Attachment A
Ref #2012-33
Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: Title Insurance Loss Reserves
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue: The lack of clarity in the existing statutory accounting language for title insurance loss
and loss adjustment reserves may result in situations where the insurer may be required to book in aggregate
(known claims reserves, statutory premium reserve, and the supplemental reserve) more than is estimated to
pay for all anticipated claims (and associated loss adjustment expenses).
There is currently some confusion regarding the existing guidance for reserves for the Known Claims Reserve
within SSAP No. 57–Title Insurance (SSAP No. 57). There is also a larger, overall conceptual issue with the
methodology that establishes the total reserves that title insurers are required to book as a liability. The
liability page for the Annual Statement for title insurers requires the following reserves;
Line 1 - Known Claims Reserve,
Line 2 - Statutory Premium Reserve (SPR) and
Line 4- Supplemental Reserve.
Schedule P for Title Insurers requires a true actuarially calculated Incurred but Not Reported and Loss
Adjusting Expense (IBNR/LAE), but pursuant to Part 2B of the Annual Statement, the IBNR/LAE reserves
are brought forward from Schedule P and compared to the statutorily required SPR and the known claims
reserve.


If the SPR and the known claims reserve (including and loss adjusting expenses) is less than the sum
of known claims, IBNR/ LAE reserve, then a Supplemental Reserve must be posted on Line 4. The
SPR essentially establishes the minimum IBNR/LAE reserve, but it can never be less that the
actuarially calculated IBNR/LAE reserve.
However, if the SPR and the known claims reserve (including and loss adjusting expenses) are in
excess of the combined known claims reserve and the IBNR/ LAE reserves, no supplemental reserve
would be required.
A reading of the statutory guidance in SSAP No. 57 and Appendix A-628–Title Insurance (A-628) indicates
that the Known Claims Reserve (Line 1), on its own accord, is supposed to be sufficient enough to cover "all
unpaid losses, claims and allocated loss adjustment expenses arising under title insurance policies, guaranteed
certificates of title, guaranteed searches and guaranteed abstracts of title, and for which the title insurer may
be liable, and for which the insurer has received notice by or on behalf of the insured, holder of a guarantee
or escrow or security depositor".
Issue Paper No. 57 seems to bolster the intent of this language by adding the sentence "The known claims
reserve also includes "bulk" reserves, if any- a provision for subsequent development on known claims";
Issue Paper No. 57, paragraph 22 in defining Known Claim Reserve states, “The known claims reserve also
includes “bulk” reserves, if any –a provision for subsequent development on known claims”, however, this
language is quoting precodification statutory guidance and is not specifically included in SSAP No. 57 or A628. The Annual Statement Instructions also include bulk reserves as part of the Known Claims Reserves.
© 2013 National Association of Insurance Commissioners 1
Attachment A
Ref #2012-33
For P&C insurers the bulk reserve provision for adverse development on known claims is typically carried as
an implicit component of IBNR reserves pursuant to SSAP No. 55.
Many title insurers may have an SPR that exceeds, by a significant amount, the IBNR/LAE reserves. Current
guidance is category specific and does not allow title insurers to offset the deficiency (adverse development)
in the Line 1 - Known Claims Reserve. Therefore material examination adjustments increasing the Line 1 Known Claims Reserve based on actuarial review and adverse development, have a direct impact on surplus
while at the same time the SPR may be significantly larger than the IBNR/ LAE reserves. The two categories
may result in reserves that may be in excess of what is actuarially reasonable. We believe that while title
insurers should post an adequate Known Claims Reserve, it should not, when combined with the SPR,
produce excessive liabilities.
Existing Authoritative Literature:
SSAP No. 57:
8.
A liability shall be established for all known unpaid claims and loss adjustment expenses
(known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding
charge to income.
9.
Premium revenue shall be deferred to the extent necessary to maintain a Statutory or
Unearned Premium Reserve (SPR or UPR) determined in accordance with the reserve section of
Appendix A-628.
10.
A supplemental reserve shall be established consisting of any other reserves necessary
which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement,
will be sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss
adjustment expenses. The total of the known claims reserve, SPR/UPR, and the supplemental
reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR
claims, and loss adjustment expenses or the amount determined in accordance with the reserve
section of Appendix A-628.
11.
The actuarially determined liability for the sum of known claims reserve required in paragraph
8 and the IBNR claims and loss adjustment expenses required in paragraph 10 of this statement shall
be determined consistently with the guidance detailed in SSAP No. 55—Unpaid Claims, Losses and
Loss Adjustment Expenses (“SSAP No. 55) and consistent with paragraph 13 of this statement
(emphasis added).
SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses (“SSAP No. 55):
5.
The following are types of future costs relating to property and casualty contracts, as defined
in SSAP No. 50, which shall be considered in determining the liabilities for unpaid losses and loss
adjustment expenses:
a.
Reported Losses: Expected payments for losses relating to insured events that have
occurred and have been reported to, but not paid by, the reporting entity as of the
statement date;
b.
Incurred But Not Reported Losses (IBNR): Expected payments for losses relating to
insured events that have occurred but have not been reported to the reporting entity
as of the statement date. As a practical matter, IBNR may include losses that have
been reported to the reporting entity but have not yet been entered to the claims
system or bulk provisions. Bulk provisions are reserves included with other IBNR
reserves to reflect deficiencies in known case reserves; …
© 2013 National Association of Insurance Commissioners 2
Attachment A
Ref #2012-33
Appendix A-628:
17.
A title insurer shall establish and maintain:
a.
A known claim reserve in an amount estimated to be sufficient to cover all unpaid
losses, claims and allocated loss adjustment expenses arising under title insurance policies,
guaranteed certificates of title, guaranteed searches and guaranteed abstracts of title, and all
unpaid losses, claims and allocated loss adjustment expenses for which the title insurer may
be liable, and for which the insurer has received notice by or on behalf of the insured, holder
of a guarantee or escrow or security depositor.
b.
A Statutory or Unearned Premium Reserve consisting of:
i.
The amount of the statutory or unearned premium or reinsurance reserve
legally held at December 31, 2000. The balance of this reserve shall be released in
accordance with the state laws in effect prior to January 1, 2001; and
ii..
For those title insurance policies and guarantees written after January 1,
2001, reserves shall be established that are equal to the sum of the following items,
as set forth in the title insurer's most recent annual statement:
(a)
For each title insurance policy on a single risk written or assumed, an
amount, as determined by the insurer's state of domicile per $1,000 of net
retained liability for policies under $500,000 and for policies of $500,000 or
greater, or any other reasonable method as required by the insurer's state of
domicile; and
(b)
An amount as determined by the insurer's state of domicile for the
escrow, settlement and closing fees collected in contemplation of the
issuance of title insurance policies or guarantees.
iii.
The aggregate of the amounts set aside in this reserve in any calendar year
pursuant to subparagraph b.ii. shall be released from the reserve and restored to net
profits over a period of twenty (20) years pursuant to the following formula: thirty-five
percent (35%) of the aggregate sum on July 1 of the year next succeeding the year
of addition; fifteen percent (15%) of the aggregate sum on July 1 of each of the
succeeding two (2) years; ten percent (10%) of the aggregate sum on July 1 of the
next succeeding year; three percent (3%) of the aggregate sum on July 1 of each of
the next three (3) succeeding years; two percent (2%) of the aggregate sum on July 1
of each of the next three (3) succeeding years; and one percent (1%) of the
aggregate sum on July 1 of each of the next succeeding ten (10) years.
iv.
The insurer shall calculate retroactive adjusted statutory or unearned
premium reserve on an aggregate basis at January 1, 2001. The adjusted aggregate
reserve shall be calculated as if Subsections b. ii. had been in effect for all years
beginning twenty (20) years prior to January 1, 2001. If the adjusted aggregate
reserve exceeds the aggregate amount set aside for statutory or unearned premiums
in the insurer's December 31, 2000 annual statement, the insurer shall increase its
statutory or unearned premium reserve by an amount equal to one-sixth of that
excess in each of the succeeding six years, commencing with the 2001 calendar
year.
v.
The aggregate of the amounts set aside in this reserve in any calendar year
as adjustments to the insurer's statutory or unearned premium reserve pursuant to
Subsection b. iv. shall be released from the reserve and restored to net profits, or
equity if the additions required by subparagraph b. vi. of this section reduced equity
directly, over a period not exceeding ten (10) years pursuant to the following table:
Year of Addition
Release
Year 2001
Year 2002
Equally over 10 years
Equally over 9 years
© 2013 National Association of Insurance Commissioners 3
Attachment A
Ref #2012-33
Year 2003
Year 2004
Year 2005
Year 2006
Equally over 8
Equally over 7
Equally over 6
Equally over 5
years
years
years
years
c.
A supplemental reserve shall be established consisting of any other reserves necessary,
when taken in combination with the reserves required by Subsections a. and b. of this paragraph, to
cover the company's liabilities with respect to all losses, claims and loss adjustment expenses.
The 2011 Schedule P Instructions for Title Insurance clearly group “bulk” reserves with the Known Claim
Reserves and within Part 2 provide separately for “bulk” versus IBNR:
Part 1: The known claim reserve includes case basis reserves and “bulk” reserves. “Bulk” reserves
are a provision for subsequent development on known claims” and “IBNR reserves are a provision
for unreported or unknown title insurance claims on all policies issued by the company as of the
accounting date.
Part 2C: Part 2C shows bulk reserves on known claims by year the policy was written for claims that
are open as of December 31 of each year shown in Columns 1 to 10.
Part 2D: Part 2D shows Incurred But Not Reported (IBNR) reserves as of December 31 of each year
shown in Columns 1 to 10. IBNR reserves make a provision for claims not yet reported to the
company but can also include other amounts needed to result in an adequate total reserve.
Part 3C: Part 3C shows bulk reserves on known claims by year the claim was reported for claims
that are open as of December 31 of each year shown in Columns 1 to 10. Bulk reserves provide for
subsequent development on known claims and do not make a provision for claims not yet reported to
the company. A company is not required to carry bulk reserves.
Issue Paper 57, paragraph 22 (page IP 57-12) defines IBNR and Known Claims Reserve, distinguishing
between them based on whether the insurer has (known), or has not (IBNR) received notice. Note: Issue
Papers are not authoritative guidance, but they do provide relevant background materials. In this case,
paragraph 22 of the Issue Paper is quoting pre-codification statutory accounting guidance adopted on 10-11996:
Incurred but Not Reported Reserve The incurred but not reported reserve (“IBNR”) is an amount
estimated to cover all unpaid losses, claims and allocated loss adjustment expenses arising under
title insurance policies, guaranteed certificates of title, guaranteed searches and guaranteed abstracts
of title, and all unpaid losses, claims and allocated loss adjustment expenses for which the title
insurer may be liable and for which the insurer has not received notice by or on behalf of the insured,
holder of a guarantee or escrow or security depositor. Title insurance companies are not required to
give recognition to IBNR losses in statutory reporting unless a “supplemental reserve” is required.
See the definition of Supplemental Reserve below.
Known Claims Reserve The known claims reserve (referred to as the “loss reserve for undetermined
title and other losses of which notice has been received”) is the amount estimated to be sufficient to
cover all unpaid losses, claims and allocated loss adjustment expenses arising under title insurance
policies, guaranteed certificates of title, guaranteed searches and guaranteed abstracts of title, and all
unpaid losses, claims and allocated loss adjustment expenses for which the title insurer may be liable
and for which the insurer has received notice by or on behalf of the insured, holder of a guarantee or
escrow or security depositor. The known claims reserve also includes “bulk” reserves, if any – a
provision for subsequent development on known claims.
Issue Paper 57, paragraph 22, (on page IP 57-14): An Actuarial Opinion is required:
© 2013 National Association of Insurance Commissioners 4
Attachment A
Ref #2012-33
Effective January 1, 1996, the Schedule “P” reserves must be supported by an actuarial opinion from
a qualified actuary who is a member in good standing of the American Academy of Actuaries, setting
forth an opinion as to the adequacy of all loss reserves (known claims reserve, including bulk
reserves (if any), + IBNR reserve + LAE reserve).
23.
The Title Insurers Model Act was adopted by the Title Insurance Working Group of the
Special Insurance Issues (E) Committee on December 4, 1995, and was adopted by the full
membership of the NAIC at the March 1996 Plenary Session (only the pertinent excerpts are included
below
The discussion section of the Issue Paper No. 57 notes (bolding added from emphasis).
DISCUSSION
17.
The P & C Accounting Practices and Procedures Manual states that title insurance premiums
are fully earned on the date of policy issuance; however, title insurance companies are required to
establish and maintain an unearned premium or reinsurance reserve. The primary objective of the
SPR/UPR is to maintain at all times a reserve amount which is sufficient to purchase
reinsurance for the IBNR claims and related loss adjustment expenses. Consistent with this
objective, the statutory principles in paragraph 6 of this issue paper retain current statutory
guidance, which requires that changes in the amount of the SPR/UPR be reflected as an
adjustment to premium revenue. Additionally, the supplemental reserve required in paragraph 7 of
this issue paper is analogous to the concept of a premium deficiency reserve as discussed in Issue
Paper No. 53—Property and Casualty Contracts - Premiums (Issue Paper No. 53). Consistent with
Issue Paper No. 53, anticipated investment income may be used as a factor in the supplemental
reserve calculation.
18.
The conclusions reached in this issue paper are consistent with current statutory guidance
except as follows with the exception that this issue paper requires consideration of IBNR claims
and related loss adjustment expenses in evaluating the sufficiency of the SPR/UPR in order to
conform with the Title Insurers Model Act. The Model Act requires the reporting entity's state of
domicile to determine the appropriate unearned premium reserve to be set aside. This issue paper
also requires the unearned premium reserve to be determined by the reporting entity's state of
domicile. The determination by the state of domicile of this reserve is considered necessary given the
nature of this product. This issue paper also requires that the liability for known claims reserves be
calculated in accordance with Issue Paper No. 55, except that anticipated salvage and
subrogation shall not be deducted from the liability for unpaid claims. Issue Paper No. 55
permits, but does not require, anticipated salvage and subrogation recoverables to be deducted from
the liability for unpaid claims; whereas current statutory guidance for title insurers does not permit
case basis loss and loss adjustment expense reserves to be reduced for anticipated salvage and
subrogation.
19.
This issue paper modifies current statutory accounting for title plant to require the
evaluation and write-off of impairment in value. This is consistent with Issue Paper No. 5. This
issue paper adopts FAS 61, modified for carrying value restrictions, as amended by paragraph 29 of
FASB Statement No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (FAS 121). Restrictions on the total carrying value of an investment in a
title plant or plants have been set consistent with current statutory accounting outlined in the Title
Insurers Model Act. FAS 121 is addressed in Issue Paper No. 40—Real Estate Investments.
20.
The conclusions above reject FAS 60; however, it is considered appropriate to use the
factors to be considered in the determination of the ultimate cost of settling claims included in FAS 60
when establishing the reserves in accordance with paragraphs 5 and 7 of this issue paper. The
concepts adopted above are consistent with GAAP literature except that GAAP requires immediate
revenue recognition for title insurance contracts and the accrual of claims costs at the time title
insurance premiums are recognized as revenue; whereas this issue paper requires that revenues be
recognized consistent with the concepts discussed in paragraph 16.
Drafting Notes/Comments
© 2013 National Association of Insurance Commissioners 5
Attachment A
Ref #2012-33
-
Segregated funds held for others (i.e., escrow funds) will be addressed in Issue Paper No.
77—Disclosure of Accounting Policies, Risks & Uncertainties, and Other Disclosures.
Review of state statutes of not less than 38 states indicates the use of a SPR/UPR, we
are not aware of any states without such a requirement.
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): This is related to a referral received
form the Financial Analysis Working Group.
Information or issues (included in Description of Issue) not previously contemplated by the SAPWG:
None
Sponsor Recommendation:
The sponsor requests that the Statutory Accounting Principles Working Group consider this issue to
incorporate guidance to clarify that title insurance loss and loss adjustment reserves resulting in situations
where the reporting entity may be required to book in aggregate more than is estimated to pay for all
anticipated claims, may adjust the reserves.
Recommending Party:
California Department of Insurance / Nebraska Department of Insurance
Al Bottalico, Deputy Insurance Commissioner, Financial Surveillance
300 South Spring Street, Los Angeles, California 90013
(213) 346-6000
SSAP No. 57:
8.
A liability shall be established for all known unpaid claims and loss adjustment expenses
(known claims reserve), with a corresponding charge to income. A bulk reserve is not required to be
used by the insurer as long as the total of the known claims reserve, SPR/UPR, and the supplemental
reserve is not less than the actuarially determined liability for the sum of known claims, IBNR claims,
and loss adjustment expenses, taking into account the projected development of those reserves.
9.
Premium revenue shall be deferred to the extent necessary to maintain a Statutory or
Unearned Premium Reserve (SPR or UPR) determined in accordance with the reserve section of
Appendix A-628.
10.
A supplemental reserve shall be established consisting of any other reserves necessary
which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement,
will be sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss
adjustment expenses.
11.
The actuarially determined liability for the sum of known claims reserve required in paragraph
8 and the IBNR claims and loss adjustment expenses required in paragraph 10 of this statement shall
be determined consistently with the guidance detailed in SSAP No. 55—Unpaid Claims, Losses and
Loss Adjustment Expenses (“SSAP No. 55) and consistent with paragraph 13 of this statement
(emphasis added).
Staff Recommendations:
It would be unusual to remove references to an NAIC model law. However, this is not widely adopted model
law. The model law A-628 and paragraph 10 of SSAP No. 57 appropriately reviews the sufficiency of the
reserves in total.
However, the current guidance also becomes more granular and speaks about only Line 1, the Known Claims
Reserve which has to stand on its own merits based on current guidance. The issue is whether KCR should
© 2013 National Association of Insurance Commissioners 6
Attachment A
Ref #2012-33
contain a “bulk reserve.” If you interpret current guidance as that the KCR is supposed to be a sufficient
reserve to pay off all known claims as of a financial statement date and you end up evaluating just line 1 you
can end up reporting shortages in Line 1, due to development, while at the same time the SPR may be much
higher than the IBNR. This is how regulators may be requiring excessive reserves by indicating that Line 1
was materially short and requiring additional reserves for Line 1 and not recognizing or giving any credit to
the fact that the SPR may be much higher than the IBNR. By booking an examination adjustment to Line 1,
surplus is reduced while not giving any credit for the excess SPR.
Based on adverse development, if line 1 (KCR) is found to have been deficient it is measured independently
rather than measuring the totals as stated above. If a title insurer’s bulk reserve, including a component for
adverse development, was included in its IBNR then comparing totals would not necessarily indicate a
shortage in the known claims reserve because the overall actuarial reserve was sufficient (KCR plus IBNR).
However, if that bulk reserve that is part of IBNR is ignored when evaluating only Line 1, because of current
guidance, then it may lead to regulators concluding that Line 1 was deficient and booking an adjustment to
Line 1, while if you looked at the totals, no adjustment would have been necessary.
Staff recommends the Working Group expose the proposed changes on this issue to facilitate
discussion. In addition, the Title Insurance Financial Reporting Issues Working Group will be notified
of the exposure.
Staff Review Completed by:
Robin Marcotte and Linda Hunsucker–October 31, 2012
NAIC staff
Status:
On November 29, 2012, the Statutory Accounting Principles Working Group moved this item to the
nonsubstantive active listing and exposed nonsubstantive revisions to clarify title insurance loss and loss
adjustment reserves and to eliminate confusion between SSAP No. 57—Title Insurance and Appendix A-628,
Title Insurance.
The March 2013 comments from the Missouri Department of Insurance recommended modifying the
exposed language. These proposed additional changes will be discussed at the Spring National Meeting as
follows:
8. A liability shall be established for all known unpaid claims and allocated loss adjustment expenses
(known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding
charge to income. The known claim reserve consists of case basis reserves and bulk reserves, if any.
Bulk reserves provide for subsequent development on case basis reserves. A bulk reserve on known
claims is permitted but is not required by statutory accounting and reporting practices. A negative bulk
reserve is not permitted.
Missouri Comment on paragraph 8: This clarifies the role of the bulk known claim reserve,
required in some states but not others. In my opinion, this language does not conflict with any state
law. (See the accompanying summary of relevant state laws.)
9. Premium revenue shall be deferred to the extent necessary to maintain a Statutory or Unearned
Premium Reserve (SPR or UPR) determined in accordance with the reserve section of Appendix A628.
Missouri Comment on paragraph 9: A628 is an excerpt from the Title Insurers Model Act of
1996, which is not widely adopted. Because of that, A628 creates a conflict between SSAP 57 and
© 2013 National Association of Insurance Commissioners 7
Attachment A
Ref #2012-33
specific state laws. As a model law, A628 is intended to replace existing law and not to clarify
accounting issues.
10. A supplemental reserve shall be established consisting of any other reserves necessary which,
when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be
sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss
adjustment expenses. The total of the known claims reserve, SPR/UPR, and the supplemental
reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR
claims, and loss adjustment expenses or the amount determined in accordance with the reserve
section of Appendix A-628.
Staff Recommendation March 2013
Staff notes that deleting references to the Model law in Appendix A-628 is an unusual step. However, as
noted above, the model is not widely passed. Missouri comments noted that many state laws are actually more
conservative than A-628. It should be noted that there will be variations for Statutory Premium Reserve
contributions and takedowns by state under this approach. The proposed language below will make the
Annual Statement test with its requirements for determining the need for a Supplemental Reserve the
Accounting Practices and Procedures Manual baseline standard. Given the state variations, on the SPR
currently and under this approach, the, the Working Group should also solicit comments regarding
reporting entities’ continued ability to complete the annual statement Note 1 on prescribed and
permitted differences required by SSAP No. 1—Disclosure of Accounting Policies, Risks &
Uncertainties, and Other Disclosures, paragraph 7d and Appendix A-205. Staff recommends re-exposing
the above changes, with the following modifications shown as shaded and tracked text and requesting
comments on the ability to comply with Annual Statement Note 1.



Paragraph 8- Add reference to the Annual Statement exhibit, which details known claims reserve
components. (The Exhibit and Schedule P, Part 1 are shown in attachment A for reference in this
form A).
Paragraph 9 Change reference to Appendix A-628 with regard to how the Statutory Premium Reserve is
calculated to in accordance with state law. The AP&P Manual needs to maintain one reference so that
reporting entities can accurately complete annual statement Note 1 from a consistent measurement basis.
Staff does have concerns regarding measurement consistency with this change, but hopes that the changes
to paragraph 10 help with this issue.
Paragraph 10 – Maintain the last sentence that Missouri recommended deleting as the sentence provides
additional detail regarding how the supplemental reserve is determined. In addition, add reference to the
Annual Statement exhibit, which details how to determine the supplemental claims reserve. (This Exhibit
and Schedule P, Part 1 are shown in attachment A for reference in this form A).
8. A liability shall be established for all known unpaid claims and allocated loss adjustment
expenses (known claims reserve), consistent with the reserve section of Appendix A-628 with a
corresponding charge to income. The known claim reserve is further detailed in the Title
Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment
Expenses. The known claim reserve may also include bulk reserves, if any. Bulk reserves provide
for subsequent development on case basis reserves. A bulk reserve on known claims may be
required by state law, but bulk reserves are not explicitly required by statutory accounting and
reporting practices. A negative bulk reserve is not permitted.
9.
Premium revenue shall be deferred to the extent necessary to maintain a Statutory
or Unearned Premium Reserve (SPR or UPR) determined in accordance with state law.
10. A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in
the known claims reserve, SPR (or UPR), and the supplemental reserve shall not be less than the
© 2013 National Association of Insurance Commissioners 8
Attachment A
Ref #2012-33
actuarially determined liability for the sum of known claims, IBNR claims, a n d loss adjustment expenses.
This calculation, which determines the need for the required supplemental reserve liability is further detailed
in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment
Expenses.
On April 6, 2013, the Statutory Accounting Principles (E) Working Group exposed the below changes to
SSAP No. 57 with an April 26 comment deadline. The revisions reflect changes from the original exposure to
incorporate the comments from Missouri, as modified in the updated staff recommendation and the deletion
of the word explicitly from paragraph 8 in the staff modifications. Given the state variations, on the SPR
currently and under this approach, the Working Group is also soliciting comments regarding reporting
entities’ continued ability to complete the annual statement Note 1 on prescribed and permitted differences
required by SSAP No. 1—Disclosure of Accounting Policies, Risks & Uncertainties, and Other Disclosures,
paragraph 7d and Appendix A-205.
8.
A liability shall be established for all known unpaid claims and loss adjustment expenses
(known claims reserve) with a corresponding charge to income. The known claim reserve
is further detailed in the Title Annual Statement Operations and Investment Exhibit on
Unpaid Losses and Loss Adjustment Expenses. The known claim reserve may also include
bulk reserves, if any. Bulk reserves provide for subsequent development on case basis
reserves. A bulk reserve on known claims may be required by state law, but bulk reserves
are not required by statutory accounting and reporting practices. A negative bulk reserve is
not permitted.
9.
Premium revenue shall be deferred to the extent necessary to maintain a Statutory or
Unearned Premium Reserve (SPR or UPR) determined in accordance with state law.
10.
A supplemental reserve shall be established consisting of any other reserves necessary
which, when taken in combination with the reserves required by paragraphs 8 and 9 of this
statement, will be sufficient to cover the company’s liabilities with respect to all known claims,
IBNR claims, and loss adjustment expenses. The total of the known claims reserve, SPR or
UPR, and the supplemental reserve shall not be less than the actuarially determined liability
for the sum of known claims, IBNR claims, and loss adjustment expenses. This calculation,
which determines the need for the required supplemental reserve liability is further detailed
in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and
Loss Adjustment Expenses.
© 2013 National Association of Insurance Commissioners 9
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Ref #2012-33
8. On May 15, 2013, the Statutory Accounting Principles (E) Working Group modified paragraph 8 of
the exposed language as highlighted below. The Working Group requested comments on this topic
from the Title Financial Reporting Working Group by August 2 and requested that the states, which
provided comments on this topic, to work with staff to review the proposal for any additional
recommendations. A liability shall be established for all known unpaid claims and loss adjustment
expenses (known claims reserve) with a corresponding charge to income. The known claim
reserve is further detailed in the Title Annual Statement Operations and Investment Exhibit on
Unpaid Losses and Loss Adjustment Expenses. The Known Claims Reserve should be the
estimated costs to settle reported claims based upon the most current information available to the
company as of the balance sheet date. This amount cannot be less than the aggregate of the
individual case reserves..
9. Premium revenue shall be deferred to the extent necessary to maintain a Statutory or Unearned
Premium Reserve (SPR or UPR) determined in accordance with state law.
10. A supplemental reserve shall be established consisting of any other reserves necessary which, when
taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be
sufficient to cover the company’s liabilities with respect to all known claims, IBNR claims, and loss
adjustment expenses. The total of the known claims reserve, SPR or UPR, and the supplemental
reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR
claims, and loss adjustment expenses. This calculation, which determines the need for the required
supplemental reserve liability is further detailed in the Title Annual Statement Operations and
Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses.
© 2013 National Association of Insurance Commissioners 10
Attachment A
Ref #2012-33
OPERATIONS AND INVESTMENT EXHIBIT
PART 2B – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Direct
Operations
Agency Operations
2
3
Non-Affiliated
Affiliated
Agency
Agency
Operations
Operations
4
Total
Current
Year
(Cols. 1+2+3)
Total
Prior
Year
.................
.................
.......................
.......................
...................
...................
......................
......................
...........
...........
Known claims reserve net of reinsurance (Line 1.1 plus Line 1.2 minus Line 2) .....
Incurred But Not Reported:
4.1 Direct (Schedule P, Part 1, Line 12, Col. 20) ...................................................
4.2 Reinsurance assumed (Schedule P, Part 1, Line 12, Col. 21)...........................
4.3 Reinsurance ceded (Schedule P, Part 1, Line 12, Col. 22) ...............................
.................
.......................
...................
......................
...........
.................
.................
.......................
.......................
...................
...................
......................
......................
...........
...........
4.4 Net incurred but not reported (Line 4.1 plus Line 4.2 minus Line 4.3) ............
Unallocated LAE reserve (Schedule P, Part 1, Line 12, Col. 23) .............................
Less discount for time value of money, if allowed (Schedule P, Part 1, Line 12,
Col. 33) ....................................................................................................................
.................
.................
.......................
...................
...................
...................
......................
......................
...........
...........
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
......................
......................
..........
..........
XXX
XXX
XXX
Loss and allocated LAE reserve for title and other losses of which notice has been
received:
1.1 Direct (Schedule P, Part 1, Line 12, Col. 17) ...................................................
1.2 Reinsurance assumed (Schedule P, Part 1, Line 12, Col. 18)...........................
Deduct reinsurance recoverable from authorized and unauthorized companies
(Schedule P, Part 1, Line 12, Col. 19) ......................................................................
Total Schedule P reserves (Lines 3 + 4.4 + 5 - 6) (Schedule P, Part 1, Line 12,
Col. 34) ....................................................................................................................
Statutory premium reserve at year end (Part 1B, Line 2.6) .......................................
Aggregate of other reserves required by law (Page 3, Line 3) ..................................
Supplemental reserve (a) (Lines 7 - (3 + 8 + 9) ........................................................
(a) If the sum of Lines 3 +8 +9 is greater than Line 7, place a "0" in this Line.
© 2013 National Association of Insurance Commissioners 11
5
Attachment 6
Ref #2012-33
SCHEDULE P – PART 1 – SUMMARY
($000 OMITTED)
Years in Which
Policies
Were Written
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Prior ........
2003 ........
2004 ........
2005 ........
2006 ........
2007 ........
2008 ........
2009 ........
2010 ........
2011 ........
2012
Totals
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Prior ........
2003 ........
2004 ........
2005 ........
2006 ........
2007 ........
2008 ........
2009 ........
2010 ........
2011 ........
2012
12.
Total
1.
Prior ........
2.
2003 ........
3.
2004 ........
4.
2005 ........
5.
2006 ........
6.
2007 ........
7.
2008 ........
8.
2009 ........
9.
2010 ........
10.
2011 ........
11.
2012
12. Totals
1
Amount
of
Insurance
Written in
Millions
XXX
................
................
................
................
................
................
................
................
................
Premiums Written and Other Income
3
4
5
2
Loss and Allocated Loss Adjustment Expenses Payments
Loss Payments
Allocated LAE Payments
8
9
10
11
6
7
Direct
Premium
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
Assumed
Premium
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
Other
Income
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
Ceded
Premium
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
Net
(Cols.
2+3+4–5)
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
Direct
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
Assumed
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Ceded
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Direct
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Assumed
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
12
Ceded
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
XXX
13
14
Salvage
and
Subrogation
Received
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
24
Total Net
Loss and
LAE
Unpaid
(Cols.
17+18+20
+21-19
-22+23)
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
Unallocated
Loss Expense
Payments
15
Total Net
Loss and
Expense Paid
(Cols.
7+8+10+11
-9-12+14)
Number of
Claims
Reported
(Direct)
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
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.....................
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.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
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.....................
.....................
.....................
.....................
.....................
25
26
Number
of
Claims
Outstanding
(Direct)
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
16
17
Loss and Allocated Loss
Adjustment Expenses Unpaid
Known Claim Reserves
18
19
20
Direct
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
Assumed
......................
......................
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......................
Ceded
.....................
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.....................
.....................
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.....................
.....................
.....................
.....................
XXXXXX
xxxxxxxxx
xxxxxxxxx
Losses and Allocated Loss Expenses Incurred
27
28
Direct (Cols.
7+10+17+20)
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
Assumed
(Cols.
8+11+18+21)
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
Ceded (Cols.
9+12+19+22)
.....................
.....................
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.....................
.....................
.....................
29
Net
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
23
IBNR Reserves
21
Direct
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
Assumed
..................
..................
..................
..................
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..................
..................
..................
..................
..................
Ceded
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Unallocated
Loss Expense
Unpaid
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
xxxxxxxxx
Loss and LAE Ratio
30
31
32
Direct Basis
([Cols.
14+23+26]/
Col 2)
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Net Basis
([Cols.
14+23+29]/
[Cols. 6–4])
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
.........................
Net Loss &
LAE Per
$1000 of
Coverage
([Cols.
29+14+23]/
Col. 1)
XXX
........................
........................
........................
........................
........................
........................
........................
........................
........................
XXX
XXX
XXX
G:\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2013\5-15-2013\Hearing\H4 - 12-33 Title Reserves.doc
© 2013 National Association of Insurance Commissioners 12
22
33
34
Discount
For Time
Value of
Money
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
Net
Reserves
After
Discount
(Cols.
24-33)
...................
...................
...................
...................
...................
...................
...................
...................
...................
...................
xxxxxxxx
xxxxxxxxx