April 2016
NAIC Bulletin
Highlights of the National Association
of Insurance Commissioners meeting
Spring 2016 update
In this issue:
Executive Committee and Plenary .......... 2
Cybersecurity (EX) Task Force .................2
Principles-based reserving ...................... 3
Valuation Manual amendments ................3
PBR pilot project .......................................4
XXX/AXXX Reinsurance Framework ....... 4
Accreditation standards ...........................5
Accounting Practices and
Procedures (E) Task Force .................... 6
Statutory Accounting Principles (E)
Working Group......................................6
Restricted Assets (E) Subgroup................7
Blanks (E) Working Group .........................7
Life Insurance and Annuities (A)
Committee ............................................. 7
Life Actuarial (A) Task Force ....................7
Unclaimed Life Insurance Benefits (A)
Working Group......................................8
Health Insurance and Managed Care (B)
Committee ............................................. 8
Health Actuarial (B) Task Force ................8
Property and Casualty Insurance (C)
Committee ............................................. 8
Casualty Actuarial and Statistical (C)
Task Force ............................................9
Climate Change and Global Warming (C)
Working Group......................................9
Financial Condition (E) Committee .......... 9
Capital Adequacy (E) Task Force ............10
Investment RBC (E) Working Group........10
Group Capital Calculation (E)
Working Group..................................10
Group Solvency Issues (E)
Working Group ................................ 11
Reinsurance (E) Task Force ....................11
Risk-Focused Surveillance (E)
Working Group....................................11
Valuation of Securities (E) Task Force ....12
Variable Annuities Issues (E)
Working Group....................................12
Financial Regulation Standards and
Accreditation (F) Committee ............... 13
International Insurance Relations (G)
Committee ........................................... 13
ComFrame Development and Analysis (G)
Working Group....................................14
Appendix A — Statutory Accounting
Principles Working Group .................... 15
Appendix B — Blanks Working Group ..... 20
Appendix C — Capital Adequacy (E)
Task Force ........................................... 22
The National Association of Insurance Commissioners (NAIC) recently held its Spring National Meeting in
New Orleans. This publication highlights issues that various NAIC groups have addressed since the 2015
Fall National Meeting. We hope you find it informative, and we welcome your comments. Please contact
your local EY professional for more information.
What you need to know
•
The expected date to implement principles-based reserving (PBR) as a national standard is still
1 January 2017. As of the 2016 Spring National Meeting, 42 states, representing 75% of direct
written premiums, have enacted legislation to adopt the revised Standard Valuation Law
(#820). The NAIC will ultimately determine whether the version of Model #820 adopted by
these states has terms and provisions substantially similar to those in the NAIC model law for
purposes of PBR implementation.
•
The Group Capital Calculation (E) Working Group held its first meeting on the development of a
US group capital calculation using a risk-based capital (RBC) aggregation methodology. The
calculation will be applicable to US-domiciled insurance groups and provide information intended
to improve the ability of state insurance regulators to monitor insurer solvency at the group level.
•
The Investment RBC (E) Working Group exposed a document that outlines the guiding principles
and a related plan to move ahead on the project to update the asset factors for bonds and
common stock used in each of the RBC formulas by the end of 2017.
•
The Cybersecurity (EX) Task Force exposed the initial draft of the Insurance Data Security
Model Law in February 2016. The draft incorporates elements of existing NAIC model
regulations and cybersecurity guidance. The proposed model law would establish a single
standard for data security and investigation and notification of a breach of data security.
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Executive Committee and Plenary
Since the 2015 Fall National Meeting, the Executive Committee and Plenary adopted amendments to the
Credit for Reinsurance Model Law (#785) that provide the insurance commissioner authority to adopt
regulations addressing the following categories of captive reinsurance transactions: XXX/AXXX,
long-term care insurance, variable annuities and any other life, health or annuity products for which the
NAIC adopts credit for reinsurance model regulatory requirements. These amendments also provide an
exemption for large professional reinsurers that meet certain criteria. In addition, they include a
grandfathering provision similar to the one in 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) that gives the insurance
commissioner authority to adopt a regulation with some limited retroactive application.
The Executive Committee and Plenary adopted the NAIC Roadmap for Cybersecurity Consumer
Protections (i.e., Cybersecurity Bill of Rights). This document summarizes the general rights of insurance
consumers relating to cybersecurity and breach of security notifications, along with best practices on
protecting consumer information when a data breach occurs. The document also clarifies that the rights
are subject to and may vary based on the applicable provisions of state and federal law.
The Executive Committee and Plenary also adopted the Guidance for the Financial Solvency and Market
Conduct Regulation of Insurers Who Offer Contingent Deferred Annuities, a reference document for
states interested in modifying their annuity laws to clarify their applicability to contingent deferred
annuities. The Committee also adopted the requirement for ceding insurers with captives that engage in
XXX/AXXX reserve financing transactions within the scope of AG 48 to disclose the amount of any
shortfall in the required level of Primary Security and the related RBC effect in their 2015
statutory-basis financial statements.
The Executive Committee and Plenary approved an additional charge for the Financial Condition (E)
Committee to consider and develop contingent regulatory plans to protect US consumers and US ceding
insurers from the potential negative effect of a covered agreement on reinsurance collateral. The
Committee also adopted amendments to the Valuation Manual (VM) authorizing the use of the 2017
Commissioners’ Standard Ordinary Mortality Table for PBR.
Separately, the Executive Committee adopted a statement expressing its preference for the NAIC to
serve as the agent to collect experience data from life insurers on behalf of the states and pursuant to
the Valuation Manual to support the implementation of PBR. The Executive Committee directed the NAIC
staff to conduct more research and participate in the PBR pilot project this year to present a proposed
implementation plan to the Executive Committee.
The Executive Committee also adopted a request to develop a new Insurance Data Security Model Law
that would have a wider scope than previous NAIC models and provide specific guidance on data security
to insurers.
Cybersecurity (EX) Task Force
The Task Force has continued to focus on the development of cybersecurity guidance for insurers and
state insurance regulators. The Task Force initially had planned to review the provisions of the Insurance
Information and Privacy Protection Model Act (#670), the Privacy of Consumer Financial and Health
Information Regulation (#672), the Standards for Safeguarding Consumer Information Model Regulation
(#673) and the Insurance Fraud Prevention Model Act (#680) and propose amendments to address
cybersecurity issues in each NAIC model. However, it was determined to be more efficient to draft a new
cybersecurity model law instead of performing an in-depth review and update of the existing NAIC models.
The Task Force proposed in February 2016 an initial draft of the Insurance Data Security Model Law that
incorporates elements from the guidance in the Principles for Effective Cybersecurity: Insurance
Regulatory Guidance and the NAIC Roadmap for Cybersecurity Consumer Protections, along with certain
requirements from Model #670 and Model #672. The new cybersecurity model law would establish a
single standard for data security and investigation and notification of a breach of data security. It also
would provide the insurance commissioner with the authority to conduct investigations and impose
sanctions or monetary penalties against insurers that have violated the law’s provisions.
2 | NAIC Bulletin April 2016
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The Task Force discussed comments received on the exposed draft of the Insurance Data Security Model
Law with interested parties during the Spring National Meeting. The interested parties supported the
effort to provide uniformity for data security and data breach notification requirements among the
states. However, they said that the draft needs significant development, input and revision before the
industry can support its adoption in state legislature. They raised concerns about the broad nature of
industry-specific mandates in the draft and the potential conflicts with the existing requirements of
federal and state cybersecurity laws and state privacy laws. Other concerns included whether to include
the provisions addressing the power of the insurance commissioner and the conduct of public hearings.
The Task Force will continue to work closely with interested parties to revise the exposed draft, with the
goal of recommending the adoption of a final standard by the end of 2016.
Principles-based reserving
The expected date to implement PBR as a national standard continues to be 1 January 2017. As of the
Spring National Meeting, 42 states, representing 75% of direct written premiums, have enacted legislation to
adopt the revised Standard Valuation Law (#820), with several other states having legislative activity in
process. The threshold to reach the supermajority of NAIC jurisdictions required to implement PBR as a
national standard is 42 states representing 75% of direct written premium if the legislation was enacted
with “substantially similar terms and provisions” to the NAIC model law. The NAIC will ultimately perform
an evaluation of the version of Model #820 adopted by these states to determine whether the
“substantially similar terms and provisions” requirement has been met based on the guidance issued by
the PBR Implementation (EX) Task Force (PBRITF) for this purpose. If it is determined by 1 July 2016,
that the required supermajority has been reached, PBR would be implemented on 1 January 2017,
subject to a three-year transition period during which the application of PBR is optional (i.e., required
adoption on 1 January 2020).
Recent actions taken by various NAIC groups to implement PBR include the following:
•
PBRITF adopted an updated PBR Implementation Plan to provide a framework for implementation.
Regulators intend for the plan to be a working document that will be modified as decisions are made,
questions are raised and deliverables are met.
•
PBRITF adopted revisions to the annual statement blank and related instructions to incorporate a
new PBR supplement and other amendments to clarify the reporting requirements for PBR
information. These revisions were subsequently referred to the Blanks (E) Working Group (BWG).
•
PBRITF adopted revisions to the Financial Analysis Handbook to incorporate the regulatory review
procedures to be performed on PBR information. These revisions were subsequently referred to the
Financial Analysis Handbook (E) Working Group.
•
The Statutory Accounting Procedures (E) Working Group (SAPWG) exposed substantive revisions to
Statement of Statutory Accounting Principles (SSAP) No. 51, Life Contracts, to address
modifications for PBR (Ref #2015-47). Comments are due by 20 May 2016.
Valuation Manual amendments
The Life Actuarial (A) Task Force (LATF) continued its work on amending the Valuation Manual included
in Model #820 to address the minimum reserve requirements for life insurance, accident and health
insurance and deposit-type contracts.
LATF adopted a number of VM amendments since the 2015 Fall National Meeting, including:
3 | NAIC Bulletin April 2016
•
Amendments to VM-20, Requirements for Principle-Based Reserves for Life Products, for
investment spreads to reflect updated data as of 31 December 2015
•
Amendments to VM-31, PBR Report Requirements for Business Subject to a Principle-Based
Reserve Valuation, that clarify, reorder and revise requirements for the annual PBR actuarial report
required of companies
•
Amendments to VM-20 Section 9F to rectify the omission of default costs for commercial mortgages
•
Amendments to VM-20 to define and clarify the term “modeled reserves”
•
Amendments to VM-20 to remove references to “seriatim reserves” for the deterministic reserve
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LATF also exposed a number of VM-20 amendments, including:
•
A proposal by the American Council of Life Insurers (ACLI) to refine the VM-20 term net premium
reserve (NPR) shock lapse and to require the deterministic reserve whenever the term NPR is required
•
A proposal by the Texas Department of Insurance to require the term and universal life with
secondary guarantee minimum reserve to be determined separately and provide two options for
allowable policy grouping for the stochastic reserve calculation for these product types
•
A proposal by New York Life to consider changing the term NPR to remove perceived anomalies
caused by the expense allowance assumption and inclusion of post-level term profits
Comments on these VM-20 amendment proposals are due by 25 April 2016.
LATF directed the ACLI and the American Academy of Actuaries (AAA) to work together to consolidate
their respective proposed amendments to VM Appendix G, Corporate Governance Requirements for
Principle-Based Reserves, for consideration at a future meeting.
LATF received an update from the VM-22 (A) Subgroup on its progress to develop a PBR framework for
non-variable annuity products (i.e., VM-22, Requirements for Principle-Based Reserves for Non-Variable
Annuity Products). The Subgroup discussed modernizing the process for developing the valuation
interest rate for these products in Model #820. The Subgroup expects to provide LATF with proposed
changes to the process for developing the valuation interest rate by the end of June 2016. The
Subgroup also updated LATF on the progress of the Annuity Reserves Working Group (ARWG) of the
AAA in developing a draft of VM-22. The ARWG will work on developing a modeled reserve that is
consistent with Actuarial Guideline XLIII — CARVM for Variable Annuities (AG 43), including the potential
changes to AG 43 being considered by the Variable Annuities Issues (E) Working Group. The work done
by ARWG will also be considered as a potential methodology to establish a floor reserve, along with the
application of a simplified approach to the floor reserve calculation.
PBR pilot project
In an effort to help both insurers and regulators prepare for PBR implementation, the PBR Review (EX)
Working Group is conducting a PBR pilot project in 2016. Twelve insurers in nine states have
volunteered to participate in the pilot, which will begin in mid-April. Participating insurers will be
expected to complete and submit the VM-20 calculations, VM-20 Supplement and VM-31 PBR Actuarial
Report by mid-August to their state of domicile. Participating state regulators and NAIC staff will review
the VM-20 calculations and documentation received and provide feedback to PBR pilot project
participants in the fall. The Working Group will then provide a final report on the PBR pilot project to the
PBRITF at the 2016 Fall National Meeting.
XXX/AXXX Reinsurance Framework
LATF referred its comments and recommendations on the exposed draft of the Model Regulation on
Credit for Reinsurance of Life Insurance Policies Containing Nonlevel Gross Premiums, Nonlevel Gross
Benefits and Universal Life With Secondary Guarantees (i.e., XXX/AXXX Credit for Reinsurance Model
Regulation) to the Reinsurance (E) Task Force. For policies issued prior to the operative date of the
Valuation Manual, the draft regulation provides for different adjustments to the required level of Primary
Security for an exempt yearly renewable term (YRT) reinsurance arrangement to an assuming reinsurer
before and after the operative date. LATF recommended that the adjustment used before the operative
date should continue to be used after the operative date, since the adjustment to the required level of
Primary Security should not be greater than the amount an assuming reinsurer for an exempt YRT
reinsurance arrangement can currently establish.
The Reinsurance (E) Task Force discussed the comments received from regulators and interested parties
on the proposed draft of the XXX/AXXX Credit for Reinsurance Model Regulation. Concerns raised by
interested parties on the provisions of draft model regulation include:
4 | NAIC Bulletin April 2016
•
The “all-or-nothing” consequences for shortfalls in the required level of Primary Security or Other
Security and the potential for an increase in the amount of systemic risk to the insurance industry
•
The lack of an exclusion for traditional reinsurance and small professional reinsurers
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•
The drafting note in Section 2, which may result in different interpretations of the phrases “purpose
and intent of the regulation” and “perceived ambiguity” and increase regulatory uncertainty
•
The lack of including real estate as a Primary Security if it is held in connection with a funds-withheld
coinsurance or modified coinsurance agreement
The Task Force directed the NAIC staff and consultants to work with the XXX/AXXX Captive Reinsurance
Regulation (E) Drafting Group to draft a revised model regulation that considers feedback received.
The Task Force adopted revisions to Model #785 that provide the insurance commissioner authority to
adopt regulations related to the following:
•
Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits
•
Universal life insurance policies with provisions that allow a policyholder to keep a policy in force
over a secondary guarantee period
•
Variable annuities with guaranteed death or living benefits
•
Long-term care insurance policies
•
Other life and health insurance and annuity products as to which the NAIC adopts credit for
reinsurance model regulatory requirements
Accreditation standards
The Financial Regulation Standards and Accreditation (F) Committee adopted revisions to the Part A:
Laws and Regulations Accreditation Preamble to subject certain captive insurers, special purpose
vehicles and other entities assuming insurance business to the general accreditation standards. The
revisions also apply to the regulation of any risk retention group (RRG) incorporated as a captive insurer,
but only if the RRG is a multi-state insurer and meets the following conditions:
•
Registered in at least one state other than its state of domicile
•
Operating in at least one state other than its state of domicile
•
Reinsuring business covering risks that reside in at least two states
The F Committee also adopted revisions to the Part B: Regulatory Practices and Procedures Accreditation
Preamble to ensure consistency in what constitutes multi-state business with the requirements of Part A.
The revised accreditation guidance applies to the regulation of domestic insurers licensed under state
life/health and property/casualty statutes, RRGs organized as captive insurers and those insurers
licensed as health organizations but only if the state insurance department regulates such entities. A
domestic insurer is considered to be a multi-state insurer if any of the following criteria are met:
•
Licensed in at least one state other than its state of domicile
•
Registered in at least one state other than its state of domicile
•
Operating in at least one state other than its state of domicile
•
Accredited or certified as a reinsurer in at least one state other than its state of domicile
•
Reinsuring business covering risks that reside in at least two states
•
Accepting business on an exported basis as an excess or surplus lines insurer in at least one state
other than its state of domicile
The revisions to Part A and Part B of the general accreditation standards will be effective 1 January 2017.
The F Committee also received an update on the status of the 2016 revisions to Model #785 related to
captive insurers and special purpose vehicles that assume business written in accordance with the
Valuation of Life Insurance Policies Model Regulation (#830) (i.e., Regulation XXX) and Actuarial
Guidelines XXXVIII—Application of the Valuation of Life Insurance Policies Model Regulation (i.e., AG 38 or
Regulation AXXX). The F Committee will consider these revisions for accreditation purposes once the
Reinsurance (E) Task Force has completed work on the XXX/AXXX Credit for Reinsurance Model
Regulation. This topic is not expected to be discussed again before the 2017 Spring National Meeting.
5 | NAIC Bulletin April 2016
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Accounting Practices and Procedures (E) Task Force
The Accounting Practices and Procedures (E) Task Force (AP&PTF) adopted the following SAPWG
actions in December 2015:
•
Revisions to the accounting for subsidiary, controlled and affiliated entities (SCAs) in SSAP No. 97,
Investments in Subsidiary, Controlled and Affiliated Entities, which incorporated an option to remove
the effect of permitted and prescribed practices in the statutory value reported for insurance SCAs
(Ref #2015-08)
•
Revisions to Appendix A-695, Synthetic Guaranteed Investment Contracts Model Regulation
(A-695), effective 1 January 2016, for changes adopted in the Synthetic Guaranteed Investment
Contracts Model Regulation (#695) (Ref #2015-44)
•
Revisions to SSAP No. 61R, Life, Deposit-Type and Accident and Health Reinsurance, to require the
following disclosures by ceding insurers with captives that engage in XXX/AXXX reserve financing
transactions within the scope of AG 48 when an RBC shortfall exists: a listing of each captive
reinsurer and the related amount of the RBC shortfall; the amount of total adjusted capital and total
RBC shortfall; a listing of each captive reinsurer with a shortfall in the required level of Primary
Security and the related amount of the shortfall; and the amount of the total shortfall in the
required level of Primary Security (Ref #2015-53)
Statutory Accounting Principles (E) Working Group
SAPWG also adopted revisions to SSAP No. 107, Risk Sharing Provisions of the Affordable Care Act, to
require disclosure in the quarterly and annual statement blank of information in the risk corridor
rollforward by program benefit year (Ref #2015-54). These revisions also require additional information
to be presented for risk corridor asset and liability balances and subsequent adjustments to those
balances by program benefit year. The disclosure is effective for reporting in the first quarter of 2016.
SAPWG adopted Interpretation 2016-01, ACA Section 9010 Assessment 2017 Moratorium, as an
interpretation of SSAP No. 106, Affordable Care Act Section 9010 Assessment, to clarify the application
of statutory accounting guidance for the moratorium imposed on the payment of the health insurance
provider fee for calendar year 2017 (Ref #2016-01). The interpretation clarifies that a reporting entity
will need to accrue a liability on 1 January 2016, for the fee to be paid in September 2016, but that
monthly segregation of surplus will not be required in 2016 (or liability accrued on 1 January 2017)
since no fee is required to be paid in 2017 based on net written premiums for the 2016 data year.
SAPWG adopted revisions to SSAP No. 1, Accounting Policies, Risks & Uncertainties, and Other
Disclosures, to clarify that the disclosure of prescribed or permitted practices should identify whether
the practice is a departure from NAIC statutory accounting practices or from a state prescribed practice
and include the financial statement reporting line(s) predominantly affected (Ref #2015-52). The
adopted guidance modifies the annual statement instructions and Appendix A-205, Illustrative Disclosure
of Differences Between NAIC Statutory Accounting Practices and Procedures and Accounting Practices
Prescribed or Permitted by the State of Domicile, to allow references to multiple SSAPs and annual
statement pages in the tabular disclosure of prescribed or permitted practices used by the reporting
entity. SAPWG also exposed clarifications to SSAP No. 1 to require disclosure of all prescribed and
permitted practices used by the reporting entity, rather than only those prescribed or permitted
practices that have a surplus or RBC effect or that result in a different statutory accounting reporting
(e.g., gross or net presentation). Comments are due by 20 May 2016.
SAPWG continued discussing its proposal to incorporate more extensive information on investments for
reporting in the quarterly statement blank (Ref #2015-27). Interested parties maintained their lack of
support for additional quarterly reporting but proposed the following alternatives that would be more
cost effective than the current proposal: hiring a consultant to help the NAIC staff aggregate the existing
investment data; expanding the time to complete the electronic-only supplemental investment
information from 30 days to 45 days; or replacing the quarterly acquisition and disposition schedules
with a full schedule of investment holdings (i.e., Schedule D). SAPWG exposed the three alternatives for
comment and asked for specific comments on which elements from Schedule D should be included for
purposes of quarterly reporting. Comments are due by 20 May 2016.
6 | NAIC Bulletin April 2016
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SAPWG also continued discussing the investment classification review project and the comments
received on the white paper prepared by BlackRock proposing an approach to calculating a proxy for the
“amortized cost” for fixed-income exchange-traded funds (ETFs) (Ref #2013-36). Based on the
feedback, SAPWG directed the NAIC staff to draft revisions to SSAP No. 26, Bonds, to incorporate
measurement changes for bond-approved ETFs and bond mutual funds. The changes would give the
reporting entity the option to report these investments at fair value with the ability to use net asset value
(NAV) as a practical expedient for fair value, or at “amortized cost” through the use of a documented
approach for calculating a proxy for “amortized cost” (such as the calculation proposed by BlackRock).
The accounting policy will be elected at the CUSIP level. Comments are due by 20 May 2016.
SAPWG reexposed revisions to SSAP No. 3, Accounting Changes and Corrections of Errors, to clarify that
the guidance in SSAP No. 3 pertains to accounting errors and should not preclude insurers from
amending their annual or quarterly statement blank filings due to reporting errors (Ref #2015-46).
Interested parties indicated that non-corrected errors affecting the quality of NAIC data could be
corrected in the NAIC database, and that refiling of financial information should continue to be on a
case-by-case basis at the discretion of the domiciliary regulator. Comments are due by 20 May 2016.
SAPWG discussed its 2016 charge from the E Committee to develop and adopt changes to SSAP No. 86,
Derivatives, with an effective date of 1 January 2017, or earlier, to allow hedge accounting treatment
under SSAP No. 86 for certain limited derivative contracts used to hedge variable annuity risks that
otherwise do not meet hedge effectiveness requirements (Ref #2016-03). The NAIC staff developed an
agenda item to provide SAPWG with information on (1) an industry proposal to allow “effective” hedge
accounting for guarantees under variable annuity contracts subject to interest rate risk; (2) existing
guidance under statutory accounting principles and US GAAP; and (3) a possible approach to consider
for these specific derivative contracts. SAPWG exposed a request for comment on concepts for a
“special accounting provision” and other elements that should be considered for certain limited
derivatives related to variable annuity products that do not meet hedge effectiveness requirements.
Comments are due by 5 June 2016.
Appendix A in this publication summarizes the actions taken by SAPWG since the 2015 Fall National Meeting.
Restricted Assets (E) Subgroup
The Subgroup exposed revised disclosure templates for repurchase and reverse repurchase transactions
that incorporate the comments received from the ACLI. The Subgroup also exposed proposed revisions
to SSAP No. 103, Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to
update the disclosure requirements for these transactions for consistency with the disclosure templates
being considered by the Subgroup. The proposed revisions to SSAP No. 103 would also expand the
information to be reported on Schedule DL in the annual statement blank to include repurchase
agreements, with subcategories to identify collateral held under the different programs. Comments are
due by 29 April 2016.
Blanks (E) Working Group
Appendix B in this publication summarizes the actions taken by the BWG at the 2016 Spring National Meeting.
Life Insurance and Annuities (A) Committee
The A Committee disbanded the Contingent Deferred Annuity (A) Working Group as it had completed its
charges.
Life Actuarial (A) Task Force
LATF adopted the proposal from the IUL Illustration (A) Subgroup to amend the requirements of
Actuarial Guideline XLIX — The Application of the Life Illustrations Model Regulation to Policies with
Index-Based Interest (AG 49) to better address policy designs with dual accounts. LATF also considered
whether to make AG 49 applicable to in-force illustrations for policies issued prior to the initial effective
date of AG 49, but it decided to further discuss the issue at a future meeting.
7 | NAIC Bulletin April 2016
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LATF received an update from the Joint C-3 Phase II/ AG 43 (A/E) Subgroup on the work being done by
the Variable Annuity Issues (E) Working Group as part of the Variable Annuities — Framework for Change
initiative to consider potential changes to the NAIC statutory framework for variable annuities
(i.e., reserve requirements, capital requirements and hedge accounting guidance). Oliver Wyman will
perform a quantitative impact study using data from 15 volunteer companies. The study is expected to
be completed by July 2016. The Working Group anticipates holding an extended public session before
the 2016 Summer National Meeting to provide an update.
LATF appointed a subgroup to consider longevity risk issues and provide recommendations for
recognizing longevity risk in statutory reserves and/or through a separate charge in the Life RBC
formula, as appropriate. This subgroup will report jointly to LATF and the Life RBC (E) Working Group.
Unclaimed Life Insurance Benefits (A) Working Group
The Unclaimed Benefits Model Drafting (A) Subgroup discussed the comments received on the exposed
draft of the Unclaimed Life Insurance and Annuities Model Act. This new model act is intended to
establish a uniform process for life insurance companies to identify deceased insured individuals and
perform meaningful searches for beneficiaries entitled to receive unclaimed life insurance (i.e., death)
benefits. Based on the feedback received, the Subgroup has identified various revisions to the standards
included in the initial draft of the new model act, with the potential for additional ones. This item is
expected to be discussed further on interim conference calls to be scheduled by the Subgroup.
Health Insurance and Managed Care (B) Committee
The B Committee adopted the request from the Health Actuarial (B) Task Force (HATF) for a model law
development extension to prepare amendments to the Health Insurance Reserves Model Regulation
(#10) that incorporate the 2013 Individual Disability Income Valuation Table (2013 IDI Table) and
reference new standards for the valuation of long-term care insurance liabilities. The adoption of the
2013 IDI Table in Model #10 will also be referenced in VM-25, Health Insurance Reserves Minimum
Reserve Requirements, as a health insurance reserving standard applicable to claims incurred and
policies issued after the operative date of the Valuation Manual.
The B Committee formally established the Co-Op Solvency and Receivership (B) Subgroup to provide a
forum for state insurance regulators to discuss and share information on the status of the
consumer-oriented and operated plans (i.e., Co-Ops) created under the Affordable Care Act.
Health Actuarial (B) Task Force
HATF received a briefing from representatives of the Center for Consumer Information and Insurance
Oversight on the topics in their discussion paper about the HHS-Operated Risk Adjustment Methodology
Meeting on 31 March 2016. The paper identifies potential modifications to the risk adjustment program
methodology for future years. Comments on the paper are due by 22 April 2016. The paper can be
accessed at the following link:
https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/RA-March-31White-Paper-032416.pdf
Property and Casualty Insurance (C) Committee
The C Committee adopted a revised proposal to collect data on private flood insurance policies, including
primary, excess and creditor-placed flood insurance, separately from those policies issued as part of the
National Flood Insurance Program (NFIP). The data collected will allow regulators to analyze the entire
spectrum of the flood insurance market and provide useful information to regulators and policymakers
when evaluating potential reforms needed to improve the operation of the NFIP. The US Congress is
scheduled to reauthorize the program in September 2017.
The adopted proposal was submitted to the BWG for consideration to incorporate the data collection
request in the 2016 Property & Casualty (P&C) annual statement instructions.
The C Committee also adopted the request from the Creditor-Placed Insurance Model Act Review (C)
Working Group for a model law development extension to complete their review of the Creditor-Placed
Insurance Model Act (#375) and determine whether it should be retained as a model law, amended,
converted to a guideline or archived.
8 | NAIC Bulletin April 2016
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Casualty Actuarial and Statistical (C) Task Force
The Task Force adopted substantive changes to the 2016 P&C Statement of Actuarial Opinion and
related instructions, which include:
•
Adding language to clarify that it is only necessary to inform the domiciliary insurance commissioner
about the appointment of an actuary after the initial appointment
•
Adding definitions for “appointed actuary” and “board of directors”
•
Adding language to clarify the ability of the actuary to rely on another actuary’s work product
•
Reorganizing the paragraph on the risk of material adverse deviation to place more emphasis on the
need for the actuary to identify company-specific risk factors
•
Requiring an explanation from the actuary for material differences on the Schedule P analysis
•
Requiring an explanation from the actuary about changes in the actuarial estimate of reserves on
both a net and gross basis
•
Requiring the actuary to sign the actuarial report and indicate the date of completion
The adopted changes were submitted to the BWG for consideration to incorporate the revisions in the
2016 P&C annual statement instructions.
Climate Change and Global Warming (C) Working Group
The Working Group heard an update from Dave Jones, Commissioner of the California Department of
Insurance, on his climate risk carbon initiative. Commissioner Jones has asked insurers that write business
in California to voluntarily divest from investments in companies that derive 30% or more of their revenue
from thermal coal. The California Department of Insurance is conducting an annual data call to be initiated
in April 2016 requiring insurers licensed in California and writing more than $100 million in national
premium to disclose all of their investments in entities that derive 50% or more of their revenue from
fossil fuels. Insurers subject to the data call will have 60 days from its initiation to submit their data.
Financial Condition (E) Committee
The E Committee adopted a new charge to address the potential effect of a covered agreement that will
be negotiated between the US Department of the Treasury and the Office of the US Trade
Representative with the European Union (EU). The US Treasury is seeking an agreement to (1) obtain
permanent “equivalent” treatment under Solvency II for US based insurers and reinsurers, (2) obtain
recognition of the US integrated approach for supervising insurance groups, (3) facilitate the exchange
of confidential supervisory information between jurisdictions and (4) afford EU-based reinsurers national
uniformity in the US regarding credit for reinsurance and related collateral requirements. These
negotiations will occur at the federal level and won’t be open and transparent to all state insurance
regulators. However, the NAIC will attempt to remain proactively involved in the discussions.
The E Committee requested that the Valuation of Securities (E) Task Force (VOSTF) review the
Derivatives Instrument Model Regulation (#282) as part of the NAIC model law review process, since
Model #282 has only been adopted by 13 states. VOSTF determined that Model #282 should be retained
in its current form since the states that have adopted the model regulation represent the majority
(i.e., 96%) of the notional value of US insurer derivative exposures. The E Committee adopted the VOSTF
recommendation to retain Model #282 as a national standard.
The E Committee reviewed an NAIC assignment plan developed by the International Insurance Relations
(G) Committee for select US Financial Sector Assessment Program (FSAP) recommendations. These
recommendations focus on insurance supervision and include: stress testing, risk management and
internal controls, supervisory review and reporting and group-wide supervision. The E Committee
authorized referral letters to be sent to the applicable NAIC task forces and working groups to review the
recommendations and determine if any follow-up actions are necessary.
9 | NAIC Bulletin April 2016
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The E Committee adopted two requests for model law development extensions. The Mortgage Guaranty
Insurance (E) Working Group requested an extension to complete the revisions to the Mortgage Guaranty
Insurance Model Act (#630), because additional time is needed to develop the proposed changes to Model
#630 along with a new RBC requirement for this type of business. The Reinsurance (E) Task Force requested
an extension to complete the drafting of the new XXX/AXXX Credit for Reinsurance Model Regulation.
The E Committee disbanded the Separate Account Risk (E) Working Group and the Invested Assets (E)
Working Group since they had completed their charges.
Capital Adequacy (E) Task Force
Appendix C in this publication summarizes the actions taken since the 2015 Fall National Meeting by the
Task Force and the various NAIC groups that report to it.
Investment RBC (E) Working Group
The Working Group exposed a document that outlines the guiding principles and plan to move forward on
its project to update the asset factors currently used in each of the RBC formulas. Comments are due by
19 May 2016.
Key principles identified by the Working Group in this document include:
•
Asset factors for bonds and common stock will be analyzed concurrently for the different statement
types (e.g., Life, Health and P&C).
•
Asset factors should be the same across statement types or the differences supported by analysis of
underlying data. For example, the preliminary recommendation for common stock would be to
increase the factor used in the Health and P&C RBC formulas from 15% to 19.5% to be consistent
with the factor used in the Life RBC formula after being tax adjusted.
•
For RBC purposes, NAIC bond designations should be expanded from six to 20, with the application
of bond factors based on the analysis performed by the AAA on the C1 corporate bond factors used
in the Life RBC formula. For statutory accounting and regulatory (i.e., state law) purposes, the
current system of six designations would not be changed.
•
Potential revisions to the RBC charges for other types of investments (i.e., municipal and sovereign
debt, real estate, commercial mortgages and affiliated investments) will be considered after the
revised RBC charges for bonds and common stock have been implemented.
After the Working Group reviews and processes the feedback, it will refer the document to the Capital
Adequacy (E) Task Force for approval. The Working Group has indicated its goal to have the updated
bond and common stock factors adopted for use in each of the RBC formulas by the end of 2017.
Group Capital Calculation (E) Working Group
The Working Group held its initial meeting to discuss the development of a US group capital calculation
using an RBC aggregation methodology. The calculation will be applicable to US-domiciled insurance
groups and provide information intended to enhance the ability of state insurance regulators to monitor
insurer solvency at the group level. A timetable has not been established for the regulators to complete
their work and incorporate the calculation into the NAIC solvency framework.
The Working Group heard a presentation from insurance trade associations on a potential approach to
the development of a US group capital calculation that would measure the capital adequacy of the group
based on existing statutory requirements for regulatory capital. The proposed approach has five guiding
principles that would provide for the development of a group-wide solvency ratio by aggregating the
available and required capital across legal entities and calibrating these requirements across statutory
regimes to produce comparable measures of risks. Key items to be addressed include:
10 | NAIC Bulletin April 2016
•
The potential application of an exemption threshold for small insurance groups, which currently
exists in other regulatory filings (e.g., Own Risk and Solvency Assessment)
•
The appropriate framework to measure risks for non-insurance entities that are not subject to
existing statutory requirements for regulatory capital at the legal-entity level
•
The mechanism to capture risks (i.e., operational risk, catastrophe risk for P&C insurance and longevity
risk for life insurance) that are not covered by the respective RBC formulas, with consideration for
the work currently being performed by the NAIC to develop an RBC risk charge in these areas
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The Working Group also will consider the ongoing work of both the Federal Reserve Board to develop a
US capital standard for domestic insurance groups subject to its authority and the International
Association of Insurance Supervisors (IAIS) to develop a global insurance capital standard (ICS) for
internationally active insurance groups in their development of a US group capital calculation. However,
regulators confirmed that their work is not intended to establish a US group capital requirement or result
in an NAIC standard that would give the insurance commissioner authority to act if the calculation
indicates potential solvency issues at the group level.
Group Solvency Issues (E) Working Group
The Working Group discussed the comments received on the survey questions for state insurance
regulators to evaluate the use and effectiveness of the Enterprise Risk Report (Form F) filed by members
of an insurance group. The survey asks regulators to consider whether insurance groups are providing
valuable information on enterprise risks, including those emerging from non-insurance operations. The
survey also requests feedback from regulators on the definition of enterprise risk provided in the 2010
revisions to the Insurance Holding Company System Regulatory Act (#440), as well as feedback on which
examples of enterprise risk provided in the Insurance Holding Company System Model Regulation (#450)
are most valuable, and whether additional examples should be developed.
The Working Group approved changes to a number of survey questions, including the addition of a
question intended to identify any overlap existing between the Form F and ORSA reporting process (for
those states that have adopted both regulations). Any redundancies identified in the information
provided will be subsequently addressed through potential revisions to the related filing requirements.
The Working Group adopted the survey and requested that state insurance regulators provide responses
by 20 May 2016.
Reinsurance (E) Task Force
The Task Force exposed revisions to the Uniform Application Checklist for Certified Reinsurers to address the
timeliness of issued financial strength ratings, the appropriate disclosure of material International Financial
Reporting Standards (IFRS) to GAAP adjustments, a notation regarding the funding of trust accounts and
the jurisdictional requirements regarding actuarial reporting. Comments are due by 6 May 2016.
The Task Force adopted a proposal from the VOSTF to expand the NAIC Bank List to include eligible
non-bank financial institutions that are regulated as strictly as banks. The Task Force also recommended
changes to the NAIC Bank List included in the Purposes & Procedures Manual of the Investment Analysis
Office (P&P Manual) for those non-bank financial institutions meeting the criteria established by VOSTF.
Risk-Focused Surveillance (E) Working Group
The Working Group discussed comments received on the draft framework for risk-focused analysis.
Regulators emphasized that the framework is designed to rid examiners and analysts of the “checklist
mentality” and help them focus on the key risks of an entity to improve surveillance and monitoring of
insurers. Regulators also stated their intent to reduce reporting redundancy through alignment of the
procedures in the Financial Analysis Handbook and the Financial Condition Examiners Handbook.
The Working Group referred a request (along with comments received from Texas and Connecticut) to
the Financial Analysis Handbook (E) Working Group for the development of risk-focused modifications to
the financial analysis process included in the Financial Analysis Handbook. The Financial Analysis
Handbook (E) Working Group also will consider whether to develop instructions that provide analysts
with clear guidance for documentation expectations and supervisory review processes.
The Working Group also discussed the comments received from interested parties on examinations of
single-state domestic insurers within an insurance group that are not performed on a risk-focused basis
or in accordance with the Financial Condition Examiners Handbook. Concerns were raised about the
potential variability in the procedures to be performed since a risk-focused approach is not taken. The
Working Group referred these comments to the Financial Examiners Coordination (E) Working Group for
further consideration.
The Working Group exposed draft financial analysis planning guidance that outlines the steps for
obtaining information necessary to understand the insurer and suggests topics on which regulatory
filings and public sources of information may not be sufficient for an analyst to develop an adequate
understanding of the entity. Comments are due by 3 June 2016.
11 | NAIC Bulletin April 2016
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Valuation of Securities (E) Task Force
VOSTF heard a final presentation from the Investment Analysis Office (IAO) and Securities Valuation
Office (SVO) addressing exceptions on the jumpstart exception report (i.e., the population of securities
reported by insurance companies that possibly should have been filed with the IAO). The SVO was able to
categorize and identify the main issues for these securities, with the largest category being private letter
rating securities. VOSTF exposed the report and asked the SVO and industry representatives to work
through the recommendations provided to correct the issue. Comments are due by 4 May 2016
VOSTF adopted the SVO’s recommendation to permit non-bank financial institutions to apply as letter of
credit issuers and be included in the NAIC Bank List. The recommendation included broadening the
methods used to define an acceptable credit rating based on non-bank financial institutions being
regulated as strictly as banks. VOSTF subsequently referred this recommendation to the Reinsurance (E)
Task Force.
VOSTF acted on several proposals for changes to the P&P Manual that resulted from actions taken by
SAPWG, including:
•
Agreeing to delete the filing instructions for subsidiary, controlled and affiliated (SCA) entities from
the P&P Manual once SAPWG has finalized the transfer of the filing information into SSAP No. 97
•
Agreeing to move guidance on surplus notes from the Accounting Practices and Procedures Manual
(AP&P Manual) to the P&P Manual and provide instructions for the conversion of credit rating
provider (CRP) ratings to NAIC designations for surplus notes
•
Exposing an amendment to explain the relationship between the AP&P Manual and P&P Manual
(comments are due by 22 May 2016)
•
Exposing a request from IAO staff to propose a definition for “loan-backed and structured
securities” to be included in the P&P Manual, which was considered necessary due to questions that
have been raised by interested parties as a result of the changes to SSAP No. 43R, Loan-backed and
Structured Securities, adopted in 2010 (comments are due by 3 June 2016)
VOSTF also acted on several proposals to amend the P&P Manual, including:
•
Adopting an amendment to include Italian GAAP as a National Financial Presentation Standard,
which will allow insurers to file securities with the IAO that have audited financial statements
prepared on this basis of accounting without including a reconciliation to US GAAP or IFRS
•
Adopting an amendment to eliminate references to the Class 1 money market fund instructions
effective 30 September 2016, to reflect the new Securities and Exchange Commission rules that no
longer allow money market funds to report a stable NAV and instead will require them to report a
floating NAV (the statutory accounting treatment for money market funds will likely change as a
result of this regulation)
•
Exposing an amendment to provide detailed information on the definitions, documentations standards,
methodology and criteria for loans under NAIC guidance (comments are due by 22 May 2016)
•
Exposing an amendment that would eliminate a requirement for public meetings to be held as part
of the assumption setting phase of the financial modeling methodology (i.e., determining
assumptions for RMBS and CMBS) since the IAO staff indicated that insurers already understand the
methodology and process (comments are due by 22 April 2016)
Variable Annuities Issues (E) Working Group
The Working Group discussed the comments received on its proposal for potential improvements to the
information reported for variable and fixed annuities in the annual statement blank. The proposal would
require disclosure of more meaningful information about contractually guaranteed obligations, including
key assumptions (i.e., interest rates, lapse rates, volatility and benefit utilization) that may have a
material effect on the valuation of the related liability.
The proposal also recommended the development of a new exhibit to the annual statement blank that
would include the amount of the annual income benefit to be paid by the insurer if all policyholders
elected to receive their benefits on the valuation date or at subsequent five-year intervals to the
valuation date. These improvements are intended to provide more transparency and insight on how
these obligations could change over time and the ability of the insurer to manage its obligations.
12 | NAIC Bulletin April 2016
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The feedback provided identified potential issues with the inclusion of fixed annuities in the overall scope of
the proposed requirements and the need to develop guidance that will ensure the disclosure calculations result
in a consistent and useful comparison of information across insurers. Concerns were also raised about
whether the proposed requirements in their current form are consistent with the objectives of annual
statement financial reporting and whether it would be appropriate for the information to be disclosed publicly.
The Working Group intends to address these concerns in a revised proposal that will be presented for
discussion on an interim conference call on 25 April 2016. It is anticipated that the final reporting
requirements would not be effective until 31 December 2017.
Financial Regulation Standards and Accreditation (F) Committee
The F Committee adopted the certified reinsurer provisions from Model #785 and the related Credit for
Reinsurance Model Regulation (#786) as an accreditation requirement with the following clarifications:
•
Insurers are subject to a notification requirement regarding concentration risk under Section 2J of
Model #785.
•
A deferral period is permitted for posting security (i.e., collateral) applicable to catastrophe loss
recoverables under Section 8A (4) of Model #786.
•
A state is permitted to defer to the certification and rating of a reinsurer by another NAIC accredited
jurisdiction (i.e., “passporting”) under Section 8D of Model #786.
The certified reinsurer provisions are currently optional under Part A: Laws and Regulations
Accreditation Preamble of the general accreditation standards, but they will become mandatory as of
1 January 2019.
The F Committee exposed a recommendation from the Risk Retention Group (E) Task Force to revise
the Review Team Guidelines Part B1: Financial Analysis section of the general accreditation standards
to ensure that the procedures specific to RRGs organized as captive insurers would also apply to RRGs
organized under a state’s P&C insurance statutes. Comments are due by 5 May 2016.
International Insurance Relations (G) Committee
The G Committee continued discussing the development of the global ICS, which is projected to be
adopted by 2019, along with the potential effect of IAIS activities on the US system of state-based
insurance regulation. Specific updates were provided on the work of the IAIS in the following areas:
13 | NAIC Bulletin April 2016
•
Standard setting activities — Field testing of the IAIS Common Framework for the Supervision of
Internationally Active Insurance Groups (ComFrame) will continue in 2016 with a focus on
discounting, capital resources and the related calibration of risk charges for use in the global ICS.
In addition, certain modules of ComFrame and revisions to the IAIS Insurance Core Principles (ICPs)
will be released for public consultation.
•
Financial stability — The fourth assessment of the methodology to determine globally systemically
important insurers (G-SIIs) will begin in April 2016. The IAIS is expected to provide input on the
definition of non-traditional, non-insurance activities used in the G-SII methodology and whether loss
absorbing capacity is a necessary capital requirement for the orderly resolution of G-SIIs in addition
to the other regulatory requirements that currently exist for insurance entities.
•
Implementation — The IAIS will perform self-assessment reviews for market conduct, solvency and
reinsurance in 2016. The IAIS is developing its own views on the application of ICPs separate from
the FSAP conducted by the International Monetary Fund.
•
Stakeholder engagement — The NAIC has been monitoring the new IAIS stakeholder procedures
implemented in 2015 to assess how they work in practice and whether the IAIS is delivering the
appropriate level of transparency, communication and ability for stakeholder engagement.
Interested parties provided their feedback to the G Committee on how IAIS stakeholder participation
could best be structured and made various recommendations for improved coordination of IAIS
stakeholder events and better overall communication between the IAIS and stakeholders.
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The G Committee also approved the comments submitted on behalf of the NAIC to the Federal Reserve
Board on its consultative document for Developing Effective Resolution Strategies and Plans for
Systemically Important Insurers and to the IAIS on its consultative documents for Non-Traditional
Non-Insurance Activities and Products and Globally Systemically Important Insurers Proposed Updated
Assessment Methodology.
ComFrame Development and Analysis (G) Working Group
The Working Group heard a presentation on the discounting and margin over current estimates (MOCE)
components of the IAIS ComFrame field testing. Two valuation approaches for discounting have been
identified for consideration in the development of the global ICS: the market adjusted valuation approach
based on Solvency II principles and the GAAP plus approach based on the discounting method applicable
to the underlying jurisdictional GAAP. Issues to be addressed by the IAIS for discounting include the
approach to liability bucketing (for different degrees of liquidity), the approach to portfolio selection (for
spreads) and the method for the spread adjustment for default risk.
MOCE is a concept referenced in ICP 14, Valuation, that is intended to provide a layer of conservatism
(i.e., margin) for liabilities in excess of current estimates based on expected values. Insurance
supervisors in general favor the use of Consistent and Comparable MOCE (C-MOCE) in the development
of the global ICS. C-MOCE uses consistent current estimates and consistent MOCE to produce
comparable overall liabilities. Two approaches exist to formulate C-MOCE: the own fulfillment approach
and the transfer value approach, which is typically computed using the cost of capital method. Issues to
be addressed by the IAIS for MOCE include the determination of whether margins and capital
requirements should be complimentary (i.e., non-duplicative) or independently computed and whether
the cost of capital methodology that was field tested in 2015 continues to be appropriate.
Stay tuned
The 2016 Summer National Meeting is scheduled for 26–29 August 2016, in San Diego. Conference
calls or other meetings will be held before then, and a list of these meetings can be found at
http://naic.org/meetings_calendar.htm.
EY | Assurance | Tax | Transactions | Advisory
© 2016 Ernst & Young LLP.
All Rights Reserved.
SCORE No. 00670-161US
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14 | NAIC Bulletin April 2016
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Appendix A — Statutory Accounting Principles Working Group
This chart summarizes actions taken by the SAPWG at the Spring National Meeting and in interim conference calls since the 2015 Fall
National Meeting. Comments on exposed items are due by 20 May 2016, unless otherwise noted. More information is available at
http://www.naic.org/committees_e_app_sapwg.htm.
Topic/issue
Status
Substantive listing
Discussion
Effective date
1
SSAP No. 41 —
Surplus Notes
Holders of Surplus
Notes
(Ref #2014-25)
Adopted
Adopted revisions to change the measurement guidance of surplus notes. These
revisions provide that if the capital or surplus note has been rated by an NAIC
credit rating provider (CRP) with a designation equivalent of NAIC 1 or NAIC 2, it
must be reported at amortized cost. If the capital or surplus note is not CRP rated
or has an NAIC designation equivalent of NAIC 3 through NAIC 6, the balance
sheet amount must be reported at the lesser of amortized cost or fair value, with
fluctuations in fair value reflected as unrealized valuation changes. Related Issue
Paper No. 151, Valuation for Holders of Surplus Notes, was also adopted.
Annual 2016
Issue Paper
No. 152 —
Short Sales
(Ref #2015-02)
Reexposed
SAPWG concurrently exposed a revised Issue Paper No. 152, Short Sales and
Revisions to SSAP No. 103. The issue paper introduces accounting guidance in
SSAP No. 103 for short sales and guidance for secured borrowing transactions
when the insurer is the transferee.
TBD
SSAP No. 51 —
Life Contracts PBR
Reserving
(Ref #2015-47)
Exposed
Exposed revisions to SSAP No. 51, Life Contracts, as reflected in Exhibit A. The
proposal would revise the life insurance guidance to incorporate references to the
Valuation Manual and to facilitate the implementation of PBR.
TBD
SSAP No. 22 —
Leases
(Ref #2016-02)
Exposed
Exposed proposal to review Accounting Standards Update (ASU) 2016-02,
Leases; specifically, the accounting of operating and financing leases under SAP.
Requesting comments on different statutory accounting options for leases.
TBD
SSAP No. 86 —
Derivatives
Variable Annuities
(Ref #2016-03)
Exposed
Exposed changes to SSAP No. 86, Derivatives, to request comments on concepts
for a “special accounting provision” drafted in response to the charge to consider
“hedge accounting treatment” for certain limited derivatives related to variable
annuity products that do not meet hedge effectiveness requirements. Comments
are due by 5 June 2016.
TBD
Nonsubstantive listing2
1
2
SSAP No. 26 —
Investment
Classification
Review
(Ref #2013-36)
Reexposed
Proposed revisions include a proposal to use fair value (e.g., using NAV as a
practical expedient) with an option of a documented approach as a proxy for
“amortized cost.” The revisions would separately identify these investments
within SSAP No. 26 as being outside of the standard “bond” definition and refer to
the measurement method so that it is clear it is not an “amortized cost”.
TBD
Issue Paper
No. 153 —
Counterparty
Reporting
Exception for
Asbestos and
Pollution Contracts
(Ref #2014-28)
Adopted
Adopted Issue Paper No. 153, Counterparty Reporting Exception for Asbestos and
Pollution Contracts in SSAP No. 62R, which is intended to provide historical
documentation of changes adopted for certain asbestos and pollution reinsurance
contracts. The issue paper includes accounting guidance on reductions to the
provision for reinsurance liability and related disclosures.
Immediately
SSAP No. 26 —
Prepayment
Penalties and
Presentation of
Callable Bonds
(Ref #2015-23)
Reexposed
Exposed amendments to SSAP No. 26 and SSAP No. 43 to add a new disclosure,
as well as clarifying guidance, on the appropriate reporting of prepayment
penalties; specifically, the amount of investment income and/or realized capital
gain/losses to be reported upon disposal of an investment.
TBD
Substantive revisions are those that modify the statutory intent of an SSAP or create new statutory accounting principles.
Non-substantive revisions are those that do not modify the statutory intent of an SSAP.
15 | NAIC Bulletin April 2016
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Topic/issue
Status
Discussion
Effective date
Nonsubstantive listing (continued)
2
ASU 2015-09:
Financial
Services —
Insurance,
Disclosures about
Short-Duration
Contracts
(Ref #2015-37)
Deferred
Deferred consideration of the requirements of ASU 2015-09, Financial Services —
Insurance, Disclosures about Short-Duration Contracts, since the industry has
formed a group to review the applicability of the ASU for statutory accounting.
SAPWG is waiting for the industry to submit comments on the US GAAP
disclosures for short-duration insurance contracts before proceeding.
TBD
SSAP No. 97 —
Nonadmitted
Assets and
Application of the
SAP Guidance
(Ref #2015-08)
Adopted
Adopted clarifications for accounting for SCAs and added disclosures of permitted
or prescribed practices for insurance SCAs. Also clarifies adjustments for
noninsurance SCAs meeting the revenue and activity test.
Annual 2015
SSAP No. 26 and
SSAP No. 43R —
Measurement
Method for NAIC 5
Designations
(Ref #2015-17)
Deferred
Deferred revisions to require Asset Valuation Reserve (AVR) filer investments
designated as an NAIC 5 to be reported at the lower of amortized cost or fair value
until Ref # 2015-41 on NAIC 5* Securities is complete.
TBD
SSAP No. 1 —
Quarterly
Reporting of
Restricted Assets
(Ref #2015-19)
Adopted
Adopted revisions to clarify that disclosure of restricted assets must be included in
the annual financial statements and in the interim financial statements if
significant changes have occurred since the annual statement.
Immediately
SSAP No. 55 —
Unpaid Claims,
Losses and Loss
Adjustment
Expenses
Clarification of
Accounting
Treatment for Fees
Incurred for
Salvage/
Subrogation
Recoveries
(Ref #2015-21)
Reexposed
Reexposed the proposed revisions to SSAP No. 55, Unpaid Claims, Losses and
Loss Adjustment Expense, to consider interested parties’ comments. Additionally,
the NAIC staff was directed to prepare a blanks proposal to add additional
instruction in the annual statement Insurance Expense exhibit. SAPWG requests
comments on whether explicit netting of subrogation recovery expenses is
supported by regulators and the industry.
TBD
SSAP No. 86
Appendix D —
FAS 133 EITFs
(Ref #2015-22)
Further analysis
necessary
Directed the NAIC staff to note specified Financial Accounting Standard (FAS) 133
Emerging Issues Task Force issuances as pending in Appendix D and to prepare
subsequent agenda items for review and consideration.
TBD
SSAP No. 97 —
Investments in
Subsidiary,
Controlled and
Affiliated Entitles
(SCAs) Inclusion of
Filing Guidance
(Ref #2015-25)
Reexposed
Reexposed a new appendix to SSAP No. 97 detailing the SCA reporting and filing
process. With the reexposure, the NAIC staff has incorporated revisions to clarify
that SCA entities, with an equity interest, are subject to the filing guidance. As
joint ventures, partnerships and limited liability companies are accounted for
under SSAP No. 48, the revisions clarify that those investments are not subject to
the SCA filing guidance. Additionally, there are no current exclusions to the equity
interest SCA filing requirements in the P&P Manual except for domestic SCA
insurance company investments.
TBD
Quarterly
Reporting of
Investment
Schedules
(Ref #2015-27)
Reexposed
Exposed alternatives for quarterly investment reporting, including: (1) hiring a
consultant to aggregate NAIC investment data; (2) expanding time to complete
electronic-only supplemental investment information; and (3) replacing quarterly
acquisition and disposition schedules with a schedule of owned holdings.
TBD
Aging and Revenue
Recognition of
Multi-Peril Crop
Policies
(Ref #2015-33)
Further analysis
necessary
Directed NAIC staff to work with interested parties, regulators and key stakeholders
to develop recommendations for updating SSAP No. 78, Multiple Peril Crop
Insurance, regarding (1) the use of the billing date for application of the 90-day rule,
(2) defining the processing date or updating the term, (3) providing more specificity
regarding the period of risk for purposes of earning revenue and (4) developing a
glossary of terms.
TBD
16 | NAIC Bulletin April 2016
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Topic/issue
Status
Discussion
Effective date
Nonsubstantive listing2 (continued)
SSAP No. 26 —
5*/6* Securities
(Ref #2015-41)
Reexposed
Exposed revisions proposing disclosures to capture current and prior-period
information on the number of 5* securities and the book adjusted carrying value
and fair value for those securities. For non-AVR filers, the disclosure should also
capture details on the securities that are reported at amortized cost and those
that are reported at fair value. The SAPWG also directed the NAIC staff to respond
to the VOSTF referral noting the disclosure.
TBD
SSAP No. 86 —
EITF 99-02:
Accounting for
Weather
Derivatives
(Ref #2015-43)
Reexposed
Exposed the GAAP language from Accounting Standards Codification 815-45-15-2,
with illustration, to clarify that the guidance on weather derivatives does not apply to
insurance contracts that entitle the holder to be compensated only if, as a result of
an insurable event, the holder incurs a liability or there is an adverse change in the
value of a specific asset or liability for which the holder is at risk.
TBD
SSAP No. 26 —
ETF Reporting in
Investment
Schedules
(Ref #2015-45)
Adopted
Adopted a proposal to incorporate a category on Schedule D-1 to report SVO
bond-designated ETFs and bond mutual funds.
Immediately
SSAP No. 3 —
Correction of an
error in
SSAP No. 3
(Ref #2015-46)
Reexposed
Exposed a clarification that the guidance in SSAP No. 3 pertains to accounting
errors and should not preclude companies from amending their annual or
quarterly financial statement filings due to reporting errors. The exposure
includes interested parties’ comments and the draft NAIC staff responses.
TBD
Appendix D: EITF
98-12: Application
of Issue 00-19 to
Forward Equity
Sales Transactions
(Ref #2015-48)
Adopted
Adopted revisions to change the status of EITF 98-12 to cite the review of FAS 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities
and Equity.
Immediately
SSAP No. 97 —
Explicitly Excluding
ETFs from SCA
Guidance
(Ref #2015-49)
Adopted
Adopted revisions to clarify that ownership of an exchange-traded fund (ETF) or a
mutual fund does not represent ownership in an underlying entity within the scope
of SSAP No. 97, unless ownership of the ETF actually results in “control” of an
underlying company.
Immediately
SSAP No. 86 —
Derivatives
Notional Principal
(Ref #2015-51)
Reexposed
Exposed a proposed definition of “notional principal” based on the Commodity
Futures Trading Commission definition for inclusion in SSAP No. 86 and in the
annual statement instructions. The SAPWG requested input from interested
parties with derivative experience in reviewing the proposed definition, and the
impact to SSAPs and reporting instructions.
TBD
SSAP No. 1 —
Clarification of
Permitted Practice
Disclosure
(Ref #2015-52)
Adopted/Reexpo
sed
Adopted revisions to clarify the reporting requirements for permitted and
prescribed practices. The adopted revisions include changes to SSAP No. 1 and
changes to the A-2015 annual statement illustrations to allow references to
multiple SSAPs and annual statement pages if the permitted/prescribed practices
affect more than one SSAP or annual statement page.
The SAPWG reexposed part of the agenda item related clarifications to the
disclosure requirements for prescribed or permitted practices, identifying that
disclosure should occur for practices that affect statutory surplus or RBC or that
result in a different statutory accounting reporting (i.e., gross or net reporting).
Immediately/TBD
SSAP No. 61R —
Disclosure of
XXX/AXXX
Reinsurance
Framework Impact
on RBC
(Ref #2015-53)
Adopted
Adopted a narrative disclosure for year-end 2015 to capture the effect on RBC for
any shortfalls in Primary Security.
Annual 2015
SSAP No. 107 —
ACA Risk Corridor
Disclosures
(Ref #2015-54)
Adopted
Adopted revisions to expand the Affordable Care Act (ACA) risk corridors program
rollforward disclosures to include recoverables by program benefit year and to
also require additional information to improve the transparency of the recoverable
amounts; specifically, the amounts requested for the program and amounts
reported gross and net of nonadmission. Effective the first quarter 2016.
First quarter 2016
17 | NAIC Bulletin April 2016
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Topic/issue
Status
Discussion
Effective date
Nonsubstantive listing (continued)
2
Appendix A-695 —
Synthetic
Guaranteed
Investment
Contracts Model
Regulation
(Ref #2015-44)
Adopted
Adopted changes previously adopted by the A Committee to Model #695. The
proposed changes regarding interest rates do not have a proposed date in
Model #695. Effective date is 1 January 2016.
Immediately
SSAP No. 106 —
Affordable Care
Act Section 9010
Assessment:
INT 16-01
(Ref #2016-01)
Adopted
Adopted an interpretation to promote the consistent application of SSAP No. 106
accounting guidance for reporting years 2016–2018 with regard to the 2017
moratorium of the Section 9010 fee of the Affordable Care Act.
Immediately
SSAP No. 97 —
Data Captured SCA
Disclosure
(Ref #2016-04)
Exposed
Exposed a data-capture disclosure template for SSAP No. 97 for detailing the
reported value for SCAs, as well as information received after filing the SCA with
the NAIC.
TBD
Removal of the
Class 1 List from
the P&P Manual
(Ref #2016-05)
Exposed
Exposed necessary revisions to SSAP No. 26, Bonds, SSAP No. 30, Common
Stock, and SSAP No. 32, Preferred Stock, to reflect the removal of the Class 1
Money Market Mutual Fund List from the P&P Manual.
TBD
Method for
Applying Discount
Rates to Measure
Net Periodic
Benefit Cost
(Ref #2016-08)
Exposed
Exposed revisions to SSAP No. 92, Postretirement Benefits Other than Pensions,
and SSAP No. 102, Pensions. The revisions incorporate amendments to allow the
Spot Rate method for measuring service cost and interest cost components of net
periodic benefit cost.
TBD
SSAP No. 1 —
Accounting
Policies, Risks &
Uncertainties and
Other Disclosures
Collateral Received
(Ref #2016-09)
Exposed
Exposed revisions to SSAP No. 1 to add an additional disclosure requirement to
capture the aggregate total of collateral assets reported as assets on the insurer’s
financial statement and the corresponding recognized liability to return.
TBD
Changes to A-820
Standard Valuation
Law for
Principle-based
Reserving
(Ref #2016-10)
Exposed
Exposed revisions to Appendix A-820, Minimum Life and Annuity Reserve Standards,
which incorporate relevant aspects of the 2009 revisions to Model #820. The
revision would include references to the Valuation Manual in Appendix A-820 with
a 1 January 2017, effective date.
TBD
Insurance Linked
Securities (ILS) —
Disclosure Data
Capture
(Ref #2016-11)
Exposed
Exposed revisions to the annual statement instructions to include the data-capture
disclosure template for insurance-linked securities and language clarifying how
disclosure components should be completed. The proposed effective date is for
the 2016 year-end financial statements to allow for the compilation and review of
the aggregate data. After reviewing this data in 2017, the group will consider
whether to revise this proposed disclosure.
TBD
Appendix F —
Policy Statement
(Ref #2016-12)
Exposed
Exposed revisions to Appendix F, Policy Statements, which include revisions to
address voting requirements, concurrent exposures, definitions of types of
revisions, adoption of revisions, the editorial process and issue papers for
nonsubstantive revisions.
TBD
Appendix F —
Policy Statement
Coordination with
P&P Manual, SVO
and VOSTF
(Ref #2016-13)
Exposed
Exposed and identified the lack of formal guidance that outlines the coordination
and collaboration between (1) the AP&P Manual and P&P Manual, (2) the VOSTF
and SAPWG and (3) the VOSTF and SAPWG support staff. Revisions include a new
policy statement detailing coordination with the P&P Manual and the VOSTF.
TBD
18 | NAIC Bulletin April 2016
EY AccountingLink | www.ey.com/us/accountinglink
Issues rejected/exposed for rejection/disposal
Rejected as not applicable to statutory accounting:
•
ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements
(Ref #2015-40)
•
ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); and
Health and Welfare Benefit Plans (Topic 965) (Ref #2015-38)
•
ASU 2015-13, Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal
Energy Markets (Ref #2015-39)
•
ASU 2015-11, Inventory (Topic 330) — Simplifying the Measurement of Inventory (Ref #2015-42)
•
EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (Ref #2015-48)
•
EITF 99-01, Accounting for Debt Convertible into the Stock of a Consolidated Subsidiary (Ref #2015-48)
•
EITF 99-03, Application of Issue No. 96-13 to Derivative Instruments with Multiple Settlement Alternatives (Ref #2015-48)
•
EITF 00-7, Application of Issue No. 96-13 to Equity Derivative instruments that Contain Certain Provisions that Require Net Cash
Settlement if Certain Events Outside the Control of the Issuer Occur (Ref #2015-48)
•
ASU 2014-06, Technical Corrections and Improvements Related to Glossary Terms (Ref #2015-50)
Exposure to reject as not applicable to statutory accounting:
•
ASU 2016-01, Financial Instruments (Ref #2016-06)
•
ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (Ref #2016-07)
19 | NAIC Bulletin April 2016
EY AccountingLink | www.ey.com/us/accountinglink
Appendix B — Blanks Working Group
Comments on exposed items are due by 16 May 2016, unless otherwise noted. Details of current proposals can be found at
http://www.naic.org/committees_e_app_blanks.htm.
Adopted items
Frequency
Effective date
2015-25BWG: Removes the reference to “non-rated” from the Schedule D, Part 1A Section 1
(annual filing) and Part 1B (quarterly filing). Adds instructions to clarify what is meant to be
reported for cash and cash equivalents in the footnote for these schedules.
Annual & Quarterly
Annual 2016
2015-26BWG: Adds a new supplement with details of reinsurers aggregated on Schedule F,
Part 3, and conforming modifications to the existing instructions (Schedule F, Part 3 and Part 5)
and blank (Schedule F, Part 3). A disclosure Note 23J is also being added. The exposure reflects
changes adopted by SAPWG that will allow companies to aggregate asbestos and pollution
reinsurers on Schedule F, Part 3 if certain criteria identified in paragraphs 66–68 of SSAP
No. 62R are met. The new supplement is a public disclosure included in the P&C and Health blanks.
Annual
Annual 2016
Exposed Items
Frequency
Effective date
2016-01BWG: Adds columns to Schedule Y, Part 1A and Schedule D, Part 6, Section 1 to aid in
the verification that the SCAs are meeting the initial and annual NAIC filing requirements as
required by SSAP No. 97.
Annual & Quarterly
Annual 2016
2016-02BWG: Incorporates the Schedule D, Part 1 guidance adopted in December 2015 for
Annual Statement 2015 reporting into the annual statement instructions. Combines the code for
Senior Subordinated Debt and Junior Subordinated Debt into just one code (i.e., Subordinated
Debt) for the Capital Structure Column. Modifies the instructions for Schedule D, Part 1 for the
CUSIP and Description Column and adds the electronic columns for Issuer, Issue and ISIN to
these schedules for consistency across Schedule D.
Annual & Quarterly
Annual 2016
2016-03BWG: For the Title Annual Statement Instructions, adds a new paragraph in the
Actuarial Opinion, item 6.d. Reserve Development to include the ratio of 1-Year or 2-Year
Known Claims Reserve Development. Although the Known Claims Reserve has not generally
been within the scope of the Appointed Actuary’s opinion, these amounts will now show up in the
Title Insurer’s Five-Year Historical Data. The Title Insurance Financial Reporting (C) Working
Group believes it is reasonable to expect appointed actuaries to explain factors that led to
exceptional adverse outcomes.
Annual
Annual 2016
2016-04BWG: For the Title Annual Statement, amends the instructions to handle fees
associated to closing protection letters (CPL) and insured closing letters (ICL) in the Operations
and Investment Exhibit, Part 1A. States differ in their handling of fees from CPL and ICL, and this
amendment would clarify the presentation in this schedule while respecting each state’s handling
of these fees and adding clarity to the presentation of premiums when determining premium tax
collection (if applicable in that state).
Annual
Annual 2016
2016-05BWG: For the Life and Fraternal Annual Statements, clarifies the definition of XXX Life
on Schedule S, Part 3, Section 1 so it is described consistently with the instructions for the
Supplemental XXX/AXXX Reinsurance Exhibit, Part 1. Also adds a code (XXXLO — XXX Life
Other) to identify the remaining XXX business that is not included on Supplemental XXX/AXXX
Reinsurance Exhibit to assist in reasonability checks between the two schedules.
Annual
Annual 2016
2016-06BWG: Reduces the number of codes from 12 to four for the foreign code column on
Schedule D and also removes the foreign code matrix.
Annual & Quarterly
Annual 2016
2016-07BWG: Modifies the Schedule D, Part 1 Annual Statement Instructions to provide detailed
explanations of each bond characteristics code.
Annual
Annual 2016
2016-08BWG: For P&C and Health Annual Statements, adds an electronic-only column to
capture the secure code for reinsurers on Schedule F, Part 3, Part 5 and Part 6, Section 1. This
addition is meant to allow the capture of the secure code detail on Schedule F for P&C RBC credit
risks calculation in PR012A.
Annual
Annual 2016
2016-09BWG: Modifies the P&C Statement of Actuarial Opinion and Actuarial Opinion Summary
instructions to clarify regulatory requirements and adds instructions regarding error discovery
and consistency between actuarial documents.
Annual
Annual 2016
20 | NAIC Bulletin April 2016
EY AccountingLink | www.ey.com/us/accountinglink
Exposed Items (continued)
Frequency
Effective date
2016-10BWG: Adds an additional line of business called “Private Flood” to the P&C and Health
Annual Statement in the Property/Casualty Exhibit of Premiums and Losses (Statutory Page 14),
Insurance Expense Exhibit, Parts II and III of the NAIC Annual Statement Blank, and the
corresponding instructions. This modification would allow regulators to better understand the
effect of catastrophic flood events in the US insurance market for private flood coverage (federal
flood coverage is already separately disclosed).
Annual
Annual 2016
2016-11BWG: Modifies the illustration for Note 4A to reflect the disclosure changes to SSAP
No. 24, Discontinued Operations and Unusual or Infrequent Items, adopted by SAPWG in 2015.
Annual
Annual 2016
2016-12BWG: Modifies the instructions and adds a column for Note 5H for restricted assets to
reflect the disclosure changes to SSAP No. 1 adopted by SAPWG.
Annual
Annual 2016
2016-13BWG: Modifies the instructions and illustrations for Note 1A for permitted and
proscribed practice disclosures to reflect changes to SSAP No. 1 adopted by SAPWG.
Annual & Quarterly
Annual 2016
2016-14BWG: Adds a new disclosure in Note 5 for 5* securities. These changes are due to
changes made by SAPWG relating to the investment statutory accounting guidance.
Annual
Annual 2016
2016-15BWG: Adds additional disclosure for short sales, including: new disclosure to Note 5,
new code (SS) to the code list in the Investment Schedules General Instructions and additional
instructions related to short sales to Schedule D (Part 1; Part 2, Section 1; Part 2, Section 2),
Schedule DA, Part 1; and Schedule E, Part 2. These changes are due to revisions made to SSAP
No. 103 by SAPWG.
Annual & Quarterly
Annual 2016
2016-16BWG: Adds illustrations for Note 10M and 10N for SCA investments, including
investments in insurance SCAs due to changes in the instructions made by SAPWG in 2015.
Annual
Annual 2016
2016-17BWG: Adds illustration to the Insurance-Linked Securities Disclosure in Note 21 with
some additional clarifying instruction due to changes in the instructions made by SAPWG in 2015.
Annual
Annual 2016
2016-18BWG: Makes several changes to the blanks and instructions due to changes made by
SAPWG relating to the investment statutory accounting guidance. Some of the changes include
adding a definition and category line numbers for SVO designated securities and eliminate the
Class 1 Money Market Mutual Funds category.
Annual & Quarterly
Annual 2016
2016-19BWG: Adds illustrations and related instructions for Note 23G for ceding entities that
utilize captive reinsurers to assume reserves subject to the XXX/AXXX Captive Framework due
to changes to the instructions made by SAPWG in 2015.
Annual
Annual 2016
2016-20BWG: Adds two new disclosures to the instructions with illustrations for Note 24 related
to the ACA Risk Corridor Program to reflect changes to SSAP No. 107 adopted by SAPWG.
Annual & Quarterly
Annual 2016
2016-21BWG: Modifies the instructions for Note 5H disclosure for collateral received and
reflected as assets within the reporting entity’s financial statements to respond to modifications
to SSAP No. 1 being made by SAPWG.
Annual
Annual 2016
2016-22BWG: Modifies the General Interrogatory to expand on data reported regarding
investment management. This change was exposed to allow regulators to better understand
where additional risk may exist relating to the use of investment managers.
Annual & Quarterly
Annual 2016
Deferred items
Frequency
Effective date
2015-14BWG: Adds a new supplement to collect data related to Terrorism Risk Insurance
Coverage from the Property/Casualty, Life and Accident & Health, Health and Fraternal blanks
as an April 1 filing.
This submission form was deferred by AP&PTF in the 2015 Summer National Meeting for 2015
filings. The Terrorism Insurance Implementation (C) Working Group is working with regulators
and interested parties on options for additional instructions of how to proceed and possible
collection of terrorism data in the annual 2016 filing.
Annual
TBD
21 | NAIC Bulletin April 2016
EY AccountingLink | www.ey.com/us/accountinglink
Appendix C — Capital Adequacy (E) Task Force
This chart summarizes actions taken by the Capital Adequacy (E) Task Force and the working groups that report to the Task Force since the 2015
Fall National Meeting.
Topic/issue
NAIC Group
Status
Discussion
Effective date
Capital
Adequacy (E)
Task Force
Adopted
Adopted the removal of the factor column on the Asset Concentration
page for the Grand Total Issuer within the RBC Forecasting spreadsheet.
Adds a note to the Asset Concentration page for the RBC Blank indicating
that the RBC requirement for Issuers 1–10 are calculated based on the
factor and the Grand Total Issuer is calculated based on the sum of
Issuers 1–10.
2016
Excessive Growth
Charge for Start-Up
Companies
(Ref #2014-28 H)
Health RBC (E)
Working Group
Exposed to 13
April 2016
Exposed modifications to the Business Risk XR012 instructions for the
Excessive Growth Risk charge to state that a start-up company may use
first-year projections upon approval from its domiciliary state.
TBD
Underwriting Risk
Formatting — XR012
for Other Non-Health
Business
(Ref #2015-14 H)
Capital
Adequacy (E)
Task Force
Adopted
Adopted modifications to the blanks to add a new column for “other
non-health” lines which correspond with the instructional only changes
made for year-end 2015 reporting. This clarifies where a company should
report life and property and casualty premiums in the Health RBC formula.
2016
Medicaid
Pass-Through
Payment
(Ref #2015-26 H)
Capital
Adequacy (E)
Task Force
Adopted
Adopted modifications to the Underwriting Risk — Experience Fluctuation
Risk page XR012 and Underwriting Risk — Experience Fluctuation Risk
(Informational Purposes Only) page XR012A to add a new column (7) for
Medicaid Pass-Through Payments. This separation was necessary
because these payments are more similar to uninsured business that is
included in the business risk section with a 2% charge but had been
receiving a higher charge in the underwriting section.
2016
Medicaid
Pass-Through
Payment Guidance
(Ref #2015-27 H)
Health RBC (E)
Working Group
Adopted
Adopted guidance that allows Medicaid Pass-Through payments for 2015
reporting that qualify as a subcapitated payment to be included under
Category 3 — Capitations for a Managed Care Credit. This was a
temporary correction for 2015 reporting only as Proposal 2015-26-H
was finalized for future reporting periods.
2015
Individual Premium
and Claim Footnote
(Ref #2016-01 H)
Health RBC (E)
Working Group
Exposed to 14
April 2016
Exposed proposal to the Underwriting Risk — Experience Fluctuation Risk
page XR012-A to provide a new footnote to identify the amount of the
individual premiums and claims that are inside and outside of the
exchanges. The addition of this footnote would allow for a more detailed
analysis of the individual plans that are inside and outside of the exchanges.
2016
Health Entity
Definition
(Ref #2016-04 H)
Health RBC (E)
Working Group
Exposed to 4
May 2016
Exposed the addition of a definition for “health entity” in Appendix 1 —
Commonly Used Terms in the Health RBC instructions.
2016
Exposed to 21
March 2016
Exposed a proposal to modify the instructions for the XXX/AXXX Captive
Reinsurance Consolidated Exhibit. The modification makes clear that
captive subsidiaries whose contribution to the ceding company’s C-0 RBC
component is based on the captive’s carrying value are subject to the
RBC shortfall calculation with a credit for the captive’s actual C-0
contribution. The Working Group is working through the feedback
received on this exposure.
TBD
All RBC
Asset Concentration
(Ref #2015-18-CA)
Health RBC
Life and Fraternal RBC
XXX/AXXX Captive
Reinsurance
Consolidated Exhibit
(Ref #2016-03-L)
Life RBC (E)
Working Group
22 | NAIC Bulletin April 2016
EY AccountingLink | www.ey.com/us/accountinglink
Topic/issue
NAIC Group
Status
Discussion
Effective date
Property/Casualty RBC
Underwriting Risks
Line 1 Enhancement
Methodology
(Ref #2015-20-P)
Capital
Adequacy (E)
Task Force
Adopted
Adopted alternative approaches to computing the Industry Average
Development factors (Line 1 of PR017) and Industry Average L&LAE
ratios (Line 1 of PR018). The alternative approaches intend to eliminate
and reduce the impact of the intercompany pooling arrangement on the
computation of these factors and ratios.
2016
PR012A- Credit Risk
for Receivables
(Ref #2016-02-P)
Capital
Adequacy (E)
Task Force
Adopted
Adopted the addition of several tables to PR012A. The purpose of this
proposal is to utilize available information from Schedule F to compute
the required credit risk for reinsurance receivables. A prerequisite of this
proposal is that an electronic column containing the reinsurer’s financial
strength rating will be added to Schedule F, Part 3, Part 5 and Part 6,
Section 1. This is an enhancement of the 2014-38 Proposal.
2016
Combining
catastrophe risk
charges
(Ref #2015-19-CR)
Capital
Adequacy (E)
Task Force
Adopted
Adopted the creation of a separate page to combine all the catastrophe
risk charges into one Rcat Component (and replace the current R6 and
R7). The purpose of this change is to simplify the covariance adjustment
formula by combining the entire catastrophe perils into one.
2016
Additional revisions
to 2014-37-CR
(Ref #2015-21-CR)
Capital
Adequacy (E)
Task Force
Adopted
Adopted changes to provide an exemption from completing PR027 by
providing interrogatories to determine whether there is “substantive
earthquake and hurricane risk exposure.” This adoption further revises
2014-37-CR for the 2016 reporting period.
2016
23 | NAIC Bulletin April 2016