Statutory Accounting Update Laura Clark and Judy Jones

Transcription

1 Statutory Accounting Update Laura Clark and Judy Jones

2 Agenda Introduction Section I Adoption of revisions to SSAPs Section II Exposure of new guidance and discussions of new and on-going projects

3 Adoption of revisions to SSAPs September 17, 2015

4 2015 Amendments to Statutory Guidance Statement of Cash Flows SSAP 69 defines cash flow items as cash, cash equivalents and short-term investments At the Spring National Meeting, the working group adopted revisions to SSAP 69 clarify that only these three items should be included in the statement of cash flows Changes in assets and liabilities that don t result in cash are excluded, e.g. use of bonds to pay an intercompany dividend Effective for YE 2015 Disclosure of non-cash items affecting assets and liabilities will be expanded to include non-cash operating items in addition to financing and investing items Blanks Working Group also approved revisions to the annual statement cash flow worksheets and instructions to be consistent with these changes.

5 2015 Proposed Amendments to Statutory Investment Guidance Prepayment Penalties and Acceleration Fees SAPWG proposed reclassifying these amounts from investment income to realized capital gains, which many interested parties objected to. SAPWG re-exposed three alternatives for comment: 1. maintain current accounting as net investment income, 2. report as realized capital gains subject to IMR or 3. report as RCG, but exclude from IMR. During its October 19 conference call, the SAPWG adopted a proposal to maintain the current accounting and revised Schedule D instructions to eliminate any conflicting guidance. Yield-to-Worst Calculation for Callable Bonds Industry also objected to a proposal for insurers to consider make-whole call provisions in the yield-to-worst amortization calculation SAPWG revised the proposal so that the make-whole provisions should not be considered in determining the timeframe for amortizing premium or discount unless the insurer is aware that the issuer expects to invoke the make-whole call provisions.

6 2015 Amendments to Statutory Guidance Goodwill Limitation Calculation SSAP 68 par. 7 was clarified that the goodwill limitation test is performed at each individual reporting level. Equity Method Accounting Application of the SSAP 97 equity method - the working group exposed for comment proposed clarifications to paragraphs of SSAP 97 to reflect the original intent SAPWG accepted industry proposed revision to clarify that amortization is required for statutory goodwill. XXX/AXXX Reinsurance Disclosure New footnote required in annual and audited financial statements of insurers ceding XXX/AXXX Covered Policies (i.e. ceded on or after January 1, 2015) disclosing information related to such transactions. The revised disclosure requires confirmation that funds for Primary Security and Other Security have been satisfied for all covered policies. If any shortfalls exist, the insurer would disclose additional detailed information.

7 2015 Amendments to Statutory Guidance Wholly-Owned Real Estate SSAP 40R adopted effective January 1, Accounting provisions and implementation In June 2015, the SAP Working Group adopted a clarification that a standard mortgage or encumbrance by an unrelated party is not considered a sharing of risks or rewards and would not otherwise prevent a wholly-owned LLC from being accounted for as real estate.

8 Exposure of new guidance and discussions of new and on-going projects September 17, 2015

9 SSAP 97 Issues - SCAs The working group re-exposed for comment questions on the following topics, requesting feedback from regulators and the industry with respect to investments in subsidiary, controlled and affiliated entities (SCAs): 1. Non-Admitted Assets in Non-Insurance SCAs par. 16d of SSAP 25 to be explicitly considered in determining the carrying value of an SCA. 2. Valuation of U.S. Insurance SCAs new disclosure proposed for the FS of the parent insurer of state prescribed or permitted practices followed by an insurer s SCA that differ from NAIC prescribed 3. Valuation of Non-Insurance SCAs Engaging in Insurance Activities and Foreign Insurance Entities additional adjusting entries to audited U.S. GAAP carrying value are being considered; full conversion to NAIC SAP appears to be off the table. Proposed effective date is year-end 2015 financial statements.

10 Insurance, Disclosures about Short-Duration Contracts Request for regulators and industry to comment on whether statutory disclosures should be revised to adopt these new GAAP disclosures, which are part of the FASB s targeted improvements to U.S. GAAP for insurance contracts effective for public companies at year-end o Study group being formed to compare the ASU disclosures to those required by statutory reporting, including Schedule P disclosures. The working group is also interested in hearing comments on whether Schedule P and other statutory claim and loss reserve disclosures are already substantially compliant with the ASU guidance for purposes of U.S. GAAS OCBOA (other comprehensive basis of accounting) disclosure requirements.

11 Variable Annuity Issues Working Group New working group formed with a charge to oversee the NAIC s efforts to study and address, as appropriate, regulatory issues resulting in variable annuity captive reinsurance transactions. Proposed disclosure expected to be finalized for year-end 2015 financial statements which could include the following: o Types of benefits being reinsured and description of the significant terms of the reinsurance agreements. o Risks retroceded to a third party and risks retained by the ceding company and its parent, subsidiaries and affiliates. o Reserve credit taken by the ceding company, and total amount and nature of collateral supporting the reserve credit.

12 Disclosures for High Deductible Policies The working group discussed a referral from the Financial Analysis Working Group which has noted: o Increasing credit risk with respect to high deductible policies such as workers compensation whereby the insurer pays the full amount of the claim and then is reimbursed by the PH. The working group exposed for comment a proposal to expand the disclosures to identify: o The top ten obligors under high deductible policies o Unsecured receivables that exceed 3% of surplus and o When the obligors are part of a professional employer organization. o Could be effective for 2015 YE financial statements.

13 Accounting Treatment for Fees Incurred for Salvage/Subrogation Recoveries The SAP Working Group has proposed amendments to SSAP 55 to clarify that fees to recover salvage and subrogation should be reported gross regardless of whether the fees are paid to third parties or are allocated internally. Industry comment letter strongly disagreed noting claim processing systems and actuarial reserve indication methodologies are built around the guidance that requires such expenses to be netted (i.e., estimated realizable value) within anticipated salvage and subrogation recoveries. Interested parties believe that the current guidance contained in SSAP 55 and 65 and the Annual Statement Instructions require the reporting of expenses related to salvage or subrogation efforts net within anticipated salvage and subrogation.

14 2015 Proposed Amendments to Statutory Investment Guidance Quarterly Reporting of Full Investment Schedules SAPWG had asked for input from interested parties about requiring full investment schedules on a quarterly basis in electronic only format. Interested parties strongly disagreed with the statement that requiring the full investment schedules quarterly would not be an overly difficult task. Revised request is for what addition information could be captured, taking into consideration both cost and benefits. - IAO staff suggested collecting exposure data and impairments.

15 Investment RBC Working Group Investment RBC WG received final (100 page!) report from AAA at the Summer National Meeting. For corporate bonds, the AAA is recommending revised C-1 factors: generally higher factors for investment grade securities, lower for noninvestment grade securities based on 20 years of default and recovery data o NAIC estimate of increase to Life RBC could be 30-50% o ACLI says its members show higher numbers than the above Working Group is considering different fixed income asset RBC factors for other than corporate bonds. o Aflac wants separate consideration of sovereign debt Working Group exposed ACLI proposal for C-1 factor for real estate to be a base factor of 8.5%. o On September 8 conference call, IRBC chair suggested raising the charge to 10%.

16 Other RBC Working Groups Activities Life RBC Working Group adopted for 2015 filings three AG 48 Life RBC proposals, the derivatives collateral proposals and removed the C-3 Phase II informational filing requirement. The Catastrophe Risk charge component of the P/C RBC formula will be informational only for third year in and 14 companies triggered an action level in 2014 and 2013 due to cat risk Cat risk charge is expected to go live for 2016 RBC The Catastrophe Risk Subgroup also refined the scope of catastrophe risk exemption for 2015 filings. The Operational RBC Subgroup revised the informational-only op risk charge for o It includes factors for growth risk charges and basic operational risk. o Subgroup received a summary report of P&C RBC and Health - Existing vs. Proposed Growth Risk during its September 14 conference call; fuller discussion will occur during an October call.

17 Group Solvency Issues Working Group Own Risk Solvency Assessment (ORSA) Pilot At the Summer National Meeting, the working group heard a report on the results of the 2014/2015 ORSA pilot report. 27 companies and 26 states participated in the pilot. The chair described the project as a tremendous success. The report posted to website highlighted three key observations: 1. the reports were generally in compliance with the requirements 2. the reports reflected a maturity of the risk management function; and 3. the life industry has more developed ORSA processes than P/C and health companies. Approximately 300 companies (both group and legal entity) are expected to file their ORSA summary reports starting this year.

18 Questions?

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20 Laura J. Clark, Certified Public Accountant Senior Manager PricewaterhouseCoopers LLP Hartford, CT Laura is a senior manager in the Hartford, Connecticut office of PricewaterhouseCoopers and is a member of the Northeast Insurance Practice. Laura has more than 15 years of experience in the insurance industry, serving clients in the life, health and property and casualty sectors. Laura has experience serving both large public SEC clients and well as private companies through-out her career. Laura has extensive experience with SEC, U.S. GAAP, Statutory and Sarbanes-Oxley regulation and reporting. Laura has experiences auditing insurance related financial statement accounts as well as large, complex investment portfolios. Laura has experience in leading large multi-location engagement teams, including international teams. Laura has also serves as the Quality Lead for the Northeast Insurance Practice of PricewaterhouseCoopers. Professional Affiliations Certified public accountant licensed in Connecticut Member of the Connecticut Society of Certified Public Accountants Member of the American Institute of Certified Public Accountants Education Bryant University, BS in Accounting University of Connecticut, MS in Accounting

21 Judith A. Jones, CPA Senior Manager PricewaterhouseCoopers LLP Judy is a Senior Manager in PricewaterhouseCoopers' Northeast Insurance Services Practice and is based in the Boston, MA office. She has over ten years of experience providing audit and business advisory services to the insurance industry. Judy has worked with both private and public companies through-out her career, specializing in providing auditing and business advisory services to property and casualty, life and health insurance entities reporting on a GAAP and statutory basis. Judy recently returned to the Boston office after completing a two year tour in s National Office. Judy's client experience includes The Hanover Insurance Group, Delaware Life Insurance Company, Safety Insurance Group, The Plymouth Rock Companies, Commonwealth Automobile Reinsurers, Beacon Mutual Insurance Company, The Barnstable, New London County Mutual Insurance Company, Capital District Physicians' Health Plan, Tufts University Medical Center and John Hancock Insurance Company. Judy is a certified public accountant licensed in Massachusetts and is a member of the American Institute of Certified Public Accountants. Education Bachelor of Science in Business Administration, Babson College Master of Science in Accountancy, Babson College