materials - life risk-based capital (e) working · pdf fileerry krantz, teve ostlund erry...

©

D

PKSPDWT N

1

2

3

4

5

6

7

8

9

1 1 W

© 2017 Nationa

Date: 7/24/17

Philip BarlowKerry Krantz,Steve OstlundPerry KupfermDeborah BatisWanchin ChoTish Becker

NAIC Support

1. Consider A—Philip B

2. Consider ANewsletter

3. Consider A

4. Receive an

Task Force

5. Receive an

6. Discuss the

7. Receive an

8. Discuss RB

9. Discuss the

10. Discuss An

11. Adjournme

W:\National Meetin

al Association

Philadelphia

w, Chair , Vice Chair d man sta

ou

Staff: Dave Fl

Adoption of its Barlow (DC)

Adoption of thers—Philip Bar

Adoption of its

n Update from e—Patricia Ma

n Update from

e Federal Hom

n Update on the

BC Confidentia

e 2016 Life an

ny Other Matte

ent

ngs\2017\Summer

of Insurance C

LIFE RISK-

Marriott and

DistricFloridAlabaCalifoColoraConneKansa

eming/Eva Ye

June 19, June

e 2017 Life andlow (DC)

2017 Working

the American Aatson (Academy

the Academy C

me Loan Bank (

e Investment R

ality—Kara Bi

d Fraternal RB

ers Brought Be

r\Agenda\Agenda

Commissioners

2017 SummPhiladelp

-BASED CASunday

10:00Pennsylvania

RO

ct of Columbda ama ornia ado ecticut as

eung

A

9 and Spring N

d Fraternal Ris

g Agenda— Ph

Academy of Ay)

C2 Work Grou

(FHLB) Propos

Risk-Based Cap

inderup (NAIC

BC Statistics—P

efore the Work

LRBC Summer 20

s 1

mer National Mphia, Pennsylv

APITAL (E) Wy, August 6, 200 – 11:00 a.m.

a Convention C

OLL CALL

ia FreWilGarWilFraMik

AGENDA

National Meeti

sk-Based Capit

hilip Barlow (D

Actuaries’ (Aca

up—Wayne Stu

sal—Philip Ba

pital (E) Worki

C)

—Philip Barlow

king Group—Ph

017.docx

Meeting vania

WORKING 017 . Center—Libe

ed Andersen lliam Leung ry Weiss lliam Carmel

ank Stone ke Boerner

ing Minutes

tal (RBC)

DC)

ademy) Longev

uenkel (Academ

arlow (DC)

ing Group—Ju

(DC)

Philip Barlow (D

GROUP

erty Ballroom—

llo

vity Risk

my)

ulie Garber (NA

(DC)

—Level 3

MinnesoMissourNew JerNew YoOklahomTexas

Attachm

Attachment

Atta

Atta

Atta

Atta

NAIC)

Atta

ota i

rsey ork ma

ments A–C

ts D and E

achment F

achment G

achment H

achment I

achment J

This page intentionally left blank.

© 2017 National Association of Insurance Commissioners 1

Draft: 7/6/17

Life Risk-Based Capital (E) Working Group Conference Call June 19, 2017

The Life Risk-Based Capital (E) Working Group of the Capital Adequacy (E) Task Force met via conference call June 19, 2017. The following Working Group members participated: Philip Barlow, Chair (DC); Kerry Krantz, Vice Chair (FL); Perry Kupferman (CA); Wanchin Chou (CT); Tish Becker (KS); Fred Andersen (MN); Felix Schirripa (NJ); William Carmello (NY); Frank Stone (OK); and Mike Boerner (TX).

1. Adopted Proposal 2017-02-L – Primary Security Shortfall Instructional Change

Mr. Barlow said the proposal was discussed on the June 9 conference call and there were enough changes that a short additional exposure was warranted. He said no additional comments were received. Paul Graham (American Council of Life Insurers—ACLI) said the ACLI has reviewed the proposal again and believes it is ready for adoption. Mr. Boerner made a motion, seconded by Mr. Andersen, to adopt the proposal.

Having no further business, the Life Risk-Based Capital (E) Working Group adjourned.

w:\national meetings\2017\Summer\tf\CapAdequacy\LifeRBC\Att Life RBC 2017-6-19.doc

Attachment A


Draft: 7/6/17

Life Risk-Based Capital (E) Working Group Conference Call

June 9, 2017

The Life Risk-Based Capital (E) Working Group of the Capital Adequacy (E) Task Force met via conference call June 9, 2017. The following Working Group members participated: Philip Barlow, Chair (DC); Kerry Krantz, Vice Chair (FL); Steve Ostlund (AL); Perry Kupferman (CA); Wanchin Chou and James Jakielo (CT); Tish Becker (KS); Felix Schirripa (NJ); William Carmello (NY); Frank Stone (OK); and Mike Boerner (TX).

1. Re-exposed Proposal 2017-02-L – Primary Security Shortfall Instructional Change

Mr. Barlow said there had been some changes suggested in the last couple of days and asked for a summary of those. Mr. Jakielo said Connecticut agrees with the goal of the proposal but believes the instruction noting the calculation is not required will implement better if it is moved to the section for LR036 where the calculation, if required, is actually done. He said Connecticut also suggests making it clearer where the calculation is not required by stating it is not necessary to list cessions subject to the Term and Universal Life Insurance Reserve Financing Model Regulation (#787) and that the intent is only to list cessions subject to Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued Under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48). Paul Graham (American Council of Life Insurers—ACLI) said new wording has been added which states, “Such cessions should not be listed. In the event that such a cession also includes policies that are regulated by AG 48, only list the portion of the cession regulated by AG 48.” Mr. Jakielo said, while a concern might be that what is being proposed will eliminate some information, this information will still be available in the Supplemental Term and Universal Life Insurance Reinsurance Exhibit and what is being done in the proposal is aimed at ensuring the appropriate primary security shortfall charge. Erik Anderson (New York Life) suggested that, with the recent activity, a short re-exposure was merited. The Working Group exposed the amended proposal for a 7-day comment period ending June 16.

2. Exposed Proposal 2017-03-L – FHLB Collateral

John Bruins (representing ACLI) said, based on conversations with Mr. Schirripa, the proposal (Attachment 1) has been revised to incorporate guardrails around the amount of activity that a company can engage in. Specifically, if the funding agreement funded through FHLB advances exceeds five percent of a company’s admitted assets, there will either be a higher RBC charge or the company will need authorization from their domestic regulator. Mr. Bruins said there are also some suggested referrals including one to have the Capital Markets Bureau or other NAIC staff annually produce a report on the level of activity within the industry to address concern Mr. Schirripa has raised over systemic risk. Another has to do with possible specific questions in the Financial Examiner’s Handbook as well as a referral to the Life Actuarial (A) Task Force to consider whether any additional guidance is necessary in the Actuarial Opinion and Memorandum Requirements with respect to how the appointed actuary is comfortable with the risk of the program. Mr. Schirripa said the revised proposal addresses all of his concerns, especially if the Capital Markets Bureau can produce a report detailing the level of industry activity. He said his concern all along has been not at the company level but to ensure that there is not a systemic risk created for the industry. Ed Toy (NAIC) said the Capital Markets Bureau would work with the Working Group on the specifics of the information they are looking for and some of the reporting issues. He suggested communication with the Financial Stability (EX) Task Force with respect to the work being done on systemic risk. The Working Group exposed the revised proposal for a 45-day comment period ending July 24.

3. Discussed the Working Agenda

Mr. Barlow said the work assigned to the Stress Testing (E) Subgroup has been on hold pending the work of other NAIC groups and suggested the Working Group eliminate the subgroup and move this back to the Working Group. Mr. Ostlund made a motion, seconded by Mr. Krantz, to eliminate the subgroup and move the charges back to the Working Group.

Having no further business, the Life Risk-Based Capital (E) Working Group adjourned.

w:\national meetings\2017\Summer\tf\CapAdequacy\LifeRBC\Att Life RBC 2017-6-9.docx

Attachment B

Draft Pending Adoption


Draft: 4/14/17

Life Risk-Based Capital (E) Working Group Denver, Colorado

April 8, 2017

The Life Risk-Based Capital (E) Working Group of the Capital Adequacy (E) Task Force met in Denver, CO, April 8, 2017. The following Working Group members participated: Philip Barlow, Chair (DC); Steve Ostlund (AL); Perry Kupferman (CA); Deborah Batista (CO); Wanchin Chou (CT); Lisa Parker (FL); Fred Andersen (MN); William Leung (MO); Felix Schirripa (NJ); Eli Snowbarger (OK); and Mike Boerner (TX). Also participating was: Alan Seeley (NM).

1. Adopted its March 17 Minutes

Mr. Boerner made a motion, seconded by Mr. Kupferman, to adopt the Working Group’s March 17 minutes (Attachment Four-A). The motion passed unanimously.

2. Received an Update from the Academy Longevity Risk Task Force

Patricia Matson (Risk & Regulatory Consulting), chair of the American Academy of Actuaries’ (Academy) Longevity Risk Task Force, presented an update on the task force’s work. She said the task force has been working on an approach for adding a longevity risk component in risk-based capital (RBC), noting that the initial focus is on annuity products. Based on some of the initial discussions with the Longevity Risk (A/E) Subgroup, as well as the Life Actuarial (A) Task Force, she said the focus will be on the capital piece with an underlying assumption being that the reserves are adequate and, approximately, at the 85th percentile level. If that is not the case, she said the task force’s position would be that the way to address it is not by putting any shortfall into capital, because the task force believes the two should be kept separate. If there is work to be done on reserves, she said that can be done, but the task force is focusing on an adequate reserve and then adding a tailed stress beyond that for capital. She said the intent is to go through the material in more detail with the Longevity Risk (A/E) Subgroup and solicit its feedback on a conference call later this month.

3. Discussed Proposal 2017-02-L (Primary Security Shortfall Instructional Change)

Paul Graham (American Council of Life Insurers—ACLI) said the references to the Supplemental XXX/AXXX Reinsurance Exhibit in the proposed RBC instructions currently exposed are isolating what is needed. He said there is a current Blanks (E) Working Group proposal that is clear with respect to primary security shortfalls for treaties with policies subject to either Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued Under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48) or the Term and Universal Life Insurance Reserve Financing Model Regulation (#787). For treaties that include some policies subject to AG 48 and some policies subject to Model #787, he said there may be some modification needed in the blanks proposal and suggested reviewing that status to ensure that the RBC instructions can be updated appropriately.

4. Discussed Proposal 2017-03-L (ACLI Proposal on FHLB Collateral)

John Bruins (ACLI) said he has worked with Mr. Schirripa to better understand the concerns raised, and the ACLI is working with companies to produce a solution which satisfies those concerns. Mr. Schirripa said he has read and reread the proposal and the comment letters in support of the ACLI proposal to eliminate the C-0 charge for collateral held for Federal Home Loan Bank (FHLB) advances. He said the rationale is light on the risk that may come if the charge is eliminated, and the focus is toward the benefits that FHLB membership brings. While these benefits are appreciated, he said eliminating the charge encourages insurers to aggressively leverage those advances and increase their spread banking non-insurance activity. He said the Working Group should fully understand the risks before adopting the proposal and recommends holding off until agreeing on some limits. He said he understands that the ratings agencies have limits and the FHLBs themselves have limits. He said some states already have limits but not all of them do, which could create some regulatory arbitrage, so he believes it is important to achieve some uniformity.

Mr. Bruins reminded the Working Group that the only place the C-0 charge is being eliminated is where the advances or borrowing is subject to interest rates, so any kind of mismatch in the assets and liabilities is still being covered in C-3. Mr.

Attachment C

Draft Pending Adoption


Barlow suggested the Working Group consider the modifications the ACLI is working on to address the concerns raised when it is submitted. 5. Discussed its 2017 Working Agenda Mr. Barlow said two options to address the Stress Testing (E) Subgroup’s charges are to find a new chair for the Subgroup or to bring the charges back to the Working Group. He said work on those charges has been on hold pending work being done by other NAIC groups, so he suggested, for the time being, bringing the charges back to the Working Group, making them a lower priority and, when they are ready to be addressed, determining the best way forward. Mr. Boerner concurred. With respect to unauthorized reinsurance, Mr. Barlow said New York is continuing to prepare an example illustrating how its proposal would work for various types of reinsurance treaties. In general, the collateral would be determined for each treaty by recalculating the RBC without the credits or deductions for the specific treaty. With respect to the asset charges or C-3 charges, where the assets are not held by the ceding company nor in a trust, New York is contemplating a C-2 charge applied to the reserve amount and using only the formulaic or standard scenario floors for the C-3 charge. Because there is work being done, Mr. Barlow suggested leaving this item on the working agenda and adopting the change in priority for the stress testing items on a subsequent conference call. 6. Received an Update from the Operational Risk (E) Subgroup Mr. Seeley said the Operational Risk (E) Subgroup is proposing producing a base operational risk charge for all insurers with an add-on to the total RBC of a particular percentage. He said, while a final factor has not been determined, a 3% add-on has been exposed and there is a distinct possibility that an operational risk charge in RBC will be in place for year-end 2017. He said the life formula is different in that it already has a business risk charge, C-4a, and the general understanding is that this component includes some operational risk. He said the life basic operational risk charge, whatever factor is finalized, will then serve as a floor for the C-4a charge. Mr. Seeley said the Academy’s Life Operational Risk Work Group has noted possible situations where there could be double-counting of operational risk with respect to affiliates, noting that the Subgroup will be examining ways to avoid this. He said the Subgroup is also exploring whether there is merit, while considering the additional complexities, in adding an excessive growth charge to the life formula as exists in the other RBC formulas. Having no further business, the Life Risk-Based Capital (E) Working Group adjourned. W:\National Meetings\2017\Spring\TF\CapAdequacy\LifeRBC\For Proceedings\Life RBC 2017-4-8.docx

Attachment C

NAIC Life Risk‐Based Capital Newsle er July 2017

Volume 23

What RBC Pages Should Be Submitted?

For year-end 2017 life RBC, submit hardcopies of pages LR001 through LR049 to any state that requests a hard-copy in addition to the electronic filing. Starting with year-end 2007 RBC, a hardcopy was not required to be submitted to the NAIC. However, a portable document format (PDF) file representing the hardcopy filing is part of the electronic filing.

If any actuarial certifications are required per the RBC instructions, those should be included as part of the hard-copy filing. Starting with year-end 2008 RBC, the actuar-ial certifications were also part of the electronic RBC fil-ing as PDF files, similar to the financial annual statement actuarial opinion.

Other pages, such as the mortgage and real estate work-sheets, do not need to be submitted, but they still need to be retained by the company as documentation.

Risk-Based Capital Level of Action

As a result of the adoption of agenda item 2017-01-L-RBC Ratio by the Capital Adequacy (E) Task Force at the Spring National Meeting, a line was added to LR034 Risk-Based Capital Level of Action to show the Author-ized Control Level RBC ratio to be consistent with the other RBC formulas and to simplify data pulls.

XXX/AXXX Reinsurance Primary Security Shortfall by Cession As a result of the adoption of agenda item 2017-02-L Pri-mary Security Shortfall Instruction Change by the Capital Adequacy (E) Task Force on its June 28 conference call, changes were made to make the instructions clear to only list cessions subject to Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued Under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48). For treaties that in-clude some policies subject to AG 48 and some policies subject to the Term and Universal Life Insurance Reserve Financing Model Regulation (#787), only the portion of the cession regulated by AG 48 is to be included.

Operational Risk

As a result of a technical issue that was presented during the June 28 Capital Adequacy (E) Task Force conference call, implementation of a risk factor for Operational Risk has been deferred for at least a year. The Task Force adopted agenda item 2016-13-O at the Spring National Meeting and modified it on its June 28 conference call. At the Spring National Meeting, the Task Force in es-sence voted to “go live” for 2017 reporting by adopting the structural change to remove the proxy-based ap-proach, move the “add-on” approach for basic operational risk to page LR031 and retain the growth risk portion of the information only page. On its June 28 conference call, the Task Force adopted the operational risk instructions but voted to reduce the recommended RBC charge from 1.5% to 0% for 2017 to allow the Operational Risk (E) Subgroup to address the technical concerns raised.

In This Issue: What RBC Pages to Submit .......................................... 1 Risk-Based Capital Level of Action .............................. 1 XXX/AXXX Reins. Primary Sec. Shortfall .................. 1 Operational Risk ........................................................... 1 Money Market Mutual Funds ........................................ 2 Unaffiliated Common Stock Money Market Mutual Funds……………………..…………………………....2 Supp. Ben. w/Stand-Alone Med. Pt. D Coverage ......... 2 Stop Loss ....................................................................... 2 Contact Information ...................................................... 2

Attachment D

Life Risk-Based Capital Newsletter Page 2

© 2017 National Association of Insurance Commissioners

Life Risk-Based Capital Newsletter Volume 23. Published annually or whenever needed by the NAIC for insurance regulators, professionals and consumers.

Direct correspondence to: Dave Fleming, RBC Newslet-ters, NAIC, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197. Phone: (816) 783-8121. Email: [email protected]. Address corrections requested. Please mail the old ad-dress label with the correction to: NAIC Publications De-partment, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197. Phone: (816) 783-8300. Email: [email protected].

Money Market Mutual Funds As a result of the reclassification of money market mu-tual funds to cash equivalents by the Statutory Account-ing Principles (E) Working Group, the Capital Adequa-cy (E) Task Force adopted agenda item 2016-15-CA at the Spring National Meeting. Money market mutual funds will be isolated on their own line on the Miscella-neous Assets schedule and subtracted from the cash equivalents. The Annual Statement Source will be Schedule E, Part 2, Column 7, Line 8599999.

Unaffiliated Common Stock Money Market Mutual Funds As a result of the adoption of agenda item 2017-06-CA, by the Capital Adequacy (E) Task Force on the June 28 conference call, the factor was modified to 0% on Line (22) on LR005 Unaffiliated Preferred and Common Stock. The purpose of the modification is to avoid the double counting of money market mutual funds in both cash equivalents and common stock. The instructions were also revised to reflect the change.

Stop Loss As a result of the adoption of agenda item 2016-17-CA by the Capital Adequacy (E) Task Force at the Spring National Meeting, a tiered factor approach will be ap-plied to Stop Loss premiums. A footnote was added to apply a factor of 0.350 to the first $25,000,000 in stop loss premium and a factor of 0.250 to premium in ex-cess of $25,000,000.

Supplemental Benefits within Stand-Alone Medicare Part D Coverage As a result of the adoption of agenda item 2016-16-CA by the Capital Adequacy (E) Task Force at the Spring National Meeting, the factor for Supplemental Benefits within Stand-Alone Medicare Part D Coverage was in-creased to 0.500 and will be applied to claims incurred.

Attachment D

NAIC Fraternal Risk‐Based Capital Newsle er July 2017

Volume 10

What RBC Pages Should Be Submitted?

For year-end 2017 fraternal RBC, submit hard copies of pages FR001 through FR049 to any state that requests a hard copy. A hardcopy is not required to be submitted to the NAIC.

If any actuarial certifications are required per the RBC instructions, those should be included as part of the hard-copy filing. Other pages, such as the mortgage and real estate worksheets, do not need to be submitted, but they still need to be retained by the company as documenta-tion.

Risk-Based Capital Level of Action

As a result of the adoption of agenda item 2017-01-L-RBC Ratio by the Capital Adequacy (E) Task Force at the Spring National Meeting, a line was added to FR034 Risk-Based Capital Level of Action to show the Author-ized Control Level RBC ratio to be consistent with the other RBC formulas and to simplify data pulls.

XXX/AXXX Reinsurance Primary Security Shortfall by Cession As a result of the adoption of agenda item 2017-02-L Primary Security Shortfall Instruction Change by the Capital Adequacy (E) Task Force on its June 28 confer-ence call, changes were made to make the instructions clear to only list cessions subject to Actuarial Guideline XLVIII—Actuarial Opinion and Memorandum Require-ments for the Reinsurance of Policies Required to be Valued Under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48). For treaties that include some policies subject to AG 48 and some policies subject to the Term and Universal Life Insurance Reserve Financing Model Regulation (#787), only the portion of the cession regulated by AG 48 is to be included.

Operational Risk

As a result of a technical issue that was presented during the June 28 Capital Adequacy (E) Task Force conference call, implementation of a risk factor for Operational Risk has been deferred for at least a year. The Task Force adopted agenda item 2016-13-O at the Spring National Meeting and modified it on its June 28 conference call. At the Spring National Meeting, the Task Force, in es-sence, voted to “go live” for 2017 reporting by adopting the structural change to remove the proxy-based ap-proach, move the “add-on” approach for basic operational risk to page FR031 and retain the growth risk portion of the information only page. On its June 28 conference call, the Task Force adopted the operational risk instructions but voted to reduce the recommended RBC charge from 1.5% to 0% for 2017 to allow the Operational Risk (E) Subgroup to address the technical concerns raised.

In This Issue: What RBC Pages to Submit .......................................... 1 Risk-Based Capital Level of Action .............................. 1 XXX/AXXX Reins. Primary Sec. Shortfall .................. 1 Operational Risk ............................................................ 1 Money Market Mutual Funds ........................................ 2 Unaffiliated Common Stock Money Market Mutual Funds ....................................................................................... 2 Supp. Ben. w/Stand-Alone Med. Pt. D Coverage ......... 2 Stop Loss ..................................................................... ..2 Contact Information ...................................................... 2

Attachment E

Fraternal Risk-Based Capital Newsletter Page 2

© 2017 National Association of Insurance Commissioners

Fraternal Risk-Based Capital Newsletter Volume 10. Pub-lished annually or whenever needed by the NAIC for in-surance regulators, professionals and consumers.

Direct correspondence to: Dave Fleming, RBC Newslet-ters, NAIC, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197. Phone: (816) 783-8121. Email: [email protected]. Address corrections requested. Please mail the old ad-dress label with the correction to: NAIC Publications De-partment, 1100 Walnut Street, Suite 1500, Kansas City, MO 64106-2197. Phone: (816) 783-8300. Email: [email protected].

Money Market Mutual Funds As a result of the reclassification of money market mu-tual funds to cash equivalents by the Statutory Account-ing Principles (E) Working Group, the Capital Adequa-cy (E) Task Force adopted agenda item 2016-15-CA at the Spring National Meeting. Money market mutual funds will be isolated on their own line on the Miscella-neous Assets schedule and subtracted from the cash equivalents. The Annual Statement Source will be Schedule E, Part 2, Column 7, Line 8599999.

Unaffiliated Common Stock Money Market Mutual Funds As a result of the adoption of agenda item 2017-06-CA, by the Capital Adequacy (E) Task Force on the June 28 conference call, the factor was modified to 0% on Line (22) on FR005 Unaffiliated Preferred and Common Stock. The purpose of the modification is to avoid the double counting of money market mutual funds in both cash equivalents and common stock. The instructions were also revised to reflect the change.

Stop Loss As a result of the adoption of agenda item 2016-17-CA by the Capital Adequacy (E) Task Force at the Spring National Meeting, a tiered factor approach will be ap-plied to Stop Loss premiums. A footnote was added to apply a factor of 0.350 to the first $25,000,000 in stop loss premium and a factor of 0.250 to premium in ex-cess of $25,000,000.

Supplemental Benefits within Stand-Alone Medicare Part D Coverage As a result of the adoption of agenda item 2016-16-CA by the Capital Adequacy (E) Task Force at the Spring National Meeting, the factor for Supplemental Benefits within Stand-Alone Medicare Part D Coverage was in-creased to 0.500 and will be applied to claims incurred.

Attachment E

Priority 1 – High priority LIFE RISK-BASED CAPITAL (E) WORKING GROUPPriority 2 – Medium priority WORKING AGENDA ITEMS FOR CALENDAR YEAR 2017Priority 3 – Low priority

Expected2017 2017 Completion

# Owner Priority Date Working Agenda Item Source Comments

Ongoing Items – Life RBC1 Life RBC

WGOngoing Ongoing Make technical corrections to Life RBC instructions, blank and /or methods to

provide for consistent treatment among asset types and among the various components of the RBC calculations for a single asset type.

2 Life RBC WG

1 2017 or later Evaluate RBC in light of PBR. Consider changes to RBC needed because of the changes in reserve values, including “right sizing” of reserves, margins in the reserves, any expected increase in reserve volatility, and the overall desired level of solvency measurement and other issues. Consider a total balance sheet approach (e.g. total asset requirement (TAR) type calculation and then subtracting out the PBR reserves) and application of stress scenarios. These charges should include appropriate consideration of international core principles.

Referral from PBR Implementation (E)

Task Force

Being addressed by the Stress Testing (E) Subgroup

3 2 Life RBC WG

1 2017 2018 or later

Evaluate the overall effectiveness of the C3 Phase 2 and AG 43 methodologies by conducting an in-depth analysis of the models, modeling assumptions, processes, supporting documentation and results of a sample of companies writing variable annuities with guarantees and to make recommendations to the Capital Adequacy Task Force or Life Actuarial Task Force on any changes to the methodologies to improve their overall effectiveness.

CATF Being addressed by the C-3 Phase II/AG43 (E/A)

Subgroup

4 3 Life RBC WG

1 2017 2018 or later

Provide recommendations for recognizing longevity risk in statutory reserves and/or RBC, as appropriate.

New Jersey Being addressed by the Longevity (E/A) Subgroup

Carry-Over Items Currently being Addressed – Life RBC2 4 Life RBC

WG1 2 2017 2018 or

laterEvaluate RBC in light of PBR. Consider changes to RBC needed because of the changes in reserve values, including “right sizing” of reserves, margins in the reserves, any expected increase in reserve volatility, and the overall desired level of solvency measurement and other issues. Consider a total balance sheet approach (e.g. total asset requirement (TAR) type calculation and then subtracting out the PBR reserves) and application of stress scenarios. These charges should include appropriate consideration of international core principles.

Referral from PBR Implementation (E) Task Force

Being addressed by the Stress Testing (E) Subgroup

5 Life RBC WG

1 2017 2018 or later

Update the current C-3 Phase I or C-3 Phase II methodology to include indexed annuities

AAA

6 Life RBC WG

1 2017 2018 or later

Consider proper treatment for business ceded to unauthorized reinsurers. Currently, in most cases some type of security is required for reserves that are ceded to unauthorized reinsurers but there is no similar handling of RBC. Another option could be a factor applied to the RBC release or some other base.

New York New York, Florida and Connecticut are working on this and plan to submit something for the Working Group to consider.

7 Life RBC WG

2 2017 2018 or later

Develop guidance, for inclusion in the proposed NAIC contingent deferred annuity (CDA) guidelines, for states as to how current regulations governing risk-based capital requirements, including C-3 Phase II, should be applied to contingent deferred annuities (CDAs). Recommend a process for reviewing capital adequacy for insurers issuing CDAs and prepare clarifying guidance, if necessary, due to different nomenclature then used with regard to CDAs. The development of this guidance does not preclude the Working Group from reviewing CDAs as part of any ongoing or future charges where applicable and is made with the understanding that this guidance could change as a result of such a review.

10/21/13 Referral from A

Committee

It is important to consider the implications of work being done by the CDA and VA Issues Working Groups to ensure consistency in addressing these charges. The Working Group is monitoring the progress of that work.

8 Life RBC WG

1 2017 Review and evaluate company submissions for the RBC Shortfall schedule and corresponding adjustment to Total Adjusted Capital.

10/16/2015

9 Life RBC WG

1 2017 Review and evaluate company submissions for the Primary Security Shortfall schedule and corresponding adjustment to Authorized Control Level.

10/16/2015

Date Added to Agenda

Attachment F

© 2017 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

LONGEVITY RISK TASK FORCE UPDATE

TRICIA MATSON, MAAA, FSACHAIRPERSON, LONGEVITY RISK TASK FORCE (LRTF)

August 5, 2017

Presentation to the NAIC’s Life Risk Based Capital Working Group

Attachment G


2

Agenda

Overview

Work since April meeting Additional analysis of data

Specifications for field study

Risks to be included

Next steps

Appendix – Refresher from prior presentation

Attachment G


3

Overview

April presentation provided an overview of the LRTF’s analysis of historical mortalityimprovement data to derive a 95th percentile improvement stress event

LRTF considered both direct use of the underlying data as well as use of an assumed normaldistribution

Overall calibration using normal model results in a 25% shock (165% at 95th less 140% at 85th). The shock for older ages (85+) would be 50%

LRTF performing additional work to determine which approach is most appropriate

Work since April includes:

Further evaluation of the historical data

Development of specifications for a field study

Re‐evaluation of which risks should be included in the RBC charge

Attachment G


4

Distribution of Mortality Improvement Data

Below is the distribution of annual and 20‐year mortality improvement data from 1940‐2013 used to develop the shock event

# occurren

ces

Rate of improvement

Annual*

# occurren

ces

Rate of improvement

20 Year*

85th 95th

*Annual is improvement over historical one year periods*20 year is improvement over historical 20 year periods, converted to an annual rate

Attachment G


5

Backtesting

We also compared certain improvement scales to social security average improvement from actual historical data (1971 to 2013). The original scale developed in 1971 was clearly insufficient relative to experience now available. Scale G2, at least at retirement ages, is aligned with the social security data we evaluated

Age

Rate of improvement

Attachment G


6

Field Study

LRTF suggests that the NAIC Longevity Risk Subgroup (LRSG)conduct a study to evaluate results of applying the agreedupon approach to actual company blocks of business

LRTF developed instructions and a template to be completedto enable LRSG to conduct a field study on individual andgroup annuities

Pending determination of stress event to be evaluated

Attachment G


7

Field Study Details

Request Dec. 31, 2016 statutory reserve amounts calculated on the following 2 assumption

bases, under a range of valuation interest rate, issue age, duration since issue, and gender

combinations:

Run A – 2016 CARVM Valuation Basis (assumed to be 85th %ile)

CARVM methodology

2012 IAM Table (1994 GAR for Group business)

Projection Scale G2 (Projection Scale AA for Group business)

Run B – 95th Percentile Stress

CARVM methodology

2012 IAM Table (1994 GAR for Group business)

Projection Scale G2 (Projection Scale AA for Group business), all improvement factors

adjusted for our defined stress event

Attachment G


8

Risks To Be Included

Previously determined that focus should be on trendrisk only (mortality improvement)

However, current reserve basis (2012 IAM) appears toonly include a margin for basis risk (risk that actualcompany mortality varies from the table)

Considerations for longevity charge: Should RBC charge for longevity risk include both?

Should reserve basis include margin for trend risk?

Attachment G


9

Immediate Next Steps

Determine whether to include basis risk

Develop recommendation for stress event

Finalize specifications for field study

Support LRSG with field study

Continue to evaluate approach for a potential RBC charge for lifetime incomebenefits

Attachment G


Refresher on Prior Update

Appendix

Attachment G


11

Refresher ‐ Approach

Statutory reserves are generally held at the 85th percentile level

Tabular plus any additional reserves from asset adequacy analysis

Capital requirements are established under the assumption that statutory reserves areadequate; RBC is not a balance sheet item and is not intended to make up for shortfallsin reserves

RBC factors generally cover risks in excess of reserves up to a 95th percentileevent

The longevity risk stress event is defined at the 1/20 mortality improvement level, usinga 5‐10 year time period

Mortality improvements up to the 85th percentile are assumed to be covered inreserves

RBC charge will be based on difference between “current” Statutory reserve andStatutory reserve calculated under a longevity stress

Attachment G


12

Refresher – Determining Tail Event

LRTF analyzed historical population data over the period 1900‐2013 using Social Security population data

Calculated 1, 5, 10, 20, and 40 year rates of improvement by age bucket and gender

Fit historical improvement data to a normal distribution to evaluate use of a normal model

Developed a 95th %ile improvement event, focused on the 20‐year historical period (which is conservative vs current RBC’s typical 5‐10 year horizon)

Evaluated difference between 95th %ile and 85th %ile for use in RBC

Attachment G


13

Refresher – Risks Covered

Longevity risk comprised of: Base table mis‐estimation risk (or “basis risk”) Trend risk (i.e., mortality improvement) Short‐term mortality volatility risk

LRTF has been focusing on trend risk only Base table mis‐estimation; very difficult to separate mis‐estimation risk from trend risk in historical data

Short‐term volatility risk will have a small financial impact on longevity products

Attachment G


14

For more information

Tricia Matson, MAAA, FSAChairperson, Longevity Risk Task Force (LRTF)[email protected]

Heather JerbiAssistant Director of Public PolicyAmerican Academy of [email protected]

Attachment G


Review of Life Mortality Risk‐Based Capital (RBC)

Wayne Stuenkel, MAAA, FSA C2 Life Mortality RBC Work GroupAmerican Academy of Actuaries

August 6, 2017

Presentation to the NAIC’s Life Risk Based Capital Working Group

Attachment H


2

C‐2 Life Mortality RBC Work Group

Work Group Purpose:The C‐2 work group was formed in 2017 to review the current NAIC C‐2 risk‐based capital (RBC) requirement for life insurance. The group is reviewing assumptions and methodology and will recommend revisions, as appropriate, which may include structure and factor updates.

In‐Scope Out‐of‐Scope

Life Insurance Individual & Industrial Life Group & Credit Life

Accident & Health Insurance Annuities**The group will consider interdependencies with the longevity risk review

Attachment H


3

C‐2 Life Mortality Risk RBC Factors

Current Life C‐2 Factors (original factors used since 1993*):

Life C‐2 factors intended to address mortality risks related to: Volatility – natural mortality deviation

Level – base mortality rates

Trend – mortality improvement

Catastrophe – severe events

Net Amount at Risk (NAR)Individual & Industrial Life C‐2 factor per $1K of NAR

Group & Credit Life C‐2 factor per $1K of NAR

First $500M 1.50 1.20

Next $4.5B 1.00 0.80

Next $20B 0.75 0.60

$25B+ 0.60 0.50

* Statistical safety level was based on 95th percentile over 5 years for individual (over 3 years for group).

Attachment H


4

2017 Progress and Next Steps

2017 C‐2 Work Group Progress

Compiled list of mortality risk considerations

Reviewed methodology used in current factor development Obtained documentation

Approximately replicated original 1993 factors

Reviewed other capital regimes’ C‐2 methods Including Solvency II, Canadian LICAT, and IAIS

Reviewed potential methods, structures, and approaches

2017 C‐2 Work Group Next Steps

Analyze mortality risk using a Monte‐Carlo simulation model (similar to original C‐2 work) Will include establishing updated assumptions and mortality risk distributions (volatility, level,

trend, and catastrophe)

Will consider factor bases more granular than current approach

Attachment H


5

Contact Information

Chris Trost, MAAA, FSAChairperson, C2 Work GroupAmerican Academy of [email protected]

Stephanie ConnollyLife AnalystAmerican Academy of [email protected]

Attachment H

2016 National Association of Insurance Commissioners

Capital Adequacy (E) Task Force RBC Proposal Form

[ X ] Capital Adequacy (E) Task Force [ ] Health RBC (E) Working Group [ X ] Life RBC (E) Working Group

[ ] Catastrophe Risk (E) Subgroup [ ] Investment RBC (E) Working Group [ ] Operational Risk (E) Subgroup

[ ] C3 Phase II/ AG43 (E/A) Subgroup [ ] P/C RBC (E) Working Group [ ] Stress Testing (E) Subgroup

DATE: June 8, 2016

Rev May 15, 2017

CONTACT PERSON: John Bruins

TELEPHONE: (202) 624-2169

EMAIL ADDRESS: [email protected]

ON BEHALF OF: ACLI

NAME: John Bruins

TITLE: VP & Senior Actuary

AFFILIATION: ACLI

ADDRESS: 101 Constitution Ave, NW

Washington, DC 20001

FOR NAIC USE ONLY

Agenda Item #

Year

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO

[ ] REFERRED TO OTHER NAIC GROUP

[ ] EXPOSED

[ ] OTHER (SPECIFY)

IDENTIFICATION OF SOURCE AND FORM(S)/INSTRUCTIONS TO BE CHANGED

[ ] Health RBC Blanks [ ] Property/Casualty RBC Blanks [ X ] Life RBC Instructions

[ X ] Fraternal RBC Blanks [ ] Health RBC Instructions [ ] Property/Casualty RBC Instructions

[ X ] Life RBC Blanks [ X ] Fraternal RBC Instructions [ ] OTHER ______________

DESCRIPTION OF CHANGE(S) Life RBC currently has a C-0 charge for collateral held for FHLB advances of 1.30% computed on LR017. ACLI proposes that this be changed to be 0 for the collateral equal to the amount advanced when that liability is part of C-3 modeling, and a factor based on the risk of the FHLB for any excess collateral in excess. The factor will be based on a Baa bond factor if the FHLB funded advance liabilities associated with spread-lending activities exceed 5% of total net admitted assets and the company has not received authorization for the higher amount from its domiciliary state insurance regulator. Attached as Appendix B is a mark-up of LR017 and Appendix C outlines the instructions to show the specific changes needed.

REASON OR JUSTIFICATION FOR CHANGE ** A detailed description of this proposal and the background is included as Appendix A This proposal is specific to Life RBC. Health and P&C insurers may be FHLB members, and the RBC formulas may have parallel issues for which a parallel change may be appropriate. This proposal also references where FHLB advances are included in the C-3 component, which is unique to Life RBC.

Additional Staff Comments:

___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 11-2013

Attachment I

2

FederalHomeLoanBankPledgedAssetRBCProposal Executive Summary: When an insurer obtains an advance from a Federal Home Loan Bank (FHLB), collateral is posted using assets from the insurer’s balance sheet. The pledged assets remain on the insurer’s balance sheet and generate an RBC amount based on the credit risk of that asset. The advance may be recorded as either borrowing (Liability, Page 3 Line 20) or as a Funding Agreement (Exhibit 7 – Deposit type contracts). It is generally included in the insurer’s C-3 modeling to generate an RBC amount for asset – liability mismatch. Additionally, since these assets are classified as ‘Non-controlled assets’, there is an RBC factor of 1.3% applied to the collateral in addition to any other RBC amounts for those assets and liabilities. This memo outlines a proposal that this ‘Non-controlled assets’ charge be revised in light of the risks and the other components of RBC. Specifically, we propose that for FHLB advances subject to C3P1 Cash Flow Testing, there be a factor of zero for the collateral up to the amount of the advance, and a factor for the excess collateral that is equal to the C-1 Bond factor based on the credit rating of the FHLB. NAIC credit risk charge for FHLBs as counterparty . For advances which are not subject to C3P1 Cash Flow Testing, the NAIC FHLB credit risk based charge will be applied to the entire amount of pledged collateral supporting the advance. Additionally, excess assets held by a FHLB but not associated with a FHLB advance (i.e. assets above the required collateral amount and therefore available to be recalled by the insurer), do not present non-controlled asset risk and should be excluded from the C-0 RBC risk charge. Collateral supporting certain FHLB spread-lending activities might be subject to a higher non-controlled asset charge. If the FHLB funded advance liabilities, associated with spread-lending activities is greater than 5% of total net admitted assets, collateral supporting FHLB spread-lending in excess of this 5% will receive a higher factor equal to the factor for a Baa Corporate Bond asset factor unless the company has received authorization for the higher amount from its domiciliary state insurance regulator. FHLBs and Insurance Companies As participants in the mortgage investment industry, many insurance companies have formed a synergistic relationship with the FHLB. The companies can become members of their local FHLB after satisfying underwriting review, demonstrating housing and mortgage market involvement and support, and purchasing membership stock. As members, they have access to FHLB funding and other banking products and receive dividend returns on the stock. The FHLB system’s mandate is to provide liquidity and promote stability in the mortgage industry by providing cost effective products to its members. As federally chartered, government-sponsored banking cooperatives, the FHLBs are able to access the capital markets at extremely favorable interest rates and are thus able to offer attractive rates to their members.

Attachment I

3

FHLB products provide insurers with a diversified low-cost form of funding, with flexible structuring terms to match their investment funding and capital structuring needs. The programs can be an important and stable source of liquidity for many life insurers even during uncertain economic times. In order to keep funding costs for its members low, the FHLBs mitigate their overall credit risk by lending only on a secured basis. Members are required to pledge assets as collateral to secure their outstanding obligations. Given their specialized expertise in mortgage assets, the FHLBs can even accept as collateral life insurer commercial mortgage loans, which tend to be less liquid and not suitable for other collateral purposes. The collateral is managed, not as specific assets backing any single obligation, but rather as a substitutable collateral pool managed in aggregate. All beneficial interests (investment income, gains/losses on sales, etc) remain with insurers and the assets remain available for the insurers’ use as long as the minimum collateral levels are sustained. These characteristics increase the insurer’s liquidity by freeing up other assets for general liquidity purposes and diversifying its sources and uses of liquidity. Finally, advances from the FHLB are generally pre-payable. It is beneficial to insurers’ long-term economic strength as well as their short- and long- term liquidity, to be able to prudently utilize FHLB products, without punitive risk capital charges. The risk charges should recognize the relative risks inherent in the funding and the low counterparty risk of the FHLBs, as well as the pooled and unrestricted nature of the collateral pledged. FHLBs are strong counterparties The FHLB system was established in 1932 and has been making advances to savings and loans, banks, and insurance companies for over 80 years. Unlike commercial lenders that tend to restrict advances when faced with tight liquidity markets, the FHLBs, as government-sponsored enterprises (GSEs), maintain access to the global capital markets and are able to continue making advances to their members across business cycles. During the global liquidity crisis that peaked in 2008, insurance company members increased advances from $28.7 billion in 2007 to $54.9 billion in 2008. FHLBs have implicit US government support, are regulated by the Federal Housing Finance Agency, and are highly rated by the rating agencies. The FHLBs also have a unique structure whereby its borrowers are also its stockholders, leading to a strong alignment of interests. The counterparty risk associated with pledging assets to the FHLBs is minimal. Insurers’ Usage of Federal Home Loan Bank (FHLB) Programs In general, insurers use FHLB funding to provide funding for spread lending purposes or to support general business operations. When used for spread lending purposes, the liabilities are matched by a suitable portfolio of invested assets in order to earn a spread return as an integral part of its insurance business activities. The nature of these two activities is different, as was recognized by the NAIC Emerging Accounting Issues (E) Working Group when it issued INT 08-081.

1 This INT was subsequently nullified, and the guidance incorporates directly into SSAPs 15, 50, and 52.

Attachment I

4

SSAP 52 requires that funding used for spread lending purposes is in substance similar to other insurance activities and should be treated as a funding agreement and reported in the statutory financial statements as an insurance liability whose activity is subject to risk management practices, such as asset-liability management and cash-flow testing adequacy. This is consistent with how rating agencies view FHLB funding agreements; rating agencies treat this form of funding as operating leverage rather than financial leverage. Since the primary risk for this use is the asset liability mismatch, which is being measured by the C-3 component of RBC, the ‘non-controlled asset’ RBC charge is an excess and redundant charge. The FHLBs provide flexible structures that allow insurers to tailor the funding products to better match the characteristics of asset portfolios. Common structures range from overnight and short-term advances to term advances with maturities out to 15 years. Interest crediting options include adjustable rates, with periodic call options without prepayment penalty, or fixed rates with option to amortize. Certain FHLBs also allow for partial terminations of contracts. Such optionality is important to investors in mortgage related assets which often exhibit variability in cash flows. SSAP 15 requires that when FHLB advances are used to support general business operations, it is in substance a form of debt financing and is required to be reported as borrowed money. Because these liabilities are not necessarily matched by a specific pool of assets, the risk of default may not be mitigated by the insurers’ typical asset-liability management processes. Rather, repayment of the obligations depends on the residual cash flows of the insurer, like other forms of debt financing. FHLB Programs can Enhance Financial Strength of Insurers The prudent usage of FHLB products can enhance the immediate and on-going financial strength of the company, by providing low cost and flexible funding to match insurers’ investment management and capital structuring needs. The rating agencies acknowledge this benefit in their reviews of insurer financial strength. See recent rating agency comments in the Appendix below. The new annual statement disclosures help regulators and other financial statement users understand how an insurer is using and managing its FHLB business. Even if the insurer enters rehabilitation, the FHLBs have demonstrated in the past a willingness to work with the insurers and rehabilitators, to reach a successful outcome that involved no loss to either the guaranty association or the FHLB in connection with the insurers’ obligations. Multiple-tier Risk Based Capital (RBC) structure FHLB obligations, and the associated collateral, generate RBC amounts in three different parts of the RBC formula. Assets that are pledged as collateral remain as part of the insurer’s balance sheet and are assessed an RBC charge for C-1 asset risk. The fact that the assets are pledged as collateral does not remove them from this requirement, and the insurer continues to have the risk of a reduction in value of these assets.

Attachment I

5

Risks associated with specific liability characteristics and asset-liability mismatches flow through the C-3 risk charges and the associated C3P1 scenario analyses usually in the following categories:

Deposit-Type Contract liabilities based the risk classification of each liability: 77-115 bps (low risk); 154-231 bps (medium risk); 308-462 bps (high risk)

Debt with GIC-like characteristics: 308-462 bps (high risk)

The assets pledged as collateral are also reported as a non-controlled asset within General Interrogatory 25, and they receive an additional 1.30% RBC charge similar to many other non-controlled asset items. However most other items reported through Interrogatory 25, such as assets loaned to others under securities lending programs, repurchase and reverse repurchase agreements, are not necessarily subject to the C-3 risk charges or asset-liability risk management practices discussed above, do not allow the insurer to freely substitute the collateral, do not provide options to prepay the liabilities to release the collateral or do not have a GSE quality counterparty. Certain categories of non-controlled assets do receive a lower RBC charge. Securities lending programs that conform to appropriate operational and investment risk guidelines are assessed a 0.2% ‘non-controlled asset’ risk charge. The guidelines for conforming programs recognize that such programs are designed to match the liabilities with a suitable portfolio of invested assets. The lower charge reflects the reduction in risk to the pledged assets from risk of default on the securities lending transactions. In another example, assets pledged under the federal TALF program receive a zero ‘non-controlled asset’ risk charge. Certain rating agencies have recognized the relatively lower risks for assets pledged in support of FHLB advances. S&P’s capital model has a non-controlled asset risk charge but assets pledged as collateral to the FHLB are specifically excluded from that charge. Assessing a high risk charge of 1.3% on FHLB pledged assets makes it more costly for insurers to access this low cost and flexible funding source and constrains their sources of liquidity by forcing them to move away from pledging more illiquid assets with higher haircuts and creating competition for uses of liquid assets, particularly in light of the new Dodd-Frank regulations. Excess collateral is definedFor FHLB advances that are subject to beC-3 Phase 1 Cash Flow Testing, the amount of pledged collateral greater thanrisk is already assessed for risk through the FHLB advance. Since collateral equalC-3 risk charges up to the liability poses no net financial risk to the insureramount. Therefore, we propose that the pledged collateral equal to the FHLB advance have ana C-0 RBC factor of zero. An argument can be made that any pledged collateral in excess of the FHLB advance does have an additional risk based on the credit standing of the FHLB that is holding the collateral. We propose that this excess overcollateralization amount be assessed ana C-0 RBC factor based on the credit standing of the FHLB. The excess For FHLB advances that are not subject to C-3 Phase 1 Cash Flow Testing, the full amount could be calculated as the aggregate book value of FHLB pledged collateral associated would receive a C-0 RBC factor based on the credit standing of the FHLB. Excess assets less the aggregate book value of FHLB advances.held by a FHLB but not associated with a FHLB advance

Attachment I

6

(i.e. assets above the required collateral amount and therefore available to be recalled by the insurer), do not present non-controlled asset risk and should be excluded from the C-0 RBC risk charge. Collateral supporting certain FHLB spread-lending activities might be subject to a higher non-controlled asset charge. If the FHLB funded advance liabilities, associated with spread-lending activities is greater than 5% of total net admitted assets, collateral supporting FHLB spread-lending in excess of this 5% will receive a higher factor equal to the factor for a Baa Corporate Bond asset factor unless the company has received authorization for the higher amount from its domiciliary state insurance regulator. Other “Non-controlled Assets” To understand the context of this proposal, discussion of RBC for non-controlled assets was raised at the NAIC Capital Adequacy Task Force in October of 2012. Based on a regulatory review of insurer balance sheets, concern was expressed about companies having excessive amounts of restricted or non-controlled assets. Industry has worked with regulators and several actions have occurred.

The NAIC established a working group under SAPWG to design additional disclosures about non-controlled assets. These resulted in the Interrogatory 25 disclosures discussed above.

Information was provided regarding the non-controlled assets relating to reinsurance, and why such arrangements did not create any additional risk

Educational material has been developed and presented to regulators about the repurchase and reverse repurchase agreements.

RBC for collateral on conforming Securities Lending programs was revised to 20 bps ACLI identified FHLB collateral as an issue of concern and has worked with its members to

develop this proposal

Attachment I

7

Other NAIC activity We also recommend that Life RBC consider 3 referrals to create a complete regulatory oversight framework.

1. Provide a referral to the Financial Examiners to consider questions specific to the insurance

company’s risk management of its FHLB Program in the Examiners Handbook to ensure review

during examinations,

2. Provide a referral to LATF to consider clarifying the guidance for the Actuarial Memorandum to

address how the Appointed Actuary is comfortable with the risk profile of the FHLB advance

Program as a component of the Company’s broader spread lending business, and

3. That the Capital markets Bureau (or other staff) of the NAIC annually produce a report on the

overall amount of FHLB Funding agreement activity using information from Annual Statement

Notes to Financial Statement, Note 11.B.(4) a.1. row b col. 1.

Attachment I

Appendix A

8

Appendix: Rating Agency comments on Insurers’ FHLB membership Moody’s Investor Service, Sector Comment, June 25, 2015 “Insurers’ Access to Federal Home Loan Banks Lending Capacity is Credit Positive”

“» Access to an alternative, low-cost funding source is credit positive. The FHLBs offer eligible insurers access to low-cost, collateralized borrowing capacity for both their ordinary operating needs and emergency liquidity. This availability is credit positive for insurers when traditional bank credit facilities and the capital markets are no longer available, are unfavorable, or are tapped out. The ability to use less-liquid mortgage related assets on the balance sheet as collateral reduces potential pressure on operating liquidity. » Injudicious or excessive use of FHLB borrowing is credit negative - Poorly duration and/or cash-matched assets against FHLB advances (i.e., for acquisitions or spread lending) and/or borrowing that materially increases a company’s financial leverage or credit risk will increase the insurer's risk profile. In addition, because secured obligations to the FHLB structurally subordinate unsecured policyholders, these borrowings could put downward pressure on a company's ratings if they become too sizable relative to total policyholder liabilities. However, we do not expect this to happen.”

Fitch Ratings Special Report, June 12, 2013 “FHLB's Growing Role in the U.S. Life Insurance Industry”

“Membership in the Federal Home Loan Bank (FHLB) system can enhance liquidity and financial flexibility for insurance companies, particularly those insurers with limited access to capital markets, according to a new report by Fitch Ratings. Further, many life insurers can make use of FHLB advances (loans) as a reasonable low cost source of funds to produce spread income, if done in a controlled manner.”

A.M. Best’s Ratings Methodology, January 12, 2012 “A.M. Best’s Perspective on Operating Leverage”

“FHLB programs provide financial flexibility for insurance company members and are an attractive source of capital due to the low rate offered for advances.”

S&P Ratings Direct, May 15, 2013 “How Federal Home Loan Bank Funding Figures in Ratings on Insurers”

“All else being equal, a company that prudently manages its capital structure, investments underwriting, and risk management can enhance its financial flexibility from FHLB capital funding” “We believe the FHLB will be able to meet members’ borrowing needs during the next market dislocation, providing relatively inexpensive funding for illiquid assets when members have few funding alternatives… in our view, pledged liquid assets would damage the stressed liquidity ratio, whereas pledged illiquid assets do not harm the stressed ratio.”

Attachment I

Appendix B

9

OFF-BALANCE SHEET AND OTHER ITEMS (1) (2) (3) (4) (5) (6)

Less Noncontrolled Assets Funding Guaranteed Separate Accounts, RBC Yes/No

Annual Statement Source Statement Value

or Synthetic GIC's and certain FHLB Liabilities Subtotal Factor Requirement Response

Noncontrolled Assets

(1) Loaned to Others - Conforming Securities General Interrogatories Part 1 Line 24.05 X 0.002 =

Lending Program

(2) Loaned to Others - Securities Lending General Interrogatories Part 1 Line 24.06 X 0.013 =

Programs - Other

(3) Subject to Repurchase Agreements General Interrogatories Part 1 Line 25.21 X 0.013 =

(4) Subject to Reverse Repurchase Agreements General Interrogatories Part 1 Line 25.22 X 0.013 =

(5) Subject to Dollar Repurchase Agreements General Interrogatories Part 1 Line 25.23 X 0.013 =

(6) Subject to Reverse Dollar Repurchase General Interrogatories Part 1 Line 25.24 X 0.013 =

Agreements

(7) Placed Under Option Agreements General Interrogatories Part 1 Line 25.25 X 0.013 =

(8) Letter Stock or Other Securities Restricted as to sale - excluding FHLB Capital Stock

General Interrogatories Part 1 Line 25.26 X 0.013 =

(9) FHLB Capital Stock General Interrogatories Part 1 X 0.013 =

Attachment I

Appendix B

10

Line 25.27

(10) On Deposit with States General Interrogatories Part 1 Line 25.28 X 0.013 =

(11) On Deposit with Other Regulatory Bodies General Interrogatories Part 1 Line 25.29 X 0.013 =

(12.1) Pledged as Collateral - excluding Collateral Pledged to an FHLB

General Interrogatories Part 1 Line 25.30

(12.2) Less Derivative Collateral Pledged Schedule DB Part D Section 2 Column 7, Line 0199999 X 0.004 =

(12.3) Pledged as Collateral - excluding Collateral Pledged to an FHLB Less Derivatives Collateral Pledged Line (12.1) - (12.2) X 0.013 =

(13) Pledged as Collateral to FHLB General Interrogatories Part 1 Line 25.31 † X 0� =

(14) Other General Interrogatories Part 1 Line 25.32 X 0.013 =

(15) Total Noncontrolled Assets Sum of Lines (1) through (11) Plus Lines (12.3) through (14)

Derivative Instruments

(16) Exchange Traded and Centrally Cleared Schedule DB Part D Section 1 Column 12, Line 0999999, in part X 0.004 =

(17) Off-Balance Sheet Exposure NAIC 1 Schedule DB Part D Section 1 Column 12, Line 0999999, in part X 0.004 =






(23) Total Derivative Instruments Off-Balance Sheet Exposure Sum of Lines (16) through (22)

Attachment I

Appendix B

11

(24) Guarantees for Affiliates Notes to Financial Statements Number 14A3c1 X 0.013 =

(25) Contingent Liabilities Notes to Financial Statements Number 14A1 X 0.013 =

(26) Long Term Leases Notes to Financial Statements Number 15A2a1 X 0.000 =

(27) Total Off-Balance Sheet Items Lines (15) + (23) + (24) + (25) + (26)

(pre-MODCO/Funds Withheld) (28) Reduction in RBC for MODCO/Funds Withheld

Reinsurance Ceded Agreements Company Records (enter a pre-tax amount)

(29) Increase in RBC for MODCO/Funds Withheld

Reinsurance Assumed Agreements Company Records (enter a pre-tax amount)

(30) Total Off-Balance Sheet Items (including MODCO/Funds Withheld.) Lines (27) - (28) + (29)

Other Items

(31) Is the entity responsible for filing the U.S. "Yes", "No" or "N/A" in Column (6)

Federal income tax return for the reporting insurer a regulated insurance company?

(32) SSAP No. 101 Paragraph 11a Deferred Tax Assets Notes to Financial Statements Item 9A2(a) X ‡ =

(33) SSAP No. 101 Paragraph 11b Deferred Tax Assets Notes to Financial Statements Item 9A2(b) X 0.010 =

(34) Total Off-Balance Sheet and Other Items Line (30) + Line (32) + Line (33)

†

For Line (13), include assets pledged as collateral other than assets related to the Federal Reserve’s Term Asset Loan Facility (TALF). For Column (2) include excess assets on deposit

with anheld by a FHLB but not associated with a Funded Advance.FHLB advance (i.e. assets above the required collateral amount and therefore available to be recalled by the insurer).

Attachment I

Appendix B

12

. For Column (2) also include assets pledged as collateral on FHLB Funded Advance Liabilities subject to C3

Asset/Liability Cash Flow Synchronization Testing, limitedan amount equal to the lessor of Statement Value of FHLB Liabilities Subject to C3 Testing.liabilities subject to C3P1 Cash Flow Testing or 5% of total net admitted assets (unless have received authorization for the higher amount from its domiciliary state insurance regulator).

‡

If Line (31) Column (6) is "Yes", then the factor is 0.005. If Line (31) Column (6) is "No", then the factor is 0.010. If Line (31) Column (6) is "N/A", then the factor is 0.000.

#

Apply a factor based on the NAIC ratings category equivalent to an

unsecured debt obligation of the FHLB.In most instances, apply a factor based on the NAIC ratings category equivalent to an unsecured debt obligation of the FHLB. A higher factor applies if FHLB funded advance liabilities associated with spread-lending activities exceed 5% of total net admitted assets and the domiciliary state insurance regulator has not provided authorization for the higher amount. This higher factor shall equal the factor for a Baa corporate bond asset factor (Line 14 Column 4). If the higher factor is applicable, the blended factor for column 4 shall be prorated based on the collateral in column 3 subject to the typical factor (i.e. liquidity and spread-lending below the limit) and the higher factor (only spread-lending above the limit).

Denotes items that must be manually entered on the filing software.

Attachment I

Appendix C

© 1993-2015 National Association of Insurance Commissioners 13 8/28/2015

OFF‐BALANCESHEETANDOTHERITEMSLR017

Basis of Factors The potential for risk exists in off-balance sheet items. For items other than derivative instruments and assets pledged as collateral to the Federal Home Loan Bank, a 1.3 percent factor was chosen on a judgment basis. The 1.3 percent pre-tax factor will differentiate between the companies that have small and large exposures to this risk. Since there is no firm actuarial basis for assigning the 1.3 percent pre-tax factor to these risks, off-balance sheet items are included in the sensitivity analysis using a factor of 3 percent, and leases are added as an additional off-balance sheet item. For securities lending programs, a reduced charge may apply to certain programs that meet the criteria as outlined below. For assets pledged as collateral on funded Federal Home Loan Bank (FHLB) liabilities included in the C3 Asset/LiabilityPhase 1 Cash Flow Synchronization Testing at LR027, the C3 calculation already provides adequate provision for potential risks up to the Statement Value of the associated FHLB liabilities tested therein. For any excess of assets pledged as collateral above this Statement Value (FHLB liabilities included in the C3 assessmentC3 Phase 1 Cash Flow Testing) the potential exposure is proportionate to the credit risk assessed for the FHLB counterparty, making the bond factor associated with the NAIC designation assigned to the FHLB an appropriate risk provision. AssetsFor FHLB advances that are not subject to the C3 Phase 1 Cash Flow Testing, the full amount of pledged collateral supporting those advances shall receive a C-0 RBC factor based on deposit with anthe credit standing of the FHLB. Excess assets held by a FHLB but not associated with a Funded Advance, which canFHLB advance (i.e. assets above the required collateral amount and therefore available to be recalled at will by the reporting entity,insurer), do not present non-controlled asset risk and should be excluded. Collateral supporting certain FHLB spread-lending activities might be subject to a higher non-controlled asset charge. If the amount of FHLB funded liabilities associated with spread-lending activities is greater than 5% of the company’s total net admitted assets, the full amount of pledged collateral supporting FHLB spread-lending in excess of this 5% will receive a higher factor equal to the factor for a Baa Corporate Bond asset factor unless the company has received authorization for the higher amount from its domiciliary state insurance regulator. For derivative instruments, the book/adjusted carrying value exposure net of collateral (the balance sheet exposure) is included under miscellaneous C-1o risks. Because collars, swaps, forwards and futures can have book/adjusted carrying values that are positive, zero or negative, the potential exposure to default by the counterparty or exchange for these instruments cannot be measured by the book/adjusted carrying values. Schedule DB, therefore, includes a calculation of the potential exposure that is based on the March 1987 research paper “Potential Credit Exposure on Interest Rate and Foreign Exchange Rate Related Instruments,” supporting the 1988 Bank of International Settlements framework for banks. The off-balance sheet exposure (Schedule DB, Part D, Section 1, Column 12) will measure this potential exposure for risk-based capital purposes. The factors applied to the derivatives off-balance sheet exposure are the same as those applied to bonds. Specific Instructions for Application of the Formula

Attachment I

Appendix C


Column (2) Assets directly funding guaranteed separate accounts or synthetic GIC contracts should be excluded from the noncontrolled assets computation. Line (1) Securities lending programs that have all of the following elements are eligible for a lower off-balance sheet charge:

1. A written plan adopted by the Board of Directors that outlines the extent to which the insurer can engage in securities lending activities and how cash collateral received will be invested.

2. Written operational procedures to monitor and control the risks associated with securities lending. Safeguards to be addressed should, at a minimum, provide assurance of the following: a. Documented investment guidelines, including, where applicable, those between lender and investment manager with established procedure for review of

compliance. b. Investment guidelines for cash collateral that clearly delineate liquidity, diversification, credit quality, and average life/duration requirements. c. Approved borrower lists and loan limits to allow for adequate diversification. d. Holding excess collateral with margin percentages in line with industry standards, which are currently 102% (or 105% for cross currency loans). e. Daily mark-to-market of lent securities and obtaining additional collateral needed to ensure that collateral at all times exceeds the value of the loans to

maintain margin of 102% of market. f. Not subject to any automatic stay in bankruptcy and may be closed out and terminated immediately upon the bankruptcy of any party.

3. A binding securities lending agreement (standard “Master Lending Agreement” from Securities Industry and Financial Markets Association) is in writing between the insurer, or its agent on behalf of the insurer, and the borrowers.

4. Acceptable collateral is defined as cash, cash equivalents, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and NAIC 1-designated securities. Affiliate-issued collateral would not be deemed acceptable. In all cases the collateral held must be permitted investments in the state of domicile for the respective insurer.

Collateral included in General Interrogatories, Part 1, Line 24.05 of the annual statement should be included on Line (1).

Line (2) Collateral from all other securities lending programs should be reported General Interrogatories, Part 1, Line 24.06 and included in Line (2). Lines (3) through (14) Noncontrolled assets are the amount of all assets not exclusively under the control of the company, or assets that have been sold or transferred subject to a put option contract currently in force. For Line (12.1) and (13) include assets pledged as collateral reported in the General Interrogatories Part 1 Line 25.30 and 25.31 other than assets related to the Federal Reserve’s Term Asset Loan Facility (TALF). For Line (12.2), include all collateral pledged, both cash and securities, to derivative counterparties and/or central clearinghouses for initial margin and variation margin. In addition, include securities collateral pledged as initial margin for futures. Line (12.2) should agree to Schedule DB Part D Section 2 Column 7, Line 0199999. Line (12.3) should equal Line (12.1) minus Line (12.2). For Line (13) column 2 include the amount of collateral equal to the FHLB Liabilities subject to C-3 testing and included in LR027. In addition, any collateral in excess of required collateral should be included.For Line (13) column 2 include excess assets held by a FHLB but not associated with a FHLB advance (i.e. assets above the required collateral amount and

Attachment I

Appendix C


therefore available to be recalled by the insurer). For Line (13) column 2 also include an amount equal to the lessor of Statement Value of FHLB liabilities subject to C3P1 Cash Flow Testing or 5% of total net admitted assets (unless have received authorization for higher amount from domiciliary state insurance regulator). For Line (13) column (4), the Factor will be manually input. In most instances, the Factor will be based on the NAIC ratings category equivalent to an unsecured debt obligation of the FHLB. A higher factor applies if FHLB funded advance liabilities associated with spread-lending activities exceed 5% of total net admitted assets and the domiciliary state insurance regulator has not provided authorization for the higher amount. If the higher factor is applicable, the Factor for column 4 is calculated as a blended factor prorated such that collateral in column 3 supporting FHLB spread-lending liabilities in excess of the limit is subject to the factor for a Baa corporate bond (Line 14 Column 4). All other collateral in column 3 is subject to the factor based on the NAIC ratings category equivalent to an unsecured debt obligation of the FHLB. Lines (16) through (23) The off-balance sheet exposure for derivative instruments reported on Schedule DB, Part D, Section 1, Column 12, Lines 0199999 through 0899999. Off-balance sheet exposure is reported for aggregate exchange traded derivatives, OTC – bilateral derivatives aggregated by counterparty brought into each individual NAIC designation 1-6, and aggregated centrally cleared derivatives. For 2015, derivative balances subject to central clearing are to be included in Line (16) regardless of the category they are included in for Schedule DB, Part D, Section 1. Line (24) Guarantees for affiliates include guarantees for the benefit of an affiliate that result in a material† contingent exposure of the company’s assets to liability. Line (26) The exposure amount for long-term leases is the annual rental amount of all leases that could have a material† financial effect. If the rent expense is shared with affiliates, it should be allocated by company. Line (31) “Yes” means the entity which files the US Federal income tax return which includes the reporting entity is a regulated insurance company (including where the reporting entity is the direct filer of the tax return). “No” means the entity which files the US Federal income tax return which includes the reporting entity is not a regulated insurance company (e.g. a non-insurance entity or holding company makes the filing). “N/A” means the entity is exempt from filing a US federal income tax return; lines (32) and (33) should be zero in this case. Lines (32) and (33) Apply a one-percent (1%) charge in the RBC formula, placed outside of the covariance adjustment, to admitted adjusted gross deferred tax assets (DTAs) as described in SSAP No. 101, paragraphs 11a and 11b (lesser of paragraph 11b(i) and 11b(ii)). For the period for which the paragraph 11a component is determined, the charge is reduced to one-half percent (0.5%) when the insurance company either filed its own separate Federal income tax return or it was included in a consolidated Federal income tax of which the common parent is an insurance company. The source for the DTA amounts to use in the calculation is found in the Annual Statement, Notes to Financial Statements, Note 9, Part A, Section 2, Admission Calculation Components for SSAP No. 101. Paragraph 11a is found in Section 2, subpart (a), Paragraph 11b is found in Section 2, subpart (b). † The definition of “material” exposure or financial effect is the same as for annual statement disclosure requirements.

Attachment I

Appendix C


Attachment I

AGGREGATED LIFE RBC AND ANNUAL STATEMENT DATA2016 Data as of 6/29/2017

Year-End 2016 Year-End 2015 Year-End 2014 Year-End 2013 Year-End 2012 Year-End 2011 Year-End 2010 Year-End 2009 Year-End 2008 Year-End 2007

# of Companies Filed RBC 718 725 727 750 761 786 804 814 847 874# of Companies Filed Annual Statement 739 750 763 770 788 811 832 846 884 912% of RBC Companies 97% 97% 95% 97% 97% 97% 97% 96% 96% 96%

Company Action Level - Trend Test at 300% 3 2 6 6 7Company Action Level - Trend Test at 250% 2 1 4 3 1 3 3 2 4 2Company Action Level 1 4 6 5 5 1 2 2 4 6 4Regulatory Action Level 2 1 1 0 1 0 1 1 2 5 3Authorized Control Level 3 1 1 1 1 1 0 1 2 3 2Mandatory Control Level 4 3 4 2 4 4 6 7 8 7 2Total 14 15 18 20 14 12 14 18 25 13

1.95% 2.07% 2.48% 2.67% 1.84% 1.53% 1.74% 2.21% 2.95% 1.49%

# of Companies with RBC Ratio > 10,000% 57 53 61 67 71 69 75 74 83 90# of Companies with RBC Ratio >1000 & < 10,000% 319 338 333 337 331 353 352 321 301 350# of Companies with RBC Ratio >500 & <1,000% 274 270 270 279 273 281 279 292 323 320# of Companies with RBC Ratio >250 & < 500% 57 53 52 56 76 69 84 107 115 98# of Companies with RBC Ratio > 200 & < 250% 3 4 7 4 4 4 3 3 4 3# of Companies with RBC Ratio < 200% 8 7 4 6 6 9 11 16 21 11# of Companies with RBC Ratio of Zero 0 0 0 1 0 1 0 1 0 2Total 718 725 727 750 761 786 804 814 847 874

Total Adjusted Capital 508,747,679,200 495,365,058,593 486,612,658,608 472,894,118,204 455,931,025,099 429,882,705,430 415,751,433,123 384,905,892,943 337,860,501,583 382,627,987,926Authorized Control Level RBC 53,371,992,970 51,286,679,826 49,962,064,876 49,205,729,081 49,013,713,654 47,139,501,106 46,279,711,878 46,102,539,425 44,596,669,098 47,718,768,813Aggregate RBC % 953% 966% 974% 961% 930% 912% 898% 835% 758% 802%Median RBC % 1040% 1080% 1066% 1053% 1032% 1050% 1047% 989% 910% 1009%

Total C-0 Asset Risk - Affilates 19,961,695,520 19,307,626,448 18,663,109,500 19,306,580,061 19,189,195,399 18,739,561,938 18,738,970,919 19,124,258,227 17,729,666,292 20,975,520,066Total C-1cs Asset Risk - Common Stock 26,649,848,001 25,801,853,730 26,039,253,312 23,483,229,549 21,747,022,437 20,328,404,533 19,360,694,811 16,595,134,459 15,173,911,148 21,178,265,348Total C-1o Asset Risk - All Other 42,489,721,515 40,179,612,473 38,560,998,099 37,913,777,872 40,304,592,786 39,651,231,374 38,381,025,396 38,136,885,331 38,260,941,266 37,981,125,254Total C-2 Insurance Risk 24,540,625,751 24,094,786,786 23,232,226,881 22,969,556,371 22,768,484,196 21,568,971,896 21,836,086,348 21,833,532,513 22,559,534,191 21,586,513,996Total C-3a Interest Rate Risk 15,229,088,812 14,970,305,244 14,530,687,343 13,910,184,618 13,284,390,473 12,219,650,198 11,334,886,455 11,442,899,879 11,229,953,890 11,395,161,812Total C-3b Health Credit Risk 36,706,313 2,309,153 2,081,557 5,892,497 2,158,826 1,875,576 1,734,250 2,063,416 1,805,892 2,027,905Total C-3c Market Risk 2,208,998,999 1,906,066,557 2,224,840,425 2,669,688,425 2,948,734,740 1,892,951,628 2,959,091,714 3,551,368,814 1,171,858,286 2,397,371,134Total C-4a Business Risk 7,747,940,544 7,357,039,841 6,998,502,423 6,829,950,654 6,389,295,722 6,212,941,848 6,114,674,083 6,337,289,177 6,200,102,256 5,467,652,625Total C-4b Business Risk Admin. Expenses 649,189,658 677,624,067 647,290,652 688,425,241 663,477,509 651,251,709 678,560,902 669,202,149 624,515,305 575,510,887

139,513,815,113 134,297,224,299 130,898,990,192 127,777,285,288 127,297,352,088 121,266,840,700 119,405,724,878 117,692,633,965 112,952,288,526 121,559,149,027

Total C-0 Asset Risk - Affilates 14.31% 14.38% 14.26% 15.11% 15.07% 15.45% 15.69% 16.25% 15.70% 17.26%Total C-1cs Asset Risk - Common Stock 19.10% 19.21% 19.89% 18.38% 17.08% 16.76% 16.21% 14.10% 13.43% 17.42%Total C-1o Asset Risk - All Other 30.46% 29.92% 29.46% 29.67% 31.66% 32.70% 32.14% 32.40% 33.87% 31.24%Total C-2 Insurance Risk 17.59% 17.94% 17.75% 17.98% 17.89% 17.79% 18.29% 18.55% 19.97% 17.76%Total C-3a Interest Rate Risk 10.92% 11.15% 11.10% 10.89% 10.44% 10.08% 9.49% 9.72% 9.94% 9.37%Total C-3b Health Credit Risk 0.03% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total C-3c Market Risk 1.58% 1.42% 1.70% 2.09% 2.32% 1.56% 2.48% 3.02% 1.04% 1.97%Total C-4a Business Risk 5.55% 5.48% 5.35% 5.35% 5.02% 5.12% 5.12% 5.38% 5.49% 4.50%Total C-4b Business Risk Admin. Expenses 0.47% 0.50% 0.49% 0.54% 0.52% 0.54% 0.57% 0.57% 0.55% 0.47%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Total Assets 6,721,817,618,789 6,430,733,066,141 6,358,609,540,768 6,091,050,647,565 5,719,314,837,374 5,443,336,482,466 5,268,957,173,893 4,830,356,893,602 4,607,342,995,257 5,049,820,721,987Total Invested Assets 3,976,564,473,802 3,787,990,147,128 3,712,771,901,125 3,565,197,915,336 3,480,198,086,684 3,433,849,122,434 3,268,287,880,755 3,068,108,897,250 3,076,899,901,251 3,013,496,990,678Reserves (Liabilities Line 1 + 2) 2,923,377,679,259 2,790,917,216,424 2,714,010,331,232 2,596,164,893,854 2,524,930,764,452 2,535,993,714,620 2,398,889,900,081 2,240,332,789,534 2,212,831,818,700 2,071,960,024,981Surplus (Liabilities Line 37) 452,449,163,848 439,868,508,114 426,214,329,287 410,481,152,085 398,762,929,952 382,243,010,580 378,454,188,941 354,616,805,831 309,138,077,020 328,901,773,084Premiums Earned (Page 4 Line 1) 601,805,999,830 640,574,026,890 647,586,767,390 580,738,513,565 643,023,819,383 621,700,011,784 581,367,994,167 498,299,974,200 631,303,023,039 616,770,964,771Claims Incurred (Page 4 Lines 10 Through 13) 270,358,842,590 262,562,416,881 249,920,819,580 265,507,549,061 256,267,367,543 253,100,778,009 246,698,389,340 241,382,608,610 244,133,319,171 231,127,082,383

Source: NAIC Financial Data Repository© 2016 National Association of Insurance Commissioners

Attachment J

AGGREGATED FRATERNAL RBC AND ANNUAL STATEMENT DATA2016 Data as of 6/29/2017

Year-End 2016 Year-End 2015 Year-End 2014 Year-End 2013 Year-End 2012 Year-End 2011 Year-End 2010 Year-End 2009 Year-End 2008 Year-End 2007

# of Companies Filed/Reported RBC 75 75 73 74 67 76 77 79 83 84# of Companies Filed Annual Statement 77 79 79 80 80 83 87 91 93 97% of RBC Companies 97% 95% 92% 93% 84% 92% 89% 87% 89% 87%

Company Action Level - Trend Test at 300% 2 2 1 3 1Company Action Level - Trend Test at 250% 0 1 1 1 0 1 3 3 2 0Company Action Level 1 0 1 1 1 1 1 1 3 5 1Regulatory Action Level 2 1 0 0 0 0 0 0 0 2 1Authorized Control Level 3 0 0 0 0 0 0 0 0 1 1Mandatory Control Level 4 1 1 1 0 0 0 0 0 2 1Total 4 5 4 5 2 2 4 6 12 4

5.33% 6.67% 5.48% 6.76% 2.99% 2.63% 5.19% 7.59% 14.46% 4.76%

# of Companies with RBC Ratio > 10,000% 1 1 2 2 1 2 2 2 2 4# of Companies with RBC Ratio> 1000 & < 10,000% 29 25 21 28 23 25 29 33 32 43# of Companies with RBC Ratio >500 & <1,000% 27 29 30 21 19 23 20 20 22 20# of Companies with RBC Ratio >250 & < 500% 16 17 17 21 22 22 17 14 14 12# of Companies with RBC Ratio > 200 & < 250% 0 1 2 1 1 3 8 7 3 1# of Companies with RBC Ratio < 200% 2 2 1 1 1 1 1 3 10 4# of Companies with RBC Ratio Of ZeroTotal 75 75 73 74 67 76 77 79 83 84

Total Adjusted Capital 16,791,351,776 15,493,109,462 14,700,132,737 13,795,340,822 12,347,326,925 11,316,414,941 11,212,263,374 10,240,632,980 9,426,888,432 11,487,456,658Authorized Control Level RBC 1,347,632,577 1,255,700,071 1,280,942,505 1,232,288,742 1,219,162,756 1,167,599,848 1,229,279,662 1,101,560,591 928,348,604 875,165,165Aggregate RBC % 1246% 1234% 1148% 1119% 1013% 969% 912% 930% 1015% 1313%Median RBC % 822% 802% 810% 751% 691% 789% 770% 807% 783% 1114%

Total C-0 Asset Risk - Affilates 61,793,400 60,343,051 56,339,609 57,710,138 55,534,343 48,811,031 N/A N/A N/A N/ATotal C-1cs Asset Risk - Common Stock 1,415,367,295 1,294,868,045 1,281,286,576 1,302,632,382 1,209,071,765 1,065,187,524 N/A N/A N/A N/ATotal C-1o Asset Risk - All Other 1,189,846,355 1,034,286,006 975,579,588 933,361,219 1,155,872,821 1,158,338,687 N/A N/A N/A N/ATotal C-2 Insurance Risk 347,024,408 348,958,190 342,027,279 329,579,505 321,457,634 315,521,778 N/A N/A N/A N/ATotal C-3a Interest Rate Risk 673,932,001 713,963,314 865,488,613 808,064,397 636,182,548 603,032,126 N/A N/A N/A N/ATotal C-3b Health Credit Risk 0 0 0 0 0 0 N/A N/A N/A N/ATotal C-3c Market Risk 7,228,886 10,468,506 10,026,178 4,049,730 5,806,398 3,908,302 N/A N/A N/A N/ATotal C-4a Business Risk 147,055,169 139,216,623 132,853,888 126,926,826 133,077,475 136,954,796 N/A N/A N/A N/ATotal C-4b Business Risk Admin. Expenses 1,564,002 1,716,479 1,663,913 1,967,688 2,076,144 2,053,481 N/A N/A N/A N/A

3,843,811,516 3,603,820,214 3,665,265,644 3,564,291,885 3,519,079,128 3,333,807,725

Total C-0 Asset Risk - Affilates 1.61% 1.67% 1.54% 1.62% 1.58% 1.46%Total C-1cs Asset Risk - Common Stock 36.82% 35.93% 34.96% 36.55% 34.36% 31.95%Total C-1o Asset Risk - All Other 30.95% 28.70% 26.62% 26.19% 32.85% 34.75%Total C-2 Insurance Risk 9.03% 9.68% 9.33% 9.25% 9.13% 9.46%Total C-3a Interest Rate Risk 17.53% 19.81% 23.61% 22.67% 18.08% 18.09%Total C-3b Health Credit Risk 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total C-3c Market Risk 0.19% 0.29% 0.27% 0.11% 0.16% 0.12%Total C-4a Business Risk 3.83% 3.86% 3.62% 3.56% 3.78% 4.11%Total C-4b Business Risk Admin. Expenses 0.04% 0.05% 0.05% 0.06% 0.06% 0.06%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Total Assets 158,655,825,653 150,535,532,405 144,726,013,287 137,075,718,828 129,638,349,393 119,831,633,975 112,891,969,239 103,750,959,660 94,990,254,328 98,853,850,438Total Invested Assets 129,634,944,910 124,306,250,003 119,516,625,545 114,708,240,638 111,728,770,065 104,803,650,006 98,590,257,751 91,710,630,532 85,509,723,567 85,794,507,501Reserves (Liabilities Line 1 + 2) 97,602,163,251 94,024,614,913 90,700,012,921 87,385,383,680 84,090,461,068 80,027,890,705 75,819,184,810 71,327,522,999 67,216,654,543 64,549,801,506Asset Valuation Reserve (Liabilities Line 21.1) 2,016,110,804 1,783,612,005 1,823,235,347 1,736,915,588 2,278,582,536 1,787,262,534 1,376,561,278 730,847,139 322,873,333 1,222,465,210Surplus (Liabilities Line 30) 14,522,927,664 13,469,992,284 12,580,338,693 11,829,411,951 9,839,176,097 9,165,593,291 9,463,615,625 9,149,248,907 8,708,577,291 9,907,238,582Premiums Earned (Page 4 Line 1) 10,105,222,986 10,589,981,867 10,260,163,873 9,919,386,707 10,086,216,569 9,759,276,733 9,640,532,834 8,476,275,245 7,513,988,393 6,373,320,888Claims Incurred (Page 4 Lines 10 Through 13) 4,535,701,918 4,291,817,858 4,036,921,338 3,786,783,125 3,732,411,321 3,673,402,187 3,378,363,391 3,040,127,093 3,039,141,980 2,834,643,865

Source: NAIC Financial Data Repository© 2016 National Association of Insurance Commissioners

Attachment J

materials - life risk-based capital (e) working · pdf fileerry krantz, teve ostlund erry...

Documents