NAIC BLANKS (E) WORKING GROUP

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1 NAIC BLANKS (E) WORKING GROUP Blanks Agenda Item Submission Form CONTACT PERSON: TELEPHONE: ADDRESS: ON BEHALF OF: NAME: Joseph Fritsch DATE: 05/14/2012 FOR NAIC USE ONLY Agenda Item # BWG MOD Year 2013 Changes to Existing Reporting [ X ] New Reporting Requirement [ ] REVIEWED FOR ACCOUNTING PRACTICES AND PROCEDURES IMPACT No Impact [ X ] Modifies Required Disclosure [ ] DISPOSITION TITLE: AFFILIATION: ADDRESS: Chair SAPWG New York Department of Insurance 25 Beaver St. New York, NY [ ] Rejected For Public Comment [ ] Referred To Another NAIC Group [ ] Received For Public Comment [ X ] Adopted Date 08/11/2012 [ ] Rejected Date [ ] Deferred Date [ ] Other (Specify) BLANK(S) TO WHICH PROPOSAL APPLIES [ X ] ANNUAL STATEMENT [ X ] QUARTERLY STATEMENT [ X ] INSTRUCTIONS [ ] CROSSCHECKS [ ] BLANK [ X ] Life and Accident & Health [ X ] Property/Casualty [ X ] Health [ ] Separate Accounts [ X ] Fraternal [ X ] Title [ ] Other Specify Anticipated Effective Date: First Quarter 2013 IDENTIFICATION OF ITEM(S) TO CHANGE Modify the annual statement instructions for Note 12 to reflect the disclosure requirements resulting from the adoption of SSAP No. 92 and SSAP No The illustration for Note 12A(12)b1 and 12A(12)b2 will be data captured. Modify the quarterly statement instructions to indicate that Note 12A(6) will be required in quarterly reporting and add instructions and illustration for that disclosure. Also the quarterly disclosure will be renumbered (12A(6) to 12A(4)) for 2014 quarterly reporting to match the 2013 annual reporting numbering. REASON, JUSTIFICATION FOR AND/OR BENEFIT OF CHANGE** At the March 2012 National Meeting, the Statutory Accounting Principles Working Group adopted SSAP No. 92, Postretirement Benefits Other Than Pensions A Replacement of SSAP No. 14 and SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89. This proposal implements those SSAPs into the annual and quarterly instructions. NAIC STAFF COMMENTS Comment on Effective Reporting Date: First Quarter 2013 should not be a problem Other Comments: ** This section must be completed on all forms. Revised 6/13/ National Association of Insurance Commissioners 303

2 ANNUAL STATEMENT INSTRUCTIONS LIFE, HEALTH, PROPERTY, FRATERNAL AND TITLE NOTES TO FINANCIAL STATEMENTS Detail Eliminated To Conserve Space 12. Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans The disclosures required for this Note shall be aggregated for all of an reporting entity s defined benefit pension plans and for all of a reporting entity s other defined benefit postretirement plans unless disaggregating in groups is considered to provide useful information or is otherwise required by SSAP No. 92, Postretirement Benefits Other Than Pensions A Replacement of SSAP No. 14 or SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89. Disclosures shall be as of the date of each statement of financial position presented. Disclosures about pension plans with assets in excess of the accumulated benefit obligation generally may be aggregated with disclosures about pension plans with accumulated benefit obligations in excess of assets. The same aggregation is permitted for other postretirement benefit plans. If aggregate disclosures are presented, a reporting entity shall disclose: The aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets as of the measurement date of each statement of financial position presented. The aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets. Refer to SSAP No. 89, Accounting for Pensions, A Replacement of SSAP No. 8 and SSAP No. 14, Postretirement Benefits Other Than Pensions, for additional guidance. Refer to SSAP No. 11, Postemployment Benefits and Compensated Absences; SSAP No. 92, Postretirement Benefits Other Than Pensions A Replacement of SSAP No. 14; and SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89, for additional guidance. Instruction: A. Defined Benefit Plan Disclose the following regarding an reporting entity employer sponsoring a Defined Benefit Plan for which the reporting entity is directly liable (i.e., the plan resides directly in the reporting entity): (1) A reconciliation of beginning and ending balances of the projected benefit benefit obligation showing separately, if applicable, the effects during the period attributable to each of the following: a. Beginning balance b. Service cost c. Interest cost d. Contributions by plan participants e. Actuarial gains and losses f. Foreign currency exchange rate changes g. Benefits paid h. Plan amendments i. Business combinations, divestitures, curtailments, settlements, and special termination benefits 2012 National Association of Insurance Commissioners 304

3 j. Ending balance (2) A reconciliation of beginning and ending balances of the fair value of plan assets showing separately, if applicable, the effects during the period attributable to each of the following: a. Fair value of plan assets at beginning of year b. Actual return on plan assets c. Foreign currency exchange rate changes d. Contributions by the reporting entityemployer e. Contributions by plan participants f. Benefits paid g. Business combinations, divestitures, and settlements h. Fair value of plan assets at end of year (3) The funded status of the plans, the amounts not recognized in the statement of financial position, showing separately the assets (nonadmitted) and liabilities recognized.and the amounts recognized in the statement of financial position, including: a. The amount of any unamortized prior service cost b. The amount of any unrecognized net gain or loss (including asset gains and losses not yet reflected in market-related value) c. The amount of any remaining unamortized, unrecognized net obligation or net asset existing at the initial date of application d. The net pension or other postretirement benefit prepaid assets or accrued liabilities e. Any intangible asset (4) The amount of the accumulated benefit obligation for fully vested employees and partially vested employees only to the extent of their vested amounts. (5) The amount of the projected pension obligation and accumulated benefit obligation for the non-vested portions for all employees as of the most recent actuarial valuation date. (64) The amount of net periodic benefit cost recognized, showing separately: a. Service cost b. Interest cost c. Expected return on plan assets for the period d. Transition asset or obligationamortization of the unrecognized transition obligation or transition asset (or incremental liability or asset for pensions, if applicable Refer to SSAP No. 89, Accounting for Pensions, A Replacement of SSAP No. 8) e. Amount of recognized gains Gains and losses f. Amount of prior Prior service cost or credit recognized g. Amount of gain Gain or loss recognized due to a settlement or curtailment h. Total net periodic benefit cost (5) Separately the net gain or loss and net prior service cost or credit recognized in unassigned funds (surplus) for the period and reclassification adjustments of unassigned funds (surplus) for the period, as those amounts, including amortization of the net transition asset or obligation, are recognized as components of net periodic benefit cost National Association of Insurance Commissioners 305

4 (6) The amounts in unassigned funds (surplus) expected to be recognized as components of net periodic benefit cost over the fiscal year that follows the most recent annual statement of financial position presented, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation. (7) The amounts in unassigned funds (surplus) that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation. (7) The amount included in unassigned funds (surplus) for the period arising from a change in the additional minimum pension liability recognized (Refer to SSAP No. 89, Accounting for Pensions, A Replacement of SSAP No. 8) (8) On a weighted-average basis, the following assumptions used in accounting for the plans: Assumed discount rate Rate of compensation increase (for pay-related plans) Expected long-term rate of return on plan assets (9) The measurement date(s) used to determine other postretirement benefit measurements for postretirement benefit plans that make up at least the majority of plan assets and benefit obligations. (9) The amount of the accumulated benefit obligation for defined benefit pension plans. (10) For postretirement benefits other than pensions, the assumed health care cost trend rate(s) for the next year used to measure the expected cost of benefits covered by the plan (gross eligible charges) and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved (11) For postretirement benefits other than pensions, the effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates on: (1) the aggregate of the service and interest cost components of net periodic postretirement health care benefit cost; and (2) the accumulated postretirement benefit obligation for health care benefits. (For purposes of this disclosure, all other assumptions shall be held constant, and the effects shall be measured based on the substantive plan that is the basis for the accounting.) (12) Information about plan assets: The objectives of the disclosures about postretirement benefit plan assets are to provide users of financial statements with an understanding of: How investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies The classes of plan assets The inputs and valuation techniques used to measure the fair value of plan assets The effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period Significant concentrations of risk within plan assets. A reporting entity shall consider those overall objectives in providing the following information about plan assets: 2012 National Association of Insurance Commissioners 306

5 a. A narrative description of investment policies and strategies, including target allocation percentages or range of percentages considering the classes of plan assets disclosed pursuant to b below, as of the latest statement of financial position presented (on a weighted-average basis for reporting entities with more than one plan), and other factors that are pertinent to an understanding of those policies and strategies such as investment goals, risk management practices, permitted and prohibited investments including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations. For investment funds disclosed as classes as described in b below, a description of the significant investment strategies of those funds shall be provided. b. The fair value of each class of plan assets as of each date for which a statement of financial position is presented. Asset classes shall be based on the nature and risks of assets in a reporting entity s plan(s). Examples of classes of assets include, but are not limited to, the following: Cash and cash equivalents; Equity securities, (segregated by industry type, company size, or investment objective); Debt securities, issued by national, state, and local governments; Corporate debt securities; Asset-backed securities; Structured debt; Derivatives on a gross basis (segregated by type of underlying risk in the contract, for example); Interest rate contracts, Foreign exchange contracts, Equity contracts, Commodity contracts, Credit contracts, and Other contracts; Investment funds (segregated by type of fund); and Real estate. These examples are not meant to be all inclusive. A reporting entity should consider the overall objectives in determining whether additional classes of plan assets or further disaggregation of classes should be disclosed. The disclosure should include information that enables users of financial statements to assess the inputs and valuation techniques used to develop fair value measurements of plan assets at the reporting date. For fair value measurements using significant unobservable inputs, a reporting entity shall disclose the effect of the measurements on changes in plan assets for the period. To meet those objectives, the reporting entity shall disclose the following information for each class of plan assets disclosed above for each annual period: 1. The level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3) NOTE: In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability National Association of Insurance Commissioners 307

6 2. For fair value measurements of plan assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (a) Actual return on plan assets, separately identifying the amount related to assets still held at the reporting date and the amount related to assets sold during the period (b) Purchases, sales, and settlements (each type disclosed separately) (c) Transfers in and/or out of Level 3 (for example, transfers due to changes in the observability of significant inputs) 3. Information about the valuation technique(s) and inputs used to measure fair value and a discussion of changes in valuation techniques and inputs, if any, during the period. c. A narrative description of the basis used to determine the overall expected long-term rate-ofreturn-on-assets assumption, such as the general approach used, the extent to which the overall rate-of-return-on-assets assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined. The description should consider the classes of assets described in b above, as appropriate. For each major category of plan assets, which shall include, but is not limited to: equity securities, debt securities, real estate, and all other assets, the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented. A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets presented on a weighted-average basis as of the measurement date(s) of the latest statement of financial position presented, if applicable, and other factors that are pertinent to an understanding of the policies or strategies such as investment goals, risk management practices, permitted and prohibited investments including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations. A narrative description of the basis used to determine the overall expected long-term rate-of-return-on-assets assumption, such as the general approach used, the extent to which the overall rate-of-return-on-assets assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined. Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected long-term rate of return on assets. (13) The benefits (as of the date of the latest statement of financial position presented) expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter. The expected benefits should be estimated based on the same assumptions used to measure the company s benefit obligation at the end of the year and should include benefits attributable to estimated future employee service National Association of Insurance Commissioners 308

7 (14) The reporting entityemployer s best estimate, as soon as it can reasonably be determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position presented. Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. (15) If applicable, the amounts and types of securities of the reporting entity employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the reporting entity employer or related parties, and any significant transactions between the reporting entity employer or related parties and the plan during the period. (16) If applicable, any alternative method used to amortize prior service amounts or unrecognized net gains and losses. (17) If applicable, any substantive commitment, such as past practice or a history of regular benefit increases, used as the basis for accounting for the benefit obligation. (18) If applicable, the cost of providing special or contractual termination benefits recognized during the period and a description of the nature of the event. (19) An explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the other disclosures required by SSAP No , Accounting for Pensions, A Replacement of SSAP No and SSAP No. 1492, A Replacement of SSAP No. 14, Postretirement Benefits Other Than Pensions. (20) The amount and timing of any plan assets expected to be returned to the employer during the 12- month period, or operating cycle if longer, that follows the most recent annual statement of financial position presented. (21) Reporting entities are required to disclose the accumulated postretirement and pension benefit obligation and the fair value of plan assets for defined postretirement and pension benefit plans in the first reporting period after the effective date of this standard and in each subsequent reporting period. This disclosure shall specifically note the funded/underfunded status of the postretirement benefit plan. Reporting entities shall also specifically note the surplus impact necessary, at each reporting date, to reflect the full benefit obligation within the financial statements. (22) Reporting entities electing to apply the transition guidance set forth in SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89 and SSAP No. 92, A Replacement of SSAP No. 14, Postretirement Benefits Other Than Pensions must disclose the full transition surplus impact calculated from applying guidance in the first quarter statutory financial statements after the transition date and each reporting period thereafter. This disclosure shall include the initial transition liability calculated under guidance and the annual amortization amount of the unrecognized items into net periodic benefit cost. This disclosure shall include a schedule of the entity s anticipated recognition of the remaining surplus impact over the transition period. See SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89 and SSAP No. 92, A Replacement of SSAP No. 14, Postretirement Benefits Other Than Pensions, for details of the transition guidance National Association of Insurance Commissioners 309

8 Disclose amounts related to the employer s results of operations for each period for which an income statement is presented. Disclose amounts as of the measurement date used related to the employer s statement of financial position for each balance sheet presented. B. Defined Contribution Plans An reporting entity employer shall disclose the amount of cost recognized for defined contribution pension or and other defined contribution postretirement benefit plans during thefor all periods presented separately from the amount of cost recognized for defined benefit plans. The disclosures shall include a description of the nature and effect of any significant changes during the period affecting comparability, such as a change in the rate of reporting entity employer contributions, a business combination, or a divestiture. C. Multiemployer Plans Disclose the amount of reporting entity employer contributions to multiemployer plans for each annual period for which a statement of income is presented. An reporting entity employer may disclose total contributions to the multiemployer plan without desegregating the amounts attributable to pensions and other postretirement benefits. Disclose a description of the nature and effect of any changes affecting comparability, such as a change in the rate of reporting entity employer contributions, a business combination, or a divestiture. D. Consolidated/Holding Company Plans An reporting entity employer shall disclose that its employees participate in a plan sponsored by the parent company or holding company, and that for which the reporting entity employer has no legal obligation for benefits under the plan. The employer shall disclose the amount of pension, postretirement other than pension, postemployment and compensated absence expense recognized incurred and the allocation methodology utilized by the provider of such benefits shall also be disclosedholding company or parent company. Detail Eliminated To Conserve Space Illustration: A. Defined Benefit Plan The Company sponsors non-contributory defined benefit pension plans covering U.S. employees. As of December 31, 20, the Company accrued in accordance with actuarially determined amounts with an offset to the pension cost accrual for the incremental asset amortization. A summary of assets, obligations and assumptions of the Pension and Other Postretirement Benefit Plans are as follows at December 31, 20 and 20 : THIS EXACT FORMAT MUST BE USED IN THE PREPARATION OF THIS NOTE FOR THE TABLE (LINES 1 THROUGH 8 EXCLUDING THE NARRATIVE AT THE END OF LINE 8) BELOW. REPORTING ENTITIES ARE NOT PRECLUDED FROM PROVIDING CLARIFYING DISCLOSURE BEFORE OR AFTER THIS ILLUSTRATION. (1) Change in benefit obligation Pension Benefits Other Benefits a. Benefit obligation at beginning of year $ $ $ $ b. Service cost $ $ $ $ c. Interest cost $ $ $ $ d. Contribution by plan participants $ $ $ $ e. Actuarial gain (loss) $ $ $ $ 2012 National Association of Insurance Commissioners 310

9 f. Foreign currency exchange rate changes $ $ $ $ g. Benefits paid $ $ $ $ h. Plan amendments $ $ $ $ i. Business combinations, divestitures, curtailments, settlements and special termination benefits $ $ $ $ j. Benefit obligation at end of year $ $ $ $ (1) Change in benefit obligation a. Pension Benefits Overfunded Underfunded Benefit obligation at beginning of year $ $ $ $ 2. Service cost $ $ $ $ 3. Interest cost $ $ $ $ 4. Contribution by plan participants $ $ $ $ 5. Actuarial gain (loss) $ $ $ $ 6. Foreign currency exchange rate changes $ $ $ $ 7. Benefits paid $ $ $ $ 8. Plan amendments $ $ $ $ 9. Business combinations, divestitures, curtailments, settlements and special termination benefits $ $ $ $ 10. Benefit obligation at end of year $ $ $ $ b. Postretirement Benefits Overfunded Underfunded Benefit obligation at beginning of year $ $ $ $ 2. Service cost $ $ $ $ 3. Interest cost $ $ $ $ 4. Contribution by plan participants $ $ $ $ 5. Actuarial gain (loss) $ $ $ $ 6. Foreign currency exchange rate changes $ $ $ $ 7. Benefits paid $ $ $ $ 8. Plan amendments $ $ $ $ 9. Business combinations, divestitures, curtailments, settlements and special termination benefits $ $ $ $ 10. Benefit obligation at end of year $ $ $ $ c. Postemployment & Compensated Absence Benefits Overfunded Underfunded Benefit obligation at beginning of year $ $ $ $ 2. Service cost $ $ $ $ 3. Interest cost $ $ $ $ 4. Contribution by plan participants $ $ $ $ 5. Actuarial gain (loss) $ $ $ $ 6. Foreign currency exchange rate changes $ $ $ $ 7. Benefits paid $ $ $ $ 8. Plan amendments $ $ $ $ 9. Business combinations, divestitures, curtailments, settlements and special termination benefits $ $ $ $ 10. Benefit obligation at end of year $ $ $ $ 2012 National Association of Insurance Commissioners 311

10 (2) Change in plan assets Postemployment Pension Postretirement & Compensated Benefits Benefits Absence Benefits a. Fair value of plan assets at beginning of year $ $ $ $ $ $ b. Actual return on plan assets $ $ $ $ $ $ c. Foreign currency exchange rate changes $ $ $ $ $ $ d. Employer Reporting entity contribution $ $ $ $ $ $ e. Plan participants contributions $ $ $ $ $ $ f. Benefits paid $ $ $ $ $ $ g. Business combinations, divestitures and settlements $ $ $ $ $ $ h. Fair value of plan assets at end of year $ $ $ $ $ $ (3) Funded status Overfunded: Pension Benefits Postretirement Benefits a. Assets (nonadmitted) $ $ $ $ Underfunded: 1. Prepaid benefit costs $ $ $ $ 2. Overfunded plan assets $ $ $ $ 3. Total assets (nonadmitted) $ $ $ $ b. Liabilities recognized $ $ $ $ 1. Accrued benefit costs $ $ $ $ 2. Liability for pension benefits $ $ $ $ 3. Total liabilities recognized $ $ $ $ c. Unrecognized liabilities $ $ $ $ a. Unamortized prior service cost $ $ $ $ b. Unrecognized net gain or (loss) $ $ $ $ c. Remaining net obligation or net asset at initial date of application $ $ $ $ d. Prepaid assets or accrued liabilities $ $ $ $ e. Intangible asset $ $ $ $ (4) Accumulated benefit obligation for vested employees and partially vested employees to the extent vested $ $ $ $ (5) Benefit obligation for non-vested employees a. Projected pension obligation $ $ $ $ b. Accumulated benefit obligation $ $ $ $ 2012 National Association of Insurance Commissioners 312

11 (64) Components of net periodic benefit cost Postemployment Pension Postretirement & Compensated Benefits Benefits Absence Benefits a. Service cost $ $ $ $ $ $ b. Interest cost $ $ $ $ $ $ c. Expected return on plan assets $ $ $ $ $ $ d. Transition asset or obligationamortization of unrecognized transition obligation or transition asset $ $ $ $ $ $ e. Amount of recognized gains Gains and losses $ $ $ $ $ $ f. Amount of prior Prior service cost or creditrecognized $ $ $ $ $ $ g. Amount of gain Gain or loss recognized due to a settlement or curtailment $ $ $ $ $ $ h. Total net periodic benefit cost $ $ $ $ $ $ (7) $ arising from a change in the additional minimum pension liability recognized is included in unassigned funds. (5) Amounts in unassigned funds (surplus) recognized in the next fiscal year as components of net periodic benefit cost Pension Benefits Postretirement Benefits a. Items not yet recognized as a component of net periodic cost prior year $ $ $ $ ab. Net transition asset or obligation recognized $ $ $ $ c. Net prior service cost or credit arising during the period $ $ $ $ bd. Net prior service cost or credit recognized $ $ $ $ e. Net gain and loss arising during the period $ $ $ $ cf. Net recognized gains and losses recognized $ $ $ $ g. Items not yet recognized as a component of net periodic cost current year $ $ $ $ (6) Amounts in unassigned funds (surplus) expected to be recognized in the next fiscal year as components of net periodic benefit cost Pension Benefits Postretirement Benefits a. Net transition asset or obligation $ $ $ $ b. Net prior service cost or credit $ $ $ $ c. Net recognized gains and losses $ $ $ $ 2012 National Association of Insurance Commissioners 313

12 (7) Amounts in unassigned funds (surplus) that have not yet been recognized as components of net periodic benefit cost Pension Benefits Postretirement Benefits a. Net transition asset or obligation $ $ $ $ b. Net prior service cost or credit $ $ $ $ c. Net recognized gains and losses $ $ $ $ FOR EXAMPLE, ADDITIONAL INFORMATION MAY BE NECESSARY FOR MULTIPLE PLANS AGGREGATED IN THE DISCLOSURE. (NOTE: THIS DOES NOT INCLUDE THE ENDING NARRATIVE.) (8) Weighted-average assumptions used to determine net periodic benefit cost as of Dec. 31 a. Weighted-average discount rate b. Expected long-term rate of return on plan assets c. Rate of compensation increase Weighted-average assumptions used to determine projected benefit obligations as of Dec. 31: d. Weighted-average discount rate e. Rate of compensation increase For measurement purposes, a percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 20. The rate was assumed to decrease gradually to percent for 20 and remain at that level thereafter. (9) A measurement date of September 30, 20 was used to determine the above. (9) The amount of the accumulated benefit obligation for defined benefit pension plans was $ for the current year and $ for the prior year. (10) The company has multiple non-pension postretirement benefit plans. The health care plans are contributory, with participants contributions adjusted annually; the life insurance plans are noncontributory. The accounting for the health care plans anticipates future cost-sharing changes to the written plan that are consistent with the company's expressed intent to increase retiree contributions each year by percent of the excess of the expected general inflation rate over percent. On December 31, 20, the company amended its postretirement health care plans to provide long-term care coverage (NOTE: THIS DOES NOT INCLUDE THE BEGINNING NARRATIVE.) (11) Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A onepercentage-point change in assumed health care cost trend rates would have the following effects: 1 Percentage Point 1 Percentage Point Increase Decrease a. Effect on total of service and interest cost components $ $ b. Effect on postretirement benefit obligation $ $ 2012 National Association of Insurance Commissioners 314

13 (12) b. (1) Fair Value Measurements of Plan Assets at Reporting Date Description for each class of plan assets (Level 1) (Level 2) (Level 3) Total... $... $... $... $ Total Plan Assets $ $ $ $ NOTE: See the instructions for this illustration for examples of descriptions of plan assets. (2) Fair Value Measurements in (Level 3) of the Fair Value Hierarchy Description for each class of plan assets Beginning Balance at 01/01/20XX Transfers into Level 3 Transfers out of Level 3 Return on Assets Still Held Return on Assets Sold Purchases Issuances Sales Settlements Ending Balance at 12/31/20XX... $... $... $... $... $... $... $... $... $... $ Total Plan Assets $... $... $... $... $... $... $... $... $... $... NOTE: See the instructions for this illustration for examples of descriptions of plan assets. (NOTE: THIS DOES NOT INCLUDE THE BEGINNING AND ENDING NARRATIVE.) (12) The defined benefit pension plan asset allocation as of the measurement date, and the target asset allocation, presented as a percentage of total plan assets were as follows: Target Allocation a. Debt Securities % % X% - X% b. Equity Securities % % X% - X% c. Real Estate % % X% - X% d. Other % % X% - X% e. Total 100% 100% 2012 National Association of Insurance Commissioners 315

14 The Company s defined benefit plan invests in a diversified mix of traditional asset classes. Investments in U.S. and foreign equity securities, fixed income securities, real estate and cash are made to maximize long-term returns while recognizing the need for adequate liquidity to meet on-going benefit and administrative obligations. Risk tolerance of unexpected investment and actuarial outcomes is continually evaluated by understanding the pension plan s liability characteristics. This is performed through forecasting and assessing ranges of investment outcomes over short and longterm horizons, and by assessing the Company s financial condition and its future potential obligations from both the pension and general corporate requirements. Complementary investment styles, such as growth and value equity investing techniques, prove portfolio and operational risk characteristics. Equity investments, both active and passively managed, are used primarily to increase overall plan returns. Real estate investments are viewed favorably for their diversification benefits and above-average dividend generation. Fixed income investments provide diversification benefits and liability hedging attributes that are desirable, especially in falling interest rate environments. Asset allocations and investment performance is formally reviewed quarterly by the plan s Investment Oversight Committee. Forecasting of asset and liability growth is performed at least annually. More thorough analysis of assets and liabilities are also performed periodically. The expected long-term rate of return is estimated based on many factors including the expected forecast for inflation, risk premiums for each asset class, expected asset allocation, current and future financial market conditions, and diversification and rebalancing strategies. Historical return patterns and correlations, consensus return forecasts and other relevant financial factors are analyzed to check for reasonability and appropriateness. (13) The following estimated future payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated: Year(s) Amount a. 20 $ b. 20 $ c. 20 $ d. 20 $ e. 20 $ f. 20 through 20 $ fg. Thereafter Total $ (14) The Company does not have any regulatory contribution requirements for 20, however, the Company currently intends to make voluntary contributions to the defined benefit pension plan of $245 million in 20. (21) See implementation guide for SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89, for examples of disclosure. (22) See implementation guide for SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89, for examples of disclosure National Association of Insurance Commissioners 316

15 B. Defined Contribution Plan Insurance company employees are covered by a qualified defined contribution pension plan sponsored by the insurance company. Contributions of percent of each employee s compensation are made each year. The Company s contribution for the plan was $ million and $ million for 20 and 20, respectively. At December 31, 20, the fair value of plan assets was $ million. C. Multiemployer Plans The Company participates in a qualified, noncontributory defined benefit pension plan sponsored by ABC Union. In addition, the Company provides certain other postretirement benefits to retired employees through a plan sponsored by ABC Union. The Company s share of net expense for the qualified pension plan was $ million and $ million for 20 and 20, respectively and for other postretirement benefit plans was $ million and $ million for 20 and 20, respectively. Beginning January 1, 20, the Company s other postretirement benefit plans were amended to restrict benefit eligibility to retirees and certain retiree-eligible employees. Previously covered employees could become eligible for postretirement benefits if they reached retirement age while working for the Company. D. Consolidated/Holding Company Plans The Company participates in a qualified, noncontributory defined benefit pension plan sponsored by XYZ Holding Company, an affiliate. In addition, the Company provides certain other postretirement benefits to retired employees through a plan sponsored by XYZ Holding Company. The Company has no legal obligation for benefits under these plans. XYZ Holding Company allocates amounts to the Company based on salary ratios. The Company s share of net expense for the qualified pension plan was $ million and $ million for 20 and 20, respectively and for other postretirement benefit plans was $ million and $ million for 20 and 20, respectively. Beginning January 1, 20, the Company s other postretirement benefit plans were amended to restrict benefit eligibility to retirees and certain retiree-eligible employees. Previously, covered employees could become eligible for postretirement benefits if they reached retirement age while working for the Company. Detail Eliminated To Conserve Space DAFTING NOTE: Renumbering of Note 12 in Annual Statement to accommodate line number restrictions. To accommodate the limited length of line numbers the numbering scheme being shown above for Note 12 in the annual statement will be revised as follows. Note 12A(12) will be moved and renumbered. 12A(12)a will become 12B and sub-lines adjusted according ly. 12A(12)b will become 12C and sub-lines adjusted according ly. 12A(12)c will become 12D and sub-lines adjusted according ly. Note 12A(13) through 12A(22) will be renumbered 12A(12) through 12A(21) Note 12B becomes 12E. Note 12C becomes 12F. Note 12D becomes 12G. Note 12E becomes 12H. Note 12F becomes 12I National Association of Insurance Commissioners 317

16 QUARTERLY STATEMENT INSTRUCTIONS LIFE, HEALTH, PROPERTY, FRATERNAL AND TITLE NOTES TO FINANCIAL STATEMENTS The interim financial information shall include disclosures sufficient to make the information presented not misleading. It may be presumed that the users of the interim financial information have read or have access to the annual statement for the preceding period and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnote disclosure that would substantially duplicate the disclosure contained in the most recent annual statement or audited financial statements, such as a statement of significant accounting policies and practices, details of accounts that have not changed significantly in amount or composition since the end of the most recently completed fiscal year, may be omitted but the footnote number and annotation such as no change should be included. However, provide disclosure for annual Note 1A, 5D, 12A(6) 17C, 20 and 25 in all quarters; and all other Notes where events subsequent to the end of the most recent fiscal year have occurred that have a material impact on the reporting entity. Disclosures shall encompass, for example, significant changes since the end of the period reported on the last annual statement in such items as statutory accounting principles and practices; estimates inherent in the preparation of financial statements; status of long term contracts; capitalization including significant new borrowings or modifications of existing financial arrangements; and the reporting entity resulting from business combinations or dispositions. Notwithstanding the above, where material noninsurance contingencies exist, disclosure of such matters shall be provided even though a significant change since year-end may not have occurred. If the reporting entity has changed the accounting policies since the end of its preceding year, the changes shall be disclosed in the quarterly financial statements. Information should be reported for current year-to-date. Detail Eliminated To Conserve Space 12. Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans The disclosures required for this Note shall be aggregated for all of an reporting entity s defined benefit pension plans and for all of a reporting entity s other defined benefit postretirement plans unless disaggregating in groups is considered to provide useful information or is otherwise required by SSAP No. 92, Postretirement Benefits Other Than Pensions A Replacement of SSAP No. 14 or SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89. Disclosures shall be as of the date of each statement of financial position presented. Disclosures about pension plans with assets in excess of the accumulated benefit obligation generally may be aggregated with disclosures about pension plans with accumulated benefit obligations in excess of assets. The same aggregation is permitted for other postretirement benefit plans. If aggregate disclosures are presented, a reporting entity shall disclose: The aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets as of the measurement date of each statement of financial position presented. The aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets. Refer to SSAP No. 11, Postemployment Benefits and Compensated Absences; SSAP No. 92, Postretirement Benefits Other Than Pensions A Replacement of SSAP No. 14; and SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89, for additional guidance National Association of Insurance Commissioners 318

17 Instruction: A. Defined Benefit Plan Illustration: (6) The amount of net periodic benefit cost recognized, showing separately: a. Service cost b. Interest cost c. Expected return on plan assets for the period d. Transition asset or obligation e. Gains and losses A. Defined Benefit Plan f. Prior service cost or credit g. Gain or loss recognized due to a settlement or curtailment h. Total net periodic benefit cost (6) Components of net periodic benefit cost Postemployment Pension Postretirement & Compensated Benefits Benefits Absence Benefits a. Service cost $ $ $ $ $ $ b. Interest cost $ $ $ $ $ $ c. Expected return on plan assets $ $ $ $ $ $ d. Transition asset or obligation $ $ $ $ $ $ e. Gains and losses $ $ $ $ $ $ f. Prior service cost or credit $ $ $ $ $ $ g. Gain or loss recognized due to a settlement or curtailment $ $ $ $ $ $ h. Total net periodic benefit cost $ $ $ $ $ $ DAFTING NOTE: The quarterly numbering will change from 12A(6) to 12A(4) in the 2014 Quarterly Statement to reflect the numbering change that will go into effect with the 2013 Annual Statement. W:\QA\BlanksProposals\ BWG_Modified.doc 2012 National Association of Insurance Commissioners 319

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