NAIC Releases Proposed 2004 Budget

September 22, 2003

The National Association of Insurance Commissioners (NAIC) released its proposed budget for the year 2004 during its Fall National Meeting and announced a public hearing to discuss the budget via a conference call scheduled for Nov. 3.

“This budget package reflects the most comprehensive and transparent budget ever published by the NAIC,” said NAIC vice president Ernst Csiszar, who also serves as South Carolina’s Director of Insurance. “It continues our focus on cost-control measures, while allowing us to provide an increasingly high level of service to our members. There are no fee increases proposed for 2004, other than those related to the Securities Valuation Office (SVO) proposal, which were vetted publicly during the last quarter.”

Csiszar said that, upon approval and inclusion of 16 individual fiscal impact proposals, the NAIC General Fund budget calls for projected revenue of $57.9 million, a 6.15 percent increase over 2003 levels, with projected expenses of $55.2 million, a 1.98 percent increase over 2003 levels.

“Transparency is a key part of our budget process,” said Catherine J. Weatherford, executive vice president and CEO of the NAIC. “That is why the 2004 package was expanded to better explain all NAIC consolidated activities, with more focus on activities outside of the NAIC’s general fund. The individual project proposals also have been revamped to more fully explain new and ongoing initiatives proposed as part of the 2004 budget.”

Significant revenue changes from 2003 to 2004 include:

-Database revenues are projected to increase approximately $1.69 million, based on two factors: 1) the 2002 actual premium growth of 10 percent, which exceeded the 6 percent assumption used in preparing the 2003 budget; and 2) the assumption that industry premium will increase 7 percent in 2003. The proposed budget includes no database fee increase for 2004.

-Services revenue is budgeted to decrease by $65,150. This includes the impact of the new SVO fee structure for 2004, designed to support the exemption of all NRSRO-rated, NAIC 1 and 2 equivalent securities, from filing with the SVO on a “revenue neutral” basis. 2004 SVO filing fee revenues include: 1) a projected volume of 5,349 non-rated securities to be filed in 2004, generating revenues of approximately $4.49 million; and 2) a $1.58 million assessment to those insurers that hold $1 billion or more of non-government and preferred stock investments, on a proportionate basis.

-Other income will increase by approximately $891,517 due to increased revenue sharing with the NAIC’s affiliate, the National Insurance Producer Database (NIPR), which is a result of its increase in transaction volume and related revenues in 2003, which is projected to continue into 2004.

Significant expense changes from 2003 to 2004 include:

-Salaries and related employee taxes and benefits are budgeted to increase $822,033 and $544,213, respectively. These increases include an average annual increase of 3.5 percent on base salaries, offset by an increase in turnover. 2004 salaries are offset by a $117,500 grant from the World Trade Center Small Firm Attraction and Retention Grant Program, which will be paid to the NAIC in September 2004 upon the relocation of its SVO office space to the financial district in New York.

-Travel is budgeted to increase by $242,041 in 2004 due primarily to: 1) the proposed sponsorship of travel expenses for one Public Information Officer from each state to attend the NAIC’s annual PIO Forum in Kansas City; 2) an increase in the 2004 Commissioners’ Conference and an increase in the Commissioners’ international travel budget; 3) the proposed sponsorship of travel expenses for three regulators from each state to participate in the 2004 NAIC E-Regulation Conference; and 4) NAIC-sponsored travel for those states participating in the State Based Systems (SBS) project to attend sessions to propose, discuss and prioritize key SBS enhancements. This increase is offset slightly by the continued association-wide effort to minimize staff travel expenses where possible.

-An increase of $2,500 per state in 2004 grant funds, or $137,500 total, to offset membership travel expenses in times of state fiscal difficulties.

-Other expenses will increase by $624,238 in 2004. This is due primarily to a significant increase in bad debt expense resulting from the fact that the 2003 budget for uncollectible receivables was offset by recoveries for loan payments to be received from the NIPR during 2003.

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