2014
PAMIC Presentation
Annual Statement and Statutory
Accounting Update
Speaker
Scott Esworthy, Principal, BSSF
Agenda
 Adopted Reporting Changes
• 2014 Annual Statement
• 2014 Instructions
• 2014 Supplements
 Adopted Reporting Changes
• 2015 Quarterly Statement
 Accounting Changes Effective 2014
 Other Items to Monitor
Adopted Changes to the P/C 2014
Annual Statement, Instructions and
Supplements
Changes to Accounting and Disclosures of FHLB
Transactions (Ref # 2013-27)
Summary of Issue:
• Non-substantive change which adopts revisions to numerous SSAPs to
improve the reporting and disclosure for Federal Home Loan Bank
(FHLB) transactions (SSAP No. 1, Disclosure of Accounting Policies,
Risks & Uncertainties and Other Disclosures; SSAP No. 15, Debt and
Holding Company Obligations; SSAP No. 30, Investments in Common
Stock (excluding investments in common stock of subsidiary, controlled
or affiliated entities; SSAP No. 52, Deposit-Type Contracts
Discussion of Change:
• SSAP 1 disclosures (general and separate accounts individually)
• Assets pledged to others or restricted compared to total assets
and total admitted assets (FHLB capital stock, collateral pledged to
the FHLB)
Changes to Accounting and Disclosures of FHLB
Transactions (Ref # 2013-27)
Discussion of Change (Continued):
• SSAP 1 disclosures (general and separate accounts individually)
• FHLB capital stock is considered restricted until actual redemption
• Par is considered fair value, unless considered other than
temporarily impaired
• Collateral pledged to the FHLB is considered restricted
• Collateral pledged to the FHLB is considered an admitted asset, if
certain conditions exist
• Enhanced disclosures (general and separate accounts individually)
• SSAP 15 and 52
• For FHLB contracts accounted for under the applicable SSAP, disclosures are
required under that SSAP, as well as SSAP 30
• Investment schedules/Annual Statement instructions changes
Note 5H – Restricted Assets - FHLB
Note 11B – Debt - FHLB
 Description of agreement
 Data-captured tables designed to disclose
•
•
•
•
•
•
Amount of capital stock owned by class
Stock eligible for redemption
Collateral pledged
Aggregate amount of borrowings
Maximum aggregate amount of borrowings
Are current borrowings subject to prepayment
penalties
General Interrogatories - FHLB
 Addition of FHLB capital stock and FHLB collateral to General
Interrogatory 25.2
SSAP No. 105, Working Capital Finance
Investments (Ref # 2013-10)
Summary of Issue:
• Substantive change which creates a new SSAP for Working Capital
Finance Investments (WCFIs), allowing admitted asset treatment if
certain conditions are met certain conditions are met
• January 1, 2014 effective date
Discussion of Change:
• WCFIs represent interests in short-term trade receivables that
insurers can purchase through a finance agent
• Treated as admitted assets with accounting similar to short-term
investments, if approved by the SVO and rated NAIC 1 or 2
• Insurer must submit annual filing to the SVO including audited
financials of the finance agent
Note 5I – Investments - WCFI
 Working Capital Finance Investments (5I)
• Disclosure in the aggregate by NAIC designation
• Gross assets
• Non-admitted asset amounts
• Net admitted asset amounts
• Aggregate maturity distribution
• Defaults during reporting period
• From adoption of SSAP 105
Note 5I – Investments - WCFI
Notes to Financials
 Offsetting and netting of assets and liabilities
• Reconciliation of offsetting and netting on balance sheet
• Moving from current location in Note 21 to Note 5
SSAP No. 26, Bonds, Excluding Loan-backed and
Structured Securities and SSAP No. 43R, Loan-backed
and Structured Securities (Ref # 2014-02)
Summary of Issue:
• Non-substantive change to create new disclosures for
Structured Notes
Discussion of Change:
• Structured Notes are issuer obligations with payments
linked to an underlying pool of securities or an index,
including new generation of mortgage backed securities
issued by Fannie Mae and Freddie Mac
• NAIC modified SVO process in 2013 requiring these
securities to be modeled for RBC, previously they could be
classified as filing exempt
Note 5 – Structured Notes
 Add disclosure for Structured Notes to Note 5.
CUSIP
Identification
Total
Actual Cost
Fair Value
Book/Adjusted
Carrying Value
MortgageReferenced
Security(Y/N)
XXX
Relocation of Note
 Note to Financials
• The disclosure for Joint & Several Liabilities was moved
from Note 21 to Note 14
PC State Page
 Property/Casualty
• Add new line (2.4) to state page for Private Crop
• Also added to IEE – Parts II and III
Reinsurance Schedules
 Reinsurance Schedules (Schedules F or S)
• Instructional clarification of NAIC Company Code,
Alien Insurer Identification Number (AIIN),
Pool/Association Number and Certified Reinsurer
Number (CRIN)
• Which entities are assigned which numbers
• Contact information for obtaining numbers
Schedule Y (Organization Chart) – Parts
1A and 2
 Columnar heading change
• Federal ID Number now ID Number
• Enter appropriate identification number
• Federal Employers Identification Number (FEIN)
• Alien Insurer Identification Number (AIIN)
• Certified Reinsurer Identification (CRIN)
Investment Schedules – Electronic
pages
 Investment Schedules
• Add postal code electronic column to Schedules A, B and BA
• For real estate and real estate collateralizing mortgage loans
• Add property type electronic column to Schedule A, B and BA
• Codes will be provided
• Add maturity date electronic column to Schedules B and BA
• Change state column to accept 3-character country code
• The purpose of the proposal is to provide regulators with basic
information to better determine risk profiles. This includes
potential concentrations and also the ability to address differing
volatility based on property and geography.
Supplements
 Property/Casualty and Title
• Actuarial Opinion and Actuarial Opinion Summary
• Includes revised reporting for pooled companies and other
technical changes
• Revisions proposed are intended to clarify common
ambiguities in reporting and therefore promote uniformity
• Content was added regarding pooling arrangements to
reduce confusion and improve accuracy in reporting
Supplemental Compensation Exhibit
 New format for Part 2 – Officers and Employees
Must include PEO, PFO, 3 most highly compensated executive officers besides
PEO & PFO; next 5 most highly compensated employees > $100,000. Final result
is still the “Top Ten” compensated.
4 new columns Must include PEO, PFO, 3 most highly compensated executive
officers besides PEO & PFO; next 5 most highly compensated employees >
$100,000. Final result is still the “Top Ten” compensated.
Supplemental Compensation Exhibit
 New format for Part 3 – Directors
Applies to all Directors other than full-time officers & and
those already listed in Part 2
3 new columns Applies to all Directors other than full-time officers & and
those already listed in Part 2
Adopted Changes to the 2015
Quarterly Statement
Schedule DB – Part D – Section 1
 Footnote lines added to Schedule DB – Part D – Section 1
• Derivative Investments
• Report amount of offsets (assets and offsetting liabilities)
Notes to Financial Statements
REMINDER
Required Notes in the P/C Quarterly:
1A, 5D, 5E(3)b, 5I(2), 5I(3), 11B, 12A(4), 17B(2)b, 17B(4)a,
17B(4)b, 17C, 20, 21G, 21I, 25F, 25 and 36B
Other Adopted Accounting
Changes
Effective in 2014
SSAP No. 26, Bonds, Excluding Loan-Backed and
Structured Securities (Ref # 2013-21)
Summary of Issue:
• Non-substantive change which clarifies the amortization period for
bonds with make-whole provisions or that are continuously callable
• January 1, 2014 effective date
Discussion of Change:
• Make whole provisions should not considered when determining
the timeframe for amortizing premiums or discounts, unless
information is known that the issuer will invoke the make whole call
provision
• For continuously callable bonds with a lockout period, the first call
date should be used when determining the timeframe for
amortizing premiums
• For continuously callable bonds without a lockout period, the entire
premium should be expensed at acquisition
SSAP No. 3, Accounting Changes and Corrections
of Errors/SSAP No. 68, Business Combinations
and Goodwill (Ref # 2013-29)
Summary of Issue:
• Non-substantive change which clarifies the footnote for
mergers
• January 1, 2014 effective date
Discussion of Change:
• Mergers with a shell company (i.e., a reporting entity that has
no outstanding liabilities) are exempt from prior year
restatements
• Mid-year mergers with a shell company should be reflected as
of January 1 of the current year
SSAP No. 86, Accounting for Derivative
Instruments and Hedging (Ref # 2013-32)
Summary of Issue:
• Non-substantive change which adopts ASU 2013-10, Inclusion of the
Fed Funds Swap Rate as a Benchmark Interest Rate
• January 1, 2014 effective date
Discussion of Change:
• Incorporates the GAAP definition of a benchmark interest rate
• Clarifies what can be used for a benchmark interest rate, which
includes the Fed Funds Effective Swap Rate (i.e., Overnight Index
Swap Rate)
• Deletes prior guidance requiring the same benchmark for similar
hedges
Other Items to
Monitor
Corporate Governance Annual Filing Act/Model
Regulation
 On August 18, 2014, the NAIC’s Financial Condition Committee adopted a
Corporate Governance Annual Disclosure Model Act and supporting
Model Regulation
 Provides a means for insurance regulators to receive additional
information on the corporate governance practices of U.S. insurers on an
annual basis
 Under the requirements of the Model Act, U.S. insurers will be required to
provide a detailed narrative describing governance practices to their lead
state or domestic regulator by June 1st of each year
 Insurers will be allowed some discretion in determining the level within
the organization to report their corporate governance practices at,
depending upon their structure and organization
 The new disclosure requirements are expected to commence in 2016
PA DOI Certified Reinsurers and Qualified Jurisdictions
Certified Reinsurers as of June 23, 2014:
Certified Reinsurer Name
Rating
Effective Date
ACE INA Overseas Insurance Company Ltd
Secure-3
January 1, 2014
ACE Tempest Reinsurance Ltd
Secure-2
January 1, 2014
Equator Reinsurance Limited
Secure-3
June 19, 2014
Qualified Jurisdictions as of June 23, 2014:
• Bermuda-The Bermuda Monetary Authority (BMA)
• Germany-The German Federal Financial Supervisory Authority (BaFin)
• Switzerland-The Swiss Financial Market Supervisory Authority (FINMA)
• United Kingdom-The Prudential Regulation Authority of the Bank of
England (PRA)