be much more efficient to enhance SBS and allow their consumer assistance staff to continue using one software tool to respond to all consumer inquiries and complaints, regardless of whether or not the issue was health insurance related. Using a single tool to track and monitor all complaints, inquiries and referrals would allow consumer assistance staff to work more rapidly and avoid introducing tracking anomalies resulting from having to use two separate systems. In addition, using a single existing system to track all closed complaints ensures all closed complaints will be submitted to the NAIC’s Complaint Database System (CDS).

Based on limited information and in the absence of detailed specifications from HHS, the NAIC estimated the project effort and implementation schedule and shared this information with the states, requesting states submitting a grant to share in the cost of enhancing SBS. The cost per state was estimated at $18,500.

The purpose of this proposal is to assist states with meeting the data collection and reporting requirements under this grant. A description of the deliverables and proposed timeline are included in Appendix A. II. Benefits of Project/Initiative to NAIC Members:

The direct benefits of this proposal include:

• Minimize the cost of meeting grant requirements: While HHS is offering software to states for the purpose of data collection and reporting, using the alternative software will likely increase the cost of consumer assistance support in the state by introducing the inefficiencies of using two separate software tools to track consumer inquiries and complaints.

• Assist states with the ability to track external appeals based on NAIC Uniform Health Carrier External Review Model Act: The grant requires states to assist with the filing of appeals. This ultimately requires states to comply with requirements developed based on the NAIC Uniform Health Carrier External Review Model Act for the purpose of addressing external appeals. SBS will be enhanced to support the external appeal process.

• Continue to submit all closed complaints to the NAIC Complaints Database System (CDS): In leveraging SBS, states choosing this solution will be able to continue to track all closed complaints and automatically upload to CDS. States leveraging the HHS system may have to perform dual entry into the state tracking system used to submit complaints to CDS; otherwise, these complaints will not be loaded to CDS.

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• Allow states to partner with other non-profit agencies in monitoring and tracking complaints, inquiries and referrals: In the grant announcement, states were encouraged to partner with other state agencies or non-profits to further the objectives of the grant. From an issue tracking standpoint, this means the partners must also have access to the same system to ensure all issues required to be tracked can be recorded. SBS will be modified to allow access by entities authorized by the state.

III. Stakeholders:

• State Insurance Regulators: Key stakeholders are those NAIC members who have licensed SBS, 20 states, as well as any non-SBS licensee choosing to leverage SBS for this purpose. All licensed states will be able to leverage this functionality, regardless of whether or not the state insurance department applied for grant funds. In addition, in leveraging SBS, all states benefit by ensuring all associated closed complaints are uploaded to CDS in a timely manner.

• The U.S. Department of Health and Human Services: Leveraging SBS creates the potential for streamlining the reporting to HHS from SBS states, ensuring reporting is uniform.

IV. Business and Operational Impact: In order to meet the requirements of this initiative, NAIC staff devoted to other projects will be redeployed. V. Financial Impact:

2010 2011 Totals Implementation Fees for Enhanced Functionality $74,000 $92,500 $166,500

Costs Associated with Using NAIC Resources $74,000 $92,500 $166,500

Net Budget Impact $0 $0 $0

Total implementation fees are projected at $166,500, representing $18,500 payments from eight states currently licensed for SBS and one additional state licensing SBS for this express purpose. The cost for the project covers redeployed resources from another NAIC project.

Attachment I includes overview of the project’s revenues and costs for 2010 and 2011. VI. Alternatives or Partnerships:

While HHS is offering software to states for the purpose of data collection and reporting, using the alternative software will likely increase costs by introducing the inefficiencies of using two separate software tools to track consumer inquiries and complaints, along with the reconciliation issues between the HHS software and the NAIC’s CDS. Therefore, the NAIC does not view this as a viable alternative given the low cost, efficiency and uniformity of leveraging the existing SBS system.

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VII. Risk Management:

Leveraging SBS by product licensees minimizes the risk the state insurance department, as a grantee, will be unable to meet the data collection and reporting requirements. Risks associated with this funding may arise because HHS has not yet provided final data collection and reporting specifications. Therefore, this proposal contains project estimates based on the limited amount of information currently available. Should the final requirements be more expansive than anticipated, the project scope and cost could grow.

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173

Attachment I

Page 208: NAIC 2011 Budget

174

Page 209: NAIC 2011 Budget

Structured Securities

Project

Page 210: NAIC 2011 Budget
Page 211: NAIC 2011 Budget

BUSINESS AND FISCAL IMPACT STATEMENT

DATE SUBMITTED: SEPTEMBER 17, 2010 NAME OF PROJECT/INITIATIVE: 2010 STRUCTURED SECURITIES PROJECT

REGULATOR/BUSINESS SPONSOR: EXECUTIVE (EX) COMMITTEE FINANCIAL CONDITION (E) COMMITTEE

NAIC STAFF SUPPORT: JIM WOODY, SR. MANAGER

REQUESTED PROJECT START DATE: ONGOING SINCE 2009

ANTICIPATED COMPLETION DATE: MARCH 31, 2011

TOTAL REVENUE GENERATED: $7.0 MILLION IN 2010 TO 2011

TOTAL EXPENSE REQUESTED: $7.6 MILLION IN 2010 TO 2011 TOTAL CAPITAL REQUESTED: $0

I. Executive Summary: During the past several years, the world’s financial markets have experienced a period of extreme volatility which has resulted in severe downgrades of many financial securities, particularly investments in different types of structured securities. In late 2009, the NAIC determined it could no longer rely on the ratings of residential mortgage-backed securities (RMBS) by nationally recognized statistical rating organizations (NRSROs) to establish the level of Risk Based Capital (RBC) insurance companies must maintain. The NAIC established a new process to evaluate RMBS. This project was coordinated through the NAIC’s New York Office and involved retaining several third party consultants, including a financial modeler, to assist in establishing the “expected loss” for each RMBS owned by U.S. domiciled insurance companies at the end of 2009.

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The facts driving the decision to model non-agency RMBS in 2009 have not changed and the NAIC membership has determined returning to pre-2009 reliance on NRSROs is not an option. Therefore, in 2010 the NAIC will leverage the lessons learned from the 2009 project and expand the modeling of structured securities to include commercial mortgage-backed securities (CMBS). On March 28, 2010, at the 2010 Spring National Meeting, the Financial Condition (E) Committee discussed recommendations from the Valuation of Securities (E) Task Force (VOSTF) as they relate to the evaluation of structured securities in 2010. There were two primary recommendations from the VOSTF: (1) extending the RMBS solution that was used at the end of 2009 until a long-term solution for loan-backed and structured securities is adopted and effective; and (2) RMBS modeling should be performed semi-annually, if technically feasible. The latter recommendation also included a proposal that the modeling process used for RMBS be expanded to include CMBS and other asset classes where modeling is applicable and deemed to be cost effective. Commissioner Gross, Chair of the Financial Condition (E) Committee, noted these recommendations involve NAIC resources, which ultimately would be determined by the Executive (EX) Committee and Internal Administration (EX1) Subcommittee. The Executive (EX) Committee and Internal Administrative (EX1) Subcommittee met on July 6, 2010, to review the status of a number of structured security projects. During this meeting, the Executive (EX) Committee: • Approved plans to move forward with 2010 mid-year and year-end residential

mortgage-backed securities (RMBS) modeling and to retain PIMCO to perform the modeling;

• Approved the release of a Request for Proposal (RFP) for the purpose of selecting a commercial mortgage backed securities (CMBS) financial modeler and the retention of a consultant, Oliver Wyman, to assist with the 2010 CMBS modeling project;

• Approved the acquisition of data from Bloomberg to enable the NAIC to provide members with increased information on investments held by insurers, particularly the characteristics of fixed income and structured securities;

• Approved a proposal to enhance the delivery system for both RMBS and CMBS in 2010; and

• Approved, in concept, the recommended approach to budgeting the project and assessing its overall cost to the insurance companies benefitting from the RMBS and CMBS data.

The financial modeling of CMBS and RMBS under the direction of the NAIC both reduces state regulators’ dependence on NRSROs and ensures the valuations generated are in line with expected losses. This initiative further enhances the value of the NAIC securities valuation function to the state insurance regulators and will ultimately increase the NAIC and state regulators’ analytical capabilities. Improving the NAIC’s analytical capability is an on-going focus as all classes of structured securities are monitored to ensure statutory valuation methodologies are appropriate.

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II. Benefit of Project/Initiative to NAIC Members The NAIC membership depends on the SVO to provide accurate financial designations for financial instruments owned by insurance companies. Historically, the SVO’s designations have been based on either internally generated credit ratings (generally for non-publicly traded securities) or public ratings issued by Authorized Rating Organizations (AROs), a subset of NRSROs approved by the NAIC to provide credit ratings. These designations and related unit prices are produced solely for the benefit of NAIC members who may utilize them as part of the statutory financial surveillance of the insurance industry. Essentially, the higher the designation (NAIC-1 is the highest designation while NAIC-6 is the lowest), the higher the quality of financial security and lower level of reserves that must be maintained through risk-based capital (RBC) calculations. RMBS During 2009, it became increasingly apparent the NAIC could no longer rely on NRSRO ratings of RMBS holdings for purposes of establishing appropriate RBC levels. Rating agencies revised their expectations on losses of certain types of securities by as much as 20 times their original estimates, downgrading as much as 70% of originally Aaa rated securities to Caa or below, actions which significantly impacted most collateral types and vintages. This activity had two noticeable effects: (1) a lack of confidence by market participants in the rating process and rating models; and (2) a search for alternative methodologies to evaluate these securities in a more granular manner. Under the then-current ratings methodology employed by the NAIC, the impact of the market turmoil and related rating downgrades meant most of the estimated $190 billion of RMBS held by insurers at the end of 2008 would have declined from an industry aggregate 84% NAIC-1 designations at the beginning of the year to 44% NAIC-1 designations in September 2009. This reduction would have resulted in a significant impact (estimated to be a seven fold increase) on the industry’s RBC. As a result, the NAIC membership approved a recommendation from the Valuation of Securities (E) Task Force and Financial Condition (E) Committee to create a new modeling and assessment process for RMBS. The NAIC selected PIMCO as a third party financial modeler to calculate the intrinsic value of each security with assumptions established by the state insurance regulators. Once the intrinsic value was determined, a price grid for life/non-life companies was established for each security and mapped to a NAIC designation based on the insurer’s carrying value. This approach was formally adopted by the VOSTF and the Financial Condition (E) Committee on October 14, 2009. Immediately following the selection of PIMCO, work began establishing the macroeconomic assumptions to be used in the modeling process. The analytical objective was the “reasonableness” of the assumptions from the perspective of knowledgeable and reliable market participants. In addition, five probability (best case to worst case) scenarios were selected to capture the risk inherent in any financial modeling process.

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High level details of the model methodology and assumptions were released to the public for comment before they were finalized by the Valuation of Securities (E) Task Force. The NAIC worked closely with the financial modeler, state insurance regulators, insurance companies and other interested parties to ensure the results were issued accurately and on time. Considering the short timeframe to scope and complete this process, the project successfully achieved its objectives of providing more analytically appropriate results in time for insurance companies to file their December 31, 2009 annual statements. CMBS Based on December 31, 2009 statutory filings, there was approximately $483 billion in book adjusted carrying value (BACV) in structured securities held by insurance companies. Although this amount is comprised of a number of different categories, CMBS ($207 billion or 42.9%) and RMBS ($163 billion or 33.1%) investments comprised over 75% of the total. Similar concerns with the rating accuracy of RMBS apply to CMBS, and given the substantial investment insurance companies have in CMBS; the NAIC will expand its modeling process for the designation of CMBS investments as of December 31, 2010. The financial modeling of CMBS is significantly different than RMBS. CMBS consists of different commercial property types, primarily (1) office, (2) multi-family units (apartments), (3) retail, (4) industrial and (5) hotels. These pools tend to contain fewer loans/underlying assets with larger dollar exposure. The lower level of diversification and greater heterogeneity of the asset group will require more incremental differences in assumptions, which require most loans to be individually analyzed with the assistance of a commercial real estate (CRE) professional. Factors such as local unemployment rates, competing rents, vacancy rates and type of property are critical variables in the valuation process. Given the complexity of the variables involved in the modeling of CMBS, plus the security specific knowledge (e.g., property location, financial strength covenants, etc.) required, financial modeling for this security class is significantly more labor intensive than RMBS. Since the NAIC will use a similar approach for evaluating CMBS and RMBS, a RFP was issued on July 27, 2010, to select a financial modeler for CMBS. A total of sixteen responses were reviewed and, pursuant to a similar process as the selection of the RMBS financial modeler in 2009, BlackRock Solutions was selected by the Executive (EX) Committee on September 2, 2010. Now that PIMCO and BlackRock Solutions have been retained for RMBS and CMBS, respectively, activities are underway to (1) produce the NAIC designation price-grids for life/non-life insurance companies, with macroeconomic assumptions to be developed and finalized prior to the NAIC 2010 Fall National Meeting; (2) compile lists of insurer-owned CMBS and RMBS CUSIPs; (3) develop the communication strategy; (4) develop the price-grid delivery system for deployment in late December; and (5) define the budget and 2010 assessment to insurers to support these initiatives.

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III. Stakeholders There are a number of stakeholders that are impacted by this project, including: • Consumers – Consumers benefit as they are assured the reserves held by insurance

companies are appropriate based on the value of the assets they own. The appropriate amount of reserves is important for two key reasons – too little in reserve subjects the policyholder to a risk of unpaid claims – too much in reserve may result in higher than necessary premiums. The appropriate amount of reserves minimizes these risks with an appropriate balance.

• NAIC Members – From a financial regulatory perspective, the states benefit by

having more accurate analysis and valuations for a major category of investments held by insurance companies. This accuracy ensures the reserves held by insurers are properly aligned with the risk of their investment. In addition, the ability of the members to modify their approach to the valuation of structured securities illustrates state insurance regulators’ proactive and targeted review of the economic impact of structured assets on the insurance industry, modifying their defined methodologies as conditions warrant. The members of the Valuation of Securities Task Force and the Financial Condition (E) Committee have been instrumental in driving these changes.

• Other Regulators – Regulators, both domestic and international, strive to ensure the

companies they regulate have sufficient resources to meet their financial commitments to customers (policyholders in insurance companies, depositors in financial institutions). Regulators benefit by being able to leverage the results of the NAIC’s structured security analysis in reviewing the investments of the entities they regulate.

• Insurance Companies – As the approach to valuation of investments in CBMS and

RMBS has changed to reflect their intrinsic value rather than a NRSRO rating which reflects the probability of default, the required RBC reserves for these investments more closely aligns with the value of the investment. As noted earlier, most NRSRO ratings have experienced dramatic downgrades and don’t take into consideration the true underlying value of the asset. The new approach is more asset-specific and more accurately reflects the value of a particular investment. Insurance companies have to modify their internal processes to reflect the designation price-grid based on the carrying value of each CUSIP rather than the designation generated by a NRSRO rating. The cost of the new methodology, including the cost of administration, will be billed to each insurer based on the number of CMBS and RMBS CUSIPs they own.

• NAIC Staff – A number of staff functions are impacted by this project, most notably

the NAIC’s New York Office. The SVO has been actively involved in the monitoring of structured securities and has participated in a number of meetings with regulators, insurance companies, industry associations, rating agencies and interested parties to identify the most appropriate methodology for monitoring and evaluating structured securities investments. As a result, a number of revisions to policies and procedures

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of the SVO have been approved by the NAIC membership. Other impacted NAIC Divisions include Finance, Insurance Products & Services, Information Services, Financial Regulatory Services, and Legal.

IV. Business and Operational Impact The structured securities project is a major undertaking for the NAIC and has had and will continue to have a significant impact on NAIC staff, insurance regulators, insurance companies and third party administrators. An overview of the 2010 structured security process is outlined below highlighting the key operational impacts. • The first step in the process was the decision by the Executive (EX) Committee on

July 7, 2010, to model insurers’ investments in CMBS and RMBS using a third party financial modeler to determine the intrinsic value of each security, which will be used to develop the price-grid to map to NAIC designations based on each insurer’s carrying value.

• A RFP was issued on July 27, 2010, for a financial modeler to develop intrinsic prices for CMBS. Sixteen responses were received on August 11, 2010 and, following a detailed and thorough review process, BlackRock Solutions was selected to model CMBS on September 2, 2010. The contract process is now underway and it is expected to be completed in late September/early October.

• The NAIC has elected to continue its relationship with PIMCO for the modeling of RMBS at the end of 2010. The contract process for this relationship is also underway and the contract is expected to be completed by late September.

• The process to develop and finalize the macroeconomic assumptions in the models will begin in mid-September 2010. It is important for the assumptions to be consistent between the RMBS and CMBS financial models and will be a primary focus of Valuation of Securities Task Force, NAIC staff and financial modeling consultants. It is anticipated the macroeconomic assumptions will be made public and comments will be discussed on a public call prior to their approval by the NAIC membership. The process is anticipated to be completed prior to the NAIC 2010 Fall National Meeting.

• A report of all CMBS and RMBS CUSIPs owned by insurers as of June 30, 2010 will be provided to each financial modeler no later than early October 2010. A process will be developed to identify additional CUSIPs purchased by insurance companies during the third and fourth quarters which are not currently part of any insurer’s portfolio, and it is envisioned these additional CUSIPs will be delivered to the financial modelers in early January 2011.

• The financial modelers will be responsible for generating intrinsic prices for each CUSIP in order to develop the NAIC designation price-grid. The financial modelers will work closely with NAIC staff and consultants to ensure delivery dates are met and modeling questions are addressed quickly.

• The SVO will be responsible for validating the intrinsic prices for each CUSIP and will implement a quality assurance (QA) process for each type of security. This process will require coordination with the financial modelers, with results to be made public once the QA Team has approved the valuations.

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• A new CUSIP delivery system is being developed which will be part of the NAIC’s Automated Valuation Service (AVS). This system will allow each insurer to view their specific CMBS and RMBS holdings in a secured environment following remittance of their respective RMBS and/or CMBS assessments to the NAIC. Assessment invoices will be created and distributed in November 2010 based on the insurance company’s holdings as of June 30, 2010. The invoice will be based on the number of CUSIPs held, and the price per CUSIP is currently under development and anticipated to be finalized by mid-October 2010.

• A webpage will be available on the NAIC website for both CBMS and RMBS in order to provide useful information to insurance companies, regulators and interested third parties.

V. Financial Impact Given the complexity of valuing structured securities and the expertise required to do so, this project requires a substantial financial investment. The NAIC’s primary objective is to recover the direct and indirect costs incurred in the development of NAIC designation price-grids by assessing insurance companies for the RMBS and CMBS CUSIPs they own. Members of the NAIC have authorized an assessment of the costs associated with this project to those U.S. insurers that own non-agency RMBS and CMBS subject to the modeling process. The total direct and indirect costs arising from the RMBS and CMBS modeling and assessment process in 2010 and through February 2011 are estimated at $6.2 million and include: (1) $6.4 million in direct expenses associated with third party consultants (including

Oliver Wyman, PIMCO, BlackRock Solutions, consultants to the NAIC New York Office, temporary personnel and outside legal counsel) for the modeling of an estimated 21,000 RMBS CUSIPs and 7,500 CMBS CUSIPs in 2010.

(2) $673,608 in direct expenses associated with the acquisition of data from Bloomberg

to enable the NAIC to provide members with increased information on investments held by insurers, particularly the characteristics of fixed income and structured securities.

(3) $63,600 in direct expenses associated with enhancements to the NAIC’s Automated

Valuation System for improved delivery of RMBS and CMBS modeling results to insurers.

(4) $446,848 in other direct expenses estimated for (i) a $308,350 potential allowance

for uncollectible accounts and (ii) $138,498 for other overhead items and contingencies for unplanned expenses arising from this project.

(5) $409,047 in indirect NAIC staff support costs to this initiative in 2010, estimated at

staff’s best projection of hours to be spent supporting this project at each

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employee’s salary (based on the mid-point of their salary grade) and including an estimated employee benefit expense of an additional 32.5%.

The NAIC will carefully account for actual revenues generated and expenses incurred in support of this initiative, and anticipates any net revenue or net expense will be reported and adjusted, as appropriate, as a component of any further NAIC work in the area of RMBS, CMBS and/or other structured securities during fiscal year 2011. The assessment of costs associated with this project will be allocated among all insurance companies owning non-agency RMBS CUSIPs and non-agency CMBS CUSIPs, estimated based on Schedule D information from December 31, 2009, statutory annual statement filings. Based on current cost estimates and assumed RMBS and CMBS holdings, the RMBS assessment will be $70 per CUSIP per individual company (assuming a total of 38,100 in RMBS CUSIP holdings) and the CMBS assessment will be $100 per CUSIP per individual company (assuming a total of 35,000 in CMBS CUSIP holdings). Of course, the estimated per CUSIP price may be adjusted depending on actual holding information at the time the RMBS and CMBS assessment invoices are prepared and delivered by the NAIC to individual insurers, primarily depending on any significant changes in the composition of RMBS and CMBS holdings by the industry between December 31, 2009 and December 31, 2010. Attachment I includes an overview of the project’s revenues and costs since inception in late 2009 through February 2011. VI. Alternatives or Partnerships From a conceptual perspective, the NAIC’s approach to this project is based on a partnership of NAIC staff, insurance regulators, third party consultants and financial modelers. This approach was approved in 2009 and again in 2010 due to the complexity inherent in modeling complex financial securities and the fact the NAIC currently does not have the staff, systems or expertise to conduct this type of financial evaluation, particularly for a large number of complex securities, on its own. The NAIC has specific requirements regarding its evaluation of both CMBS and RMBS CUSIPs, so reliance on publicly available information is not enough. As a result, the NAIC, in conjunction with external consultants, has determined financial modeling firm partnerships are the best approach to managing these projects. Given the NAIC’s success with PIMCO in 2009, and the desire to have a consistent methodology between years, the NAIC elected to continue this relationship for another year. The NAIC anticipates similar success with BlackRock Solutions, based on its thorough due diligence process, for CMBS modeling in 2010. During the upcoming year, staff will investigate the possibility of bringing this service into the NAIC from staffing, systems, policy and financial perspectives. Until the NAIC has the level of expertise necessary to perform these valuations internally, it must rely on external consultants and financial modelers.

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VII. Risk Management Given the importance, complexity and financial cost of the structured securities project to the NAIC and its members, this project has visibility at all levels within the NAIC. Periodically, during the year, and now on a bi-weekly basis, a cross-departmental team of representatives from various NAIC staff divisions (Business & Corporate Development, Capital Markets, Finance, Financial Regulatory Services, Information Services, Insurance Products and Services, Legal and Securities Valuation Office) meet to manage the daily activities of the project. Working with two vendors in 2010, the NAIC must be diligent in ensuring both vendors employ similar macro-economic assumptions in their models. NAIC staff will hold regular meetings with representatives from both groups to ensure the models are in sync. In addition, the Quality Assurance (QA) process coordinated by the NAIC’s independent consultant will serve as a check to ensure (1) macro-economic assumptions are consistent and (2) reported results by CUSIPs appear reasonable.

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Business and Fiscal Impact Statement Project Cost AnalysisRevenues, Expenses and Capital Expenditures

Project/Initiative: 2010 Structured Securities Project

Business Entity - NAIC

2009 6/30/10 July - December 2010 2011 CumulativeDescription Actuals Actual Projections Total Budget Project

Direct Revenues:RMBS Assessment to Insurers 4,617,891$ (6,000)$ 2,667,100$ 2,661,100$ 7,278,991$ CMBS Assessment to Insurers 3,500,000 3,500,000 3,500,000 Data Sales to TPAs and Other Third Parties 220,000 800,000 40,000 840,000 1,060,000 Total Direct Revenues 4,837,891 794,000 6,207,100 7,001,100 - 11,838,991

Direct Expenses:Professional Consulting Services 2,543,896 869,730 5,284,382 6,154,112 224,650$ 8,922,658 Bloomberg Data Acquisition 10,397 639,547 649,944 23,664 673,608 Automated Valuation System Delivery Enhancements 63,600 63,600 63,600 Allowance for Bad Debt 20,708 308,350 308,350 329,058 Other Expenses 18,850 (1,818) 140,316 138,498 157,348 Total Direct Expenses 2,583,454 878,309 6,436,195 7,314,504 248,314 10,146,272

Direct Allocated Net Assets 2,254,437 (84,309) (229,095) (313,404) (248,314) 1,692,719

Indirect NAIC Staff Expenses (Salary/Hours) 298,498 164,047 210,000 374,047 35,000 707,545

Total Allocated Net Assets 1,955,939$ (248,356)$ (439,095)$ (687,451)$ (283,314)$ 985,174$

2010 Projections

Attachment I

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186

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Page 224: NAIC 2011 Budget
Page 225: NAIC 2011 Budget

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188

Page 227: NAIC 2011 Budget

2011 Program

Budget

Page 228: NAIC 2011 Budget
Page 229: NAIC 2011 Budget

Date: October 11, 2010 To: All NAIC Members and Interested Parties From: Terri Vaughan, Chief Executive Officer Andy Beal, Chief Operating Officer and Chief Legal Officer Brady Kelley, Chief Financial and Business Strategy Officer Re: Program Budget The purpose of NAIC program budgeting is to illustrate the NAIC’s budgeted revenues and expenses allocated across three broad categories, including Solvency Regulatory Support, Market Regulatory Support and General Regulatory Support. At the direction of the membership, NAIC staff prepared the first program budget in early 1996, using a crosswalk methodology to convert the conventional budget to a program-reporting format based upon program categories established by the Strategic Framework (EX1) Working Group. Since that time, continual refinements have been made to the program budget process to accommodate changes in NAIC programs and initiatives and to provide for a more precise crosswalk and illustration. The method of allocation used in preparing the 2011 program budget is consistent with previous years. The NAIC has dedicated a great deal of time and resources to the program budget process. However, the allocation of certain revenues and expenses not directly related to individual programs requires significant judgment and estimation. NAIC management has analyzed these allocation methods and believes they represent reasonable estimates of the NAIC resources dedicated to each NAIC program. Please fee free to contact us at (816) 783-8011 with any questions. Thank you!

189

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190

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Solvency Market General TotalRegulatory Regulatory Regulatory Regulatory

Support Support Support Support

Member Assessments 2,210,160$ 2,210,160$ Database Filing Fees 25,734,999$ 25,734,999 Publications and Insurance Data Products 15,992,922 1,418,338$ 1,251,471 18,662,731 Services 9,774,286 7,745,376 17,519,662 National Meeting Registration Fees 686,339 583,165 253,396 1,522,900 Investment Income 1,030,209 195,343 78,559 1,304,111 Education Programs 561,691 255,596 307,756 1,125,043 Administrative Services/License Fees 7,051,713 7,051,713 Miscellaneous Income 16,984 5,720 1,296 24,000

Total Revenues 53,797,430 17,255,251 4,102,638 75,155,319

Salaries 17,408,434 10,228,553 6,865,054 34,502,041$ Temporary Personnel 26,662 28,521 15,606 70,789 Payroll Taxes 1,250,287 732,546 426,825 2,409,658 Employee Benefits 3,696,514 1,867,737 1,353,848 6,918,099 Employee Development 303,456 258,174 140,598 702,228 Professional Services 1,317,411 1,802,960 932,894 4,053,266 Computer Services 1,167,300 54,335 175,168 1,396,803 Travel 894,763 873,961 1,600,529 3,369,254 Occupancy 2,888,533 1,904,197 1,200,515 5,993,244 Equipment Rental/Maintenance 1,558,308 227,727 728,838 2,514,873 Depreciation 1,445,200 722,600 240,867 2,408,667 Telephone 204,283 147,792 88,177 440,252 Other Supplies 274,994 70,029 121,013 466,036 Mail Services 120,936 66,441 60,609 247,986 Reference Materials 351,392 108,773 97,305 557,469 Printing 104,085 51,852 48,373 204,309 National & Interim Meetings 536,760 400,578 283,423 1,220,761 Education Programs & Communications 513,906 213,367 1,215,532 1,942,805 Miscellaneous Expenses 427,624 2,464 2,973 433,062 Overhead 2,748,018 1,837,545 1,005,952 5,591,515

Total Expenses 37,238,864 21,600,152 16,604,099 75,443,115

Revenues Over/(Under) Expenses before Structured Securities Project 16,558,566$ (4,344,901)$ (12,501,461)$ (287,796)$

Revenue Percentage 71.58% 22.96% 5.46% 100.00%

Expense Percentage 49.36% 28.63% 22.01% 100.00%

Direct and Indirect Structured Securities Project Revenue -$ -$ Direct and Indirect Structured Securities Project Expenses 248,314 248,314

Revenues Over/(Under) Expenses-Structured Securities Project (248,314) (248,314)

Total Revenues Over/(Under) Expenses Including Structured Securities Project 16,310,252$ (4,344,901)$ (12,501,461)$ (536,110)$

National Association of Insurance Commissioners2011 Program Budget

191

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192

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2011

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193

Page 234: NAIC 2011 Budget

194

Page 235: NAIC 2011 Budget

2011

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195

Page 236: NAIC 2011 Budget

196

Page 237: NAIC 2011 Budget

2011

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197

Page 238: NAIC 2011 Budget

198

Page 239: NAIC 2011 Budget

Annual R

eport

Page 240: NAIC 2011 Budget
Page 241: NAIC 2011 Budget

National Association of Insurance Commissioners Management’s Discussion and Analysis

December 31, 2009

This discussion and analysis of the financial performance of the National Association of Insurance Commissioners (NAIC) provides management’s overview of the financial activities for the year ended December 31, 2009. While the NAIC’s 2009 Annual Report includes information on the actual financial results of the organization, this report provides management’s analysis of the organization’s financial performance in relation to the annual budget and mid-2009 financials projections. Budget Performance As published throughout the NAIC’s 2010 budget, and consistent with many businesses in the recent economy, the NAIC experienced budget challenges in 2009, primarily resulting from shortfalls in certain revenues. As concerns with the 2009 projections were identified in May 2009, NAIC management worked to identify potential areas for enhancing revenues and reducing costs. Working with the Internal Administration (EX1) Subcommittee, NAIC management implemented proactive measures to address projected revenue shortfalls and implement certain cost reductions in order to generate an estimated $2.0 million reduction in net spending from July to December 2009, while minimizing the impact to NAIC services to members. Key cost reductions implemented by staff in 2009 included (1) a systematic, priority-based review of hiring to fill vacant NAIC staff positions and (2) a freeze on NAIC salary increases effective July 1, 2009 through June 30, 2010. As a result of these measures, the NAIC published a 2009 projected net operating loss of $176,969, compared to the budgeted net operating loss of $474,656. When including investment income, the NAIC projected a total net revenue margin of $2.8 million, again driven primarily by positive investment performance through 6/30/09 and excluding any potential downturn in investment returns from July to December 2009. The table below illustrates key components of the NAIC’s 2009 financial results. In summary: • Operational revenues performed below budget $1,666,341 (2.3%) but within $238,309 (.34%) of the published

2009 target. Operating expenses yielded savings of $1,950,677 (2.7%) from budget and performed within $251,658 (.36%) of the published 2009 target. As a result, NAIC operations exceeded budget expectations by $284,336 and performed within $13,349 (.02%) of the projections published in mid-2009.

• The NAIC investment portfolio produced net gains generating investment income of $6,869,301, exceeding its $2,053,548 budget by $4,815,753.

• The residential mortgage-backed securities (RMBS) project was another significant component of the NAIC’s

positive financial results at December 31, 2009. While unanticipated as part of the 2009 budget or mid-2009 projections, the NAIC billed $4.6 million in assessments to insurers holding RMBS securities in early December 2009 and incurred $2.6 million of project expenses through December 31, 2009. The amount of direct RMBS revenues in excess of direct RMBS expenses has been allocated and is expected to be spent on further work in the area of RMBS and other structured asset classes during 2010. Further, the indirect costs of staff support to this initiative in both 2009 and 2010 will be allocated toward the total costs of this project as the NAIC evaluates the full costs of these projects and considers any further funding requirements this year.

• The NAIC also experienced a positive adjustment for its defined benefit pension plan as a result of (1) the

improved performance of plan assets compared to the 7% expected return on plan assets and (2) the reducing discount rate environment in 2009, which reduces the present value of future benefit liabilities.

• Overall, and as a result of each of the above components, the NAIC generated an increase in net assets of $10.7

million compared to the 2009 budget of $1.6 million and revised 2009 target of $2.8 million. However, it is important to note the RMBS project will have an opposite impact on the NAIC in 2010, as 2009 net project revenues are spent for similar modeling of RMBS or other structured asset classes in 2010.

199

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National Association of Insurance Commissioners Management’s Discussion and Analysis

December 31, 2009

2009 TargetVariance Published in Variance %

2009 2009 from Budget 2010 Budget from Target Variance fromActual Budget at 12/31/09 Proposal at 12/31/09 Target

Operating Revenues 69,424,507 71,090,848 (1,666,341) 69,186,198 238,309 0.34%Operating Expenses 69,614,825 71,565,502 (1,950,677) 69,363,167 251,658 0.36%

Operating Margin (190,318) (474,654) 284,336 (176,969) (13,349) -0.02%

Investment Income 6,869,301 2,053,548 4,815,753 3,025,385 3,843,916 RMBS Project Revenues 4,837,891 4,837,891 4,837,891 RMBS Project Expenses (2,583,454) - (2,583,454) (2,583,454)

Margin Before Pension Adjustment 8,933,420 1,578,894 7,354,526 2,848,416 6,085,004

Pension Adjustment 1,771,340 - 1,771,340 - 1,771,340

Total Change in Net Assets 10,704,760 1,578,894 9,125,866 2,848,416 7,856,344

Net Assets NAIC net assets were impacted significantly by 2008 investment downturns, with the operating reserve reducing to $48.4 million at December 31, 2008, from $59.6 million at December 31, 2007, taking the total operating reserve from 89.6% to 67.6%, respectively, and reducing the liquid operating reserve from 69.9% to 52.3%, respectively. The NAIC’s operating results and investment gains in 2009, coupled with improvements in the performance of the NAIC defined benefit plan and the temporary impact of the RMBS project, have improved net assets by $10.7 million for a total of $59.1 million and representing a total operating reserve of 83.2% and liquid operating reserve of 72.0% at December 31, 2009. Historical Perspective The NAIC budget and annual operating expenditures are very carefully managed by NAIC senior management, the Internal Administration (EX1) Subcommittee, the Executive (EX) Committee and the entire membership. NAIC resources are continually evaluated and aligned with important and priority membership services, systems, products and data that serve as the backbone of a complex variety of regulatory programs and tools. Management believes this is evident in NAIC expense management, where cumulative expense variances from 2005 to 2009 totaled $2.1 million in savings, with $2.0 million of savings results from 2009 cost reduction measures alone. As a result of the 2009 cost reduction measures, NAIC operations performed within $13,349 (.02%) of the projections published in mid-2009. Put in perspective, over the $317.7 million of budgeted operating revenues and $318.2 million of budgeted operating expenses, the NAIC managed within 1.4% of revenue and –0.7% of expense budgets from 2005 to 2009 – statistics we believe demonstrate discipline, accountability, and internal management and membership leadership to manage NAIC budgets. Further, key drivers of such variances in each year are disclosed and described in each fiscal year’s budget documentation. Management appreciates the opportunity to present this discussion and analysis to the NAIC membership and the general public, and believes it provides useful information regarding the NAIC’s budget and financial projections, which are not already included in the 2009 Annual Report. The NAIC’s 2010 budget also provides a comprehensive and useful review of the NAIC’s business and financial plan for the upcoming fiscal year and can be found at http://www.naic.org/about_budget.htm. Please feel free to contact Brady Kelley, Chief Financial and Business Strategy Officer, at (816) 783-8004 should you have any questions or need additional information.

200

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The National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insur-ance regulatory officials of the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands. Formed in 1871, it is the oldest association of state officials.

The NAIC provides its members with national forums for discussing common issues and interests, as well as for working cooperatively on regulatory matters that transcend the boundaries of their own jurisdictions. Collectively, members work to develop model legislation, rules, regulations and white papers to coordinate regulatory policy. The overriding objective is to protect consumers and help maintain the financial stability of the insurance industry.

The NAIC provides a wide range of services to support the work of its committees, the state insurance depart-ments, state and federal officials and the public. The Association maintains three offices: the Executive Office, in Washington, D.C.; the Central Office, in Kansas City, Mo.; and the Securities Valuations Office (SVO) in New York, N.Y.

The NAIC maintains extensive systems linking all insur-ance departments and provides financial, actuarial, legal, research, technology, market conduct and economic exper-tise. Its staff maintains, researches and prepares standard and custom reports, develops uniform statutory financial statements, monitors federal activity, submits legal briefs, tracks alien insurers, creates publications, conducts educa-tional training programs and much more.

The success of the NAIC rests largely on its staff’s exceptional service to its members, regulators, the insurance industry and the public. Snapshots of the NAIC reflect the work/life balance, flexible benefits, diversity and innovative employment practices that support the efforts of the Association’s 433 employees.

In 2009, facing the worst economy since the Great Depression, the NAIC sustained this work/life balance with-out major cuts in staffing or benefits. Employee turnover, excluding unavoidable separations such as retirements, was 3.1% in 2009. The NAIC’s total employee turnover of only 5.1% is well below the national average.

Many of the most popular programs continued in earnest,

including the Infants in the Workplace program. Marking its 11th year, the staff welcomed 14 new babies to the NAIC offices, bringing the total number of children who have accompanied their parents to work to 92.

Employee fundraising events raised more than $8,500 for local charities, of which more than $6,300 was distributed in 2009. NAIC employees also donated personal time as volunteers at local shelters and with Habitat for Humanity, as well as collecting much needed personal items, school supplies and holiday gifts to share with local families.

Unique benefits and work/life programs put the NAIC in competition for top talent, while fostering a friendly and productive workplace.

AssociAtion Profile

WorkPlAce & community

202

Page 245: NAIC 2011 Budget

A little silver. A touch of light. The advent of modern photography involved a process of treating silver-plated copper sheets with iodine to make them sensitive to light, exposing them in a camera and then developing the images with warm mercury vapor. This process created a lasting image, one that would not change if exposed to light.

The visual medium of photography has applicable undertones for the NAIC in 2009 — a year that exposed the inherent strength of state-based regulation during a time when challenges to it were more pro-nounced than ever. And like the art of photography, effective insurance regulation requires both techni-cal aptitude and a dis-cerning eye. Indeed, this year provided many indelible images from a momentous and unprecedented period.

We continued to deal with the residual effects of the pre-vious year’s financial turmoil, coordinating our efforts to protect American consumers from insolvencies and help-ing shield the global economy from further uncertainty. However, we also engaged in salient issues that would dominate the national dialogue in 2009 and reflect our col-lective consciousness: health care reform, climate change, modernization of the industry and all things credit — from credit-based scoring to credit rating agencies.

As we step into another year, it is important to continue the significant strides we have made. We remain committed to improving the national system of state-based insurance reg-ulation by advancing the rigor of consumer protection and effective solvency oversight. For 138 years, the NAIC has reflected and responded to the demands and challenges of the times.

There are always multiple points of view — some that obscure our field of vision, some that enhance it — but the diversity of perspectives we saw in 2009 ultimately brought our priorities into focus. We remain dedicated to ensuring that the decisive strength of the industry remains the endur-ing imprint of our commitment to consumers.

officers’ messAge

Jane l. clineNAIC President-ElectCommissioner, West VirginiaOffices of Insurance Commissioner

roger A. sevignyNAIC PresidentCommissioner, New HampshireDepartment of Insurance

susan e. VossNAIC Vice PresidentCommissioner, IowaInsurance Division

kevin m. mccartyNAIC Secretary-TreasurerCommissioner, FloridaOffice of Insurance Regulation

PHOTO: Run on East Side Bank, N.Y. , Feb. 16, 1912 (Library of Congress)

Prior to the Glass-Steagall Act, bank panics such as the one depicted in this 1912 photo were relatively common. Nearly a century later, banking instability and an economic crisis led to more regulatory reform efforts.

Photos like this were most likely taken with a portable camera manufactured by Eastman-Kodak. These cameras were made available to the general public circa 1888. Turn of the century professional photographers relied primarily on hand-crafted, large format plate cameras, such as this English-style example made of mahogany and brass.

203

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Jim l. ridlingCommissioner, AlabamaDepartment of Insurance

linda s. HallDirector, State of Alaska Department of Commerce Community & Economic Development Division of Insurance

fiaigoa A. PaogofieInsurance Commissioner,Office of the GovernorAmerican Samoa Government

christina uriasDirector, ArizonaDepartment of Insurance

Jay BradfordCommissioner, Arkansas Insurance Department

steve PoiznerCommissioner, CaliforniaDepartment of Insurance

marcy morrisonCommissioner, ColoradoDivision of Insurance

thomas r. sullivanCommissioner, ConnecticutInsurance Department

karen Weldin stewartCommissioner, DelawareInsurance Department

gennet PurcellCommissioner, District of ColumbiaDepartment of Insurance,Securities & Banking

Adelaide “Alex” sinkChief Financial Officer, FloridaDepartment of Financial Services

kevin m. mccartyCommissioner, Florida Office of Insurance Regulation

John oxendineCommissioner, GeorgiaOffice of Insurance & Safety Fire Commissioner

John P. camachoCommissioner, Guam Department of Revenue & TaxationRegulatory Division

J.P. schmidtCommissioner, HawaiiDepartment of Commerce & Consumer Affairs, Insurance Division

William W. DealDirector, IdahoDepartment of Insurance

michael t. mcraithDirector, IllinoisDepartment of Insurance

carol cutterCommissioner, IndianaDepartment of Insurance

susan e. VossCommissioner, IowaInsurance Division

sandy PraegerCommissioner, KansasInsurance Department

sharon P. clarkCommissioner, KentuckyDepartment of Insurance

James J. DonelonCommissioner, Louisiana Department of Insurance

mila kofmanSuperintendent, Maine Department of Professional & Financial Regulation, Bureau of Insurance

ralph s. tyler, iiiCommissioner, MarylandInsurance Administration

Joseph g. murphyActing Commissioner, Massachusetts Office of Consumer Affairs & Business Regulation Division of Insurance

ken rossCommissioner, MichiganOffice of Financial& Insurance Regulation

glenn WilsonCommissioner, MinnesotaDepartment of Commerce

mike chaneyCommissioner, MississippiInsurance Department

John m. Huff Director, MissouriDepartment of Insurance, Financial Institutions & Professional Registration

monica J. lindeenCommissioner, Montana Office of the Commissioner of Securities & Insurance Ann m. frohmanDirector, NebraskaDepartment of Insurance

scott J. kipperCommissioner, NevadaDivision of Insurance

roger A. sevignyCommissioner, New HampshireInsurance Department

neil n. JaseyCommissioner, New JerseyDepartment of Banking& Insurance

morris J. chavezSuperintendent, New MexicoPublic Regulation Commission,Division of Insurance

James J. WrynnSuperintendent, New York State Insurance Department

Wayne goodwinCommissioner, North CarolinaDepartment of Insurance

Adam HammCommissioner, North DakotaInsurance Department

michael J. AdaCommissioner, Northern Mariana Islands Department of Commerce, Office of the Insurance Commissioner

mary Jo HudsonDirector, OhioDepartment of Insurance

kim HollandCommissioner, OklahomaInsurance Department

teresa D. millerInsurance Administrator, Oregon Insurance Division

Joel ArioCommissioner, Pennsylvania Insurance Department

ramón l. cruz-colónCommissioner, Puerto RicoOffice of the Commissioner of Insurance

Joseph torti, iiiSuperintendent, Rhode IslandDepartment of Business Regulation, Division of Insurance

scott H. richardsonDirector, South CarolinaDepartment of Insurance

merle D. scheiberDirector, South DakotaDepartment of Revenue & Regulation, Division of Insurance

leslie A. newmanCommissioner, TennesseeDepartment of Commerce & Insurance, Insurance Division

mike geeslinCommissioner, TexasDepartment of Insurance

D. kent michieCommissioner, UtahInsurance Department

Paulette J. thabaultCommissioner, VermontDepartment of Banking, Insurance, Securities & Healthcare Administration

gregory r. francisLieutenant Governor/Commissioner Virgin IslandsDivision of Banking & Insurance,

Alfred W. grossCommissioner, Virginia State Corporation Commission, Bureau of Insurance

mike kreidlerCommissioner, Washington StateOffice of the Insurance Commissioner

Jane l. clineCommissioner, West VirginiaOffices of the Insurance Commissioner

sean DilwegCommissioner, Wisconsin Office of the Commissioner of Insurance

ken VinesCommissioner, WyomingInsurance Department

2009 memBers

204

Page 247: NAIC 2011 Budget

PAst memBers (served during 2009)thomas e. HamptonCommissioner, District of Columbia Department of Insurance,Securities & Banking

Jim AtterholtCommissioner, IndianaDepartment of Insurance

nonnie BurnesCommissioner, MassachusettsOffice of Consumer Affairs & Business Regulation Division of Insurance

linda BohrerActing Director, MissouriDepartment of Insurance, Financial Institutions & Professional Registration

steven m. goldmanCommissioner, New JerseyDepartment of Banking& Insurance

eric DinalloSuperintendent, New York State Insurance Department

NORTHEASTERN ZONE

thomas r. sullivan, Chair, Connecticut

Joel Ario, Vice Chair, Pennsylvania

Paulette J. thabault, Secretary, Vermont

SOUTHEASTERN ZONE

scott H. richardson, Chair, South Carolina

leslie A. newman, Vice Chair, Tennessee

James J. Donelon, Secretary, Louisiana

MIDWESTERN ZONE

kim Holland, Chair, Oklahoma

sean Dilweg, Vice Chair, Wisconsin

merle D. scheiber, Secretary, South Dakota

WESTERN ZONE

linda s. Hall, Chair, Alaska

D. kent michie, Vice Chair, Utah

morris J. chavez, Secretary, New Mexico

2009 nAic officersroger A. sevigny, President, New Hampshire Jane l. cline, President-Elect, West Virginiasusan e. Voss, Vice President, Iowakevin m. mccarty, Secretary-Treasurer, Florida

immeDiAte PAst PresiDentsandy Praeger, Kansas

Zone officers

205

Page 248: NAIC 2011 Budget

Letter from theChief Executive Officer

centrAl office2301 McGee Street, Suite 800Kansas City, MO 64108-2662

816 842 3600

eXecutiVe office444 North Capital St. NW, Suite 701

Washington, D.C. 20001-1509202 471 3990

securities VAluAtion office48 Wall Street, 6th Floor

New York, NY 10005-2906212 398 9000

Dear Members,

Derived from the Greek words meaning “drawing with light,” photography captures a precise moment in time. As we reflect on 2009, we see the efforts of state insurance regulation were often illuminated, and this past year saw the contours of many compelling images: Congressional testimony about the strength of the insurance industry; the evolving landscape surrounding climate change; developing solvency modernization initiatives; and the creation of the Center for Insurance Policy and Research.

This annual report uses concepts from photography to describe the strengths of state insurance regulation: depth of field, balance, consistency and clarity of focus. My return to the NAIC this year has been an affirmation of my belief in the unique ability of state regulation to protect consumers. I am privileged and pleased to be working for all of you, and supporting your efforts to make our national system of state-based insurance regulation as effective as it can be. There is a distinct energy in this organization that excites me — a synergy and engagement among the mem-bers that makes many things possible. I am excited to be a part of this effort, in what I believe is a historic time.

I look forward to another year of working closely with all of you in support of the important work you do every day to protect insurance consumers across this country.

Sincerely,

Therese M. (Terri) Vaughan, Ph.D. NAIC Chief Executive Officer

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2009 DEVELOPMENTS locAtions

4 National Meetings with 6,451 Total Attendees

34 NAIC Interim Meetings

1,711 Conference Calls (Member Toll-Free Access)

oPtics & lenses

16 Funded Consumer Representatives

731 Million Total Media Impressions (TV, Radio PSAs, Consumer Alerts)

1200+ Fulfilled Media Requests

5.5 Million Visits to NAIC Web Site (www.naic.org)

164,008 Visits to Consumer Information Source (CIS) Web Site

339,593 Visits to Insure U Web Site (www.insureUonline.org)

Processing & DeVeloPment

332,606 Visits to NAIC’s Regulator-Only I-SITE Web Site

527,139 Insurance product submissions to the System for ElectronicRate and Form Filing (SERFF)

6,796 Online Fraud Referrals to Members

4,800 Annual and Quarterly Financial Statements

160 NAIC Publications and Data Products

400 Million Data Elements in Financial Data Repository

eXPosures & enlArgements

347 Uniform Certificate of Authority Applications Transmitted to Members

81 Classroom or Online Education Courses

115,889 Fulfilled NAIC Help Desk Inquiries (Phone/E-mail)

13,000 Fulfilled Statutory Accounting & Financial Reporting Inquiries

2,705 Fulfilled Research Library Inquiries

11 Full Accreditation Reviews

11 Pre-Accreditation Reviews

40 Interim Accreditation Reviews

“There are always two people in every picture: the photographer and the viewer.”

—Ansel Adams Quicker. Clearer. Sharper. The immediacy and efficiency of today’s digital photography is an apt metaphor for state insur-ance regulation. Just as photography has evolved from tintype to film to digital, the NAIC has likewise transcended to meet the ever-developing changes and challenges of the regulatory landscape.

Pictures capture the passage of time — from the reminiscent hues of sepia to the contemporary vibrancy of color photo-graphs. This past year has been imbued with the full spectrum of colors, with a nod to the past and with vivid optimism for the future of state-based regulation. While their tools, subjects and situations may change, regulators are charged with seeing the bigger picture and having the ability to adjust and change focus, when necessary. In that vein, 2009 rendered images that left an indelible impression of strong consumer protections and solvency standards.

PORTFOLIO CONTENTS:2009 Review and Discussion . . . . . . . . . . . . . . . . . 06

Independent Auditors’ Report . . . . . . . . . . . . . . . . 11

Financial Statements Statements of Financial Position . . . . . . . . . . 12Statements of Activities . . . . . . . . . . . . . . . . . 13Statements of Cash Flows . . . . . . . . . . . . . . . . 14Notes to Financial Statements . . . . . . . . . 15-19

NAIC Accreditations and Awards . . . . . . . . . . . . . 20

PHOTO: Cars at the Curb in Lincoln, Neb., 1942 (Library of Congress)

U.S. automakers enjoyed a golden era from 1930-1948, when sedan-style cars made by Ford, Buick, Chevrolet and Chrysler became fixtures on American roadways. Those same manufacturers required assistance from Uncle Sam during the financial crisis of 2008-09.

Kodak’s Brownie was first introduced to the public in 1900, costing $1.00. Simple enough for a child to use, it made the hand-held camera and photography a permanent part of American life. Even as technology changes the practice of photography, the basic principles and functions hold firm. Whether on cartridges of film or the most modern silicon chip — the final image remains the product of the focus and timing of the photographer.

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capital emphasis: D.C. Becomes Point of Executive PerspectiveIn 2009, the NAIC established a stronger and more visible presence in the nation’s capital — a timely move reflecting the increasingly important role of state insurance regulation.

As Congress and the Administration worked to address health care and financial services reform, NAIC members and leadership testified 18 times before Congressional panels, while NAIC staff conducted more than 300 meetings on Capitol Hill.

In May, more than 35 regulators and staff came to Washington, D.C. to meet with their Congressional delegations and discuss insurance regula-tory reform with Health and Human Services Secretary Kathleen Sebelius and House Financial Services Committee Chairman Barney Frank. During the meetings, state regulators stressed that any reforms must provide consumers with the time-tested protections of the current national system of state insurance regulatory oversight.

Center for Insurance Policy and Research (CIPR)

An increasing emphasis on enhancing research capabilities in insurance regulation and information sharing was the impetus for the creation of the Center for Insurance Policy and Research (CIPR).

The CIPR leverages NAIC resources to support the needs of policy- makers in Washington, D.C. and the states.

Among its accomplishments in its inaugural year, the CIPR co-hosted an Aca demic Symposium on Solvency Regulation in partnership with the American Risk and Insurance Association (ARIA) and the Fox School of Business at Temple University. The event brought together key strategic leaders from government, academia and interested parties to deliberate on lessons learned from the financial crisis and international developments in insurance regulation. The presentations addressed developments with respect to systemic risk and insurance; whether the insurance industry could be considered systemically risky; the role of groups in systemic risk; and proposed legislation regarding systemic risk regulation. Symposium attendees also discussed topics such as capital adequacy standards; state guaranty funds; and the regulation of holding companies.

international update: Panoramic ProgressThe NAIC participated in the Financial Sector Assessment Program (FSAP), a joint International Monetary Fund and World Bank program assessing the U.S. financial regulatory system. Through visits to the NAIC and several states, the FSAP compared U.S. regulatory practices to Insurance Core Principles maintained by the International Association

of Insurance Supervisors (IAIS), an organization co-founded by the NAIC more than 15 years ago. Published in August, this self assessment offers an overview of U.S. insurance regulation juxtaposed with the IAIS standards.

The NAIC continues to hold leadership roles at the IAIS. Members play prominent roles on committees looking outwardly at financial stability concerns and inwardly at the IAIS internal structure and strategic plan-ning. Key among emerging market reforms is the growing involvement of international regulators in supervisory colleges, where regulators gather to share information about internationally active groups. Many of the features of these colleges mirror the coordination exercised among U.S. insurance regulators on company supervision.

The NAIC hosted an International Insurance Forum, bringing together more than 100 participants from the U.S. financial sector to explore recent and continuing developments and progress in international insurance. Also, for the sixth year, member states participated in the International Intern Program, where international regulators were placed in states to learn first-hand about U.S. practices.

financial regulation: Clearing the Way Ahead State regulators entered 2009 experiencing the most challenging financial crisis since the Great Depression. Through it all, conservative solvency principles helped protect the insurance industry from much of the dev-astation felt by the rest of the financial sector. Still, the industry was not fully immune from the challenges of non-insurance holding companies, securities lending practices and the lack of coordination between func-tional, federal and state regulators.

Perhaps no case better illustrated this than AIG. A conglomerate of com-panies ranging from investment services and insurance to aircraft leasing, its holding company nearly collapsed under the weight of credit default swaps (CDS) written by its Financial Products unit, a non-insurance operation. Since these swaps were not subject to regulatory restrictions and were issued by a non-insurance entity, state insurance regulators

To fully appreciate our picture of 2009, it is important to acknowl-edge the impact of significant events in 2008. Many of the important actions taken by the NAIC this year — moving the Executive Office to the nation’s capital, the Solvency Modernization Initiative, the creation of the Center for Insurance Policy and Research and establishment of clear principles for health reform and systemic risk regulation — were in direct response to a struggling economy and forceful challenges to state-based insurance regulation. These critical measures have provided the foundation for our work going forward as we maintain our unwaver-ing commitment to consumer protection.

The full spectrum of the NAIC’s accomplishments in the wake of unprecedented economic challenges is captured in this annual report.

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were not able to apply conservative reserve and accounting require-ments along with minimum capital requirements. Although insurance consumers remained relatively safe while the economy began its tenta-tive recovery, regulators found themselves with a list of issues to address. As Congress continues to debate how best to accomplish financial regu-latory reform, the NAIC and its members immediately set themselves to applying lessons learned in 2009 by:

•Strengthening securities lending accounting anddisclosure require-ments, while beginning to propose strict limits for securities lending activities;

•Draftingchanges in theNAICInsuranceHoldingCompanySystemRegulatory (Model) Act to improve knowledge of risks posed by non-insurance entities;

•Pushing forgreatercooperationandcommunicationbetween func-tional regulators — participating in international efforts to establish best practices for supervisory colleges; and

•Developingaregulatorymodelthatavoidsrelianceonratingagenciesfor evaluating residential mortgage-backed securities (RMBS), while looking to extend this approach to additional structured securities in the future.

As the year closed, asset values had clawed back much of 2008’s losses. Though challenges remain, state insurance regulators continue to meet the challenges of solvency supervision and consumer protection.

Residential Mortgage-Backed Securities

The financial crisis exposed many weaknesses in the tools used by the financial industry to evaluate the risks of invested assets. Nationally rec-ognized statistical rating organizations (NRSRO) had underestimated the risks taken by large segments of the market, then added to market strains when they moved to correct their positions. Complex derivatives tied to the failing mortgage industry became toxic — not simply due to the losses related to defaulting mortgage loans, but also because the mar-ket’s view of the amount of expected loss was unclear.

To avoid state insurance regulatory reliance on ratings generated by rat-ing agencies, the NAIC embarked on an innovative effort to model the expected loss of more than 22,000 residential mortgage-backed securities held by U.S. insurers. This effort would link an insurer’s carrying value to the modeled expected loss for each RMBS and assess the appropriate risk-based capital (RBC) charge used to establish the insurers’ regulatory capital levels.

Innovative efforts such as this, in concert with persistent and conserva-tive financial solvency oversight, have helped keep the insurance industry from many of the pains felt by other segments of the financial sector.

solvency modernization: Creating a Deeper Regulatory ViewThe U.S. Solvency Modernization Initiative (SMI) includes a study of international solvency initiatives to ultimately find new ideas to imple-ment in the U.S. financial regulatory system. The initiative encompasses projects already under way at the NAIC and includes the study of finan-cial supervisory modernization initiatives and solvency proposals in place or under development in other jurisdictions, including Australia,

Canada, Switzerland and the European Union.

In 2009, the International Solvency (EX) Working Group met jointly with the International Association of Insurance Supervisors (IAIS) Solvency and Actuarial Issues Subcommittee to discuss the introduction of enterprise risk management (ERM) requirements and the utilization of a company’s Own Risk and Solvency Assessment (ORSA) in financial solvency supervision.

PHOTO: Dr. Therese Vaughan, IIQ Satellite Media Tour, Feb. 1, 2009

Satellite media tours and live TV interviews are a routine part of the NAIC’s consumer media outreach efforts. TV, radio, print and online stories focusing on 2009’s Insurance IQ survey generated more than 36 million media impressions.

The idea to focus a live image through a lens and transmit it through electronic signals was devel-oped by Philo Farnsworth at age 14. Since the end of WWII, television has created the ability to reach large audiences with timely messages.

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The International Solvency Working Group also released two consulta-tion papers for comment. One paper highlights numerous ideas being discussed around the world about RBC methodology and calculations, international accounting and valuation, and potential new group capital requirements. The ideas in this paper could result in significant modifi-cation to U.S. RBC requirements. The other paper released for comment explores the possibility of having companies report the significant risks they face and how solvency might be impacted.

The Financial Condition (E) Committee also released a draft of the U.S. Solvency Regulatory Framework and Principles. This document will aid progress on the SMI, as well as share the expertise of state insurance regulators with U.S. federal and international insurance regulators.

The Center for Insurance Policy and Research hosted a panel titled “Perspectives on Systemic Risk” during the NAIC Winter National Meeting in San Francisco. The experts discussed aspects of systemic risk in insurance and its regulation; provided an update on international views about systemic risk; discussed its pros and cons; and addressed the concept of “too big to fail.”

consumer education: Snapshots of Consumer Knowledge (IIQ) The NAIC continued its commitment to helping consumers make informed insurance decisions with the new Insurance IQ Survey, a test for consumers to assess their Insurance Intelligence Quotient (IIQ). The study found many consumers are considering reducing or dropping health insurance altogether in an effort to save money. In response to this alarming information, the NAIC sought to fill in consumers’ knowl-edge gaps about insurance and help them remain protected during chal-lenging economic times. The study’s results also revealed a snapshot of consumer insurance knowledge, including the financial and emotional impact of uninformed decisions. On average, respondents only scored a four out of 10 on the survey, displaying a startling need for greater under-standing about insurance. Using the results of the IIQ Survey, the NAIC distributed consumer alerts addressing commonly missed questions. For example, April’s consumer alert focused on building an “Insurance Safety Net,” stressing the importance of being adequately protected during a faltering economy.

Since its debut on the NAIC Web site in March, more than 8,200 people have taken the IIQ Survey. Following the release of the survey results, Dr. Vaughan’s television and radio interviews generated 785,000 media impressions. Print and online coverage of the IIQ Survey reached an addi-tional audience of approximately 5.4 million readers through national

outlets such as the Associated Press, The Washington Post, Newsweek, MSN Money and Yahoo News, in addition to numerous local outlets.

Communications Outreach Awarded

The NAIC’s Insure U consumer education program was honored for its public relations initiatives for the second consecutive year. The Greater Kansas City Public Relations Society of America (GKC PRSA) recognized the NAIC with three PRISM awards for excellence in communications.

The NAIC received a first place PRISM award for its two nationwide pub-lic service announcements: one helping consumers make informed deci-sions about long-term care insurance and another reminding consumers of the importance of being prepared before a natural disaster strikes.

GKC PRSA judges remarked on the “impressive turnkey PSA approach and noteworthy participation by NAIC membership.”

To date, the 2009 PSAs have been broadcast more than 700 times, generating more than 2.7 million impressions.

The NAIC also received two silver PRISM awards for its 2008 Annual Report and Public Information Officer (PIO) Forum. Using a theme of “Navigating Change,” the annual report summarized how state insurance regulators weathered the financial turmoil of 2008 by applying lessons learned to chart the course ahead. The 2008 PIO Forum brought PIOs from around the country together to focus on writing and communica-tions skills.

market regulation: New Optics for Market Conduct The goal of the Market Conduct Annual Statement (MCAS) initiative is to provide a uniform system of collecting market related information. Until 2009, each state retained the collected data in their own state data-base without any national aggregation of the data. Last year, the 29 juris-dictions participating in the MCAS submitted their data to the NAIC for storage and analysis to create a national database of market regula-tion data. As part of the overall vision, the NAIC also adopted a formal, long-term proposal and allocated the necessary resources to build a new system to provide for the uniform collection of 2010 MCAS data for all jurisdictions and the centralized storage of this data at the NAIC in 2011. Through the centralized collection, tracking, validating, analyzing and reporting of MCAS data, the NAIC will provide its membership with a sophisticated market analysis resource to better assist them in protecting insurance consumers.

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Life Insurance Compensation Tool for Military

The NAIC released a new online tool to help military servicemembers research and recover compensation resulting from a 2006 multi-state regulatory settlement agreement over life insurance sales practices to the military.

More than 14,000 servicemembers who purchased life insurance products from American-Amicable Life Insurance Company of Texas or its two affiliates — Pioneer American Insurance Company and Pioneer Security Life Insurance Company — are owed more than $2.3 million from the multi-state settlement. Servicemember policyholders (or a named beneficiary) meeting the agreement’s qualifications may be enti-tled to compensation and/or increased benefits.

With this Web tool, military members can determine their eligibility for compensation by simply entering an individual’s first and last name in the search engine.

The multi-state agreement was signed by 46 states, the District of Columbia and Guam. The settlement was the culmination of a 20-month inves-tigation led by the Texas and Georgia insurance departments, the U.S. Department of Justice and the U.S. Securities and Exchange Commission. The investigation followed allegations the American-Amicable compa-nies violated insurance and consumer protection statutes while market-ing certain life insurance products to U.S. military servicemembers.

As of February 2010, the NAIC search tool has had 16,706 unique users, 30,994 searches and 1,929 hits (first and last name matches). American-

Amicable has reported issuing checks totaling $56,504.86 in restitution to policyholders in the period between April 23 – Nov. 17, 2009.

Health care: Maintaining a Principled Perspective Access to affordable and equitable health care is an issue that resonated with millions of Americans this past year and dominated the national agenda. State insurance regulators were a constant and visible presence on Capitol Hill, meet-ing with leaders of the health reform initiative and providing Congressional testimony. Central to the collective effort in Washington, D.C. was identifying and articulating top line pri-orities for reform: addressing the cost of health care, protecting

consumers and preserving a strong state role.

Underscoring the influence of state insurance regulators at this critical juncture, Vice President Joe Biden delivered an address at the NAIC Fall National Meeting. His address focused on the Administration’s health care proposal and the importance of state regulators’ input in achieving successful reform.

Throughout the year, members made sustained efforts in health care efforts, testifying before Congress on numerous issues:

Preventing abuses associated with rescissions of medical coverage •for policyholders

Changes to end Medicare marketing and sales abuses to senior •citizens

Consumer protections for long-term care insurance•

Reform to make small employer coverage more stable•

Throughout the debate, the NAIC held true to principles agreed upon by its members. Congress was urged to approach comprehensive reform via a federal-state partnership, recognizing the substantial experience and expertise of the states and considering these five principles for the successful transformation of the U.S. health care system:

Protect the Rights of Consumers. The states already have patient protections, solvency standards, fraud prevention programs, rate review and other oversight mechanisms in place to protect consumers; these should not be preempted by the federal government.

Address Health Care Spending. Any effort to increase access to and affordability of insurance will not be successful over time unless the overriding issue of rapidly rising health care costs is addressed. Reform efforts will not be effective without accompanying changes in the health

PHOTO: Vice President Joe Biden Addresses Health Care at the NAIC Fall National Meeting, Sept. 23, 2009

When Vice President Joe Biden addressed the NAIC, photographic images, audio and video were made immediately available with the use of digital technology through multiple broadcast and online mediums.

The use of this type of technology was first intro-duced in 1976, by way of the complementary metal oxide semiconductor (CMOS) chip. NASA’s Viking I used this chip to capture and transmit high-resolution digital images of the surface of Mars to earth, forever changing the way the universe would be visualized.

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care delivery system such as ensuring access to primary care, managing chronic diseases and eliminating waste and inefficiency.

Promote State Innovation. The NAIC urges Congress to review ERISA restrictions and other current federal laws and regulations, including CMS rules governing Medicaid and Medicare, that hinder state efforts to reform the health care system. The NAIC encourages the development of broad standards, rather than prescriptive rules, wherever possible to maximize state flexibility to implement reforms in a manner responsive to local and regional market conditions.

Stop Cost-Shifting. Inadequate funding in federal health programs have led to significant shifting of costs to the private sector. This has resulted in higher overall costs and decreased access for many consumers, and hampers the ability of the states to implement reforms. Additional costs cannot be absorbed by already stressed state budgets.

Avoid Adverse Selection. Any program that grants consumers the choice between two pools with different rating, benefit or access requirements will result in adverse selection for one of the pools.

Likewise, setting different rules for different plans within the pool or allowing consumers to wait until they get sick to purchase insurance,

without penalty, can have adverse consequences on the pool. The NAIC can support guaranteed issue and the elimination of preexisting condi-tion exclusions for individuals to the extent these reforms are coupled with an effective and enforceable individual purchase mandate and appropriate income-sensitive subsidies to make coverage affordable.

climate change: A Wide Angle View of RiskThe inextricable impact of climate change on the insurance industry was recognized in 2005. Since then, regulators have worked diligently to address the effects and made several significant strides in 2009.

The Climate Change and Global Warming Task Force undertook several important opportunities to carefully assess a wide range of issues and gather input on what insurers are already doing to address the risk.

The task force adopted a white paper, The Potential Impact of Climate Change on Insurance Regulation, which discusses the effects of climate change on industry investment decisions, disclosures and underwriting practices. The paper stresses the need for improved mitigation and land- use policies that reflect the potential for climate change impact.

Using a forward-looking approach to identify the potential impact of cli-mate change on insurers and their assessment of those risks, the NAIC

also adopted an Insurer Climate Risk Disclosure Survey — a uniform tool developed to help regulators measure impacts to policyholders and insurer operations. Insurance companies with annual premiums of $500 million or more will be asked to complete the survey every year. In addi-tion to reporting on updates to their risk-management and catastrophe-risk modeling, insurers will be asked to report on steps taken to educate policymakers and policyholders on the risks of climate change.

The task force also hosted a Climate Change Risk Summit to explore related topics such as modeling, green products, risk disclosure and investments. Experts provided information and insight into the evolu-tion of climate science and its impact on catastrophe modeling.

system for electronic rate & form filing (serff):Zooming in on Speed to Market The System for Electronic Rate and Form Filing (SERFF) continued to experience tremendous growth, with 527,139 transactions in 2009. Twenty-three states now require the use of SERFF and 12 have mandated their filing fees be paid via electronic funds transfer (EFT).

Designed to improve the efficiency of the rate and form filing and approval process, SERFF offers a decentralized point-to-point, Web-

based electronic filing system. The system also reduces the time and cost involved in making regulatory filings and provides up-to-date filing requirements when they are needed. This uniformity allows filers to use SERFF to submit any product they need to file.

state Based systems (sBs): The Lens of ChoiceIn 2009, Maryland, Nebraska and West Virginia joined SBS, which now holds the distinction of being the solution of choice for more state insurance departments than any other system. SBS is a solid Web-based solution supporting all aspects of insurance regulation via a cohesive user-friendly interface that requires little user training. The goal of SBS is to provide the highest level of efficiency at the lowest possible cost to NAIC members.

SBS is the solution of choice in Alabama, Delaware, Florida, Illinois, Iowa, Kansas, Missouri, New Hampshire, New Jersey, North Carolina, North Dakota, Oklahoma, Puerto Rico, Rhode Island, Tennessee and Washington, D.C.

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Mayer Hoffman McCann P.C.An Independent CPA Firm

1140 Tomahawk Creek ParkwayLeawood, Kansas 66211913-234-1900 ph913-234-1100 fxwww.mhm-pc.com

Honorable Members

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

We have audited the accompanying statements of financial position of the National Association of Insurance Commissioners (the NAIC) as of December 31, 2009 and 2008, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the NAIC’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the NAIC as of December 31, 2009 and 2008, and the changes in its net assets and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Leawood, KansasFebruary 24, 2010

INDEPENDENT AUDITORS’ REPORT

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STATEMENTS OF FINANCIAL POSITIONDecember 31, 2009 and 2008

ASSETS 2009 2008

CURRENT ASSETS

Cash and cash equivalents $ 7,351,708 $ 7,463,232

Accounts receivable, less allowance for doubtful accounts; 2009 - $1,310,625, 2008 - $2,983,978 4,981,896 5,659,702

Current portion of operating note receivable 282,296 185,449

Interest and dividends receivable 162,739 413,569

Prepaid expenses 1,937,989 2,400,783

Inventories 211,301 169,408

Investments 51,773,602 38,888,143

TOTAL CURRENT ASSETS 66,701,531 55,180,286

OPERATING NOTE RECEIVABLE, less current portion 1,476,732 1,187,996

PROPERTY AND EQUIPMENT, NET 7,990,212 10,950,504

TOTAL ASSETS $ 76,168,475 $ 67,318,786

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES

Accounts payable $ 686,954 $ 833,957

Accrued expenses and other current liabilities 6,474,636 5,937,696

Deferred revenue 5,445,013 5,302,936

TOTAL CURRENT LIABILITIES 12,606,603 12,074,589

NON-CURRENT LIABILITIES

Deferred pension liability 4,480,444 6,867,529

TOTAL LIABILITIES 17,087,047 18,942,118

UNRESTRICTED NET ASSETS

Allocated 55,900,821 47,614,304

Allocated - RMBS Project 2,254,437 —

Unallocated 926,170 762,364

TOTAL UNRESTRICTED NET ASSETS 59,081,428 48,376,668

TOTAL LIABILITIES AND NET ASSETS $ 76,168,475 $ 67,318,786

See Notes to Financial Statements

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STATEMENTS OF ACTIVITIESDecember 31, 2009 and 2008

REVENUES 2009 2008

Database fees $ 25,539,949 $ 25,389,680

Publications and subscriptions 17,249,469 17,073,141

Services 14,476,893 14,315,068

Administrative services/license fees 7,181,748 6,580,905

National Meeting registration fees 1,814,075 1,958,600

State assessments 2,113,949 2,063,935

Education and training 1,007,009 1,029,508

Other 41,415 174,071

TOTAL REVENUES 69,424,507 68,584,908

EXPENSES

Salaries 32,702,509 31,687,902

Temporary personnel 499,301 468,163

Employee benefits 9,566,561 8,798,573

Professional fees 5,926,214 5,063,693

Travel 2,870,493 2,755,234

Rental and maintenance 7,931,053 7,701,275

Depreciation and amortization 4,677,741 4,767,333

Insurance 421,096 438,130

Office supplies 1,772,510 1,904,617

Printing expense 150,586 379,682

Meetings 1,524,228 1,250,016

Education and training 1,455,580 1,175,721

Other 217,756 498,258

Bad debt (recovery) expense (100,803) 191,057

TOTAL EXPENSES 69,614,825 67,079,654

CHANGES IN NET ASSETS BEFORE RMBS PROJECT, INVESTMENT INCOME (LOSS) AND PENSION ADJUSTMENT (190,318) 1,505,254

DIRECT RMBS PROJECT REVENUE 4,837,891 —

DIRECT RMBS PROJECT EXPENSES (2,583,454) —

INVESTMENT INCOME (LOSS) 6,869,301 (6,287,184)

CHANGES IN NET ASSETS BEFORE PENSION ADJUSTMENT 8,933,420 (4,781,930)

PENSION ADJUSTMENT 1,771,340 (6,448,685)

CHANGES IN NET ASSETS 10,704,760 (11,230,615)

NET ASSETS, BEGINNING OF YEAR 48,376,668 59,607,283

NET ASSETS, END OF YEAR $ 59,081,428 $ 48,376,668

See Notes to Financial Statements

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STATEMENTS OF CASH FLOWSYears Ended December 31, 2009 and 2008

CASH FLOWS FROM OPERATING ACTIVITIES 2009 2008 Changes in net assets $ 10,704,760 $ (11,230,615) Adjustments to reconcile changes in net assets to net cash flows from operating activities Depreciation and amortization 4,677,741 4,767,333 Net realized and unrealized (gains) losses on investments (5,209,994) 8,649,530 Gain on sale of property and equipment (2,849) (58,277) Changes in operating assets and liabilities: Accounts receivable, net 677,806 326,497 Operating note receivable (385,583) (823,445) Interest and dividends receivable 250,830 (196,479) Prepaid expenses 462,794 (549,013) Inventories (41,893) 96,935 Accounts payable (147,003) (723,958) Accrued expenses and other current liabilities 536,940 499,791 Deferred revenue 142,077 964,316 Deferred pension liability (2,387,085) 4,895,561 NET CASH FLOWS FROM OPERATING ACTIVITIES 9,278,541 6,618,176CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,720,174) (2,584,845) Proceeds from disposition of property and equipment 5,574 61,345 Purchase of investments (39,059,727) (53,687,057) Proceeds from disposition of investments 31,384,262 49,744,836 NET CASH FLOWS FROM INVESTING ACTIVITIES (9,390,065) (6,465,721)CHANGE IN CASH AND CASH EQUIVALENTS (111,524) 152,455CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,463,232 7,310,777

CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,351,708 $ 7,463,232

See Notes to Financial Statements

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Note 1: Summary of significant accounting policiesNature of operations — The National Association of Insurance Commissioners (the NAIC) is an organization of and for the insur-ance regulatory officials of the 50 states, the District of Columbia and five United States territories (the Members). Created by state insurance regulators in 1871, the NAIC provides a forum for the development of uniform policy when uniformity is appropriate.FASB Accounting Standards Codification — Pursuant to Statement of Financial Accounting Standard No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 16”, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (FASB ASC 105) became the sole source of authoritative U.S. generally accepted accounting principles for annual periods end-ing after September 15, 2009. The NAIC adopted this standard for the year ending December 31, 2009. References to specific accounting stan-dards in the financial statement footnotes have been changed to refer to the appropriate section of the ASC.Cash and cash equivalents — The NAIC considers all liquid invest-ments with original maturities of one year or less to be cash equivalents. At December 31, 2009 and 2008, cash equivalents consisted of money market funds and discount notes.The NAIC maintains deposits in financial institutions in excess of fed-erally insured limits. Management monitors the soundness of these financial institutions and believes the NAIC’s risk is negligible.Accounts receivable — Accounts receivable are stated at the amounts billed to customers. The NAIC provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, his-torical collection information and existing economic conditions. Past-due accounts are periodically reviewed by management. Delinquent and/or uncollectible receivables are written off based on individual credit evaluation and specific circumstances of the customer. Inventory pricing — Inventories are stated at the lower of cost, deter-mined by the first-in, first-out (FIFO) method, or market.Investments and investment income — Investments in equity securi-ties having a readily determinable fair value and investments in all debt securities are carried at fair value. Investment income includes divi-dends, interest and realized and unrealized gains and losses. Property and equipment — Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are depre-ciated over the shorter of the lease term or their respective estimated useful lives.The cost of internally developed software is expensed until the tech-nological feasibility of the software has been established. Thereafter, all software development costs are capitalized until such time as the prod-uct is available for general release to customers. The development costs of enhancements that extend the life or improve the marketability of the original product are capitalized. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized

software development costs require considerable judgment by manage-ment with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. The cost of capitalized software is amortized on the straight-line method over the products’ estimated useful lives. Description Estimated Useful LivesFurniture and equipment 5 YearsComputer and related equipment 3 YearsComputer software 3 - 10 YearsLeasehold improvements 12 Years

Use of estimates — The preparation of financial statements in confor-mity with U.S. generally accepted accounting principles requires man-agement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Revenue recognition — Revenue is recognized as follows:• Databasefeerevenueisrecognizeduponthefilingofinsurancecom-

panies’ annual statements.• Publicationsandsubscriptionsrevenueisrecognizedwhentheprod-

uct is shipped to the customer.• Services revenue is recognizeduponbilling,when the servicehas

been completed.• Revenuefromfeesforstateassessmentsapplytoanassessmentfiscal

year ended April 30, and are recorded in the calendar year assessed as receivables and deferred revenue. At December 31 of each year, 1/3 of the assessments are accounted for as deferred revenue.

Income taxes — The NAIC has been granted exemption from income taxes by the Internal Revenue Service under the provisions of Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, the NAIC is subject to federal income tax on any unre-lated business taxable income.Net assets — The NAIC’s target operating reserve is based on a liquid reserve of 80%, as defined as total net assets, less net property and equip-ment, as a percentage of the future year’s budgeted operating expenses. As of December 31, 2009 and 2008, net assets are fully allocated, with the exception of an amount maintained as unallocated equal to 1.5% of the next year’s projected net assets. The unallocated balance will be used to fund priority initiatives that may arise in the next year.As of December 31, 2009, the amount of direct revenues in excess of direct expenses arising from the NAIC’s residential mortgage backed securities (RMBS) project has been allocated for anticipated further work in the area of RMBS and other structured asset classes during the year ended December 31, 2010.Pension plan — The Compensation-Retirement Benefits topic of the FASB ASC requires employers to recognize on their statements of financial position a liability and/or an asset equal to the under-

NOTES TO FINANCIAL STATEMENTS

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Note 2: Investments and investment income 2009 2008 Cost Fair Value Cost Fair Value U.S. Government and agency securities $ 16,168,497 $ 16,603,105 $ 20,934,744 $ 21,014,371 Corporate bonds and fixed income securities 8,573,214 9,097,372 6,600,781 6,496,039 Common stocks and equity mutual funds 16,288,538 18,112,729 14,876,023 11,377,733 Alternative equity and fixed income funds 7,850,000 7,960,396 — — $ 48,880,249 $ 51,773,602 $ 42,411,548 $ 38,888,143

Total investment income is comprised of the following: 2009 2008 Interest and dividend income $ 1,659,308 $ 2,362,346 Net realized gains/(losses) on investments (1,206,765) (1,114,824) Net unrealized gains/(losses) on investments 6,416,758 (7,534,706) $ 6,869,301 $ (6,287,184)

funded or over-funded status of their defined benefit pension and other postretirement benefit plans. The funded status that the NAIC has reported on the statement of financial position under the topic is measured as the difference between the fair value of plan assets and the benefit obligation. The topic also requires that for each under-funded plan, an amount equal to the next 12 months’ expected benefit payments in excess of the plan’s current assets be classified as a current liability. The remainder is classified as a non-current liability.Functional expenses — The Not-for-Profit Entities topic of the FASB ASC requires not-for-profit organizations to disclose expenses by functional

classification. The NAIC presents expenses only by their natural clas-sification on the December 31, 2009 and 2008 statements of activities. Management believes that disclosing expenses by function is immaterial to the financial statements taken as a whole, and therefore does not apply the provision of the topic as it relates to the disclosure of expenses by functional classification. Reclassifications — Certain reclassifications have been made to the 2008 financial statements to conform to the 2009 financial statement presentation.

NOTES TO FINANCIAL STATEMENTS

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NOTES TO FINANCIAL STATEMENTS

The Fair Value Measurements and Disclosures topic of the FASB ASC requires additional disclosures as part of the financial statements. The topic establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transpar-ency of inputs to the valuation of an asset or liability as of the measure-ment date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:Level 1 — Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observ-able for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.The management of NAIC endeavors to utilize the best available infor-mation in measuring fair value. The following table summarizes the valu-ation of financial instruments by the above pricing levels as of December 31, 2009 and 2008:

Quoted Significant prices in other Significant active observable unobservable Total fair markets inputs inputs value Level 1 Level 2 Level 3December 31, 2009 U.S. Government and agency securities $ 16,603,105 $ 16,603,105 $ — $ — Corporate bonds and fixed income securities 9,097,372 9,097,372 — — Common stocks and equity mutual funds 18,112,729 18,112,729 — — Alternative equity and fixed income funds 7,960,396 — — 7,960,396 $ 51,773,602 $ 43,813,206 $ — $ 7,960,396

December 31, 2008 U.S. Government and agency securities $ 21,014,371 $ 21,014,371 $ — $ — Corporate bonds and fixed income securities 6,496,039 6,496,039 — — Common stocks and equity mutual funds 11,377,733 11,377,733 — — $ 38,888,143 $ 38,888,143 $ — $ —

Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:

Alternative Alternative fixed income equity funds funds TotalDecember 31, 2008 $ — $ — $ — Purchases, issuances and settlements (net) 3,885,000 3,965,000 7,850,000 Net realized/unrealized gains (losses) 135,507 (25,111) 110,396 December 31, 2009 $ 4,020,507 $ 3,939,889 $ 7,960,396

Financial assets valued using Level 1 inputs are based on unadjusted quoted market prices within active markets. Fair values for the alternative equity and fixed income funds (Level 3) are determined by aggregating the net asset value provided by each fund manager. The net asset value is determined by taking the fair value of total fund assets less the fair

value of total fund liabilities. Net unrealized gains related to alternative equity and fixed income funds held at December 31, 2009 of $110,396 have been included in investment income on the statement of activities for the year ended December 31, 2009.

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Note 3: Property and equipment Property and equipment at December 31 consisted of the following: 2009 2008Furniture and equipment $ 4,781,927 $ 4,765,056Computer and related equipment 15,657,952 14,845,918Computer software 18,864,822 18,194,624Leasehold improvements 3,908,687 3,818,942 43,213,388 41,624,540Less accumulated depreciation and amortization 35,223,176 30,674,036 $ 7,990,212 $ 10,950,504

Note 4: Operating leasesThe NAIC leases its office space in Kansas City, New York, and Washington D.C. under noncancelable operating leases. Certain parts of the agreements contain escalation clauses providing increased rentals based on maintenance, utility and tax increases. The lease on the Kansas City office expires January 31, 2012. Management is currently pursuing options related to this leasehold. The NAIC also leases certain office equipment under noncancelable operating leases, which expire at vari-ous dates through 2014. The accompanying financial statements reflect rent expense on the straight-line method over the terms of the leases. Total rental expenses under all leases for the years ended December 31, 2009 and 2008 were $4,791,513 and $4,411,021, respectively.

Future minimum lease payments at December 31, 2009, were:

2010 $ 5,019,180

2011 4,987,177

2012 1,364,611

2013 1,062,228

2014 376,497

$ 12,809,693

Note 5: Employee retirement plansThe NAIC has a noncontributory defined benefit plan (Plan A) covering all employees with a hire date prior to January 1, 2000. The benefits are based on years of service and the employee’s compensation for the five consecutive years of the ten latest years of employment that give the highest average.The following table sets forth the plan’s funding status, amount recognized in the NAIC’s financial statements, and other required disclosures. 2009 2008Projected benefit obligation $ (36,059,604) $ (31,183,151)Fair value of plan assets 31,579,160 24,315,622 Funded status of plan $ (4,480,444) $ (6,867,529)Accrued benefit cost recognized in the statement of financial position $ (4,480,444) $ (6,867,529)Accumulated benefit obligation $ 31,918,875 $ 27,501,334Employer contributions $ 3,400,000 $ 3,250,000Benefits paid $ (797,904) $ (533, 890)Service cost $ 1,390,838 $ 1,349,887Interest cost 1,967,283 1,711,082Return on plan assets (1,615,858) (1,716,477)Amortization of net (gain) loss 1,041,897 352,384 Net Pension Cost $ 2,784,160 $ 1,696,876

Weighted average assumptions used to determine benefit obligations are as follows: 2009 2008Discount rate 5.74% 6.51%Salary rate 4.51% 4.51%Measurement date December 31, 2009 December 31, 2008

Weighted average assumptions used to determine net pension costs are as follows: 2009 2008Discount rate 6.51% 6.36%Rate of salary increase 4.51% 4.51%Expected return on plan assets 7.00% 7.50%

NOTES TO FINANCIAL STATEMENTS

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NOTES TO FINANCIAL STATEMENTS

The following is the plan’s weighted average asset allocation by asset category as of December 31, 2009 and 2008 (the measurement date of the plan assets): 2009 2008Equity securities 37.00% 38.00%Debt securities 63.00% 62.00%

Plan assets are held by an insurance company, which invests the plan assets in accordance with the provisions of the plan agreement. The plan agreement permits investment in common stocks, corporate bonds, U.S. Government securities and other specified investments, based on certain target allocation percentages. Asset allocation is pri-marily based on a strategy to provide stable earnings while still permit-ting the plan to recognize potentially higher returns through a limited investment in equity securities. Plan assets are rebalanced as necessary based upon the minimum and maximum restrictions set forth in the plan’s investment policy statement.The benefits expected to be paid to participants over the next 10 years which reflect expected future services as appropriate, as of December 31, 2009 are as follows: 2010 $ 3,005,669 2011 3,010,294 2012 2,730,210 2013 2,912,709 2014 2,295,563 2015 – 2019 14,690,396 TOTAL $ 28,644,841 The NAIC’s best estimate of contributions to be paid during 2010 is $2,600,000.The NAIC provides a defined contribution 401(a) plan (Plan B) that covers substantially all employees with one year or more of service. Each year, the Internal Administration (EX1) Subcommittee deter-mines the contribution for the next year. In 2009, the NAIC matched up to 3.5% of compensation of employees who contributed to Plan B and contributed 2% of all employees’ compensation from January through June. In 2008, the NAIC matched up to 3.5% of compensa-tion of employees who contributed to Plan B and contributed 2% of all employees’ annual compensation. The pension expense related to Plan B for the years ended December 31, 2009 and 2008 was $1,177,306 and $1,393,153, respectively.

Note 6: Related party transactionsEffective January 1, 2006, the NAIC entered into a service agreement with the National Insurance Producer Registry (the NIPR), an affili-ated entity, whereby the NAIC provides certain administrative services to the NIPR. The NAIC receives a fee computed on 30% of certain NIPR revenues, which represents a license fee for NIPR to use the NAIC’s producer data. In addition, the NAIC receives from NIPR, an

administrative fee of $1,000,000 for services, facilities, and equipment provided by the NAIC. The NAIC also receives a per transaction usage fee from the NIPR related to the NAIC’s State Producer Licensing Reengineering (SPLR) Project. The SPLR fee compensates the NAIC for maintenance and expenses related to the hardware and software infrastructure that support both the NAIC and NIPR. Additionally, certain expenses are paid on behalf of, and reimbursed by, the NIPR.During the year ended December 31, 2009, the NAIC paid $53,750 to the NIPR in exchange for property and equipment held by the NIPR with a net book value of $4,391.The total amount charged during the year and amounts owed at year-end for the NIPR are as follows: 2009 2008Administrative services provided by NAIC $ 1,000,000 $ 1,000,000License Fee $ 5,409,686 $ 5,489,473SPLR Fee $ 1,325,462 $ 477,346Amounts payable to NAIC $ 846,204 $ 735,565

Effective June 2007, the NAIC entered into a service agreement with the Interstate Insurance Product Regulation Commission (the IIPRC), whereby the NAIC provides certain administrative services to the IIPRC. The NAIC received an administrative fee of $125,000 for the years ended December 31, 2009 and 2008. IIPRC also pays an annual license and maintenance fee in the amount of $25,000 for the use of SERFF. Additionally, certain expenses are paid on behalf of, and reim-bursed by, the IIPRC.The total amounts charged during the year and amounts owed at year-end for the IIPRC are as follows: 2009 2008Administrative services provided by NAIC $ 125,000 $ 114,583License fee paid to NAIC $ 25,000 $ 25,000Amounts payable to NAIC $ 30,232 $ 51,966Accrued interest on note payable to NAIC $ 13,246 $ 21,155Note payable to NAIC $ 1,759,028 $ 1,373,445 An additional line of credit in the amount of $850,000 was approved by the NAIC in December 2009 to be used by the IIPRC in 2010.

Note 7: Subsequent eventsManagement has performed an evaluation of events that have occurred subsequent to December 31, 2009 through February 24, 2010. There have been no events that occurred during such period that would require disclosure in these financial statements or would be required to be recognized in the financial statements as of or for the year ended December 31, 2009.

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2009 AccreDitAtions

Delaware Insurance Departmentconnecticut Insurance Department louisiana Department of Insurance

maryland Insurance Administration massachusetts Division of Insurance montana Office of the Commissioner of Securities & Insurance

new york State Insurance Department oregon Insurance Division Pennsylvania Insurance Department

rhode island Division of Insurance Washington State Office of the Insurance Commissioner

ROBERT DINEEN AWARD

Dr. raymond spudeckSenior Research Economist, Florida Office of Insurance Regulation

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The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest

and achieving the following fundamental insurance regulatory goalsin a responsive, efficient and cost-effective manner,

consistent with the wishes of its members:Protect the public interest;

Promote competitive markets;Facilitate the fair and equitable treatment of insurance consumers;

Promote the reliability, solvency and financial solidity of insurance institutions;Support and improve state regulation of insurance.

Kay NoonanGeneralCounsel

Eric NordmanDirector

Regulatory Services

Todd SellsDirector

Financial Regulatory Services

Tim MullenDirector

Market Regulation

Kris DeFrainDirector

Statistical & Actuarial Services

2009 NAIC ORGANIZATIONAL CHART

Therese M. (Terri) Vaughan, Ph.D., Chief Executive OfficerAndrew J. Beal, Chief Operating Officer & Chief Legal Officer

Brady Kelley, Chief Financial & Business Strategy Officer

Chris EvangelManaging Director

Securities Valuation Office

Julie FritzDirector

Insurance Products & Services

Trish SchoettgerDirector

Member Services

Denise MatthewsDirector

Information Systems

Frosty MohnDirector

Technical Services

Ethan SonnichsenDirector

Government Relations

Scott HolemanDirector

Communications

Ramon CalderonDirector

Center for InsurancePolicy & Research

Brent RoperDirector

Human Resources & Internal Services

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centrAl office2301 McGee Street, Suite 800Kansas City, MO 64108-2662

816 842 3600

eXecutiVe office444 North Capital St. NW, Suite 701

Washington, D.C. 20001-1509202 471 3990

securities VAluAtion office48 Wall Street, 6th Floor

New York, NY 10005-2906212 398 9000

Cover and interior pages printed on recycled paper.© Copyright 2010 by the National Association of Insurance Commissioners.All rights reserved. Printed in the United States of America.

2009 nAtionAl meetings

www.naic.org www.insureuonline.org

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