views NAIC 2018 Spring Meeting Newsletter Contents

Transcription

1 April 2018 NAIC 2018 Spring Meeting Newsletter Matt Church, Managing Partner DHG Insurance Brian Smith, Partner DHG Insurance David Berry, Senior Manager DHG Assurance Brad Hopson, Manager DHG Assurance The following represents an executive summary of the key decisions made by the National Association of Insurance Commissioners (NAIC) during the 2018 Spring National Meeting. Contents Executive Committee...1 Big Data...2 Property & Casualty Updates...2 Title Insurance (C) Task Force...2 Financial Condition Updates...3 Valuation of Securities (E) Task Force...6 Accounting Policy & Procedures (E) Task Force...7 Executive Committee The Executive (EX) Committee held a joint session with the Internal Administration (EX1) subcommittee, on March 24, 2018, in a regulator-to-regulator session. The committee and subcommittee adopted the March 23 Information 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, and 2) received an update on the review of the new 2018 fiscal impact statement with a technology component from the Technical Consulting (EX1) Working Group. DHG Insurance Contacts...13

2 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; Travel Insurance Model Law; Lender-Placed Real Property Insurance Model Act. Big Data Big Data (EX) Working Group The Big Data (EX) Working Group met on March 24, The working group discussed a memorandum which is intended to aid state regulatory review of complex models used in personal auto and homeowner insurance rate filings. The principles discussed included 1) preserve state regulator authority over the regulation of insurance rates, 2) state regulator should work in a manner to allow for the sharing of information that will increase speed to market, 3) state regulators sharing expertise pertaining to technical aspects of evaluating complex predictive models, and 4) state regulators will seek to ensure state confidentiality applies. As part of this discussion, the working group requested that the Casualty Actuarial and Statistical (C) Task Force appoint a Predictive Analytics (C) Working Group. The working group would be responsible for 1) drafting any changes to the Product Filing Examiners Handbook to address best practices for review of predictive analytics used by insurers 2 to support rates, 2) recommend filing requests for rate filings supported by complex predictive models, 3) facilitate discussion among regulators regarding rate filings issues of common interest across states through regulator-toregulator conference calls, 4) facilitate training and sharing of expertise through predictive analytics webinars, and 5) work with NAIC technical staff to identify required technology to assist with the analysis of predictive models. Due to concerns over the sharing of information amongst State Insurance Departments, and potentially the NAIC, the working group emphasized that legal assistance will be sought to ensure that state confidentiality provisions are maintained. Following the discussion, the working group recommended that that the Innovation and Technology (EX) Task Force submit a request to the Executive (EX) Committee to direct NAIC management to research the skills and number of individuals required for the NAIC to address the needs of NAIC membership with regard to the review of predictive analytics and direct NAIC Legal Division to prepare a memorandum on the methods and procedures that should be followed by states during their review of predictive models to maintain confidentiality protections. During the 2018 Spring National Meeting, the Innovation and Technology (EX) Task Force later adopted the motions put forth by the Casualty, Actuarial and Statistical (C) Task Force as well as the request of the Executive (EX) Committee. Property & Casualty Updates Catastrophe Insurance (C) Working Group The working group met on March 26, 2018 at the Spring National Meeting and continued their discussions related to national legislation impacting the National Flood Insurance Program (NFIP). The working group heard an update regarding the NFIP and catastrophe-related legislation from the NAIC staff. While the U.S. House of Representatives passed a fiveyear NFIP reauthorization legislation in November 2017, the U.S. Senate has yet to hold a markup of several competing bills. The working group also discussed the status of NAIC s State Disaster Response Plan. The working group decided select members of the working group will finish drafting the document for exposure in the future. Title Insurance (C) Task Force The Title Insurance (C) Task Force met on March 24, During the meeting, the task force discussed the need to evaluate current state insurance laws related to insurance data and title matters. The task force intends to update the 2015 NAIC Survey of State Insurance Laws Regarding Title Data and Title Matters after obtaining comments from regulators, and interested parties, regarding innovation and regulatory questions.

3 The task force heard a report from Tridster and Demotech regarding their partnership to provide title insurance consumers with Demotech financial stability ratings through the Tridster website. Financial Condition Updates Group Solvency Issues (E) Working Group Since the Fall National Meeting, the working group met on Feb. 27, 2018 via conference call, and then again on March 24, 2018 at the Spring National Meeting. At the February meeting, the working group discussed comments received on the updated Form F Implementation Guide and the Form F/Own Risk and Solvency Assessment (ORSA) Comparison chart. Comments received from interested parties included a request to allow state insurance regulators the ability to grant exemptions for U.S. Securities and Exchange Commission (SEC) filers. The working group did not include the provision, but noted state insurance regulators already have the authority to grant individual exemptions under Section 4J of the Insurance Holding Company System Model Act (#440). At the March meeting, the working group continued the discussion of Form F Implementation Guide and the Form F/ORSA Comparison chart. An additional comment from interested parties was a request for the removal of the examples list from the implementation guide. The working group clarified that the implementation guide is to outline best practice recommendations and is not a set of requirements for filers or regulators, and decided not to remove the examples list. After the discussion, the working group unanimously adopted the Form F Implementation Guide and Form F/ORSA Comparison chart. Capital Adequacy (E) Task Force Investment Risk-based Capital (E) Working Group Since the Fall National Meeting, the working group met on Feb. 27, 2018 via conference call and then again on March 25, 2018 at the Spring National Meeting. The working group continued the discussion of revised bond structure and risk charges projected to be implemented for year-end The working group discussed comment letters received related to the American Academy of Actuary s (Academy) October 2017 report that included updated risk-based capital (RBC) factors for bonds in the life formula. The working group asked the Academy to review one of the more subjective assumptions in the model, the risk premium offset assumption, and provide updated data to the working group at a later date. The working group heard an update related to the development of revised risk factors for bonds in the P&C and health formulas from Academy s Joint P&C/Health Bond Factor Analysis Work Group. The Academy s Joint P&C/Health Bond Factor Analysis Work Group plans to submit a report to the working group by the Summer National Meeting. The working group also discussed the implications of the Tax Cuts and Jobs Act (the Act). The working group noted that they may discuss the implications related to the C-1 charges in the future, but the Life Risk-based Capital (E) Working Group would be working on the overall impact to the RBC (see below Life Risk-based Capital (E) Working Group update). Capital Adequacy (E) Task Force Health (E) Working Group The working group met on March 25, During this meeting, the working group adopted its March 5, 2018, Jan. 19, 2018 and Sept. 28, 2017 minutes. During these interim sessions, the working group adopted three agenda items. Agenda item H amends page XR019 of the health RBC filing to remove the sections used to report reinsurance receivables arising from the federal affordable care act reinsurance program. Agenda item CA removes the risk corridor components from the RBC sensitivity analysis. Agenda item CA removes informational only pages XR012, LR020A, PR0202A, and FR0202A as the pages are no longer required to analyze the impact of the Federal Affordable Care Act (ACA). During the 2017 Spring National Meeting, the Capital Adequacy Task Force adopted agenda item CA, previously referred by this working group, resulting in Medicaid pass-through payments being excluded from an underwriting charge in favor of a business risk charge in the amount of 2 percent of pass-through payments recorded. During the 2017 Spring National Meeting, the working group exposed agenda item CA. This agenda item would introduce an interrogatory which would be used to analyze stop-loss activity to determine if further revisions to RBC factors are necessary, as a result of the ACA no longer permitting life time maximum limits on essential healthcare benefits. In the proposal, table one of the interrogatory would gather information on premiums earned, benefits incurred, and underwriting expenses equal to one year removed from the previous calendar year. As such, the 2018 RBC filing would reflect incurred data for calendar year 2017 run-out through Dec. 31, Table two would capture information regarding the size of group health stop-loss contracts and the average specific and aggregate attachment points. The agenda item was exposed for a 10-day public comment period ending on April 4. 3

4 The working group heard an update from the Academy regarding bond RBC factors for health insurers. While there was no formal proposal put forth, the Academy notes that they are leaning towards the current practice of excluding a portfolio adjustment for health insurers, as they believe that inclusion would not impact RBC materially. The Academy informed the working group that they will continue their work in coordination with the Academy s P&C working group. The working group discussed the impact of allowing health insurers to utilize NAIC designations for Schedule BA assets to obtain a more favorable RBC charge, with the working group deciding to consider the matter further at a later time. Finally, an editorial change to correct the factor applied to All Other Low Income Housing Tax Credits, reported on line 31, from the current factor of.015 to the intended factor of.15, was exposed for a 30-day comment period ending on April 24. Group Capital Calculation (E) Working Group Since the Fall National Meeting, the working group met on March 13, 2018 via conference call and then again on March 24, 2018 at the Spring National Meeting. During these meetings, the working group continued their discussion of the treatment of senior debt, surplus notes, and non-regulated entities in the group capital calculation. The working group exposed an updated memorandum related to the treatment of senior debt and surplus notes for a 15-day public comment period, ending on March 28, For the treatment of nonregulated entities, the working group directed NAIC staff to revise the memorandum based on information provided in the comment letters and in the Spring National Meeting. The working group plans to continue the discussion on the treatment of captive insurers that reinsure XXX/AXXX business via conference call in the near future. While there was no general consensus decided at these meetings, the working group s goal is to come to tentative decisions on the remaining issues before the Summer National Meeting, in order to turn the concentration of efforts to field testing and fine tuning the calculation. The working group also began discussion of the scope of the group and exposed a memorandum on the scope of the group for a 45-day public comment period ending on May 8, Capital Adequacy (E) Task Force Life Risk-based Capital (E) Working Group Since the Fall National Meeting, the working group met on March 1, 2018 via conference call and then again on March 24, 2018 at the Spring National Meeting. At the March meeting, the working group adopted proposal L related to Federal Home Loan Bank (FHLB) collateral. Proposal L removes the requirement to include any collateral pledged to the FHLB in excess of required collateral, under the rationale that the excess assets are available to be recalled by the insurer, which does not present non-controlled asset risk, and therefore should be excluded from the C-0 RBC risk charge. For FHLB advances that are not subject to C3 Phase 1 Cash Flow Testing, the full amount required pledged collateral will receive a C-0 RBC factor based on the NAIC ratings category, equivalent to an unsecured debt obligation of the FHLB. For FHLB advances subject to C3 Phase 1Cash Flow Testing, the reduction has been limited to 5 percent of total net admitted assets, with any collateral pledged in excess of this 5 percent limitation to receive a higher factor equal to the factor for NAIC 2 Corporate Bond asset factor. Where the limitation is applied, the factor applied will be a blend of the factors for NAIC ratings category, equivalent to an unsecured debt obligation of the FHLB and NAIC 2 Corporate Bond asset factor. At the Spring National Meeting, the working group adopted revised language to proposal L to change spread lending to funding agreements. Other matters discussed at the Spring National Meeting included the working agenda, an update from the Academy s Longevity Risk Task Force, and implications of the Act. The working group removed the item related to treatment for business ceded to unauthorized reinsurers from the agenda and indicated the item may be added back at a later date, when more resources are available. The working group added items for the Act and XXX/AXXX RBC shortfall calculation to address surplus notes issued by captives. The update from the Academy s Longevity Risk Task Force was to discuss progress so far, details of the field study, and next steps related to development of an approach for the Longevity Risk Subgroup to consider for longevity RBC factors. The remainder of the Spring National Meeting centered on the Act, with discussion from the Academy s Tax Reform Work Group and American Council of Life Insurers (ACLI). The working group noted the Act impacted many areas of the RBC calculation, which will require thorough considerations of those impacts and the changes needed. If any factor changes are proposed by the working group for a 2018 effective date, the deadline for exposure is April 30, 2018; and the deadline for the Capital Adequacy Task Force to adopt is June 30, 2018, with an available extension to July 30, upon two-thirds consent of the Task Force members present at the adoption vote. The working group acknowledged the short timeline and determined to implement the required changes as soon as practical. The working group determined to make a decision on what changes, if any, to propose for 2018 implementation at a later date. 4

5 Capital Adequacy (E) Task Force Operational Risk (E) Subgroup The subgroup met via conference call on March 5, The subgroup noted that there was an error in the documents which were posted to the subgroup s website during the exposure period of agenda item The working group re-exposed the matter for a public comment period which ended on March 29, During an April 12, 2018 conference call, the subgroup noted that there were no additional comments received on agenda item , which will implement an operational risk charge for all RBC filers. At the Spring National Meeting, the Capital Adequacy (E) Task Force adopted the structural changes to the RBC formula to implement the operational risk charge in Capital Adequacy (E) Task Force Property and Casualty Risk-based Capital (E) Working Group The working group met on March 24, During the meeting, the working group adopted agenda item P, which removes affiliated bonds from PR003 to reclassify them to unaffiliated bonds in PR006. As a result of this change, the RBC charge will vary, based upon the credit quality of an affiliated bond, rather than receiving a flat charge of 22.5 percent. The Academy provided the working group with a status update on its review of bond RBC factors for the P&C RBC model. During this presentation, the Academy noted that they have analyzed the impact of reducing the 10-year time horizon, which is currently used to achieve the desired statistical safety level for a bond portfolio. The logic for this change was to match the statistical safety time horizon with the claim settlement patterns of P&C insurers. The working group objected to the methodology as it was noted that the 10-year horizon was not employed to match asset-liability duration, but instead is used to capture a complete credit cycle. The Academy informed the working group that they will continue their work in coordination with the Academy s Health working group. The working group discussed a referral from the Operational Risk (E) Subgroup, asking the working group to consider recommendations to evaluate the growth risk currently used in the P&C RBC formula - the working group agreed to continue these discussions in upcoming conference calls. Finally, the working group continued their discussion regarding the impact of permitting P&C insurers to utilize NAIC designations for Schedule BA assets to obtain a more favorable RBC charge and agreed to revisit in the near future. Reinsurance (E) Task Force The Reinsurance Task Force met on March 25, During the meeting, the task force discussed comments and testimony heard at the Feb. 20, 2018 public hearing on the Bilateral Agreement with the European Union (EU) and the United States of America on Prudential Measures Regarding Insurance and Reinsurance, referred to as the Covered Agreement. During this presentation, the task force presented a memorandum to the Financial Condition (E) Committee, which outlines the following steps and completion dates to implement the Covered Agreement: 1. Revise the Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786) to conform the model laws to the requirements of the Covered Agreement for EU reinsurers, and incorporate language to afford reinsurers domiciled in NAIC qualified jurisdictions, other than the EU (currently, Bermuda, Japan, Switzerland and, after Brexit, the United Kingdom), the same treatment as those EU reinsurers subject to the Covered Agreement. In exchange for receiving equivalent treatment to that of an EU reinsurer, those reinsurers located in NAIC qualified jurisdictions must agree to adhere to all other standards imposed upon EU reinsurers. Model #785 and #786 will also be revised to address the effect of a breach of the Covered Agreement on a reinsurer s collateral obligations, and the effect of a failure of non-eu qualified jurisdictions to meet the standards imposed by the Covered Agreement or model law. The goal is to complete these tasks by the 2018 Fall National Meeting. 2. The task force has charged the Qualified Jurisdiction (E) Working Group with considering, in conjunction with changes to model law, changes to the Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions to require that qualified jurisdictions adhere to the provisions of the Covered Agreement and/or model law to receive similar treatment to EU reinsurers, and to develop processes for removing qualified jurisdictions in the event of a breach. The goal is to complete these tasks by the 2018 Fall National Meeting. 3. The Reinsurance Financial Analysis (E) Working Group is directed to consider changes to its current method of monitoring certified reinsurers domiciled in NAIC qualified jurisdictions to incorporate changes to state collateral requirements arising from implementation of the Covered Agreement. The goal is to complete these tasks by the 2019 Fall National Meeting. 5

6 4. Finally, the task force is asking the Capital Adequacy (E) Task Force and Statutory Accounting Principles (E) Working Group to consider changes to RBC and statutory accounting principles as a result of the reduced collateral requirements. During the 2018 Spring National Meeting, the Financial Condition (E) Committee adopted all of the charges submitted by the task force. Valuation of Securities (E) Task Force The task force met on March 25, During the meeting, the task force adopted an amendment to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual), which provides the Securities Valuation Office (SVO) with guidance on the types of debt and preferred stock issuances between affiliated entities that may receive a credit rating from the SVO. The amendment clarifies that a credit rating, provided by an NAIC credit rating provider or SVO, is only a credit assessment and should not be construed to reflect assessments specific to affiliated transactions. During the session, an amendment was also adopted to consolidate the filing instructions, documentation requirements, and analytical methodology used by the SVO for Power Generation, Working Capital Finance Investments, Credit Tenant Loans, Structured Transactions, Procedures for Defaulted Securities, Customer Asset Protection Company (CAPCO) securities, and Lottery Securities into Part Three Credit Assessments of the P&P Manual, as part of the ongoing process of simplifying the structure of the P&P Manual. The task force adopted an amendment to Part Three, Section 1(b)(vi) of the P&P Manual to acknowledge that HR Ratings de Mexico, S.A. de C.V is now considered a nationally recognized statistical rating organization (NRSRO) for the issuance of credit ratings for financial institutions, brokers or dealers, and corporate debt issuers. The task force exposed an SVO proposal which seeks to ensure that all funds that are predominately comprised of bonds or preferred stock, with predominate being defined as at least 80 percent of fund assets, are subject to the same rating principles in the P&P Manual, regardless of the schedule that statutory accounting would require the security to be reported on. This proposal would permit all fixed income like instruments to benefit from more favorable RBC charges if certain conditions are met. The proposal was exposed for a 90-day public comment period ending on June 22, The task force re-exposed a proposed amendment to the P&P Manual to add definitions, documentation requirements for SVO rating, rating methodology, and criteria for bank loans. The proposal was prompted by changes to SSAP 26R, Bonds, by the Statutory Accounting Principles Working Group to modify the definition of bank loans. The proposal was exposed for a 60-day public comment period ending on May 25, 2018 (See Statutory Accounting Principles Working Group below). The task force discussed a proposal to expand the current NAIC designations, from six to 20, to accommodate the actions taken by the Investment Risk-Based Capital (E) Working Group. Under the proposal, the P&P Manual would be modified to capture the methodology used to add an NAIC designation modifier to the existing NAIC designations (NAIC 1-6) to create 20 NAIC designation categories. The implementation is targeted for Jan. 1, 2019, to permit insurer adoption of changes to RBC if the Investment Risk-Based Capital (E) Working Group is ready to implement the changes by Dec. 31, The targeted implementation date applies to all RBC filers. Implementation is dependent upon the Capital Adequacy Task Force adopting revised bond factors. The task force discussed a proposed amendment to the P&P Manual, which would adopt transfer of the verification process for private letter security ratings, as well as the filing exempt process to the SVO. The proposal is exposed for a 30-day public comment period ending on April 23, As part of the ongoing process of simplifying the P&P Manual, the task force released a proposal to combine filing instructions, documentation requirements to obtain an SVO rating, and the SVO s credit assessment methodology for catastrophe-linked bonds, sovereign and supranationals, preferred stock, U.S. government securities, and military housing securities. The proposal is exposed for a 30-day public comment period ending on April 23, The task force proposed an amendment to the P&P Manual to modify the definition of NAIC credit rating provider (CRP) to include the affiliates of NAIC CRPs. The amendment was deemed necessary because when credit ratings for publicly rated securities are submitted to the SVO, it is sometimes an affiliate of the NAIC CRP that shows up as the producer of the credit rating. As such, the SVO would like to clarify in the P&P Manual that these entities are approved by the NAIC to serve in this capacity. The proposal was released for a 60- day comment period ending on May 25,

7 Accounting Policy & Procedures (E) Task Force Blanks Working (E) Group The Blanks (E) Working Group (BWG) met on March 24, 2018 at the Spring National Meeting. The working group adopted the minutes of the Investment Reporting (E) Subgroup of the BWG which was disbanded as of Dec. 31, In addition to the adoptions and exposures below, the working group referred agenda item to the Statutory Accounting Principles (E) Working Group (SAPWG) for comment. The following is a summary of the accounting changes or revisions adopted by the BWG: Ref # Description of Change or Revision Target Date This agenda item adds 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, there will be a reduction to the number of crosscheck failures that result from the company being part of a merger This agenda item adds a question to the Supplemental Exhibits and Schedules Interrogatories regarding the filing of the Statement of Exemption in the 2nd Quarter to allow regulators to determine if the Statement of Exemption was filed within the 2nd Quarter This agenda item modifies the annual statement instructions to clarify the requirement of filing the 1) Life, Health and Annuity Guaranty Association Model Act Assessment Base Reconciliation Exhibit, and 2) 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 This agenda item adds new category lines for bank loans to Schedules D (Parts 1, 3, 4 & 5), D, DL (Parts 1 & 2) and E (Part 2); adds a new section to Schedule D, Part 1A for Bank Loans; and adds reference to Bank Loans to the Summary by Country. This also adjusts category line number reference in the Default Component Basic Contribution, Reserve Objective, and Maximum Reserve Calculations; and updates reference to annual Schedule D, Part 1A, Section 1 in quarterly Schedule D, Part 1B This agenda item adds 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, and clarifies that early adoption is allowed This agenda item modifies the category line descriptions and adds crosschecks for lines , , , , , and to clarify the subtotal calculations for protected cells and authorization categories. This agenda item also replaces old references to Part 5, with updated Part 3 references throughout; revises the calculation references in the headings for Columns 60, 66, and 74; and revises the calculation references for Columns 72 and 73 to clarify certain calculations related to amounts in dispute. 1Q 2019 Annual 2019 The following is a summary of the accounting changes or revisions exposed for comment by the BWG. The exposure period all expires May 14, Ref # Description of Change or Revision Target Date This agenda item modifies the language for the different lines on the Schedule DB, Part D, Section 1 - regarding exchange-traded funds and centrally cleared derivatives to clarify what line cleared derivatives should be reported on This agenda item modifies the columns and rows on the Summary Investment Schedule to align the Summary Investment Schedule with the investment schedules on the Annual Statement This agenda item adds the definition of Supranational to the Supplemental Investment Risks Interrogatories instructions to clarify what Supranationals are and how to report them This agenda item removes the reference to long-term care (LTC) from the Type of Reinsurance Assumed and the Type of Reinsurance Ceded columns for Schedule S, Part 1, Section 2 and Schedule S, Part 3, Section 2; and removes codes and the annuity-specific references from Schedule S, Part 1, Section 1 and Schedule S, Part 3, Section 1. This agenda item also adds a Type of Business Assumed column to Schedule S, Part 1, Sections 1 & 2, and adds code to Schedule S, Part 1, Section 1 and Schedule S, Part 3, Section 1 to identify general account versus separate account This agenda item modifies the instructions for the Property/Casualty Statement of Actuarial Opinion to incorporate the Actuarial Guideline LI The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves (AG 51) requirements, and to increase disclosures for accident and health (A&H) reported on a Property/Casualty blank This agenda item adds 999 to the end of all line numbers for Schedule DBs to expand the number of detail lines for reporting on the schedules. This will increase the number of lines available from 9,996 to 9,999,996 - eliminating the need to accumulate data within certain categories. 7

8 Ref # Description of Change or Revision Target Date This agenda item adds new PL and PLGI symbols to the instructions to identify private letter rated securities; adds YE and IF symbols as indication of a new carry-over administrative procedure of the NAIC Securities Valuation Office (SVO); and adds a general interrogatory for PL securities issued prior to Jan. 1, This agenda item modifies definitions of the Z symbol to indicate a security is in transition from one reporting status to another, and renames the NAIC Designation and NAIC Designation/Market Indicator columns to NAIC Designation and Administrative Symbol for Schedule BA, D and DL. This agenda item also removes designation matrices from the instructions and replaces them with a list of administrative symbols valid for use on Schedule BA and Schedule D; removes the Market Indicator column from Schedule D, Part 2, Section 2 for common stocks; removes the reference to Life and Fraternal Only in the General Instructions for Schedule BA regarding investments that have the underlying characteristics of bonds or fixed instruments; and removes the reference from the instructions for Schedule BA regarding the CUSIP and NAIC Designation Column. In addition, this agenda item eliminates the use of P and RP with the designation and adds specific line categories for perpetual preferred and redeemable preferred stock This agenda item modifies the instructions and illustration for Note 3A, Statutory Purchase Method, to capture additional information related to goodwill of investments in subsidiary, controlled or affiliated (SCA) entities This agenda item modifies the instructions for Note 20A, Note 20C and Note 20D, and illustrations for Note 20A and Note 20C related to fair value disclosures to reflect changes to SSAP No. 100R, Fair Value, that allows for the use of net asset value (NAV) practical expedient. This agenda item also adds a new disclosure, Note 20E, to capture additional information of investments measured using the NAV practical expedient This agenda item modifies the instructions for 1) Line 2 of the interest maintenance reserve (IMR) and 2) Line 2 of the asset maintenance reserve (AVR) regarding bifurcation of other than-temporary impairment (OTTI) investments subject to SSAP No. 26R, Bonds This agenda item adds additional instruction to the Fixed or Variable Interest Rate Investments that Have the Underlying Characteristics of a Bond, Mortgage Loan or Other Fixed Income Instrument and Joint Ventures or Partnership Interests for Which the Primary Underlying Investments are Considered to Be Fixed Income Instruments categories to clarify not reporting investments, in those categories, when there is specific category for the investment This agenda item adds an illustration for Note 8H, information related to future settled premiums, to be data-captured. This agenda item also adds electronic-only columns related to derivatives with financing premiums, and additional instructions to the description column related to derivatives with financing premiums to Schedule DB, Part A and Part B for both Section 1 and Section 2. In addition, the revision adds a new code to the Code column instructions for Schedule DB, Part A; adds a definition of finance premiums to the Schedule DB General Instructions; and adds additional instructions to Schedule DB, Part A for Column 11 and Column 12 of Section 1 and Column 13 of Section This agenda item modifies the VM-20 Reserves Supplement, Part 3 to be consistent with the changes made to the Valuation Manual, and adds VM-20 Reserves Supplement, Part 4 for the reporting of Other Exclusions from Life PBR. This agenda item also modifies Exhibit 5 instructions to reflect reporting of valuation bases for annuity contracts subject to VM This agenda item splits the Column 2, Separate Account assets, for Question 1.01 in the Separate Accounts General Interrogatories into two new columns ( Registered with the SEC and Not Registered with the SEC ) and renumber the remaining columns. This agenda item also adds a new Question, 1.01A, to capture additional data for private placement variable annuities and private placement life insurance This agenda item adds instructions and illustration for new disclosure to Note 10, 10O, SCA Loss Tracking. The illustration will be data-captured This agenda item deletes the instruction and illustration for Note 12C(2) relating to the reconciliation, of beginning and ending balances, of plan assets using significant unobservable inputs (Level 3) and renumbers Note 12C(3) to Note 12C(2) This agenda item modifies the instruction for Note 17C, Wash Sales, to exclude all cash equivalents, derivative instruments as well as short-term investments with credit assessments equivalent to an NAIC 1 or 2 designation This agenda item combines the annual and quarterly reporting, for life and fraternal companies, onto one blank to eliminate the need to maintain two sets of instructions and blank pages, along with reducing time spent on maintenance of tables, specs and validation rules. The combined blank will be based on changes to the existing life blank. Life blank pages that are not being modified, but have additional lines or columns not present on the fraternal blank, are provided in the proposal as a reference for fraternal companies. Q

9 Statutory Accounting Principles (E) Working Group The section below summarizes the actions of the Statutory Accounting Principles (E) Working Group (SAPWG), relating to the adoption or exposure of the Statements of Statutory Accounting Principles. On February 8, 2017, SAPWG adopted INT 18-01: Updated Tax Estimates under the Tax Cuts and Jobs Act. The interpretation ( INT ) provides for a limited-time, limited scope exception to SSAP No. 9, Subsequent Events, pertaining to updated estimates under the Tax Cuts and Jobs Act. In addition, the interpretation provides additional clarity on the reporting of certain income tax effects of tax reform in the 2017 Statutory and Audited Financial Statements. updated-ta There were no substantive accounting changes or revisions that were adopted by the SAPWG during the 2018 Spring National Meeting. The following is a summary of non-substantive accounting changes or revisions that were adopted by the SAPWG during the 2018 Spring National Meeting: Ref # Statement Reference SSAP No. 92 SSAP No Interpretation Title Description of Change or Revision Effective Date Postretirement Benefits Other than Pensions Pensions INT Updates Remove the reconciliation of Level 3 plan assets from defined benefit plan disclosures as plan assets are not reported as assets in the statutory-basis balance sheet 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. Upon Adoption & Interpretation 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, SSAP No. 47 Uninsured Plans Adoption results in the rejection of the following FASB ASUs, as not applicable to SSAP 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 Upon Adoption Upon Adoption 9

10 Ref # Statement Reference Title Description of Change or Revision Effective Date SSAP No. 86 Derivatives For each derivative contract with financing premiums, Year-end 2018 disclosure will include: Whether premium cost is paid throughout the contract, or at a scheduled maturity date Next premium cost payment date Total premium cost Premium cost paid in prior years Current year premium cost paid Future unpaid premium cost Fair value of derivative, excluding the impact of financing premiums. The Working Group sent a referral to the Banks (E) Working Group to capture the adopted disclosure in Schedule DB. The Working Group elected to dispose the agenda item as complete, and directed NAIC staff to reassess whether additional changes to SSAP 86 and AVR reporting are necessary, once the information in the recently adopted disclosures can be analyzed SSAP No. 68 SSAP No SSAP No. 41R SSAP No. 97 Business Combinations Investments in Subsidiary, Controlled and Affiliated Entities (SCAs) Surplus Notes Revision to expand goodwill disclosures to include the original date of acquisition, original amount of admitted goodwill, admitted goodwill as of the reporting date, and admitted goodwill as a percentage of an SCA s book adjusted carrying value (gross of admitted goodwill). Revision to clarify that surplus notes issued and held between insurance reporting entities and SCAs should be eliminated from the carrying value of the SCA to avoid double counting of surplus notes in the issuer s financial statements SSAP No. 103R Wash Sale Disclosure Revision 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. Revision also clarifies that the Wash Sale Disclosure should be captured in the financial reporting statement for the period in which the investment was sold. Year-end 2018 Upon Adoption Upon Adoption The following is a summary of substantive accounting changes or revisions that were exposed for comment by the SAPWG during the 2018 Spring National Meeting. Ref # Title Description of Change ASU Credit Losses NAIC staff has developed an issue paper which predominately outlines U.S. GAAP, under ASU , and the proposed application in SAP. The issue paper largely suggests adoption of the expected credit loss methodology under ASU , with modification for current SAP. Specifically, the proposal would exclude certain non-admitted assets from the pool of assets subject to the expected credit loss (ECL) allowance to avoid double counting the impact on surplus SSAP No. 86, Derivatives Exposed an issue paper detailing the U.S. GAAP revisions from ASU , Derivatives and Hedging, with initial staff assessments. Exposure requests comments on the assessments, the revisions needed to incorporate suggested modifications, and the differences in derivative accounting between SAP and U.S. GAAP that should be retained. The exposure period expires June 22,

11 Ref # Title Description of Change Special Accounting Treatment for Limited Derivatives (VAIWG) The exposure proposes to permit macro-hedging strategies for certain limited derivative contracts hedging variable annuity guarantees, subject to fluctuations as a result of interest rate sensitivity, reserved for in accordance with Actuarial Guideline 43. The macro-hedging strategy would permit a reporting entity to treat a dynamic portfolio of variable annuity policies, which could include an entire book of business or subsections thereof, as a hedged item. The reporting entity could then utilize a specified portfolio, or a portfolio of derivatives, as a hedging instrument designated as a fair value hedge. The special accounting provision requires a reporting entity to engage in highly effective fair value hedges that follow a Clearly Defined Hedging Strategy, as defined by AG 43. After a three month period, after the original designation of a hedge, a reporting entity may subsequently change the hedging strategy without necessitating that a hedging arrangement be deemed ineffective. A change in hedging strategy would require a reporting entity to notify their domiciliary commissioner. The following is a summary of non-substantive accounting changes or revisions that were exposed for comment by the SAPWG during the 2018 Spring National Meeting. The exposure period expires on May 18, 2018, unless otherwise noted below. Ref # Title Description of Change SSAP No. 101, Federal Income Tax Reform SSAP No. 43R, Loan-Backed and Structured Securities Exposed updated revisions to reflect comments received from the January 2018 meeting. The exposure updates SSAP 101 to address changes in carryback provisions for life insurers and the tax rate in SSAP 101 s Q&A. Exposure specifically requests comments on the assessment of reversal patterns of deferred tax items as a result of the Act. The exposure period expires on April 23, To clarify that when a reporting entity holds multiple lots of a security, which is subject to SSAP 43R, a reporting entity shall either report the entire investment in a single reporting line in Schedule D using the lowest NAIC designation of the lot, or report the investment separately by purchase lot in Schedule D, subject to approval from the report entity s state of domicile SSAP No. 26R, Bonds Exposed a proposed referral response to the Valuation Securities (E) Task Force which indicates that borrowing base loans and debtor in possession (DIP) financing loans are collateral loans under SSAP 21 Other Admitted Assets and not bank loans under SSAP 26R SSAP No. 32, Preferred Stock SSAP No. 1, Accounting Policies, Risks & Uncertainties and Other Disclosures SSAP No. 4, Assets and Nonadmitted Assets Exposed a proposal to remove references to NAIC administrative symbols for 5*, perpetual preferred (P) and redeemable perpetual (RP) stock within statutory accounting principles, as the Valuation Securities Task Force has either eliminated or replaced these symbols in the P&P Manual. Exposed revisions to indicate that items acquired as part of "regulatory transactions", that meet the definition of an asset, shall only be admitted with approval of the domestic state insurance department as a prescribed or permitted practice. Comments are requested on whether all "regulatory transactions" shall be reported on Schedule BA Other Long Term Invested Assets SSAP No. 41R, Surplus Notes Exposed revisions to indicate that surplus notes linked to other structures are not subordinate and do not qualify for reporting as statutory equity by the issuer. Also identifies that assets linked to issued surplus notes are not available for policyholder claims and shall be nonadmitted SSAP No. 56, Separate Accounts SSAP No. 21, Other Admitted Assets Exposed revisions to SSAP No. 56 capture information on the insurer issuance of private placement life insurance and private placement variable annuities. The Exposure requests information on how to differentiate private placement products that are investment-focused and traditional life insurance products when the insurer is the owner and beneficiary. This information will be used to develop subsequent revisions to SSAP No SSAP No. 97 Exposed revisions to clarify guidance when a company's share of losses exceeds its investment in an SCA, and to add a loss-tracking disclosure for situations where the equity method of accounting has been suspended due to negative equity value. 11

12 Ref # Title Description of Change INT INT Exposed new INT to provide guidance for the 2019 moratorium and future moratoriums for the federal ACA Section 9010 fee. Also exposed revisions to INT to remove the reference to 2019 fee accruals and propose a Dec. 31, 2018 nullification Appendix D Exposed revisions to reject ASU , Elimination of FASB Topic 995 U.S. Steamship entities, as not applicable to statutory accounting Various Exposed revisions to reject ASU , Recognition and Measurement of Financial Assets and Financial Liabilities, in SSAP No. 26R, SSAP No. 30, SSAP No. 32, SSAP No. 43R and SSAP No. 100R EP Various Exposed editorial revisions to SSAP Nos. 5R, 41R, 52 and 62R. The revisions do not impact disclosure or accounting requirements, rather, they are maintenance change to remove outdated language in the aforementioned SSAPs INT Medicare Part D Definitions Exposed revisions to add a description of the Coverage Gap Discount Program and amend existing guidance on program payments and update definitions to clarify that program payments should be accounted for similar to the existing guidance for low-income cost subsidies under SSAP No. 47, Uninsured Plans. The following is a summary of accounting changes or revisions that were disposed of by the SAPWG during the 2018 Spring National Meeting: Ref # Title Description of Change Appendix D FASB Codification References Wholly-Owned Ultra-short Bond Portfolio in an LLC series The agenda item has been disposed, but NAIC staff intend to document their U.S. GAAP assessment of FASB codification references within statutory accounting principles in connection with the review of ASU : Credit Losses. After ASU has been reviewed, the working group will reconsider whether the project is necessary. The agenda item has been disposed without modification to statutory accounting. The item has been referred to the Valuation Securities (E) Task Force and Blanks (E) Working Group to consider whether to permit all entities to report NAIC designations on Schedule BA assets. Further, the SAPWG directed NAIC staff on the following projects: Ref # Title Description of Project SSAP No. 22 Leases The Working Group is addressing interested party comments. Updated materials should be presented for exposure at the 2018 Summer National Meeting SSAP No. 61R Life, Deposit- Type and Accident and Health Reinsurance SSAP No. 62R Property and Casualty Reinsurance The agenda item focuses on clarifying the risk transfer requirements and that reinsurance accounting credit is only permitted for the amount of risk ceded. The NAIC staff continues their discussion with the Property & Casualty Drafting Group and Life & Health Drafting Group on this matter. The Property & Casualty Drafting Group is discussing ways to address reinsurance credit issues in the agenda item, however, the drafting group has agreed that SSAP 62R should match GAAP to the extent possible. Appendix A-791 Life and Health Reinsurance The Life & Health Drafting Group is in discussion on how to link SSAP 62R to Appendix A-791 to allow users to understand the contracts that are subject to or excluded from the guidance in the Appendix SSAP No. 41R At the 2017 Summer National Meeting, 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. The NAIC staff continues to work on this topic SSAP No. 30 Investment Classification Project The Working Group directed NAIC staff to draft an issue paper proposing revisions to SSAP No. 30 Unaffiliated Common Stock which include: Revise common stock definition, including the identification of items that technically do not meet the criteria of common stock, but should receive the same accounting treatment, such as unit investment trusts and closed end funds. Reporting enhancements to permit NAIC designations to be captured on Schedule D-2-2, resulting in fixed-income investments (i.e., mutual funds) reported on Schedule D-2-2 receiving a RBC charge reflective of the composition of investment s held by the instrument. 12