Ohio IASA. StoneRiver 1. Agenda Accounting Changes. Ohio IASA. Statutory Accounting Update Session 2.3

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1 Ohio IASA Statutory Accounting Update Session 2.3 November 21, 2016 Connie Jasper Woodroof NAIC Liaison, StoneRiver Agenda 2016 Accounting Changes Accounting Changes Effective 1/1/ Accounting Changes 2016 StoneRiver, Inc. StoneRiver 1

2 SSAP No. 1 Accounting Policies, Risks & Uncertainties, and Other Disclosures Restricted assets disclosure Include in quarterly if significant change since annual Significant change measured by separate restricted asset category However, if quarterly disclosure needed for any category, entire illustration template must be included SSAP No. 1 Accounting Policies, Risks & Uncertainties, and Other Disclosures Disclosure of permitted and prescribed practices Disclosure should include all permitted and prescribed practices not just ones affecting capital and surplus or RBC Must now identify SSAP, statement page and line impacted SSAP No. 1 Accounting Policies, Risks & Uncertainties, and Other Disclosures 5* securities disclosure Since insurers now permitted to self-designate 5* securities, new disclosure Number of 5* securities, BACV, fair value Reporting in the aggregate for bonds and preferred stock Will probably be associated General Interrogatory in 2017 StoneRiver 2

3 SSAP No. 1 Accounting Policies, Risks & Uncertainties, and Other Disclosures Collateral received disclosure Reported in the aggregate Amount of assets received as collateral reflected as assets in financial statements Identify page/schedule in statement Recognized corresponding liability SSAP No. 3 Cash, Drafts, and Short-Term Investments Correction of errors guidance in SSAP applies to accounting errors, not reporting errors Therefore, does not require domiciliary permission to file revised statement Language revisions stress SSAP No. 3 applies to accounting errors SSAP Nos. 2, 26, 30 & 32 EFTs Those on SVO approved bond list accounted for under SSAP No. 26 Those on SVO approve preferred stock list accounted for under SSAP No. 30 Bond Funds On SVO approved list accounted for under SSAP No. 26 StoneRiver 3

4 SSAP Nos. 2, 26, 30 & 32 Class 1 Bond Money Market Mutual Funds No longer exists Other Money Market Mutual Funds Schedule DA as short-term investments Accounted for under SSAP No. 30 as common stock Not included in bond summary schedules, such as Schedule D Part 1A SSAP Nos. 2, 26, 43R Clarification of investment proceeds disclosure Clarification of scope of disclosures in the annual audited statements on bond categories, bond maturity distributions and proceeds from sales of bonds Adopted SSAP No. 16R EDP Equipment and Software Leases involving internal-use computer software to follow lease guidance found in SSAP No. 22 SSAP No. 22 Leases Review for possible GAAP changes No SAP change in accounting treatment for leases Issue Paper will be prepared documenting discussion of the rejection of ASU StoneRiver 4

5 Adopted SSAP No. 23 Foreign Currency Transactions and Translations Translation of Canadian insurance operations When parent reporting entity realizes foreign currency translation changes in an investment of a foreign entity SSAP No. 55 Unpaid Claims, Losses and Loss Adjustment Expenses Clarification of reporting for anticipated and received salvage and subrogation Amounts received deducted from paid claims If reporting anticipated amounts, they are net of expenses and deducted from liability for unpaid claims or unpaid losses No separate receivable Adopted SSAP No. 56 Separate Accounts Removal of disclosure for total maximum guarantees for separate account products SSAP No. 61R LAH Reinsurance Update variable annuity capture disclosure SSAP No Derivatives Weather derivatives Adopted GAAP definition Clarifies difference between insurance contract and a weather derivative New disclosure Swaptions Definition Reporting guidance for 2016 exposed StoneRiver 5

6 SSAP No Derivatives Adopted modified ASU Change in counterparty does not by itself result in termination of derivative instruments Rejection of ASUs and SSAP Nos. 92 and 102 Discount rate to measure net periodic benefit costs Spot rate allowed as an option for measuring the service cost and interest cost components of net periodic benefit cost SSAP No. 97 Investments in SCAs Ownership in ETF or mutual fund Does not represent ownership in underlying investments, unless insurer has control of ETF or mutual fund For example, if insurer owns 8% of an entity and another 3% through an ET, 10% threshold would not be met Updated exchanges that can be used for market valuation method StoneRiver 6

7 SSAP No. 97 Investments in SCAs Expansion of SCA disclosures Balance sheet amount; admitted and nonadmitted SCA filing done? NAIC response to filing? SVO filing instructions for SCAs moved to Appendix of SSAP No. 97 Still must do SUB1 and SUB2 documentation must be in English Adopted SSAP No. 100 Fair Value Excludes deposit liabilities with no defined or contractual maturities from fair value financial instruments disclosure Rejected ASU Rejected for this SSAP and SSAP Nos. 26, 30, 32, and 43R SSAP No. 107 Risk-Sharing Provisions of the Affordable Care Act Risk corridors disclosures Expanded existing roll-forward disclosure Although adopted in February, was to be included in 2016 quarterly Policy Statement Revisions Development of SSAPs SSAP and IP concurrently Definitions of substantive, nonsubstantive, interpretations SAP maintenance agenda process Correction of editorial errors StoneRiver 7

8 Accounting Changes Effective StoneRiver, Inc. SSAP No. 2R - Cash, Cash Equivalents & Short-term Investments All money market mutual funds (MMMFs) to be classified as cash equivalents Goal is to have effective in time for year-end 2017 reporting Still pending MMMFs measured at fair value Net asset value as practical expedient Unrealized gains/losses Run through AVR according to SSAP No. 7 Direct charge to surplus for non-avr companies SSAP Nos. 26 and 43R - Bonds Make-whole provisions (prepayment penalties; acceleration fees) Reported as net income for bonds/mortgages, however Bifurcation of final payment between interest and principal Difference between total consideration received and par value reported as net investment income Difference between book and par value treated as realized gain/loss New disclosure beginning 1/1/2017 Schedule D change deferred until 1/1/2018 StoneRiver 8

9 SSAP No. 41R Surplus Notes Issue Paper No. 151 Surplus Notes Changes valuation of surplus notes NAIC designation 1 and 2 at amortized cost All others, lower of amortized cost or fair value More closely aligns surplus notes valuation with other fixed income investment Effective 1/1/2017 SSAP No. 51 Life Contracts Principles-Based Reserving (PBR) revisions Revisions to reflect PBR as means for accounting for life insurance reserves Also updates Appendix A-820 with reserving guidance PBR Effective 1/1/2017 Companies may choose 3 year phase-in period Principles-Based Reserving (PBR) PREPARE for a 1/1/2017 implementation NAIC verified triggering point was reached Companies can choose phase-in options LAH statement reporting changes have been developed including a new supplement SSAP No. 51 already revised; other SSAP revisions being developed 2016 StoneRiver, Inc. StoneRiver 9

10 Principles-Based Reserving (PBR) Small company exemption $300m for legal entity < $600m for the associated group If meets RBC requirements and other exemption thresholds Prospective Only new life products (except Credit Life) issued on or after the operative date of the Standard Valuation Law and Valuation Manual are in effect Does not apply to A&H products SSAP No. 103R Issue Paper No. 152 Short Sales Addresses lack of specific accounting If borrowed securities used to settle short sale, contraasset recognizing short sale is eliminated and liability established to return borrowed security Prospective change Effective 1/1/2017 Still Pending 2016 StoneRiver, Inc. StoneRiver 10

11 Still Pending SAPWG will be meeting during NAIC National Meeting, December Blanks Working Group will not be meeting, but has conference call scheduled for December 15 Last minute Note additions Still Pending ETF and Bond Fund valuation Fair value or systematic value Valuation of money market mutual funds Fair value (NAV as a practical expedient) Exclusion of Nonadmitted and Immaterial SCAs from SUB1 and SUB2 filings Health Valuation Manual updates to SSAP No. 54 Accounting for limited derivatives Pharmacy Rebates under Medicare Part D Still Pending Disclosure for repurchase & reverse repurchase agreements Definition of notational Receivables of Government Plans StoneRiver 11

12 Questions Please contact: Connie Jasper Woodroof x5761 Thank You StoneRiver 12