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1 January 2018 NAIC 2017 Fall Meeting Newsletter Matt Church, Managing Partner DHG Insurance Kevin Ryals, Partner DHG Insurance David Berry, Senior Manager DHG Assurance The following represents a summary of the key decisions made by the National Association of Insurance Commissioners (NAIC) during the 2017 Fall National Meeting. Contents Executive Committee...1 Cybersecurity & Big Data...2 P&C Insurance (C) Committee...3 Title Insurance (C) Task Force...3 Financial Condition Updates...3 Valuation of Securities (E) Task Force...5 Blanks (E) Working Group...6 Accounting Policy & Procedures (E) Task Force...7 Executive Committee The Executive (EX) Committee met on December 3, During this meeting the committee heard a report from the Interstate Insurance Product Registration Commission (IIPRC) providing an update from the Compact office regarding third-party litigation out of the federal district court of Colorado that raises legal issues relating to the constitutionality of the Compact Office. Both the IIPRC and the NAIC submitted amicus briefs to provide the court with the background on the purpose of the Compact and the legal principles used in its development. The committee noted that the EX committee held a joint session with the Internal Administration (EX1) subcommittee on December 2, 2017 in a regulator-to-regulator session. The committee and subcommittee adopted the November 9 Information

2 Systems (EX1) Task Force report, which included the following action: 1) received an operational report from NAIC staff for information technology (IT) activities of the NAIC; 2) received updates on NAIC technical projects closed from July through October 2017; and 3) received an update on the review of five 2018 fiscals with a technology component by the Technical Consulting (EX1) Working Group The committee also received a written report on the progress of ongoing model law development efforts. The committee noted that the Creditor-Placed Insurance Model Act (#375) has been open since The Property and Casualty Insurance (C) Committee has decided to focus on a new Lender-Placed Real Property Insurance Model Act, having to do with real property, rather than focusing on Model #375, which focuses on personal property. Therefore, the Property and Casualty Insurance (C) Committee closed its request for model law development for the Creditor-Placed Insurance Model Act (#375). The committee received a status report of model law development efforts for amendments to the following: Health Insurance Reserves Model Regulation (#10); Health Carrier Prescription Drug Benefit Management Model Act (#22); Accident and Sickness Insurance Minimum Standards Model Act (#170); Model Regulation to Implement the Accident and Sickness Insurance Minimum Standards Model Act (#171); Annuity Disclosure Model Regulation (#245); Suitability in Annuity Transactions Model Regulation (#275) Creditor-Placed Insurance Model Act (#375); Life and Health Insurance Guaranty Association Model Act (#520) Life Insurance Disclosure Model Regulation (#580); Life Insurance Illustrations Model Regulation (#582); Mortgage Guaranty Insurance Model Act (#630 ); Short Duration Long-Term Care Policies Model Law; Cybersecurity & Big Data Cybersecurity (EX) Working Group The Cybersecurity Working Group met on December 3, During the meeting, the working group heard an update on the status of federal cybersecurity regulation. At the federal level, there has been several discussions in the U.S. Senate and House of Representatives regarding an institution s responsibility for reporting data breaches to regulatory authorities and whether federal preemption of state law with regard to oversight of data breaches is deemed necessary. The U.S. Department of the Treasury has recommended prompt state adoption of the Insurance Data Security Model Law. The Treasury has indicated that if state adoption of the Model Law has not occurred within 5 years federal preemption could result. Big Data (EX) Working Group The Big Data (EX) Working Group met on December 2, The working group discussed a draft related to the current regulatory framework. The draft report facilitated discussion around three questions: 1) regulatory issues; 2) the applicability of a current regulatory standard; and 3) whether revisions need to be made to the current regulatory standard to address consumer, industry and regulator concerns as it relates to the use of said data (Charge A). With respect to Charge A, the working group is initially focused on evaluating regulation of personal lines in the property and casualty space while life insurance will be considered at a later time. The working group elected to survey the various states to evaluate state laws with respect to rating and underwriting prohibitions before finalizing the draft report. The working group briefly discussed a report related to current data collected and how regulators use said data. The report is meant to facilitate discussion on which tools are required for regulators to appropriately monitor the marketplace and evaluate the way in which data is used for underwriting, product rating, claims administration and marketing (Charge C). The working group will coordinate discussions with subject matter experts and NAIC groups and receive comments related to Charge C until January 12, The remainder of the discussion centered around the regulation and technical analyses of data collected by insurers and the data s use in complex models used for underwriting, product rating and claims administration (Charge B). Travel Insurance Model Law; Lender-Placed Real Property Insurance Model Act. 2

3 P&C Insurance (C) Committee Flood Insurance While at the 2017 Fall National Meeting, the committee continued their discussions related to national legislation impacting the National Flood Insurance Program (NFIP). The committee heard an update regarding the NFIP and catastrophe-related legislation from the Federal Emergency Management Agency (FEMA). The U.S. House Financial Services Committee has approved seven individual flood insurance bills that will be combined into one comprehensive five-year NFIP reauthorization bill. The U.S. Senate Banking Committee introduced a six-year reauthorization bill that incorporates reforms related to risk mitigation, flood mapping program improvements and other NFIP improvements. The Flood Insurance Market Parity and Modernization Act is not included in the Senate bill, as it is included in the House bill. The NFIP was reauthorized through December 8 by the U.S. Congress. Subsequent to the meeting, Congress reauthorized NFIP through January 22. FEMA acknowledged consumer frustration with the NFIP policy and their desire to create a standard industry form. Additionally, FEMA is evaluating administrative and legislative means for reforming proof-of-loss requirements so the NFIP may conform to industry standards. Title Insurance (C) Task Force The Title Insurance (C) Task Force met on December 2, During the meeting the task force adopted the report from the Title Insurance Financial Reporting (C) Working group. The report included a proposal to include known claims reserves (KCR) with Exhibit A of the Statement of Actuarial Opinion (SAO). After comments from interested parties and state regulators, the working group decided not to move forward with the proposal. NAIC staff members developed and distributed aggregate industry reports using exhibits from the title insurance annual financial statement for working group members to review. The task force also heard a report from States Title Regarding the Use of Predictive Analytics in Underwriting Title Insurance. Finally the Task Force received an update on activity at the Federal Level. RID (TILA-RESPA Integrated Disclosure) Improvement Act (H.R. 3978) was introduced by U.S. Rep. French Hill (R-AR) on October 5 and passed by the House Financial Services Committee by a vote of 53 to 5 on November 15. The bill would amend the federal Real Estate Settlement Procedures Act of 1974 (RESPA) to require the CFPB to allow for the calculation of the discounted rate that title insurance companies may provide to consumers when they purchase a lenders and owners title insurance policy simultaneously. 3 Financial Condition Updates Group Solvency Issues (E) Working Group The Group Solvency Issues (E) Working Group held a conference call on November 16, During the call, the working group heard a report from the drafting group responsible for comparing Form F and ORSA Summary Reports to obtain an understanding of similarities and differences. The results of the drafting group were presented through a Form F/ORSA Comparison Chart. As a result of the drafting group s efforts, revisions to the Form F Implementation Guidance were proposed to reduce redundancy in reporting requirements for ORSA filers, clarify that the purpose of the Form F Implementation Guide is to outline best practice recommendations for reducing follow-up questions and the scope of additional analysis and exam activities, if the Guide is followed, and provide more guidance regarding regulator interest in information on risk management practices for those insurance groups not subject to ORSA reporting requirements. The Form F/ORSA Comparison Chart and proposed revisions to the Form F Implementation Guide were exposed for public comment period ending January 12, Capital Adequacy (E) Task Force Investment Risk-based Capital (E) Working Group The working group held a conference call on October 23, During the session, the working group heard a report from the American Academy of Actuaries (the Academy ) regarding further revisions to the proposed bond capital factors and portfolio adjustment. Under the new proposal, base C-1 factors would increase to the 96% statistical confidence level over a 10 year investment horizon while the portfolio adjustment will be used to reflect the diversification in an individual insurer s portfolio. As the confidence level increased from 92% to 96% with this proposal, the Academy anticipates that the average portfolio adjustment factor will be one to achieve the desired safety level for the industry as a whole. At the request of the working group the Academy included bond capital factors that may be used as a starting point to revise bond capital factors for health and P&C RBC filers. The health and P&C C-1 factors were developed using the life C-1 model with adjustments to reduce the federal tax offset to zero and the provision for credit risk included in the life C-1 factors has been removed as there is no credit risk considered in the statutory reserve for unpaid losses for health and P&C insurers. Under the current RBC regime, bond capital factors for health and P&C insurers are reduced by approximately 50% to adjust for these carriers reporting bonds with an NAIC rating of 3-5 at the lower of market or amortized cost compared to amortized cost for life insurers. The Academy qualified their report on health and P&C insurers by stating that no opinion on these factors should be

4 inferred from the report as separate Academy groups have been formed to evaluate bond capital factors for health and P&C insurers. The Academy s report was exposed by the working group for a 90 day public comment period expiring January 21, The working group discussed the treatment of exchange traded funds in the determination of portfolio adjustment factors. The Chairman of the working group provided suggestions which include: 1) continue to treat an investment in an ETF as one investment position, 2) develop an adjustment which will increase the number of issuers based upon the dollar value of the ETF position in relation to the overall investment portfolio and the number of issuers that comprise the ETF or 3) apply a separate portfolio adjustment to ETFs which assume perfect diversification. The Chairman asked those with other ideas regarding the handling of ETFs provide their suggestions. There was no proposal exposed at this time. Finally, the working group continued their discussion with the ACLI regarding their proposal to reduce capital factors from 15% to 10% for investments in Schedule A real estate and Schedule BA real estate joint ventures. In an attempt to address concerns raised by the Academy, the ACLI updated their modeling to include results from the economic downturns which arose in and the early 1960s. The ACLI asserts that their modeling continues to support a reduction of real estate capital factors. At the request of the working group the ACLI intends to present their findings at a subsequent meeting. Capital Adequacy (E) Task Force HEALTH (E) Working Group The working group met on September 28, 2017 via conference call. During this meeting, the working group discussed agenda items CA and H which were previously exposed during the Summer National Meeting. There were no comments received during the exposure period for either agenda item. Exposures are considered maintenance changes which would remove the risk corridor components of the RBC sensitivity analysis ( CA) and amend page XR019 ( H) of the health RBC filing to remove the lines used to report reinsurance receivables arising from the federal affordable care act reinsurance program. These changes were considered necessary due to the risk corridor and federal reinsurance program ending in Agenda item CA was referred to the Capital Adequacy Task Force (E) for consideration. The working group adopted agenda item H. Group Capital Calculation (E) Working Group The Group Capital Calculation (E) Working Group met via conference call on October 30 and 31, During this meeting the working group continued their discussion of the treatment of captive insurers, prescribed or permitted practices and the treatment of non-regulated entities in the group capital calculation ( GCC ). There was a general consensus among the working group that pure captives that do not assume XXX/AXXX business should report liabilities using the same approach as the direct writer. For XXX/ AXXX captives, discussion continued regarding whether the same approach for non XXX/AXXX captives should be used or whether an on-top adjustment is necessary. The working group directed NAIC staff to draft a memorandum which memorializes the conceptual approaches discussed with the document being exposed for a 60 day comment period ending December 29, During the Summer National Meeting, the working group instructed NAIC staff to collect data from Note 1 to determine the extent and significance of prescribed or permitted practices. The working group heard a report from NAIC staff on their analysis of entity-level permitted practices. The next phase of the analysis will focus on prescribed practices. Based upon the report presented, the working group indicated that preliminary findings seem to suggest that due to the overall insignificance of these divergences from NAIC SAP that no adjustment to the GCC would be necessary. The working group revisited the topic of non-regulated entities. During previous discussions, there was consensus regarding the use of a fixed 22.5% risk based capital charge against the book carrying value of a nonregulated entity, consistent with current treatment. Due to concern that a flat pre-covariance charge could potentially understate risk and create arbitrage incentives the working group instructed NAIC staff to develop an alternative recommendation. The NAIC staff presented their report to the working group, which was exposed for a 75 day public comment period ending January 15, The working group heard a report from NAIC staff on the treatment of surplus notes and subordinated senior debt in a GCC. With regard to surplus notes, the report recommends that in all cases assets transferred to the issuer of the surplus notes be treated as available capital. However, intra-group capital created by an affiliated purchaser investing in surplus notes would be eliminated along with the RBC charge associated with said investment. For senior subordinated debt meeting certain criteria, defined in the report, NAIC staff recommends that capital generated by said debt should be recognized to some degree which is consistent with approaches employed by rating agencies. For both forms 4

5 of capital the report suggests that capital classifications defined by other U.S. sectoral regulators be considered in determining the quality of available capital generated from the aforementioned sources. For instance, the U.S. banking system tiers quality of capital where no such distinction exists under the current U.S. insurance regulatory regime. The report was exposed for a 75 day comment period ending January 15, Capital Adequacy (E) Task Force Life Risk-based Capital (E) Working Group The working group met on October 31, 2017 via conference call. The working group heard a report from the NAIC Capital Markets Bureau regarding insurers use of FHLB advances, which was requested by the working group at the Summer National Meeting to assess the risks that FHLB borrowing activity presents to the industry. The working group elected to re-expose the ACLI s Federal Home Loan Bank (FHLB) proposal, for a comment period ending November 22, 2017, which would reduce the RBC charge on collateral pledged to the FHLB from 1.3% to 0% to the extent the collateral s value is equal to advances from the FHLB as the ACLI asserts that there is no net financial risk to the insurer. To the extent an insurer has pledged collateral in excess of FHLB advances an RBC charge would be assessed based upon the credit standing of the FHLB. Capital Adequacy (E) Task Force Operational Risk (E) Subgroup The subgroup met via conference call on October 12, During the Summer National meeting, a concern was expressed by an interested party regarding the operational risk charge implemented by the adoption of agenda item Specifically, the concern related to the potential for double-counting operational risk charges for those insurers who write or cede business to a wholly owned insurance subsidiary. There were four methods considered with the working group expressing their preference for Method 1, sponsored by the Academy, which will add a line to bring the C-4a risk charge of insurance subsidiaries into the basic operational risk calculation of the parent insurer as a credit. Method 1 was exposed for a 45 day comment period which ended November 26, Capital Adequacy (E) Task Force Property and Casualty Risk-based Capital (E) Working Group The working group met via conference call on October 30, During the session, the working group adopted the 2017 catastrophe events list that should be used to exclude certain catastrophe events from the R5 calculation. Additionally, at the recommendation of the Affiliated Investment Ad Hoc Group, the working group exposed agenda item P which would remove affiliated bonds from PR003 to reclassify them to unaffiliated bonds in PR006. The agenda item was exposed for 45 day comment period ending December 14, Reinsurance (E) Task Force The Reinsurance Task Force met on December 3, During the meeting, the task force approved an amendment to the Uniform Application Checklist for Certified Reinsurers which allows states to consider Kroll Bond Rating Agency as a Nationally Recognized Statistical Rating Organization (NRSRO) for the purpose of certifying reinsurers under the Credit for Reinsurance Model Regulation (#786). Additionally, a clarification was made to the Checklist which notes that an NRSRO must be recognized by the U.S. Securities and Exchange Commission to provide financial strength ratings on behalf of insurance companies. The task force heard a status report regarding the Bilateral Agreement with the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance, referred to as the Covered Agreement. It was noted that the task force will hold a February 2018 public hearing intended to solicit feedback on the implementation of reinsurance aspects of the Covered Agreement. In preparation of this meeting, the task force has requested written comments from state insurance regulators and industry regarding the technical aspects of implementation and risks to domestic ceding insurers that should be addressed. Valuation of Securities (E) Task Force The task force met on November 13, 2017 via conference call in lieu of meeting at the 2017 Fall National Meeting. During the meeting the task force adopted amendments to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) which facilitate the transfer of the filing exempt (FE) and private letter (PL) rating process to the Securities Valuation Office (SVO). The revisions retain the existing filing exempt rule and process, but creates the new administrative symbol PL as the SVO deems these securities to represent a sub-population of FE securities. The task force adopted an amendment to Part One, Section 4(c)(iv) of the P&P Manual to remove SVO discretion to ignore credit ratings issued by a NAIC credit rating provider (CRP) when translating credit ratings issued by NAIC CRPs into an NAIC designation. 5

6 The task force adopted an amendment to Part Two, Section 4(d)(i) of the P&P Manual to remove SVO authority to require an insurer to file a security with the SVO despite filing exempt criteria, espoused by the P&P Manual, having been met. The task force adopted revisions to modernize the use of the Z Rule. Under the SVO administered 5*/6* process, insurers could self-designate securities if the SVO was unable to assign an NAIC designation to a properly filed and documented security by year-end with the SVO addressing these securities in the subsequent period. Under the revised process, if a security is being submitted to the SVO for an annual update, but the SVO is unable to evaluate the security prior to year-end, the previous NAIC designation should be applied and the security should be denoted by symbol YE. For those securities which are new to the regulatory environment, those securities submitted to the SVO, but not rated prior to year-end will be self-designated by an insurer and denoted by symbol IF. In the new-year, securities with symbols YE and IF would be prioritized for analytical review by the SVO. The task force adopted revisions to Part 3, Section 5(b) of the P&P Manual, which clarifies the SVO s methodology for rating Schedule BA fixed or variable rate assets that have the underlying characteristics of a bond or other fixed income instrument if the security has a stated maturity date and fixed or floating coupon rate. The task force heard a report on potential projects related to SSAP 43R. The report noted that the process of modeling all residential mortgage-backed securities and commercial mortgage-backed securities to produce NAIC designations based upon those results, coupled with a security s carrying value, may warrant evaluation to determine whether the logic is still relevant. The task force directed NAIC staff to research the matter alongside relevant industry groups in The task force exposed an amendment to the P&P Manual amendment to expand the U.S. Full Faith and Direct Obligations List for a 30 day public comment period ending December 12, Blanks Working (E) Group The Blanks (E) Working Group (BWG) met on November 9, 2017 in lieu of a meeting at the Fall National Meeting. The following is a summary of the accounting changes or revisions adopted by the BWG: Ref # Description of Change or Revision Target Date N/A The BWG adopted guidance developed by NAIC staff to assist companies with the transition from reporting money market funds (MMFs) in Schedule D to Schedule E as necessitated by changes to SSAP 2R Cash, Cash Equivalents, Drafts, and Short-Term Investments which requires MMFs to be reported as cash equivalents on a prospective basis beginning December 31, As the formal instructions for the aforementioned change have already been incorporated into the annual financial statement instructions, exposure is not required for this item. Upon Adoption Revision adds a question to the General Interrogatories Part 1 to determine if the reporting entity is part of a publicly traded group. Adds clarifying instruction to Schedule Y Part 1A when a Central Index Key ( CIK ) is provided. Adds crosscheck between Column 6 and Column 7 of Schedule Y Part 1A to ensure that when data is provided for one it is provided for the other. Quarterly

7 The following is a summary of the accounting changes or revisions exposed for comment by the BWG. The exposure period expires February 26, Ref # Description of Change or Revision Target Date Add language to General Interrogatory merger questions (5.1 annual and 4.1 quarterly) to require the filing of merger history with the NAIC, if the questions are answered Yes Add question to the Supplemental Exhibits and Schedules Interrogatories to allow regulators to determine if the Statement of Exemption was filed in the 2 nd quarter Modify the annual statement instructions to reflect the requirement of filing the Life, Health and Annuity Guaranty Association Model Act Assessment Base Reconciliation Exhibit and the Adjustments to the Life, Health and Annuity Guaranty Association Model Act Assessment Base Reconciliation Exhibit by companies that are members of the life, health and annuity guaranty associations and write the respective lines of business Add new category lines for bank loans to Schedules D (Parts 1, 3, 4 & 5), DL (Parts 1 & 2) and E (Part 2) and adjust category line number reference in the Default Component Basic Contribution, Reserve Objective and Maximum Reserve Calculations Add language to the instructions of the cash flow statement regarding the inclusion of restricted cash or restricted cash equivalents in the beginning and ending balance in the cash flow statement. The purpose of the exposure is to reflect changes to SSAP No. 69 Statement of Cash Flow adopted by SAPWG on August 6, Modifies the category line descriptions and adds crosschecks for lines , , , , , and to clarify the subtotal calculations for protected cells and authorization categories. Replaces old references to "Part 5" with updated "Part 3" references throughout. Revise the calculation references in the headings for Columns 60, 66, and 74. Revises the calculation references for Columns 72 and 73 to clarify certain calculations related to amounts in dispute. Annual Q 2019 Annual 2018 Annual 2018 Annual 2019 Annual 2018 The BWG received a memorandum from the Statutory Accounting Principles (E) Working Group seeking clarity on whether additional annual statement instructions are necessary to define gross loss reserve for purposes of high-deductible disclosures required by SSAP 65 Property and Casualty Contracts. Accounting Policy & Procedures (E) Task Force Statutory Accounting Principles (E) Working Group and Emerging Accounting Issues (E) Working Group This section below summarizes the actions of the SAPWG relating to the adoption or exposure of the Statements of Statutory Accounting Principles. SAPWG met on November 6, 2017 in lieu of a meeting at the Fall National Meeting. The following is a summary of substantive accounting changes or revisions that were adopted by the SAPWG during this meeting. Ref # Statement Reference Title Description of Change or Revision Effective Date SSAP No. 100R Fair Value Adopts certain revisions, detailed in Issue Paper No. 157, which incorporate ASU and ASU The revisions allow reporting entities to utilize net asset value (NAV) per share as a practical expedient to fair value when certain conditions are met. For investments measured using the NAV practical expedient, enhanced disclosures that allow users of the financial statements to understand the nature and risks of the investments, as well as their value upon redemption, will be required. NAV investments shall not be classified in the fair value hierarchy Issue Paper No. 143R SSAP No. 35R Prospective- Based Guaranty Fund Assessments Guarantee Funds and Other Assessments The agenda item adopts revisions to Issue Paper No. 143 and SSAP No. 35R to incorporate the following agenda items previously adopted by the Working Group: 1) Reference # This agenda item, adopted in March 2017, permits discounting of guaranty fund assessments from insolvencies of insurers that write long-term care (LTC) contracts. 2) Reference # This agenda item, adopted in January 2017, permits consideration of expected renewals on short-term health contracts when determining asset recognition arising from guaranty fund assessments on insolvencies of insurers that write LTC contracts. January 1, 2018 with early adoption permitted 7

8 The following is a summary of non-substantive accounting changes or revisions that were adopted by the SAPWG: Ref # Statement Reference Title Description of Change or Revision Effective Date Appendix F Policy Statements New policy statement which provides formal guidance on the coordination between: 1) The P&P Manual and the Accounting Practices and Procedures Manual (AP&P); 2) VOSTF and SAPWG and 3) VOSTF and SAPWG support staff SSAP No. 86 Derivatives For derivative contracts with financing premiums, disclosure requirements are expanded to require disclosure of the non-discounted aggregate premium cost due in the four years following the balance sheet date and thereafter. The aggregate fair value of these derivative instruments, excluding the impact of deferred or financed premiums, must also be disclosed EP SSAP No. 2R Actuarial Guideline Actuarial Guideline XXXIX Cash, Cash Equivalents, Drafts and Short-Term Investments XXXIV Variable Annuity Minimum Guaranteed Death Benefit Reserves (AG34) Reserves for Variable Annuities with Guaranteed Living Benefits (AG 39) Revision for certain editorial changes, which deletes transition footnotes which were added to report money market mutual funds as cash equivalents. Delete AG34 and AG39 from Appendix C due to repeal in favor of AG SSAP No. 86 Derivatives Revision to clarify that changes to variation margin on derivative transactions shall not be recognized as settlements until the derivative contract has been sold, matured, expired or has another closing transaction SSAP No. 12 SSAP No. 104R Employee Stock Ownership Plans Share-Based Payments Agenda item contains revisions comply with ASU : Improvements to Employee Share-Based Payment Accounting. January 1, 2018 January 1, SSAP No. 97 Investments in Subsidiary, Revision to Sub 1 and Sub 2 filing deadlines. As adopted The following is a summary of substantive accounting changes or revisions that were exposed for comment by the SAPWG Controlled and Affiliated Sub 1 filings shall be submitted within 90 days after during the 2017 Spring National Entities Meeting. acquisition or formation. Sub 2 filings should be submitted by August 31 st or one month after audited financials become Ref # Title Description available of Change if that date is after August 31 st SSAP SSAP No. No R Loan-Backed Postretirement and Benefits This Other agenda The item agenda originally item proposed adopts a definition ASU : change for Improving securities the in scope, Upon with Adoption the intent Structured Securities: than Pensions to dispose without Presentation incorporating of Net Periodic a definition Pension change. Cost As and the Net proposal Periodic to consider modifying SSAP No. 102 Pensions the definition Postretirement originated from Benefit the Valuation Cost which of Securities clarifies (E) how Task defined Force, directed notification to the task force benefit of the pension intent to cost dispose. and Although postretirement this item benefit is a substantive cost change and will require an issue should paper, be recognized this initial exposure in an entity s is to statement capture preliminary of operations. comments, including the impact to securities Agenda that item will rejects be captured/removed the ASU with notation from that SSAP disclosures No. 43R New SSAP/Issue Paper Special This new SSAP in SSAPs develops should specific be followed. statutory accounting guidance for certain limited derivative SSAP Accounting No. 104R Treatment Share for Based Limited Paymentscontracts hedging The agenda variable item annuity includes guarantees, guidance The from agenda ASU item : exposed January revised 1, statutory Derivatives Hedging Variable Annuity Guarantees accounting guidance Stock Compensation that considered Scope prior of industry Modification comments. Accounting The exposure 2018 identifies with key areas where which input is specifies requested. which The changes SSAPWG to directed the terms a request or conditions to the Variable early Annuity adoption Issues (E) Working of Group a share-based for input on payment hedging award programs require initially application captured of under permitted the accounting guidance, but modification are subsequently accounting. terminated or become ineffective. 8

9 Ref # Statement Reference SSAP 97 Investments in Subsidiary, Controlled and Affiliated Entities SSAP No. 43R Loan-backed and Structured Securities SSAP No. 68 SSAP No. 90 Business Combinations Impairment or Disposal of Real Estate Investments Agenda item clarifies that paragraph 8.b.iv of the SSAP applies to all foreign insurance SCAs regardless of whether they have audited U.S. GAAP or audited U.S. foreign GAAP financial statements. The agenda item revises SSAP No. 43R implementation guidance to remove outdated guidance pertaining to 2009 implementation. The revisions are not expected to result in application changes for investments within the scope of the SSAP. The agenda item considers the following guidance issued by the FASB: ASU : When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts ASU : Testing Goodwill for Impairment ASU : Testing Indefinite-Lived Intangible Assets for Impairment ASU : Accounting for Goodwill (a consensus of the Private Company Council) ASU : Simplifying the Test for Goodwill Impairment By adoption the working group rejects all of the ASUs noted above, with modifications to SSAP Nos. 90 and 68 to incorporate the guidance for triggering events which require impairment consideration SSAP No. 22 Leases The revision adopts ASU : Determining the Customer of the Operation Service with modification to limit the guidance to clarifying the customer of the operation services without modifying revenue recognition SSAP No. 107 Risk Sharing Provisions of the Affordable Care Act Title Description of Change or Revision Effective Date The revision clarifies that high-cost risk pooling claim reimbursements, received from the U.S. Department of Health and Human Services, shall be accounted for as increases to premium rather than a decrease in benefit expense. The working group determined that revisions to existing disclosures on transactional reinsurance program, originally exposed under this agenda item, will be pursued through a separate agenda item. January 1, SSAP No. 26R Bonds The revision clarifies that bank loans includes those loans issued by an insurer or acquired through assignment, participation or syndication. All bank loans should be reflected in Schedule D Part SSAP No. 2R SSAP No. 103R Cash, Cash Equivalents, Drafts and Short-Term Investments Transfers and Servicing of Financial Assets and Extinguishments of Liabilities SSAP No. 6 Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due From Agents and Brokers The agenda item clarifies that the acquisition and disposal of shares in money market mutual funds are not subject to SSAP No. 103R wash sale disclosure. The agenda item temporarily overrides SSAP 6, paragraph 9, to add an optional 60 day extension to the 90-day rule for those policies affected by Hurricanes Harvey, Irma and Maria. & expires February 15,

10 The following is a summary of substantive accounting changes or revisions that were exposed for comment by the SAPWG: Ref # Title Description of Change SSAP No. 30 Investment Classification Project The exposure focuses on the following items: 1. Review the definition of common stock in accordance with market/sec terms. 2. Consider specific inclusion of closed-end funds and unit investment trusts within the scope of SSAP No. 30 Unaffiliated Common Stock. Consider reporting/rbc enhancements based upon the ability of the VOSTF to report NAIC designations for certain fund investments that have underlying bonds. The exposure period expires January 19, The following is a summary of non-substantive accounting changes or revisions that were exposed for comment by the SAPWG. The exposure period expires January 19, Ref # Title Description of Change SSAP No. 92 Postretirement Benefits Other than Pensions SSAP No. 102 Pensions Appendix D FASB Codification References Interpretation Updates Exposure considers the following changes: & SSAP No. 47 Revenue Recognition ASUs SSAP No. 103R Wash Sale Disclosure SSAP No. 49 Policy Loans SSAP No. 56 Separate Accounts SSAP No. 41R Surplus Notes SSAP No SSAP No. 68 Business Combinations SSAP No. 97 The exposure proposes revisions to remove the Level 3 reconciliation from defined benefit plan disclosures. Exposure considers a project to identify and update FASB Codification references for U.S. GAAP guidance reflected in SSAP. Revise language in INT Accounting for the U.S. Terrorism Risk Insurance Program - to state that the INT is in effect as long as the TRIA program is in effect. Update the status and nullify INT Accounting for Loans Received under the Federal TALF Program as the program was closed for new loan extension as of June 30, Exposure considers rejection of the following FASB ASUs noted in SSAP No. 47: ASU : Revenue from Contracts with Customers (Topic 606) ASU : Revenue from Contracts with Customers (Topic 606) ASU : Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ASU : Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ASU : Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients Exposure contains revisions to exclude all cash equivalents, derivative instruments as well as short-term investments with credit assessments equivalent to an NAIC 1-2 from the wash sale disclosure. Proposed revisions also clarify that the wash sale disclosure should be captured in the financial reporting statement for the period in which the investment was sold. Comments were requested on whether common stock reported in Schedule D Part 2 Section 2 should be excluded from the wash sale disclosure too. Exposed for comment key concepts noted in the agenda item for discussion to determine how to move forward in clarifying the policy loan guidance. The agenda item clarifies that surplus notes issued and held between insurance reporting entities and SCAs should be eliminated from the carrying value of the SCA as reported in the issuers financial statement to avoid double counting of surplus notes by the issuer. The agenda item seeks to expand goodwill disclosure requirements 10

11 The following is a summary of substantive accounting changes or revisions that were exposed for comment by the SAPWG: Ref # Title Description of Change SSAP No. 26R Bonds The agenda item was referred to the Capital Adequacy (E) Task Force, Valuation of Securities (E) Task Force, and Blanks Working Group to determine whether all entities should have the ability to report NAIC designations on Schedule BA assets to receive the favorable risk-based capital treatment currently afforded to life insurers. Further, the SAPWG directed NAIC staff on the following projects: Ref # Title Description of Project SSAP No. 22 Leases The Working Group received an interested party comment related to the agenda item. The NAIC has been directed to continue to work on the language in this agenda item for subsequent consideration ASU Credit Losses Directed NAIC staff to begin drafting an issue paper detailing substantive revisions and discussion to adopt ASU with modifications to replace the incurred loss model with an expected credit loss concept SSAP No. 61R Life, Deposit-Type and Accident and Health Reinsurance SSAP No. 62R Property and Casualty Reinsurance Appendix A-791 Life and Health Reinsurance The Working Group has directed NAIC staff to schedule a series of drafting calls to address industry comments regarding the agenda item. The agenda item focuses on clarifying the reinsurance risk transfer requirements and that reinsurance accounting credit is only permitted for the amount of risk ceded ASU Derivatives and Hedging The Working Group directed NAIC staff to begin their review of this ASU for potential changes to SSAP No SSAP No. 41R Surplus Notes The Working Group directed NAIC staff to develop illustrations detailing different suggestions for the accounting for surplus notes issued at a discount or a zero coupon. Revisions to the agenda item will be submitted to the Working Group for exposure consideration Special Accounting for Limited Derivatives NAIC staff continue to work with industry representatives to obtain additional information to address industry and staff recommendations received during the exposure period. Once information is received, NAIC staff will present an updated issue paper to the Working Group for exposure consideration. The following item was rejected by the SAPWG as the GAAP pronouncement was deemed not applicable to statutory accounting: Ref # Title Description of Change ASU , Financial Services Investment Companies Amendments to the Scope, Measurement and Disclosure Requirements Revisions reject the ASU as not applicable to statutory accounting. DHG Insurance Contacts Matt Church Managing Partner, DHG Insurance matt.church@dhgllp.com Kevin Ryals Partner, DHG Insurance kevin.ryals@dhgllp.com David Berry Senior Manager, DHG Assurance david.berry@dhgllp.com 11