Ref #2015-27
Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: Quarterly Reporting of Investment Schedules
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue:
This agenda item requests comments on a possible blanks proposal to incorporate full investment
schedules within all interim financial statements. This aspect was previously included within agenda item
2015-19, coupled with a proposal to have the restricted asset disclosures quarterly. Based on Working
Group request, the solicitation of comments for full investment schedules was removed from that agenda
item and included in a separate Form A. Information from the original Agenda Item is included below:
Quarterly Financial Statements – Investment Detail:
It has been communicated that not having full investment schedules in the quarterly statutory
financials makes it difficult for regulators to fully review and assess an insurer’s financial condition
over interim periods. By not including the full investment schedules in the quarterly financial
statements it is impossible for regulators to complete reviews of quarterly investment holdings. From
information received from key regulators, there is a desire to propose inclusion of the full investment
schedules in all interim financial statements for all NAIC filers.
In exploring why the investment schedules were previously not included in the quarterly financials, it
is believed that the full investment schedules were not included as the financial statements were
required to be printed with hard-copies provided to the various states and the NAIC. As the
investment schedules can be quite lengthy, it seems this provision was intended to alleviate insurers
from the extensive printing that may have been required. The guidance in the NAIC Accounting
Practices and Procedures Manual (AP&P Manual) Preamble that references relying on the annual
statement and identifying only key or significant changes in the interim financials seems to have been
based on the premise that the regulators would have a hard-copy annual version readily available for
comparison purposes. With the electronic submission of financial statements, moving to include the
full investment schedules in the quarterly financials should no longer generate a printing concern /
burden to reporting entities.
In further considering the impact of this reporting change, it is not anticipated that requiring the full
investment schedules will be an overly difficult task for reporting entities. Information on investments
held during the interim periods should already be known. This is demonstrated as reporting entities
must already report the investment additions and deletions that occur throughout the interim reporting
period and they report the total investment valuation (by line item) in the interim balance sheet.
In reviewing the guidance in the AP&P Manual, it does not seem that statutory accounting guidance
specifically indicates whether the investment schedules should / should not be included in the
quarterly financial statements. As such, no actual SSAP revisions are necessary to effect this Blanks
(E) Working Group change. However, as this revision is tied to the presentation of statutory
accounting statements, and specifically focuses on improving the regulator’s ability to complete full
reviews of the investment holdings (which are reported under the concepts of SSAP), this agenda
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Ref #2015-27
item proposes that the Statutory Accounting Principles (E) Working Group expose a proposal to
consider this change.
Existing Authoritative Literature:
Preamble – NAIC Accounting Practices and Procedures Manual
X.
Financial Statements
A.
Annual Financial Statement
58.
Each state requires all insurance companies doing business in that state to file an annual
financial statement. All states use the annual statement blank promulgated by the NAIC, but each
state retains the authority to make changes in those statements. Changes made by states
generally require only supplemental information and do not change the basic financial
information.
59.
To the extent that disclosures required by a SSAP are made within specific notes,
schedules, or exhibits to the annual statement, those disclosures are not required to be
duplicated in a separate note. Annual statutory financial statements which are not accompanied
by annual statement exhibits and schedules (e.g., annual audit report) shall include all
disclosures required by the SSAPs based on the applicability, materiality and significance of the
item to the insurer. Certain disclosures, as noted in individual SSAPs, are required in the annual
audited statutory financial statements only.
B.
Interim Financial Statements
60.
Interim financial statements, including quarterly statements, shall follow the form and
content of presentation prescribed by the domiciliary state for the quarterly financial statements.
The NAIC quarterly statement form has been adopted by each state with minor variations as
required by certain states.
61.
The interim financial information shall include disclosures sufficient to make the
information presented not misleading. It may be presumed that the users of the interim financial
information have read or have access to the annual statement for the preceding period and that
the adequacy of additional disclosure needed for a fair presentation, except in regard to material
contingencies may be determined in that context. Accordingly, footnote disclosure which would
substantially duplicate the disclosure contained in the most recent annual statement or audited
financial statements, such as a statement of significant accounting policies and practices, details
of accounts which have not changed significantly in amount or composition since the end of the
most recently completed fiscal year, may be omitted. However disclosure shall be provided where
events subsequent to the end of the most recent fiscal year have occurred which have a material
impact on the insurer. Disclosures shall encompass, for example, significant changes since the
end of the period reported on the last annual statement in such items as: statutory accounting
principles and practices, estimates inherent in the preparation of financial statements, status of
long term contracts, capitalization including significant new borrowings or modifications of existing
financial arrangements, and the reporting entity resulting from business combinations or
dispositions. Notwithstanding the above, where material noninsurance contingencies exist,
disclosure of such matters shall be provided even though a significant change since year end
may not have occurred.
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): None
Information or issues (included in Description of Issue) not previously contemplated by the
SAPWG: None
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Staff Recommendation:
Staff recommends that the Working Group expose a proposal to possibly sponsor blanks revisions
to incorporate the full investment schedules within all interim financial statements. No changes are
anticipated to the statutory accounting guidance for this investment schedule proposal.
During the June 17, 2015 conference call, the Working Group reviewed agenda item 2015-19, which
included a recommendation to include restricted asset disclosures in interim and annual financial
statements, as well as to consider sponsoring a blanks proposal for full investment schedules. Per the
direction of the Working Group, the agenda item was split, with agenda item 2015-19 retaining the
restricted asset proposal, and this agenda item (2015-27) including the inquiry for the investment
schedules. During the call, it was noted that requiring a full pdf of the investment detail may not be
necessary for regulators, however, it was identified receiving electronic data that can be used for
aggregate reviews of investments would provide valuable information for the capital market assessments.
Staff Review Completed by:
Julie Gann – May 8, 2015
Status:
On June 17, 2015, the Statutory Accounting Principles (E) Working Group moved this item to the
nonsubstantive active listing and exposed this agenda item requesting comments on the prospect to collect
full investment schedule information (or perhaps limited details of all investments) in the quarterly
financial statements. It was noted that the AP&P Manual does not prescribe guidance limiting the
investment schedules to the annual financial statements, but this change, if supported, would be
implemented by Blanks (E) Working Group changes. Although no changes to the AP&P Manual would
be anticipated, soliciting comments from the members, interested regulators and interested parties of the
Statutory Accounting Principles (E) Working Group is desired as they are responsible for the accounting
guidance pertaining to the related investments.
On August 15, 2015, the Statutory Accounting Principles (E) Working Group identified the interested
parties’ concerns regarding this proposal, and the cost considerations that should occur if quarterly
information is requested. The Working Group also recognized the regulatory benefits that could be
obtained – such as earlier identification of industry investment changes or trends – if select quarterly
investment information was received. As a result of the discussion, the Working Group exposed this
agenda item with a request for quarterly investment proposals identifying what should be captured, and
the form of such submissions, that considers both cost concerns and the regulatory benefits.
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