Midwest IASA

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Fall Midwest IASA Conference

Blue Springs, Missouri

September 13- 15, 2017

NAIC Update

Agenda

• Statement Revisions

• Risk-Based Capital (RBC)

• Statutory Accounting Update

• Other NAIC Projects

Midwest IASA

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Statement Revisions

Jurat

• Life insurance policy locator contact

– Added as electronic section to all statements;

but only applicable to entities with life

products

• Name, address, telephone number, email address

Note #1

• Additional disclosure for mandatorily

convertible securities and SVO-identified

funds

– Basis which each stated

– Amortization method used

– Approach for using systemic value; is

systemic value used for all SVO-identified

funds

– From revisions to SSAP No. 26R

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Note #5

• Repurchase and reverse repurchase agreements– Removed previous disclosure including what was in Note

#17

– New disclosures put in place (still in Note 5)• Repurchase agreements accounted for as secured borrowings

• Reverse repurchase agreements accounted for a secured borrowings

• Repurchase agreements accounted for as a sale

• Reverse repurchase agreements accounted for as a sale

• Where quarterly info indicated, only need to complete 4th

quarter for 2017 year-end– Will be required in quarterly beginning 2018

• A lot of detailed information required

– Revisions to SSAP No. 103R

Note #5

Prepayment penalties & acceleration fees

for callable securities

Repurchase and reverse repurchase

agreements

Short sales

Note #5

• Mortgage Loans

– New disclosures for a participant or co-lender

in mortgage loan agreements

– From revisions to SSAP No.37

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Note #12

• Defined Benefit Plan

– Funded status

– New reporting of

overfunded w/prepaid

cost benefit,

overfunded w/accrued

benefit cost,

underfunded

w/accrued benefit

cost, underfunded

w/prepaid benefit

Note #14

• Discount rate used for reporting long-term

care (LTC) guaranty fund liabilities and

assets

• Specific, separate information on LTC

insolvencies and assessments

• Revisions to SSAP No. 35R

– Not only allows for discounting, also allows

expected renewals for short-term health

contracts

Notes #25

• Significant changes in methodology and

assumptions used for calculating unpaid

losses and loss adjustment expenses

• Results from revisions to SSAP No. 55

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General Interrogatories

• Self-designated 5*GI securities

– Serves as company self-certification

• No longer files certification with SVO

– 5*GI codes added for use in investment

schedules

Money Market Mutual

Funds (MMMFs)

• Blank and instructional changes to report

all MMMFs as cash equivalents on

Schedule E – Part 2

• Revisions to SSAP Nos. 2R and 26R

Money Market Mutual

Funds (MMMFs)

• Schedule E – Part 2 – Cash Equivalents

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Money Market Mutual

Funds (MMMFs)

• Removal from Sch DA and Sch D – Part 2

– CUSIP column also removed from Schedule

DA

• Reclassification on Summary Investment

Schedule

• Removal from Summary by Country

• Exclusion from Schedule D – Part 1A

• AVR instructions updated

Schedule D

• SVO-Identified Funds– BACV equals fair value or systemic value unless

designated as qualifying security for 2018 systemic value

• Use * in Code Column to identify SVO-identified funds using systemic value in 2018; for 2017 use measurement method used through out year

– Fair value column – report fair value or net asset value

– Updating of other various columns for SVO-identified funds

– Revisions also to Schedule DA

Schedule D

• SVO-Identified Funds

– From revisions to SSAP No. 26R

• Systemic value can be used as of 12/31/2017

• Systemic value can be deferred to 1/1/2018

– HOWEVER, funds that will be utilizing systemic value

must be indicated by * at year-end 2017 reporting

• Election of systemic value is irrevocable

• Do not have to use systemic value; can instead

use fair value

Short sales instructions

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Schedule D – Part 1

• Collateral Type Column

– Reduction of code from 21 to 10

• Capital Structure Column

– Option 4 changed from “Other” to “Not

Applicable”

• Not all reported securities have capital structure to

be reported

– For example, ETFs and Bond Mutual Funds

Schedule DB

Swaptions

“Notional” definition and instructions

updated

Schedule DL

Subtitle clarification

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Schedule DL

• CUSIP instructions conform to Schedule D

CUSIP instructions

• Addition of International Security

Identification Numbering (ISIN) Column

– Works like same column on Schedule D

– Zero fill ISIN for certain assets:

Long-Term Care Supplement

• Instructional changes for completing LTC

Form 5

– Grand total page to be filed

• Added crosschecks to Columns 1, 2 and 3

to LTC Form 2, Part C and Form 3

Lines of Business (LOB)

• Clarifies LOB reporting for riders,

endorsements and floaters

– If acts like a separate policy treat like a stand-

alone policy in LOB it most nearly resembles

– If not, in same LOB as base policy

– In addition for LAH and Fraternal:

• Incidental benefits like permanent disability,

accidental death, accidental death and

dismemberment in same LOB as contracts

associated with

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Property/Casualty & Title

• Statement of Actuarial Opinion & Actuarial

Opinion Summary

– Instructional clarifications to assist actuaries

in understanding regulatory expectations.

Property/Casualty

• Notes to Financials

– Note #31 – High Deductibles

• Revisions to SSAP No. 65

– Note #32

• Where tabular discounting used

– Amount of interest accretion recognized in income

statement

– Line on income statement were accreted interest

recognized

• From revisions to SSAP No. 65

Property/Casualty

• Additional LOB definitions of sublines to

match P&C Uniform Product Code Matrix.

– Inland Marine

– Other Accident & Health

– Other Liability

– Write-ins

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Property/Casualty

New active status code on Schedule T

• Cybersecurity & Identity Theft Insurance

Coverage Supplement

– Reorganization

• Part 1 – Interrogatories

• Part 2 – Stand-alone policies

• Part 3 – Part of package policy

– New format

LAH/Fraternal

• Actuarial Opinion

– Requirements for Appointed Actuary,

Qualified Actuary

• Must meet guidelines established by VM-30,

Actuarial Opinion and Memorandum Requirements

– Revisions to Actuarial Opinion instructions

• Must be separate Opinion for each company

• Must meet requirements of VM-30

LAH/Fraternal

• Interest Maintenance Reserve (IMR)

– Holding period for SVO-identified funds

designated for systemic value is weighted-

average life of underlying bonds

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LAH/Fraternal/Separate Accounts

• Reporting of VM-20 reserves (Principles-

Based Reserves - PBR)

– Analysis of Increase in Reserves During Year

– Exhibit 5 – Aggregate Reserves for Life Contracts

• Valuation Standard editions

• Instructional changes for business valued under VM-20

– Five-Year Historical

– PRB Revisions to SSAP No. 51R

• Remember, company may choose 3-yr phase in period

LAH/Fraternal/Separate Accounts

• Reporting of VM-20 reserves (Principles-

Based Reserves - PBR)

– New supplement

• Part 1 – Life insurance reserves valued according

to VM-20 by product type

• Part 2 – Reserves for policies not based on VM-20

as a result of the 3-year transition period

• Part 3 – Companywide exemption

LAH/Fraternal/Separate Accounts

• Variable annuities with guarantees

– Deleted General Interrogatories – Part 2, 9.1

and 9.2 in LAH, 24.1 and 24.2 in Fraternal,

2.2 in SA

– Changes Actuarial Memorandum

– Addition of Variable Annuities Supplement

• Part 1 – Individual variable annuities

• Part 2 – Group contracts with individual certificates

• Due March 1

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LAH/Fraternal

• Previous Supplemental XXX/AXXX

Reinsurance Exhibit

– New name “Supplemental Term and

Universal Life Reinsurance Exhibit”

• Parts 1, 2A, 2B, 3 – All Term and Universal Life

Cessions (new title)

All of the above also have format changes and title

changes.

• Parts 4, 5; title changes only

Other StatementsOther Statements

• Health

• Delete Property/Casualty Supplement & IEE

• LOB definitions and Analysis of Ops

instructions for riders, endorsements and

floaters

• Title

• Same changes made to 2016 and 2017 P/C

Actuarial Opinion

Blanks Working GroupBlanks Working Group

Combining of Fraternal and Life blanks

An electronic only filing as of June 30

listing owned Schedule D investments

• Only 4 columns

• CUSIP, par value, book/adjusted carrying value,

and fair value

• Now being debated at Financial E Committee

• Would take policy change

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Risk-Based Capital

All Formulas

• All adopted proposals posted on Capital

Adequacy Task Force’s website until

November 1

http://www.naic.org/cmte_e_capad.htm

• Click on Related Documents tab at right

All Formulas

Treatment of money MMFs changed to

match statement changes

• Some bad statement references remain

Operational Risk add-on approach

adopted

– Official part of formula – not info only

– 2017 Factor 0%

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All Formulas

Change of Medicare Part D factor to 50% for all

lines of business

Stop Loss line of business now subject to a

“tiered-factor” approach

PRBC

Simplification of RBC charge for

investment affiliates (Affiliate code 7)

Catastrophe Risk Charge

– Now official part of formula; no longer

information only

PRBC

• Underwriting Risk Factors Updates

– Line 1 – Industry Average Risk Factors

• Annual update

– Line 4 - Underwriting Risks – Reserves; and

Underwriting Risk – Net Written Premiums

• Factors had not been updated since 2010

• Updated for all lines of business

• Not a complete update; re-evaluation will continue

with 4 year goal for completion

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LRBC

Addition of Authorized Control Level RBC

ratio

• Instructional changes to Primary Security

Shortfall

– Only list cessions subject to AG 48

– If treaties include some AG 48 policies and

some Model #787 policies, only AG 48

cessions included

HRBC

Guidance for start-up companies for

Excessive Growth Charge

Investment RBC Working Group

• Several projects not yet finalized– RBC bond reporting categories

– Bond factors• Same for all insurers? Or difference between LRBC (FRBC)

and other formulas?

• Academy’s Bond Factors Report on website

– Bond size factor• Probably maintaining current format but revising factors

– Real Estate next • Current factors too high in relation to materiality?

• ACLI proposal re-exposed for comment

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Statutory Accounting Update

Accounting ChecklistAccounting Checklist

• INT 01-12; U.S. Treasury Inflation-Indexed

Securities

SSAP No. 26R

• OTTI losses to be recorded entirely to

AVR or IMR in accordance with annual

statement instructions (eliminated previous

bifurcation requirement)

• Retained “yield-to-worst” amortization with

rejection of ASU-2017-08

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SSAP Nos. 30, 48, 97

• Adopts ASU 2016-07 with modifications

• No retroactive adjustments needed when

switching to equity method because of

change in level of ownership or degree of

influence

• Provides guidance on handling of change

SSAP No. 69SSAP No. 69

• Adopted ASU-2016-15, classification of certain cash receipts and payments

• Refers to ASU, but does not contain copy

• Effective date & transition guidance found in ASU

• Adopted ASU -2016-18, restricted cash and cash equivalents to be included in cash flow

• Also to be included in Note #5 restricted assets disclosure

Appendices

• A-781 – Life and health reinsurance

agreements

– Contract must state it is entire agreement; no

other understandings not in contract

– Any and all changes must be signed by all

parties to become effective

– Property/Casualty contracts already have

these requirements

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Substantive Revisions Currently

Exposed

• SSAP No. 22 – Leases

• SSAP No. 41R – Surplus Notes

• SSAP No. 100 – Fair Value

• Appendix F – Policy Statements

Nonsubstantive Revisions

Currently Exposed

•SSAP No. 2R

•SSAP No. 12

•SSAP No. 22

•SSAP No. 26R (2)

•SSAP Nos. 41R & 97

•SSAP No. 43R

•SSAP No. 61R & 62R

•SSAP No. 68

•SSAP No. 68 & 97

•SSAP No. 86 (2)

•SSAP No. 90

•SSAP No. 92

•SSAP No. 92 & 102

•SSAP No. 97 (2)

•SSAP No. 104R

•SSAP No. 107

Other NAIC Projects

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Valuation Of Securities

Task Force (VOSTF)

Remember -

The Purposes and Procedures Manual of

the NAIC’s Investment Analysis Office is

only published annually. Adopted revisions

during year posted at

http://www.naic.org/cmte_e_vos.htm

VOSTF

• Valuation guidance for SCA companies

removed from SVO Manual and placed into

AP&P Manual as appendix to SSAP No. 97

• Expansion of NAIC Bank List to include

eligible non-banks

– Monthly publication can be found at

http://www.naic.org/prod_serv_publications.htm

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VOSTF

• Proposed modification of FE process– Policy changes that would allow the IAO

(Investment Analysis Office) oversight of FE designations

– Five major policy change being considered• IAO have ability to change automated FE designations

• Production of designations for Private Letter Ratings

• Resolve discrepancies between official NAIC designations and insurer’s designations

• Review of requiring rated securities to be filed with IAO

• Changes to regulatory process because of above implementation ; for example, changes to Jumpstart report

– Current target date 1/1/2018 for Private Letter Ratings; year-end 2018 for others

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NAIC/AICPA Working Group

• Proposing new general interrogatory to

determine if reporting entity part of a

publicly traded group

• Proposing clarifying instructions for

reporting of CIK on Schedule Y – Part

1A

– Includes adding verifications between

Column 6 and Column 7

• Wants implemented for 1st quarter of

2018

Other

• Group Capital Requirement Working

Group

• Group Solvency Issues Working Group

• Reinsurance Task Force

Questions?

• Please contact:

– Connie Jasper Woodroof

– 800.373.3366 x5761

– connie.woodroof@stoneriver.com