FINANCIAL STATEMENTS

Transcription

1 2016 FINANCIAL STATEMENTS Copyright National Insurance Producer Registry (NIPR)

2 National Insurance Producer Registry Financial Report December 31, 2016

3 Contents Independent auditor s report 2 Financial statements Statements of financial position 3 Statements of activities 4 Statements of cash flows 5 Notes to financial statements 6-13

4 Independent Auditor s Report To the Members of the Board of Directors National Insurance Producer Registry Kansas City, Missouri Report on the Financial Statements We have audited the accompanying financial statements of the National Insurance Producer Registry (the NIPR), which comprise the statements of financial position as of December 31, 2016 and 2015, the related statement of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the NIPR as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Kansas City, Missouri February 16,

5 Statements of Financial Position December 31, 2016 and 2015 Assets Current assets: Cash and cash equivalents $ 14,451,524 $ 19,371,749 Accounts receivable, less allowance for doubtful accounts of 2016 $33,835 and 2015 $26,641 3,069,940 2,132,135 Interest receivable 24,007 13,718 Prepaid expenses 79,141 83,602 Investments (Note 2) 29,011,215 19,206,337 Total current assets 46,635,827 40,807,541 Property and equipment, net (Note 3) 43,439 8,549 Total assets $ 46,679,266 $ 40,816,090 Liabilities and Net Assets Current liabilities: Accounts payable $ 3,121,984 $ 2,410,695 Accrued expenses 785, ,887 Total current liabilities 3,907,245 2,940,582 Net assets: Unrestricted 42,772,021 37,875,508 Total liabilities and net assets $ 46,679,266 $ 40,816,090 See notes to financial statements. 3

6 Statements of Activities Years Ended December 31, 2016 and 2015 Revenues: Access and transaction fees $ 33,543,585 $ 30,303,517 Other income ,902 Total revenues 33,544,086 30,333,419 Expenses: Administrative services and license fees 14,198,946 12,859,007 Salaries 6,540,456 5,705,087 Employee benefits 2,054,827 1,760,634 Professional services 6,365,320 6,477,794 Travel 481, ,950 Rental and maintenance 156, ,711 Depreciation 15,231 6,475 Insurance 108,393 98,084 Supplies 112,654 89,444 Bad-debt expense 35,035 30,900 Other expenses 52,538 65,434 Total expenses 30,120,813 27,739,520 Changes in net assets before investment income 3,423,273 2,593,899 Investment income (loss) (Note 2) 1,473,240 (410,895) Changes in net assets 4,896,513 2,183,004 Net assets, beginning of year 37,875,508 35,692,504 Net assets, end of year $ 42,772,021 $ 37,875,508 See notes to financial statements. 4

7 Statements of Cash Flows Years Ended December 31, 2016 and 2015 Cash flows from operating activities: Changes in net assets $ 4,896,513 $ 2,183,004 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation 15,231 6,475 Net realized and unrealized (gain) loss on investments (820,567) 923,845 Changes in operating assets and liabilities: Accounts receivable (937,805) 128,090 Interest receivable (10,289) 9,396 Prepaid expenses 4,461 (5,434) Accounts payable 711,289 93,925 Accrued expenses 255,374 (120,214) Net cash provided by operating activities 4,114,207 3,219,087 Cash flows from investing activities: Purchase of investments (13,674,688) (6,372,903) Proceeds from disposition of investments 4,690,377 6,139,797 Purchases of property and equipment (50,121) - Net cash used in investing activities (9,034,432) (233,106) Net increase (decrease) in cash and and cash equivalents (4,920,225) 2,985,981 Cash and cash equivalents: Beginning 19,371,749 16,385,768 Ending $ 14,451,524 $ 19,371,749 See notes to financial statements. 5

8 Note 1. Summary of Significant Accounting Policies Nature of operations: The National Insurance Producer Registry (the NIPR) is a nonprofit affiliate of the National Association of Insurance Commissioners (the NAIC). The NIPR combines the strengths of the public and private sectors to create products and services that benefit insurance regulators, industry and consumers. Basis of accounting for revenues: The NIPR earns revenues predominantly through access fees and transaction fees. Access fees are earned when users access the NIPR s Producer Database (PDB). The PDB is an electronic database consisting of information relating to insurance agents and brokers. The PDB links participating state regulatory licensing systems into one common repository of producer information. Transaction fees are earned when users process transactions through the NIPR Gateway. The NIPR Gateway facilitates the electronic exchange of producer information, including license applications, appointments and terminations. The NIPR earns revenue by charging a fee for providing the interface between industry and state regulators for licensing and other transactions. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents: The NIPR considers all liquid investments with original maturities of one year or less to be cash equivalents. At December 31, 2016 and 2015, cash equivalents consisted primarily of money market funds. Accounts receivable: Accounts receivable are stated at the amounts billed to customers. The NIPR provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Past-due accounts are periodically reviewed by management. Delinquent and/or uncollectible receivables are written off based on individual credit evaluation and specific circumstances of the customer. Investments: The NIPR carries its investments in marketable securities with readily determinable fair values, and all investments in debt securities, at their fair values determined by reference to public exchanges. The NIPR reports the fair value of alternative investments using the practical expedient. Unrealized gains and losses are included in the change in net assets in the accompanying financial statements. Investments may be exposed to various risks, such as interest rate, market and credit risks. As a result, it is at least reasonably possible that changes in risks in the near term could affect investment balances, and those effects could be significant. Fair value of financial instruments: The following methods and assumptions were used to estimate the fair value of each class of the NIPR s financial instruments at December 31, 2016 and 2015: Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of these instruments. Investment securities, except alternative investments: The fair values of fixed income, and domestic and international equity investments are based on quoted market prices at the reporting date for those or similar investments. A portion of the fixed income investments are valued based on quoted prices for similar instruments in active markets. 6

9 Note 1. Summary of Significant Accounting Policies (Continued) Alternative investments: The NIPR reports the fair value of market alternative investments using the practical expedient. The practical expedient allows for the use of net asset value (NAV), either as reported by the investee fund or as adjusted by the NIPR based on various factors. Fair value measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in its principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. The NIPR accounts for its investments at fair value. In accordance with the guidance, the NIPR has categorized its investments based on the priority of the inputs to the valuation technique, which gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Quoted prices for identical instruments traded in active markets Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; or derived from inputs that are observable Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker trade transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities Investments and concentrations of credit risk: Financial instruments that potentially subject the NIPR to significant concentrations of credit risk consist principally of cash and investments. The NIPR maintains deposits in financial institutions in excess of federally insured limits. Management monitors the soundness of these financial institutions and believes the NIPR s risk is negligible. Alternative investments are redeemable with the fund at net asset value under the original terms of the partnership and/or subscription agreements. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future, in accordance with the fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the net asset value of the funds and, consequently, the fair value of the NIPR s interests in the funds. Although a secondary market exists for these investments, it is not active and individual transactions are typically not observable. When transactions do occur in this limited secondary market, they may occur at discounts to the reported net asset value. It is therefore reasonably possible that if the NIPR were to sell these investments in the secondary market, a buyer may require a discount to the reported net asset value, and the discount could be significant. Property and equipment: Property and equipment are stated at cost. Routine repairs and maintenance are expensed as incurred. Depreciation is computed by the straight-line method over the estimated useful life of the related assets. Furniture and equipment 5 Computer software 3 Computer hardware 3 Years 7

10 Note 1. Summary of Significant Accounting Policies (Continued) Taxes: The NIPR has been granted exemption from income taxes by the Internal Revenue Service under the provisions of section 501(c)(6) of the Internal Revenue Code and a similar provision of state law. However, the NIPR is subject to federal income tax on any unrelated business taxable income. Uncertain tax positions, if any, are recorded in accordance with the FASB Accounting Standards Codification (ASC) 740, Income Taxes. ASC 740 requires the recognition of a liability for tax positions taken that do not meet the more-likely-than-not standard that the position will be sustained upon examination by the taxing authorities. There is no liability for uncertain tax positions recorded at December 31, 2016 or Functional expenses: The Not-for-Profit Entities topic of the ASC requires nonprofit organizations to disclose expenses by functional classification. The NIPR presents expenses only by their natural classification on the December 31, 2016 and 2015, statements of activities. Management believes that disclosing expenses by function is insignificant to the financial statements taken as a whole, and therefore does not apply the provision of the topic as it relates to the disclosure of expenses by functional classification. Recent accounting pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Revenue from Contracts with Customers (Topic 606). This guidance is intended to improve comparability of accounting treatment for revenue recognition across geographies and industries, and to provide more useful information to financial statement readers through enhanced disclosure requirements. It replaces industry-specific guidance with a principles-based approach for revenue recognition, and is a step toward convergence of accounting principles generally accepted in the United States of America and International Financial Reporting Standards. In general, it requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU, as deferred one year by ASU No , is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 31, Therefore, this ASU will be effective for the NIPR for the fiscal year ending December 31, The ASU permits the use of either of two methods: a full retrospective or a retrospective with the cumulative effect and additional disclosures. Management has not yet selected a transition method, as the NIPR is currently evaluating the impact of the new standard on its sources of support and financial statements, and is reviewing its revenue recognition policies and processes for any necessary amendments. In August 2016, the FASB issued ASU No , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The new standard changes presentation and disclosure requirements with the intention of helping nonprofits provide more relevant information about their resources to donors, grantors, creditors and other financial statement users. This pronouncement decreases the number of net assets classes from three to two. The new classes will be net assets with donor restrictions and net assets without donor restrictions. The standard will take effect for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, Therefore, this ASU will be effective for the NIPR s fiscal year ending December 31, Management is in the process of evaluating the impact of this new guidance. 8

11 Note 2. Investments and Investment Income Investments carried at fair value at December 31, 2016 and 2015, consisted of the following: Cost Fair Value Cost Fair Value Government bonds $ 1,836,257 $ 1,813,120 $ 973,307 $ 955,416 Corporate bonds 2,069,150 2,058,153 1,726,270 1,704,678 Fixed-income mutual funds 7,596,456 7,476,710 3,772,080 3,732,957 Foreign-fixed income funds 1,559,882 1,424,789 1,152, ,620 Domestic equity mutual funds 2,670,662 2,735, Common stock: Industrials 546, , , ,117 Consumer discretionary 859,977 1,160, ,567 1,018,311 Financials 369, , , ,764 Information technology 979,441 1,344, ,091 1,439,516 Other industries 4,109,184 5,228,506 3,656,363 4,527,894 Foreign common stock 378, , , ,458 American depository receipts 72,815 90,246 69, ,811 Foreign equity mutual funds 1,894,383 1,994,698 1,212,890 1,282,593 Master limited partnership 783, , , ,638 Alternative equity hedge funds 1,129,963 1,342,545 1,129,963 1,380,564 $ 26,855,584 $ 29,011,215 $ 17,223,208 $ 19,206,337 Total investment income is composed of the following: Interest and dividend income $ 652,673 $ 512,950 Net realized gains 648, ,310 Net unrealized gains (losses) 172,508 (1,725,155) $ 1,473,240 $ (410,895) 9

12 Note 2. Investments and Investment Income (Continued) The following tables summarize the financial investments measured at fair value on a recurring basis, segregated by the general classification of such instruments pursuant to the valuation hierarchy: December 31, 2016 Total Fair Value Level 1 Level 2 Level 3 Government bonds $ 1,813,120 $ - $ 1,813,120 $ - Corporate bonds 2,058,153-2,058,153 - Fixed-income mutual funds 7,476,710 7,476, Foreign fixed-income funds 1,424,789 1,424, Domestic equity mutual funds 2,735,199 2,735, Common stock: Industrials 754, , Consumer discretionary 1,160,886 1,160, Financials 476, , Information technology 1,344,821 1,344, Other industries 5,228,506 5,228, Foreign common stock 473, , American depository receipts 90,246 90, Foreign equity mutual funds 1,994,698 1,994, Master limited partnership 637, , ,668,670 $ 23,797,397 $ 3,871,273 $ - Investments measured at net asset value: Alternative equity hedge funds 1,342,545 Total investments $ 29,011,215 10

13 Note 2. Investments and Investment Income (Continued) December 31, 2015 Total Fair Value Level 1 Level 2 Level 3 Government bonds $ 955,416 $ - $ 955,416 $ - Corporate bonds 1,704,678-1,704,678 - Fixed-income mutual funds 3,732,957 3,732, Foreign fixed-income funds 986, , Common stock: Industrials 649, , Consumer discretionary 1,018,311 1,018, Financials 352, , Information technology 1,439,516 1,439, Other industries 4,527,894 4,527, Foreign common stock 455, , American depository receipts 152, , Foreign equity mutual funds 1,282,593 1,282, Master limited partnership 567, , ,825,773 $ 15,165,679 $ 2,660,094 $ - Investments measured at net asset value: Alternative equity hedge funds 1,380,564 Total investments $ 19,206,337 Alternative Equity Funds Total gains (losses), net, included in earnings attributable to the change in unrealized gains, net, relating to financial instruments still held $ (38,019) $ 22,747 11

14 Note 2. Investments and Investment Income (Continued) The following table sets forth additional disclosure of the NIPR s investments whose fair value is estimated using NAV per share (or its equivalent) as of December 31, 2016 and 2015: Fair Value December 31, December 31, Unfunded Redemption Investment Commitment Frequency Alternative equity hedge funds (A) $ 1,342,545 $ 1,380,564 $ - Quarterly (A) This fund aims to generate consistent absolute returns by investing in assets with a diversified group of investment managers through managed account structures (Managed Account Structures) or in the private investment funds sponsored by investment managers (collectively, Hedge Fund Managers or Hedge Funds). Note 3. Property and Equipment Property and equipment at December 31 consisted of: Furniture and equipment $ 24,120 $ 24,120 Computer hardware 13, ,053 Computer software 85,451 35,073 Total cost 122, ,246 Less accumulated depreciation and amortization 79, ,697 $ 43,439 $ 8,549 Note 4. Related-Party Transactions The NIPR and the NAIC executed a Licenses and Services Agreement (the Agreement) effective January 1, 2012, for an initial term of five years. The agreement will automatically renew each year thereafter unless either party provides written notice of termination to the other party no later than 180 days prior to the end of the renewal period. The terms of the agreement provide for (1) a 38 percent license fee for the NIPR to use the NAIC s producer data; (2) the reimbursement of the actual cost of services, facilities and equipment provided to the NIPR by the NAIC; and (3) the reimbursement of system usage fees related to ongoing infrastructure costs for the NIPR. 12

15 Note 4. Related-Party Transactions (Continued) The total amount charged during the year and amounts owed at year-end are as follows: Administrative services provided by and paid to the NAIC $ 1,242,779 $ 1,164,013 License fee paid to the NAIC $ 12,733,249 $ 11,503,594 System usage fees paid to the NAIC $ 222,918 $ 191,400 Amounts payable to the NAIC $ 1,379,931 $ 1,237,197 Note 5. Defined Contribution Plan The NIPR has a defined contribution 401(k) plan (the Plan), which covers substantially all employees who have completed one year or more of service. Each year the Board of Directors determines the contribution for the next year. In 2016 and 2015, the NIPR matched up to 3.5 percent of contributions of those employees who contributed to the Plan and contributed 5.0 percent of all employees annual compensation. Contribution expense was $427,988 and $388,791 for the years ended December 31, 2016 and 2015, respectively. Note 6. Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Approximately 32 percent and 31 percent of all revenue for the years ended December 31, 2016 and 2015, respectively, was received from two business partners. Note 7. Subsequent Events Management has performed an evaluation of events that have occurred subsequent to December 31, 2016, through February 16, There have been no events that occurred during such period that would require disclosure in these financial statements or would be required to be recognized in the financial statements as of or for the year ended December 31, RSI\A