The NAIC examination process is moving toward a more risk focused view with an emphasis on identifying those aspects of an insurer's business practices. This might present significant risks, not only in the valuation of assets and liabilities as of the balance sheet date, but going forward. This also represents a move away from examining operational details towards a "Big Picture" or "Top Down" approach. There will be less transaction testing and more process and control testing. The structure has been designed so that companies with strong controls in place will receive less attention from regulators, as they are essentially self-regulating. Those without strong controls can expect to receive more regulatory attention.

The goal is to focus more of the limited regulatory resources on companies that need it and less on those that don't. Examinations will contain risk assessments of both financial reporting and non-financial reporting components of key activities. Except for a company with poor control of the reserving process, the reserving risk assessment generally would not entail an independent estimate of the carried reserves. Pricing and underwriting discipline are also essential elements in maintaining financial strength. This session will describe the principal characteristics of the risk-based examination process and discuss some of the major the differences between risk-based examinations and traditional financial condition examinations.